SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Besicorp Ltd.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
Common Stock, par value $.01 per share
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1) Title of each class of securities to which transaction applies:
77,915 shares of common stock
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2) Aggregate number of securities to which transaction applies:
The value of the transaction is $4,587,215, calculated as follows: the Cash
Merger Consideration for the 77,915 shares of Besicorp Ltd. Common Stock to be
acquired by the Buyer (i.e., all of the shares of Besicorp's common stock
excluding the 57,967 shares of Common Stock owned as of the Record Date (as
defined in the Revised Preliminary Proxy Materials (the "Materials") filed
contemporaneously herewith by the Buyer)) equals the aggregate cash merger
consideration of $8,000,000 divided by 135,882 (the Total Shares (as defined in
the Materials)) multiplied by 77,915. No value is ascribed to the Combined
Deferred Payment Rights, as such term is defined in the Materials.
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$ 4,587,215
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4) Proposed maximum aggregate value of transaction:
$ 917.44
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5) Total fee paid:
[_] Fee paid previously with preliminary materials:
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[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid: $917.93
2) Form, Schedule or Registration Statement No.: Schedule 14A-
Preliminary Proxy Statement
3) Filing Party: Besicorp Ltd.
4) Date Filed: December 6, 1999
BESICORP LTD.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
[ ], 2000
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of Besicorp Ltd. ("Besicorp") to be held at [9:00 a.m.] local time on [ ], 2000
at [ ].
At this important meeting, you will be asked to consider and vote upon
an Amended and Restated Agreement and Plan of Merger (the "Plan of Merger"), by,
and among Besicorp, Besicorp Holdings, Ltd. ("Parent") and Besi Acquisition
Corp. ("Acquisition Corp."), a wholly owned subsidiary of Parent. Michael F.
Zinn, the Chairman of the Board, President and Chief Executive Officer of
Besicorp, and members of his immediate family own Parent.
If the merger (the "Merger") contemplated by the Plan of Merger is
completed, Besicorp will be owned by Parent and you will receive for each share
of Besicorp's Common Stock you own (i) a cash payment and (ii) a right to
deferred cash payments. The cash payment will equal at least $58.87. Deferred
cash payments will be made with respect to the proceeds, if any, Besicorp or,
after the Merger, the surviving corporation from the Merger (the "Surviving
Corporation"), receives with respect to, with certain exceptions, the following:
(a) amounts released from the $6.5 million escrow fund established in connection
with the merger of Besicorp's former parent, Besicorp Group Inc. ("Old
Besicorp"), (b) amounts received with respect to the sale of interests of
Besicorp (or the Surviving Corporation) in each of its foreign development
projects pursuant to agreements entered into on or before the first anniversary
of the day the Merger is effectuated (the "Effective Date"), (c) amounts
distributed to Besicorp (or the Surviving Corporation) as a result of
partnerships in existence as of October 7, 1999 or the Effective Date, (d)
amounts distributed as a result of hydro-credits and (e) amounts received with
respect to litigation claims concerning matters arising before the Effective
Date. The exact amount to be received by you in excess of $58.87 per share is
currently not determinable and will not be determinable until after the Merger
and it is possible that the cash payment of $58.87 may be the only consideration
you will receive.
Immediately before the Merger, Besicorp will distribute (the
"Spin-Off") to its shareholders on a pro rata basis all of the shares of common
stock of WOM, Inc. ("WOM"), a subsidiary of Besicorp. WOM will own the interests
in a shareholder derivative action that Besicorp had received from Old Besicorp
as a result of a court order in connection with Old Besicorp's merger last year.
We will send you an Information Statement containing information regarding the
Spin-Off and WOM before the Spin-Off. The Spin-Off does not require your
approval.
See the Proxy Statement and the Plan of Merger for a more detailed
description of the Merger and the Spin-Off. The Plan of Merger is attached as
Annex A to the Proxy Statement.
The Plan of Merger will be adopted only if approved by the Requisite
Vote (as defined in the Plan of Merger) which requires that the holders of at
least 50% of the outstanding shares of Besicorp vote in its favor.
THE SPECIAL COMMITTEE (CONSISTING OF THE THREE OUTSIDE (I.E.
INDEPENDENT) DIRECTORS) AND THE BOARD OF DIRECTORS BELIEVE THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, BESICORP AND ITS SHAREHOLDERS (OTHER THAN
PARENT AND ACQUISITION CORP). THE BOARD OF DIRECTORS (OTHER THAN MR. ZINN, WHO
ABSTAINED BECAUSE HE AND MEMBERS OF HIS IMMEDIATE FAMILY OWN PARENT) HAS ADOPTED
THE PLAN OF MERGER AND RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE PLAN OF
MERGER.
Josephthal & Co., Inc., the financial advisor to the Special Committee
and Board of Directors of Besicorp, has delivered a written opinion to the
Special Committee and Board of Directors of Besicorp that as of September 22,
1999 the consideration to be received by each shareholder of Besicorp (other
than Parent and Acquisition Corp.) in connection with the Merger is fair from a
financial point of view to Besicorp's shareholders (other than Parent and
Acquisition Corp.). You should read a copy of this opinion which is attached as
Annex B to the Proxy Statement.
The enclosed Proxy Statement contains important information regarding
Besicorp and the proposed Merger. We urge you to read the Proxy Statement
carefully.
Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date your proxy card and return it in the
enclosed envelope or by facsimile transmission to Continental Stock Transfer &
Trust Company ("Continental"). To return this card by fax, you must photocopy
both sides of the signed card so that they appear on the same page and fax the
photocopy to Continental at (212) 509-5152, Attn: Proxy Department. If you do
attend, you will be entitled to vote in person, and such vote will revoke your
proxy.
Shares of Besicorp Common Stock represented by properly executed
proxies that do not contain instructions to the contrary will be voted for
adoption of the Plan of Merger.
Sincerely,
Michael F. Zinn
Chairman of the Board,
President and Chief Executive Officer
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BESICORP LTD.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Besicorp Ltd., a New York corporation ("Besicorp"), will
be held at [ ] on [ ], 2000 at [ ] a.m. (local time) to:
(i) consider and vote upon a proposal to adopt the Amended and
Restated Agreement and Plan of Merger dated as of November 24, 1999 (the "Plan
of Merger") (a copy of which is attached as Annex A to the accompanying Proxy
Statement), by and among Besicorp, Besicorp Holdings, Ltd. ("Parent"), and Besi
Acquisition Corp. ("Acquisition Corp."), a wholly owned subsidiary of Parent,
and
(ii) transact such other business as may properly be brought
before the Special Meeting or any adjournment or postponement thereof.
Michael F. Zinn, the Chairman of the Board, President and Chief
Executive Officer of Besicorp, and members of his immediate family own Parent.
As a result, the Board of Directors appointed a Special Committee consisting of
the three outside independent directors to negotiate with Parent.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS (OTHER THAN MR. ZINN,
WHO ABSTAINED BECAUSE HE AND MEMBERS OF HIS IMMEDIATE FAMILY OWN PARENT) OF
BESICORP HAVE DETERMINED THAT THE PLAN OF MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, BESICORP AND ITS SHAREHOLDERS, OTHER THAN PARENT AND ACQUISITION
CORP., AND THE BOARD OF DIRECTORS RECOMMENDS ADOPTION OF THE PLAN OF MERGER.
All shareholders are cordially invited to attend the Special Meeting.
Only shareholders of record at the close of business on February 7, 2000 are
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. The Plan of Merger will be adopted only if approved by the Requisite
Vote (as defined in the Plan of Merger) which requires that the holders of at
least 50 % of the outstanding shares of Besicorp vote in its favor. PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING. YOU MAY ALSO
RETURN THE PROXY CARD BY FACSIMILE TRANSMISSION TO CONTINENTAL STOCK TRANSFER &
TRUST COMPANY ("CONTINENTAL"). TO RETURN THE CARD BY FAX, YOU MUST PHOTOCOPY
BOTH SIDES OF THE SIGNED PROXY CARD SO THAT THEY APPEAR ON THE SAME PAGE
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AND FAX THE PHOTOCOPY TO CONTINENTAL AT (212) 509-5152, Attn: Proxy Department.
Shares of Besicorp Common Stock represented by properly executed proxies that do
not contain instructions to the contrary will be voted for adoption of the Plan
of Merger.
BY ORDER OF THE BOARD OF DIRECTORS
Michael F. Zinn, Chairman of the Board,
President and Chief Executive Officer
Dated: [ ], 2000
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BESICORP LTD.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
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PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2000
------------------
This Proxy Statement is furnished to the holders of Besicorp Common
Stock in connection with the solicitation of proxies by the Board for use at the
Special Meeting of the shareholders of Besicorp to be held at [ ] a.m., local
time, on [ ], 2000 at [ ], and at any adjournment or postponement thereof.
CERTAIN CAPITALIZED TERMS USED IN THIS PROXY STATEMENT ARE DEFINED IN APPENDIX 1
HERETO.
The purpose of the Special Meeting is to consider and vote upon the
adoption of the Plan of Merger (a copy of which is annexed hereto as Annex A) by
and among Besicorp, Parent and Acquisition Corp. Parent is a New York
corporation, all of whose stock is owned beneficially by Michael F. Zinn, the
Chairman of the Board, President and Chief Executive Officer of Besicorp, and
members of his immediate family. Acquisition Corp. is a New York corporation and
a wholly owned subsidiary of Parent. The Plan of Merger provides for the Merger,
in which Acquisition Corp. will be merged with and into Besicorp, with Besicorp
being the Surviving Corporation and wholly owned by Parent. If the Merger is
effectuated, each of Besicorp's shareholders (except for Parent, Acquisition
Corp. and Dissenters) will be entitled to receive for each share of Besicorp
Common Stock owned by such shareholder (i) the Cash Merger Consideration and
(ii) a Combined Deferred Payment Right.
The Cash Merger Consideration is at least $58.87. See "Plan of Merger -
- - Merger Consideration."
The Combined Deferred Payment Right is the right to receive deferred
cash payments with respect to the proceeds, if any, that Besicorp receives after
October 7, 1999 (i.e., the date of the Initial Plan of Merger), or that the
Surviving Corporation or Continental receives after the Merger, in each case,
with certain exceptions, from the following: (a) amounts released to Besicorp
(or the Surviving Corporation) or pursuant to the Instructions from the Escrow
Fund, other than reimbursements for Litigation Costs and WOM Costs, (b) amounts
received with respect to the sale of the interests of Besicorp (or the Surviving
Corporation) in each of its foreign development projects pursuant to agreements
entered into on or before the first anniversary of the Effective Date, (c)
amounts distributed to Besicorp (or the Surviving Corporation) as a result of
partnerships in existence as of October 7, 1999 or the Effective Date, (d)
amounts distributed as a
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result of Hydro-Credits and (e) amounts received with respect to litigation
claims concerning matters arising before the Effective Date. The Combined
Deferred Payments are based upon the proceeds, if any, net of corporate taxes
and certain expenses, received by Besicorp (or the Surviving Corporation) during
a period which will end on the Deferred Payment Termination Date, which is no
earlier than March 22, 2004.
The Combined Deferred Payment with respect to each share of Besicorp
Common Stock is the sum of the amounts described in the previous paragraph
divided by the Total Shares (which is expected to be 135,882). Because of the
uncertainty associated with the Combined Deferred Payments, we have not
predicted how much money, if any, will be received as a result of the Combined
Deferred Payment Rights, or, if money is received, when it will be received. See
"Summary -- Merger Consideration" and "Plan of Merger -- Merger Consideration"
for a description of the Combined Deferred Payment Rights.
Because of the uncertainty associated with the Combined Deferred
Payment Right, the exact amount to be received by you in excess of $58.87 per
share is currently not determinable and will not be determinable until after the
Merger and it is possible that the Cash Merger Consideration of $58.87 may be
the only Merger Consideration you will receive. You should base your decision on
whether to adopt the Plan of Merger on a Merger Consideration of $58.87 per
share, although it is probable (but not certain) that you will receive
additional monies on account of the Combined Deferred Payment. If you think the
Merger Consideration is insufficient, you have the right to have a court
determine the cash value of your shares, if the Merger occurs, provided you
follow certain statutory procedures. See "Voting at the Special Meeting --
Rights of Dissenting Shareholders."
The Merger Consideration payable for each share would decrease if
shares of Besicorp Common Stock were issued prior to the Effective Date.
However, we do not intend to issue any additional shares. If Besicorp issues any
additional shares that would cause the Cash Merger Consideration to be less than
$58.87, we will inform you of the effect of the issuance on the Merger
Consideration prior to the Special Meeting. Accordingly, this Proxy Statement
assumes that no additional shares of Besicorp Common Stock will be issued.
In order to fund its obligations pursuant to the Plan of Merger,
including the payment of the Cash Merger Consideration, Parent intends to borrow
approximately $4.6 million from Avalon Funding, which has been granted the HSBC
Credit Facility by HSBC Bank.. The HSBC Credit Facility is a discretionary line
of credit with a maximum of $10 million principal amount of borrowing. Each
borrowing under the HSBC Credit Facility requires the approval of HSBC Bank and
all borrowings under the HSBC Credit Facility are payable on demand, or in any
event, on December 31, 2000. See "Information Regarding Parent and Acquisition
Corp."
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Prior to the consummation of the Merger, Besicorp will distribute to
its shareholders on a pro rata basis all of the shares of WOM Common Stock
pursuant to the Spin-Off. At the time of the Spin-Off WOM will be assigned the
interests in the Bansbach Litigation that Besicorp had received from Old
Besicorp as a result of the Prior Merger Order. See "The Spin-Off -- The
Contribution." The Bansbach Litigation is a shareholder derivative action that
was commenced in August 1997 in which Old Besicorp was named as a nominal
defendant and the other named defendants were various officers and directors of
Old Besicorp. Before the Spin-Off, we will send you an Information Statement
containing additional information regarding the Spin-Off and WOM. The Spin-Off
does not require your approval; however, the Spin-Off will not occur unless all
the conditions to the Merger (other than the Spin-Off) have been satisfied or
waived. See "The Spin-Off."
The effectuation of the Merger is subject to the satisfaction (or
waiver) of various conditions, including the shareholders' adopting the Plan of
Merger by the Requisite Vote. See "Plan of Merger -- Conditions to the Merger."
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.
The Besicorp Common Stock is not listed on any Exchange and is not
quoted on NASDAQ or any other automated quotation system. Accordingly, no
trading prices are available.
See "Market Information Regarding Besicorp Common Stock."
We prepared this Proxy Statement on a prospective basis in which we
assume: (1) the Pre-Record Date Transactions, which are expected to occur prior
to the Record Date, have occurred as contemplated by this Proxy Statement; and
(2) the Record Date is a date before the date of the definitive proxy materials.
However, we cannot be sure that any or all of such transactions will occur as so
contemplated. We will amend or supplement this Proxy Statement if there are any
significant modifications or variations in these transactions that would cause
any material fact stated herein to be misleading.
Based on information provided to us by the Buyer, we have assumed in
preparing this Proxy Statement that no Substitute Restricted Shares will be
issued by Parent and that 13,450 Management Restricted Shares will be
outstanding immediately prior to the Merger.
This Proxy Statement is dated [ ], 2000 and is, along with the
accompanying form of proxy, first being distributed to the shareholders of
Besicorp on or about such date.
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AVAILABLE INFORMATION
Besicorp is required by the Exchange Act to file certain reports and
documents with the SEC. These reports and documents may be inspected and copied
at the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are available for
inspection and copying at the public reference facilities maintained by the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such information can be obtained by mail
from the Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The SEC maintains a World Wide Web site that contains reports and
documents regarding Besicorp. The address of the SEC's web site is
http:\\www.sec.gov.
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TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION.............................................................................................4
CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER........................................................10
SUMMARY ........................................................................................................15
THE PARTIES.............................................................................................16
THE SPECIAL MEETING.....................................................................................16
MERGER CONSIDERATION....................................................................................17
RECORD DATE; QUORUM; VOTE REQUIRED......................................................................20
BACKGROUND OF THE MERGER................................................................................21
RECOMMENDATION OF BESICORP'S BOARD OF DIRECTORS AND THE
SPECIAL COMMITTEE..............................................................................27
OPINION OF FINANCIAL ADVISOR............................................................................27
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER.............................................28
CONDITIONS TO THE MERGER................................................................................31
TERMINATION.............................................................................................31
EFFECTIVE DATE; CANCELLATION OF STOCK CERTIFICATES;
AND RECEIPT OF MERGER CONSIDERATION............................................................31
DISSENTERS' RIGHTS......................................................................................32
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................33
SPIN-OFF ...............................................................................................33
TRADING MARKET FOR AND MARKET PRICE OF
BESICORP COMMON STOCK..........................................................................34
VOTING AT THE SPECIAL MEETING....................................................................................35
INTRODUCTION............................................................................................35
TIME, DATE AND PLACE OF MEETING.........................................................................35
QUORUM ...............................................................................................35
RECORD DATE; VOTE REQUIRED..............................................................................35
VOTE ON MERGER..........................................................................................36
SOLICITATION, REVOCATION AND USE OF PROXIES.............................................................37
RIGHTS OF DISSENTING SHAREHOLDERS.......................................................................38
FACTORS TO BE CONSIDERED.........................................................................................42
PURPOSES, EFFECTS AND BACKGROUND OF THE MERGER..........................................................42
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS; FAIRNESS OF THE MERGER..............................................................56
RECOMMENDATION OF THE BUYER: FAIRNESS OF THE MERGER.....................................................63
OPINION OF FINANCIAL ADVISOR............................................................................64
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REPORTS OF REPORTS OF COMMERCIAL ASSOCIATES............................................................64
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER.............................................72
CERTAIN EFFECTS OF THE MERGER...........................................................................78
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................80
REGULATORY AND OTHER APPROVALS..........................................................................82
PLAN OF MERGER...................................................................................................82
GENERAL ...............................................................................................82
MERGER CONSIDERATION....................................................................................84
Cash Merger Consideration......................................................................85
Combined Deferred Payment Right................................................................86
Deferred Payment Rights........................................................................86
Escrow Fund Payment Rights.....................................................................91
Matters Applicable to both Deferred Payments and Escrow Fund Payments..........................92
Disputed Shares................................................................................93
REPRESENTATIONS AND WARRANTIES..........................................................................94
Representations and Warranties by Besicorp.....................................................94
Representations by Parent and Acquisition Corp. ...............................................94
PRINCIPAL COVENANTS.....................................................................................95
Conduct of Business Pending the Merger.........................................................95
Acquisition Proposals ........................................................................97
Parent Loans...................................................................................97
Indemnification ..............................................................................98
Guaranty ......................................................................................99
Spin-Off .....................................................................................100
Other Covenants...............................................................................100
CONDITIONS TO THE MERGER...............................................................................100
Conditions to Each Party's Obligations........................................................101
Additional Conditions to Obligations of Besicorp..............................................101
Additional Conditions to Obligations of Buyer.................................................102
TERMINATION............................................................................................102
Right to Terminate............................................................................102
Remedies .....................................................................................103
Damages .....................................................................................103
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................................................104
FEES AND EXPENSES......................................................................................105
INDEMNIFICATION AGREEMENT.......................................................................................105
ESCROW AGREEMENT................................................................................................107
SPIN-OFF .......................................................................................................110
BACKGROUND.............................................................................................110
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THE CONTRIBUTION.......................................................................................110
THE DISTRIBUTION.......................................................................................111
CONDITIONS TO THE SPIN-OFF.............................................................................111
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................................................111
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................120
BUSINESS OF BESICORP............................................................................................120
BACKGROUND.............................................................................................120
PHOTOVOLTAIC ACTIVITIES................................................................................120
Suppliers.....................................................................................121
Sales and Distribution........................................................................122
Prices for Products and Systems...............................................................122
Customers and Backlog.........................................................................122
Competition...................................................................................122
POWER DEVELOPMENT ACTIVITIES...........................................................................122
RISKS OF INTERNATIONAL OPERATIONS......................................................................126
POTENTIAL NON-RECURRING FUNDS..........................................................................127
RESEARCH AND DEVELOPMENT...............................................................................129
INTELLECTUAL PROPERTY..................................................................................129
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS........................................................129
EMPLOYEES..............................................................................................130
PROPERTIES.............................................................................................130
LEGAL PROCEEDINGS......................................................................................131
CERTAIN RELATED PARTY TRANSACTIONS.....................................................................137
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................................................138
MARKET INFORMATION REGARDING BESICORP COMMON STOCK..............................................................138
INFORMATION REGARDING PARENT AND ACQUISITION CORP...............................................................138
Merger Consideration, Fees and Expenses.......................................................139
Source of Funds...............................................................................139
SOURCES AND USES OF FUNDS.......................................................................................140
OTHER MATTERS...................................................................................................142
ANNUAL MEETING OF SHAREHOLDERS..................................................................................142
INDEPENDENT PUBLIC ACCOUNTANTS..................................................................................142
ADDITIONAL INFORMATION..........................................................................................141
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF BESICORP LTD..................................................F-1
Appendix 1 -- Certain Defined Terms
Annex A -- Amended and Restated Agreement and Plan of Merger dated November 24,
1999
Annex B -- Fairness Opinion of Josephthal & Co., Inc.
Annex C -- Dissenter's Rights Provisions
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CERTAIN QUESTIONS AND ANSWERS ABOUT VOTING AND THE MERGER
Q. Why am I receiving these materials?
A. We want to give you information to help you determine how to vote in
connection with a Special Meeting of shareholders which will take place
on [ ], 2000 at [ ].
Q. What will be voted on at the meeting?
A. Whether to adopt a Plan of Merger pursuant to which the Buyer will buy
Besicorp.
Q. Who is attempting to buy Besicorp?
A. Besicorp Holdings, Ltd. is attempting to buy Besicorp. Michael F. Zinn,
the Chairman of the Board, President and Chief Executive Officer of
Besicorp, and members of his immediate family beneficially own Besicorp
Holdings, Ltd.
Q. What will I receive in the Merger?
A. You will receive for each share of Besicorp Common Stock the Cash
Merger consideration and a Combined Deferred Payment Right.
Q. What is the Cash Merger Consideration?
A. The Cash Merger Consideration is a cash payment of at least $58.87. See
"Plan of Merger -- Merger Consideration."
Q. What is a Combined Deferred Payment Right?
A: A Combined Deferred Payment Right is the right to receive deferred cash
payments with respect to, with certain exceptions, net of Besicorp's
taxes, the following:
(a) amounts released from the Escrow Fund (which, as of January
20, 2000, consists of approximately $6.27 million but which
will be reduced to the extent necessary to indemnify BGI
Parent, to reimburse Besicorp for Litigation Costs and to
reimburse WOM and Besicorp for WOM Costs);
(b) amounts received with respect to the sale of Besicorp's
interests in any of its foreign development projects pursuant
to agreements entered into on or before the first anniversary
of the Effective Date, less Besicorp's expenses directly
related to such foreign development projects;
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(c) distributions to Besicorp from partnerships in existence as of
October 7, 1999 (i.e., the date of the Initial Plan of Merger)
or the Effective Date; as of December 31, 1999, the
partnerships' principal assets consist of cash held in escrow
(of which Besicorp's share is approximately $1.47 million);
(d) amounts, net of expenses, distributed as a result of Hydro-
Credits; and
(e) amounts received with respect to litigation claims concerning
matters arising before the Effective Date less expenses
directly related to any such claims. See "Plan of Merger --
Merger Consideration."
Q. What is the value of the Combined Deferred Payment Right?
A. The Combined Deferred Payment with respect to each share of Besicorp
Common Stock is the sum of the amounts described above divided by the
Total Shares (which is expected to be 135,882). Because of the
uncertainties associated with the amount of these proceeds, we have not
predicted how much the Combined Deferred Payment Right is worth. See
"Plan of Merger -- Merger Consideration."
Q. If you are not predicting the value of the Combined Deferred Payment
Right, how should I decide whether the Merger Consideration is a fair
price for my shares?
A. It is possible that the Cash Merger Consideration of $58.87 may be the
only Merger Consideration you will receive. Therefore, you should
assume that you will not receive any funds as a result of your Combined
Deferred Payment Rights. As a result, you should base your decision on
a price of $58.87 per share, although it is probable (but not certain)
that you will receive additional money on account of the Combined
Deferred Payment Rights. See "Plan of Merger -- Merger Consideration."
Q. What are the U.S. federal income tax consequences of the Merger to me?
A. Your receipt of cash in exchange for your shares in the Merger
generally will be taxable for U.S. federal income tax purposes in the
same manner as if you sold your shares for such an amount per share in
cash. This applies to both the Cash Merger Consideration and any
payments you may receive in the future as a result of Combined Deferred
Payment Rights. For additional information see "Factors to Be
Considered -- Material Federal Income Tax Consequences" and consult
with your tax advisor.
Q. What is the Board's recommendation?
A. The Board recommends that you vote your shares FOR adoption of the Plan
of Merger.
Q. Why is the Board recommending that I vote to adopt the Plan of Merger?
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A. The Special Committee of the Board and the Board (except for Mr. Zinn
who abstained because he and members of his immediate family own
Parent), based on a number of factors, including a Fairness Opinion
received from Josephthal, concluded that the Plan of Merger is fair to,
and in the best interests of, Besicorp and the Outside Shareholders.
You should review the background and reasons for the Merger which are
described in greater detail under the captions "Factors to Be
Considered -- Purposes, Effects and Background of the Merger" and
"Factors to be Considered -- Recommendation of the Special Committee
and the Board of Directors; Fairness of the Merger."
Q. Can I have my shares valued through a mechanism other than the Merger
if I don't like the Merger Consideration being offered?
A. Yes. You have the right, if the Merger is effectuated, to dissent and
to have the value of your shares determined (i.e. "appraised") by a
court and to have such value paid to you by the Surviving Corporation
in cash. If you want to have your shares appraised, you must carefully
follow the statutory procedure set forth in Sections 623 and 910 of the
NYBCL. See "Voting at the Special Meeting -- Rights of Dissenting
Shareholders" and Annex C to this Proxy Statement.
Q. What do I need to do to have my shares appraised?
A. Among other things, you must:
o submit a Notice of Dissent before a vote is taken on the
Merger;
o either abstain, not vote or vote against the Plan of Merger;
and
o with the Notice of Dissent or within one month after
submitting your Notice of Dissent, submit your stock
certificates to Besicorp or Continental for the purpose of
having a notation affixed to such Certificates indicating that
a demand for payment has been made.
If you want to have your shares appraised, you should read the Section
captioned "Voting at the Special Meeting -- Rights of Dissenting
Shareholders" and Annex C to this Proxy Statement and you should
consult your lawyer.
Q. If I exercise my appraisal rights will I also get the Merger
Consideration?
A. No, if you exercise your appraisal rights you lose your right to
receive both the Cash Merger Consideration and the Combined Deferred
Payment Right. If a court determines that the appraised value of your
shares is less than the Merger Consideration you will receive the value
the court determines, not the Merger Consideration.
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Q. If I exercise my appraisal rights, will there be U.S. federal income
tax consequences to me?
A. Your receipt of cash for your shares generally will be taxable for U.S.
federal income tax purposes in the same manner as if you sold your
shares for such an amount per share in cash. For additional information
see "Factors to Be Considered -- Material Federal Income Tax
Consequences" and consult with your tax advisor.
Q. What is the Spin-Off?
A. The Spin-Off is the distribution to you of one share of WOM Common
Stock for each of your shares of Besicorp Common Stock. If the Plan of
Merger is adopted by the Requisite Vote, and if the Prior Merger Order
is still in effect at such time, the Spin-Off will take place following
the Special Meeting and before the Merger.
Q. What is WOM?
A. WOM is a wholly owned subsidiary of Besicorp. Before the Distribution
takes place, Besicorp will contribute its interests in the Bansbach
Litigation that Besicorp had received from Old Besicorp as a result of
the Prior Merger Order to WOM.
Q. Why is the Spin-Off taking place?
A. The Spin-Off is intended to permit the Bansbach Litigation to proceed
following the Merger. This is a shareholder derivative action which, if
the plaintiff prevails, may result in a payment of approximately $1
million to Besicorp, excluding interest and punitive damages.
Ordinarily a transaction such as the Merger would make it difficult or
even impossible for the plaintiff to continue his action. The Spin-Off
enables the Bansbach Litigation to continue.
Q. Will there be a vote by the shareholders to approve the Spin-Off?
A. No. However, the Spin-Off will not occur if the shareholders do not
adopt the Plan of Merger.
Q. If I exercise my appraisal rights, will I still get shares of WOM
Common Stock.
A. Yes.
Q. What are the U.S.federal income tax consequences of the Spin-Off to me?
A. You will recognize dividend income equal to the value of the shares of
WOM Common Stock you receive pursuant to the Spin-Off; however, since
Besicorp is valuing the shares
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of WOM Common Stock at $0.00 per share, you should recognize no
dividend income. Additional information concerning the tax consequences
of the Spin-Off will be provided in the Information Statement that will
be sent you before the Effective Date of the Merger.
Q. Who can vote on adopting the Plan of Merger?
A. All shareholders of record as of the close of business on February 7,
2000
Q. What does it mean if I receive more than one proxy or voting
instruction card?
A. It probably means your shares are registered differently or are held in
more than one account. If this is the case, you should provide voting
instructions for each proxy card that you receive.
Q. How can I vote shares held in my broker's name?
A. If your broker holds your shares in its name (or in what is commonly
called "street name"), then you should give your broker instructions on
how to vote. Otherwise your shares will not be voted. See "Voting at
the Special Meeting -- Solicitation, Revocation and Use of Proxies."
Q. Can I change my vote?
A. You may change your voting instructions (i.e. your proxy) at any time
prior to the vote at the Special Meeting. If your shares are held
directly in your name, you may change your instructions by completing
and returning a new proxy or by voting at the Special Meeting. If your
shares are held in "street name," you may change your instructions by
submitting new voting instructions to your broker or nominee. See
"Voting at the Special Meeting -- Solicitation, Revocation and Use of
Proxies."
Q. What vote is required to adopt the Plan of Merger?
A. For the Plan of Merger to be adopted, two approvals are required.
First, at least 50% of all outstanding shares of Besicorp Common Stock
must approve the Plan of Merger. Second, the Plan of Merger requires a
second approval by at least 50% of all outstanding shares of Besicorp
Common Stock; however, in this second approval the Management
Restricted Shares will be retabulated as if the holders of such shares
had abstained, not voted or voted for and against the Plan of Merger in
the same proportions that the shares of Besicorp Common Stock (other
than Management Restricted Shares) are voted (or not voted) with
respect to the Plan of Merger. This special treatment of the Management
Restricted Shares is sometimes referred to as "neutralized voting."
There will be only one vote even though the votes will be tabulated
twice. The Buyer, Michael F. Zinn, and the Trust hold enough shares to
ensure that both approvals are obtained and they have
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indicated that they intend to vote in favor of the adoption of the Plan
of Merger. See "Voting at the Special Meeting -- Record Date; Vote
Required."
Q. How are the votes counted?
A. You may vote "FOR," "AGAINST" or "ABSTAIN." If you ABSTAIN or do not
vote, it has the same effect as a vote AGAINST the Plan of Merger. If
you provide specific voting instructions, your shares will be voted as
you instruct. If you sign your proxy card or broker voting instruction
card with no further instructions, your shares will be voted in
accordance with the recommendation of the Board.
Q. When will the Merger take place?
A. We expect that the Merger will take place promptly following the
Special Meeting. However, the Merger may be delayed if other closing
conditions have not been then satisfied.
Q. Should I send in my stock certificates now?
A. No. After the Merger is consummated, we will send you written
instructions that will tell you how to surrender your stock
certificates for the Merger Consideration. Please do not send in your
certificates now or with your proxies. Hold your certificates until you
receive our instructions. See "Plan of Merger -- General."
Q. When will I receive the Merger Consideration?
A. If the Merger is consummated, you will receive the Cash Merger
Consideration after you surrender your Certificates. You will receive
Deferred Payments annually each June, commencing in June of 2000, if
the monies in the Deferred Payment Fund amount to at least $90,000. If
the amount is less than $90,000, the Deferred Payment will be deferred
until the next year. In addition, you will receive a Deferred Payment
on the Deferred Payment Termination Date if there are any monies in the
Deferred Payment Fund at such time even if the amount in the Deferred
Payment Fund is less than $90,000. You will receive Escrow Fund
Payments as they are distributed to Continental. We cannot determine
for how long you will receive Deferred Payments and Escrow Fund
Payments but you will receive them at least until March 22, 2004. See
"Plan of Merger -- General" and "Plan of Merger -- Merger
Consideration."
Q. Will I receive a certificate for my Combined Deferred Payment Right?
A. No, there will be no certificates for Combined Deferred Payment Rights.
In addition, such Payment Rights will not be transferable, except as
required by law. Therefore you will not be able to sell your Combined
Deferred Payment Rights. However, if you die, your
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Payment Rights may be transferred to your heirs. See "Plan of Merger -
- Merger
Consideration."
Q. Will I receive a certificate for my shares of WOM Common Stock?
A. Yes, you will receive a certificate from Continental shortly after the
Spin-Off.
SUMMARY
We are summarizing below certain information contained in this Proxy
Statement (including the annexes). Because this is a summary, it does not
contain all the information that may be important to you. You should read the
entire Proxy Statement and its annexes carefully before you decide whether to
vote your shares in favor of the Plan of Merger. Certain capitalized terms are
defined in Appendix 1 hereto; capitalized terms used without being defined in
Appendix 1 or this Proxy Statement have the meanings ascribed to such terms in
the Plan of Merger.
THE PARTIES
Besicorp Ltd. (or Besicorp), a New York corporation, develops,
assembles, manufactures, markets and resells photovoltaic products and systems
and develops independent power and newspaper recycling plants. Besicorp's
principal executive offices are located at 1151 Flatbush Road, Kingston, New
York 12401, (914) 336-7700. See "Business of Besicorp."
Besicorp Holdings, Ltd. (or Parent) is a New York corporation. Besi
Acquisition Corp. (or Acquisition Corp.) is a New York corporation and a wholly
owned subsidiary of Parent. Parent holds 57,967 shares of Besicorp Common Stock,
representing approximately 42.7% of the issued and outstanding shares of
Besicorp Common Stock. Acquisition Corp. is a transitory, special-purpose
corporation that was formed solely to implement the Merger. Parent and
Acquisition Corp. have not carried on any activities other than (i) activities
relating to their organization, (ii) Parent's receipt of such 57,967 shares of
Besicorp Common Stock and (iii) in connection with the Merger. Approximately
94.5% of the shares of Parent's common stock is owned by Avalon, a limited
liability company, and the remaining approximately 5.5% of the shares of
Parent's common stock is owned by immediate relatives of Michael F. Zinn, who is
the Chairman of the Board, President and Chief Executive Officer of Besicorp.
The only members of Avalon are Mr. Zinn and his wife, Valerie Zinn, who owns a
nominal interest in Avalon. See "Information Regarding Parent and Acquisition
Corp."
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THE SPECIAL MEETING
The Special Meeting of the shareholders of Besicorp will be held at
[9:00 a.m.] (local time) on [ ], 2000, at [ ].
The Special Meeting will be held to permit you to vote upon a proposal
to adopt the Plan of Merger, a copy of which is attached hereto as Annex A. The
Plan of Merger provides for Parent to acquire Besicorp as a result of the merger
of Acquisition Corp. with and into Besicorp.
MERGER CONSIDERATION
If the Merger is effectuated, each share of Besicorp Common Stock
(other than shares held by the Buyer and Dissenters' Shares) issued and
outstanding immediately prior to the Effective Date will be converted into the
right to receive (i) the Cash Merger Consideration and (ii) one Combined
Deferred Payment Right. The Cash Merger Consideration will be at least $58.87 in
cash. It will increase if shares of Besicorp Common Stock are cancelled prior to
the Effective Date (other than the cancellation of Substituted Management
Restricted Shares (and the Buyer has informed us that no Substituted Management
Restricted Shares will be cancelled). No interest will be payable on the Cash
Merger Consideration.
The Combined Deferred Payment Right is the right to receive Combined
Deferred Payments, which are the Deferred Payments and the Escrow Fund Payments,
in cash with respect to the proceeds, if any, net of corporate taxes, Besicorp,
the Surviving Corporation or Continental receives with respect to, with certain
exceptions, the sum of the five amounts described below, divided by the Total
Shares.
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The five amounts generally consist of the following:
ELEMENTS OF THE INFORMATION ABOUT THESE
COMBINED DEFERRED PAYMENTS ELEMENTS
(1) amounts, if any, released from the Escrow The Escrow Fund as of January 20, 2000,
Fund other than amounts released by the consists of approximately $6.27 million as a
Escrow Agent to cover BGI Indemnity result of the release of approximately
Claims, BGI Monitoring Costs, Litigation $490,802, and interest income of
Costs and WOM Costs. approximately $259,179 through such date.
In addition, WOM Costs of approximately
$48,526 have been incurred (but not
reimbursed from the Escrow Fund) through
January 31, 2000. All or a portion of such
funds will be used to cover BGI Indemnity
Claims, BGI Monitoring Costs, Litigation
Costs and WOM Costs. If Besicorp did not
effectuate the Spin-Off because the Prior
Merger Order is reversed, no WOM Costs
would be incurred and there would most
likely be no further costs associated with the
Bansbach Litigation assuming the Bansbach
Litigation were dismissed as a result of the
Prior Merger Order being reversed; as a
result, more money would be available for
distribution to Outside Participating
Shareholders as Combined Deferred
Payments. Because we do not know how
much of the Escrow Fund will be used to cover
BGI Indemnity Claims, BGI
Monitoring Costs, Litigation Costs and WOM
Costs, we cannot predict how much of
the Escrow Fund will be available for distribution to
shareholders as Combined Deferred
Payments.
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(2) amounts received with respect to the sale We have not predicted how much, if any,
of Besicorp's interests in its foreign money will be received with respect to the
development projects pursuant to agreements sale of Besicorp's interests in its foreign
entered into on or before the first anniversary development projects. Buyer has informed us
of the Effective Date, less certain of that it has no plans to sell any of these
Besicorp's expenses incurred and paid interests and there are no discussions at
following October 7, 1999 (i.e., the date of present with any unaffiliated third party
the Initial Plan of Merger) directly related to regarding the sale of these interests.
such foreign development projects.
(3) distributions as a result of partnership The partnerships' principal assets (excluding
interests in existence as of October 7, 1999 or the Anticipated Partnership Distribution)
the Effective Date (other than the Anticipated consist of cash held in escrow to satisfy their
Partnership Distribution). potential liabilities. As of December 31,
1999, Besicorp's share of the escrows is
approximately $1.47 million. We have not
predicted how much will be distributed as
Combined Deferred Payments.
(4) amounts distributed as a result of Hydro- The maximum amount that Besicorp may
Credits (other than the distribution with receive as distributions as a result of Hydro-
respect to Glen Park Associates scheduled for Credits (excluding the distribution Besicorp
on or about September 30, 1999 which has has received with respect to Glen Park
been received), net of certain expenses Associates) is approximately $750,000 and it
incurred and paid following October 7, 1999 is likely that there will be no expenses, but we
directly related to such Hydro-Credits have not predicted how much money, if any,
distribution. will be distributed as a result of the Hydro-
Credits.
(5) amounts received with respect to We have not predicted how much money will
Besicorp's claims against third parties with be received with respect to these claims (of
respect to matters arising before the Effective which the principal claim is the RICO Action)
Date, less certain of Besicorp's expenses or how much the expenses will be. See
incurred and paid following October 7, 1999 "Business -- Legal Proceedings."
directly related to any such claim for which
amounts have been received.
See "Plan of Merger -- Merger Consideration." The Combined Deferred Payments
Rights are based upon the proceeds, if any, received by Besicorp on or before
the Deferred Payment Termination Date which will occur on March 22, 2004 (or
later if at that time there still are funds in the Escrow Fund or if the RICO
Action has not been resolved). The Combined Deferred
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a
Payment with respect to each share of Besicorp Common Stock is the sum of the
five amounts described above divided by the Total Shares (which is expected to
be 135,882 (if no shares of Besicorp Common Stock are issued or cancelled prior
to the Effective Date)). Because of the uncertainties regarding the five amounts
described above, we have not estimated how much, if any, money (or when money)
will be received as a result of the Combined Deferred Payment Rights. As a
result of the combined deferred payment provisions, the exact amount to be
received by Besicorp's shareholders in excess of $58.87 per share is currently
not determinable and will not be determinable until after the effectuation of
the Merger. It is possible that the Cash Merger Consideration of $58.87 may be
the only Merger Consideration you will receive. Therefore, you should base your
decision on whether to adopt the Plan of Merger on a price of $58.87 per share,
although it is probable (but not certain) that you will receive additional
monies on account of the Combined Deferred Payment Rights.
The Merger Consideration with respect to the 13,450 Management
Restricted Shares will be held in escrow by the Surviving Corporation as
Restricted Merger Consideration until such time as the Management Restricted
Shares would have vested and to the extent that it is forfeited before it vests
will become property of the Surviving Corporation.
The Buyer will pay approximately $4.6 million as the Cash Merger
Consideration for all of the Outside Participating Shareholders' Shares
(including approximately $800,000 as Restricted Merger Consideration which will
be held in escrow by the Surviving Corporation until it vests, or, to the extent
that it is forfeited before it vests, which will revert to the Surviving
Corporation) assuming that (i) no shares of Besicorp Common Stock are issued or
cancelled prior to the Merger and (ii) there are no Dissenters. This amount may
change as described under "Plan of Merger -- Merger Consideration."
In order to fund its obligations pursuant to the Plan of Merger,
including the payment of the Cash Merger Consideration, Parent intends to borrow
approximately $4.6 million from Avalon Funding, which has been granted the HSBC
Credit Facility by HSBC Bank. The HSBC Credit Facility is a discretionary line
of credit with a maximum of $10 million principal amount of borrowing. Each
borrowing under the HSBC Credit Facility requires the approval of HSBC Bank and
all borrowings under the HSBC Credit Facility are payable on demand, or in any
event, on December 31, 2000. See "Information Regarding Parent and Acquisition
Corp."
RECORD DATE; QUORUM; VOTE REQUIRED
Only holders of record of Besicorp Common Stock as of the close of
business on the Record Date which is February 7, 2000 will be entitled to notice
of and to vote at the Special Meeting. On the Record Date, 135,882 shares of
Besicorp Common Stock were issued and outstanding.
To have a quorum at the Special Meeting the holders of a majority of
the shares of Besicorp Common Stock outstanding on the Record Date must be
present in person or by proxy.
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Shareholders of record on the Record Date are entitled to one vote per share on
matters which properly come before the Special Meeting. Abstentions and broker
non-votes will have the effect of votes against the Plan of Merger. Abstentions,
but not broker non-votes, will be counted in determining the presence of a
quorum. See "Voting at the Special Meeting -- Quorum" and "Voting at the Special
Meeting -- Record Date; Vote Required."
Under the NYBCL, the affirmative vote of holders of at least 50% of the
shares of Besicorp Common Stock outstanding as of the Record Date is required to
adopt the Plan of Merger. In addition, the Plan of Merger contains special
provisions regarding the tabulation of the votes of the Management Restricted
Shares, which were issued to employees and officers (including officers who are
also directors) of Besicorp as of May 3, 1999. To prevent these shares from
affecting the outcome of the vote, the Plan of Merger provides that the shares
of Besicorp Common Stock will be tabulated twice, first, as they actually were
voted and second as they were voted except for the Management Restricted Shares
which will in the second tabulation be tabulated as if the holders of such
shares had abstained, not voted or voted for and against the Plan of Merger in
the same proportions that the shares of Besicorp Common Stock (other than
Management Restricted Shares) are voted (or not voted) with respect to the Plan
of Merger.
As of the Record Date, the Buyer owned 57,967 shares of Besicorp Common
Stock, representing 42.7% of the outstanding shares of Besicorp Common Stock.
The Buyer is required to vote all of its shares of Besicorp Common Stock in
favor of adopting the Plan of Merger. In addition, as of the Record Date, Mr.
Zinn owned 3,000 Management Restricted Shares and the Trust established by Mr.
Zinn owned 10,000 shares of Besicorp Common Stock. Mr. Zinn disclaims beneficial
ownership of the Trust's shares. The trustee for the Trust and Mr. Zinn have
indicated that they intend to vote all of such shares in favor of adopting the
Plan of Merger. Accordingly, if the Buyer, Mr. Zinn and the Trust vote all of
their 70,967 shares in favor of the Plan of Merger, the Plan of Merger will be
adopted even if no other shares vote in favor of adoption of the Plan of Merger.
See "Factors to be Considered -- Interests of Executive Officers and Directors
in the Merger," "Voting at the Special Meeting -- Record Date; Vote Required"
and "Plan of Merger -- Principal Covenants."
If the shareholders do not adopt the Plan of Merger, the Merger, in its
current form, will not be effectuated. See "Plan of Merger -- Conditions to the
Merger."
BACKGROUND OF THE MERGER
Prior to March 22, 1999, Besicorp was a wholly owned subsidiary of Old
Besicorp. Old Besicorp had held ownership interests in five Power Plants which,
pursuant to Power Purchase Agreements, provided capacity and electrical power to
Niagara Mohawk. In October 1995, Niagara Mohawk announced its intention to
renegotiate the Power Purchase Agreements and similar agreements it had with
other independent power producers. As a result of these negotiations, the
Partnerships which owned the Power Plants, Niagara Mohawk and certain other
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independent power producers entered into the MRA in July 1997, which became
effective on June 30, 1998, and which provided for, among other things, the
termination or restructuring of the Power Purchase Agreements.
Five months after the consummation of the MRA, Old Besicorp entered
into the Prior Plan of Merger pursuant to which Old Besicorp was acquired by BGI
Parent. The Prior Plan of Merger required the sale of the Power Plants to third
parties, the Prior Contribution of Old Besicorp's photovoltaic and independent
power development businesses to Besicorp and the Prior Distribution of
Besicorp's shares to Old Besicorp's shareholders as a condition to the
effectuation of the Prior Merger. Before March 22, 1999, the sale of the Power
Plants was completed and on March 22, 1999, Old Besicorp effectuated the Prior
Contribution and the Prior Distribution and then Old Besicorp effectuated the
Prior Merger. As a result of the Prior Contribution and Prior Distribution,
Besicorp became an independent publicly held company. The following description
contains historical information about the subsidiaries of Besicorp when they
were subsidiaries of Old Besicorp.
At the time of the Prior Spin-Off, Management disclosed to the
shareholders of Besicorp that, after giving effect to projected operating losses
from operations, the funds available to Besicorp were only sufficient to allow
Besicorp to continue operations for approximately two to six months. For Fiscal
1999 and Fiscal 1998, the Distributed Businesses had losses on a historical
basis of $5.8 million and $7.2 million, respectively, on total revenues of $5.7
million and $4.4 million, respectively. Therefore, without additional funds,
Besicorp might not be able to pay its obligations as they became due. The
failure of Besicorp to obtain additional funds or otherwise reduce its short
term obligations would materially adversely affect Besicorp and require it to
curtail operations.
Besicorp addressed its liquidity and capital resource problems by
reducing its overhead. Specifically, certain employees were asked to accept
salary deferrals ranging from approximately 15% to 67% of their prior salary
effective as of July 5, 1999. These reductions reduced expenses by approximately
$35,000 to $40,000 per month. This stop gap measure, as Management realized at
the time it was implemented, could not eliminate these problems and Besicorp
continued to lose money and its available funds continued to decline. In May,
Management refined its earlier estimate and projected that Besicorp only had
sufficient funds to continue operations until November 30, 1999.
The Board, on May 10, 1999, appointed a Special Committee consisting of
all of the Independent Directors to investigate and obtain information regarding
financing options available to Besicorp, including on the feasibility of raising
money by issuing additional shares or borrowing funds, and other alternatives
such as selling all or a part of Besicorp.
On May 17, 1999 and May 21, 1999, Mr. Zinn sent the Special Committee
the Memoranda in which he indicated that he believed (i) it was very unlikely
that Besicorp would be able to raise capital without significantly diluting the
equity of the existing shareholders or
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requiring personal guarantees from Mr. Zinn, which he would not provide, and
(ii) the costs of being a public company were unsustainable. In Mr. Zinn's
opinion, the best alternative would be to sell Besicorp to management for cash,
which would enable the shareholders to immediately realize cash without
incurring the risk of an unknown future or the effects of substantial dilution.
In the Memoranda he stated that he was willing to purchase all of the shares of
Besicorp Common Stock for cash and would pay a 25% premium over the $5.5 million
value of Besicorp (based on an appraisal of Besicorp at the time of the Prior
Spin-Off) adjusted for cash, excluding the Escrow Fund.
On May 21, 1999, the Board authorized the Special Committee to
represent Besicorp in evaluating, structuring and negotiating a potential
transaction in which it might be acquired by Mr. Zinn and in investigating
alternatives to such a transaction. The Special Committee engaged legal counsel,
Robinson Brog, and Besicorp retained Josephthal as its financial advisor to
provide financial advisory services to the Special Committee and to provide a
fairness opinion such as the Fairness Opinion.
Because of the informal nature of the Memoranda, the Special Committee
did not view them as constituting a formal offer and the Special Committee so
advised Mr. Zinn.
On June 17, 1999 Mr. Zinn submitted to the Board and the Special
Committee his Initial Offer to acquire Besicorp for approximately $45.46 per
share of Besicorp Common Stock (based on the number of shares then outstanding)
in cash. The Initial Offer valued Besicorp at $6.2 million. In addition under
the terms of the Initial Offer all of the shares of Besicorp Common Stock would
receive a right to participate pro rata in the release of funds from the Escrow
Fund. In his Initial Offer, Mr. Zinn indicated that he believed that Besicorp
would be unable to continue operations, and that its prospects would be
extinguished, without a significant reorganization. He noted that Besicorp's
businesses (i.e., Old Besicorp's Distributed Businesses) had a history of
operating losses, and it was anticipated that Besicorp would continue to
experience operating losses in the indeterminate future. He also noted that
Besicorp's cash reserves were insufficient to fund ongoing operations after
November 30, 1999 and that Besicorp's auditors expressed concern as to the
ability of Besicorp to continue as a going concern without an infusion of
additional capital. He indicated that he expected Besicorp to gain various
benefits from his purchase. For example, as Besicorp would only have one
shareholder, Besicorp could deregister from the Exchange Act which would permit
Besicorp to reduce its expenses. Once Besicorp deregistered, it would no longer
be required to prepare annual and quarterly reports, and comply with the proxy
solicitation provisions of the Exchange Act, and would not be required to
distribute such materials to shareholders. Mr. Zinn also noted that access to
capital markets had been severely limited and indicated that he would not
guarantee Besicorp's debt.
The Special Committee recognized that Besicorp only had sufficient
funds to continue operations for several months unless funds were quickly
obtained. However, Besicorp had not succeeded in obtaining additional funds.
Based upon the experiences of Old Besicorp, the Special Committee suspected that
banks, lending institutions and other potential lenders would require a
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guarantee by Mr. Zinn in connection with advancing a loan to cover operating
expenses. Therefore, under the Special Committee's direction, Management
contacted a bank to confirm that lenders would not be willing to consider
advancing a loan to cover operating expenses unless it was guaranteed by Mr.
Zinn, and he was not willing to act as a guarantor. In addition, Management did
not believe that any asset-based lender would be interested in funding the
money-losing operations of an entity that did not have significant assets with
which to secure the funding. The Special Committee also considered that even
though Besicorp might be able to raise equity, there was no guarantee that the
proceeds would be sufficient to fund on-going needs. The Special Committee noted
that the photovoltaic business had historically incurred losses and Management
estimated that it was not likely to become profitable before December 31, 2001.
Since independent power development businesses generally generate significant
revenues and profits only after plants become operational, and all of Besicorp's
power project initiatives were in very early stages, it was, in Management's
estimate, unlikely that Besicorp would be profitable during the next several
years. Moreover, since issuing additional shares would dilute the current
shareholders' holdings, the Special Committee recognized that an equity offering
might result in shareholders finding the value of their shares in the future to
be significantly less than what Mr. Zinn was then offering. The Special
Committee also considered whether there would be any advantage to Besicorp's
voluntarily commencing a bankruptcy proceeding, but decided it would not solve
Besicorp's need for additional capital. Consequently, Besicorp had only two
realistic options: liquidation and sale.
Old Besicorp had attempted to sell the Distributed Business before the
Prior Merger as part of a sale of all of Old Besicorp. However, every
prospective purchaser of Old Besicorp except for one had insisted that Old
Besicorp either sell or distribute the Distributed Businesses prior to their
purchasing Old Besicorp. One prospective purchaser had been willing to acquire
the Distributed Businesses together with the rest of Old Besicorp but the terms
were unacceptable. Old Besicorp's limited attempts to sell the Distributed
Businesses proved to be unsuccessful. In addition, since the Prior Spin-Off,
Besicorp had not been able to identify any potential purchasers (other than Mr.
Zinn). Moreover, since Mr. Zinn and the Trust held approximately 44.9% and 7.4%
of the shares of Besicorp Common Stock (based on the shares currently
outstanding), it was highly unlikely that the sale of Besicorp, which was likely
to require shareholder approval, could occur without Mr. Zinn's voting in favor
of such a sale and Mr. Zinn had not indicated that he would so vote. In these
circumstances, especially since Besicorp's available cash declined daily and
Management projected that Besicorp's funds were only sufficient to continue
operations for two to six months, the Special Committee could not justify
spending substantial sums in efforts to find another possible purchaser, or
deferring consideration of Mr. Zinn's Initial Offer while waiting to see if
another potential purchaser would emerge.
Shortly after Mr. Zinn submitted his Initial Offer to Besicorp,
Besicorp issued a press release describing the Initial Offer with the
expectation that the Initial Offer would alert potential purchasers that the
Special Committee was considering offers; by issuing the press release, Besicorp
hoped that the Initial Offer would lead others to make offers to acquire
Besicorp. No one then or subsequently expressed any interest in acquiring
Besicorp. Therefore, unless Besicorp
-23-
negotiated with Mr. Zinn, Besicorp's only alternative might be liquidation. The
Special Committee decided to negotiate with Mr. Zinn while continuing to
evaluate the other possibilities.
Negotiations between the Special Committee and Mr. Zinn initially
focused on the consideration to be paid for Besicorp. In order for the Special
Committee to be satisfied that a fair and best possible price was being paid,
the Special Committee attempted, with the assistance of Josephthal, to value
Besicorp. However, while it was possible to attempt to value Besicorp's two
principal businesses -- its photovoltaic business and its independent power
development business -- certain residual interests that Besicorp had received
from Old Besicorp pursuant to the Prior Contribution or as a result of the Prior
Merger were difficult to evaluate with any precision since they represented
uncertain amounts of cash that Besicorp might realize in the future; moreover
the receipt of certain of these amounts did not depend upon on-going activities
by Besicorp: instead such monies would be the result of the efforts of third
parties, such as Niagara Mohawk, and the release of monies held in escrow.
Consequently, the parties agreed that additional payments to be derived from the
Escrow Fund and certain other residual interests would be made after the
consummation of the sale to preserve for the shareholders the benefit from these
residual interests.
On August 10, 1999, Mr. Zinn submitted his Revised Offer in which he
offered to increase the amount he would pay for Besicorp, which amount was based
on a valuation of Besicorp of $8 million, which is the amount Parent has agreed
to pay as the Aggregate Cash Merger Consideration pursuant to the Plan of
Merger. This $8 million valuation, after giving effect to his ownership position
in Besicorp (other than his Management Restricted Shares), would result in a
price to be paid by Mr. Zinn of approximately $4.6 million in cash (including
approximately $800,000 as Restricted Merger Consideration which will be held in
escrow by the Surviving Corporation until it vests, or, to the extent that it is
forfeited before it vests, which will revert to the Surviving Corporation).
In his Revised Offer, Mr. Zinn confirmed in writing that he would
oppose, and that the Independent Trustee for the Trust had indicated that the
Trust would oppose, the sale of Besicorp to anyone other than Mr. Zinn. As Mr.
Zinn and the Trust beneficially owned more than 50% of the outstanding shares of
Besicorp Common Stock they would be able to veto a sale of Besicorp. Mr. Zinn
also indicated in the Revised Offer that he would not guarantee any loans "in a
public company," which guarantee lenders were likely to require prior to lending
funds to Besicorp. These statements made it still less likely that Besicorp
would be able to either borrow funds or attract any potential purchasers other
than Mr. Zinn and provided the first written suggestion that Mr. Zinn would be
prepared to guarantee a loan if he acquired Besicorp.
By the time of the Revised Offer, Mr. Zinn had agreed to provide a
right to payments from (1) funds released from the Escrow Fund, (2) recoveries
as a result of Besicorp's litigation claims, (3) certain distributions from
partnerships, and (4) certain distributions as a result of Hydro- Credits.
However, the Special Committee was concerned with the valuation of the foreign
projects and initiatives. Management and the Special Committee had been unable
to obtain
-24-
current information about the potentially biggest project, the Krishnapatnam
Project, from the partner in charge of its development and some of the other
projects had only been initiated recently and therefore their prospects were
difficult to evaluate. Partners for project initiatives in Brazil and Mexico
were more optimistic about the success of such initiatives than Management. As a
result the parties agreed to provide shareholders with payments from amounts
received from the sale of the foreign development projects pursuant to
agreements entered into within one year of the Effective Date. In addition, the
parties agreed in principal that if a purchase agreement were signed, the buyer
would provide temporary financing for Besicorp. The parties decided that the
purchase would be structured as a merger. The first draft of an agreement and
plan of merger was circulated at the end of August. The terms of the Initial
Plan of Merger were negotiated thereafter.
On September 22, 1999, Josephthal delivered its written opinion to the
Special Committee to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Merger Consideration was
fair, from a financial point of view, to the holders of Besicorp Common Stock
(other than the Buyer). See "-- Opinion of Financial Advisor" and "Factors to be
Considered -- Opinion of Financial Advisor."
On October 7, 1999, a meeting of the Special Committee was held and the
Special Committee decided to recommend adoption of the Initial Plan of Merger.
Immediately afterwards, a meeting of the Board was held. Josephthal made a
presentation of its Fairness Opinion to the Board, the Special Committee
recommended adoption of the Initial Plan of Merger, and then, with Mr. Zinn
abstaining because he and members of his immediate family own Parent, the Board
determined, based upon its discussions, that in light of the current
circumstances and future prospects of Besicorp, the Merger and the Initial Plan
of Merger were fair to and in the best interest of Besicorp and its shareholders
(other than the Buyer). The Board (other than Mr. Zinn, who abstained because he
and members of his immediate family own Parent) adopted the Initial Plan of
Merger. In early October, 1999 the Initial Plan of Merger was signed.
On November 24, 1999, a meeting of the Special Committee was held to
discuss the effects of the Merger on the Bansbach Litigation. In order to ensure
that the Bansbach Litigation was not terminated as a result of the Merger, the
Special Committee decided to recommend a spin-off which would permit the
Bansbach Litigation to continue. The Special Committee then proceeded to discuss
whether the Plan of Merger, which had been previously circulated, was in the
best interest of Besicorp and its shareholders. Based upon its discussions, the
Special Committee determined that in light of the current circumstances and
future prospects of Besicorp, the Merger, the Plan of Merger and the Merger
Consideration were fair to and in the best interest of Besicorp and its
shareholders (other that the Buyer). The Special Committee unanimously
recommended that the Board adopt the Plan of Merger.
-25-
Immediately afterwards a meeting of the Board was convened. The Board,
with Mr. Zinn abstaining because he and members of his immediate family own
Parent, decided to effectuate a spin-off and determined, that in light of the
current circumstances and future prospects of Besicorp, the Merger, the
Plan of Merger and the Merger Consideration were fair to and in the best
interest of Besicorp and its shareholders (other that the Buyer). The Board
(other than Mr. Zinn, who abstained because he and members of his immediate
family own Parent) adopted the Plan of Merger. On November 24, 1999 the Plan of
Merger was signed. See "Factors to be Considered -- Purposes, Effects and
Background of the Merger."
RECOMMENDATION OF BESICORP'S BOARD OF DIRECTORS AND THE SPECIAL
COMMITTEE
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF BESICORP (OTHER
THAN MR. ZINN, WHO ABSTAINED BECAUSE HE AND MEMBERS OF HIS IMMEDIATE FAMILY OWN
PARENT) HAVE DETERMINED THAT THE PLAN OF MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, BESICORP AND ITS SHAREHOLDERS (OTHER THAN THE BUYER). THE SPECIAL
COMMITTEE AND THE BOARD OF DIRECTORS OF BESICORP (OTHER THAN MR. ZINN, WHO
ABSTAINED BECAUSE HE AND MEMBERS OF HIS IMMEDIATE FAMILY OWN PARENT) RECOMMEND
ADOPTION OF THE PLAN OF MERGER BY BESICORP'S SHAREHOLDERS. For a discussion of
the factors
considered by the Special Committee and the Board in determining to recommend
adoption of the Plan of Merger, see "Factors to be Considered."
OPINION OF FINANCIAL ADVISOR
Josephthal delivered to the Special Committee and the Board a written
Fairness Opinion dated September 22, 1999, to the effect that, as of the date of
such opinion, the Merger Consideration was fair, from a financial point of view,
to the holders of Besicorp Common Stock (other than the Buyer). The full text of
the written Fairness Opinion of Josephthal which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex B to this Proxy Statement and should be read carefully in its entirety.
THE OPINION OF JOSEPHTHAL IS DIRECTED TO THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS OF BESICORP AND RELATES ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER, AND DOES NOT CONSTITUTE A RECOMMENDATION TO SHAREHOLDERS AS TO
HOW TO VOTE AT THE SPECIAL MEETING. A PORTION OF JOSEPHTHAL'S COMPENSATION IS
CONTINGENT UPON THE EFFECTUATION OF THE MERGER. See "Factors to Be Considered --
Opinion of Financial Advisor."
-26-
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
No officers or directors will be paid bonuses by Besicorp in connection
with the Merger nor will the consummation of the Merger give rise to any
termination or severance payments.
.
Pursuant to the Incentive Plan, Besicorp issued Restricted Shares of
Besicorp Common Stock to its employees, officers and directors. At present,
14,500 Restricted Shares are issued and outstanding, consisting of 13,450
Management Restricted Shares which are held by employees, officers and directors
(but not by Independent Directors), and 1,050 Independent Directors' Restricted
Shares, all of which are held by Independent Directors. Certain executive
officers and directors, including Michael F. Zinn, own 8,575 Management
Restricted Shares. See "Business of Besicorp -- Security Ownership of Certain
Beneficial Owners and Management." Besicorp has not granted any other Rights,
including Rights to acquire Restricted Shares, and does not anticipate granting
any Rights between now and the Effective Date.
The following table summarizes the outstanding Restricted Shares, what
will happen to them upon the effectuation of the Merger, when they will vest and
what would happen if any of Restricted Shares become forfeit prior to their
vesting:
What the Holder
Type of Restricted Will Receive at Effect of Post-
Share Time of Merger When it Vests1 Merger Forfeiture2
================================= ========================= =========================== =============================
Independent Directors' Merger Upon the occurrence Not applicable
Restricted Shares Consideration of Merger
Management Restricted Restricted Merger The Restricted The Restricted
Shares. Consideration Merger Merger Consideration
(which is identical Consideration will will become property
to the Merger vest according to the of the Surviving
Consideration but terms of the issuance Corporation (and will
will be held in of the Management benefit those persons
escrow until it Restricted Shares who are shareholders
vests) (generally 1/3 on at such time3, 4)
May 2, 2002, 1/3 on
May 2, 2003, and
1/3 on May 2, 2004)
-27-
1 Unless the administrator for the Incentive Plan accelerates the
vesting (and such administrator has indicated that it will not
accelerate the vesting.
2 If any Restricted Shares are forfeited and cancelled before the
Merger, assuming no Substitute Restricted Shares are issued in
connection with such cancellation, the per share Merger Consideration
will increase. See "Plan of Merger -- Merger Consideration."
3 Restricted Merger Consideration will generally be forfeited, to the
extent it has not vested, if the employee entitled to such Merger
Consideration ceases to be employed by the Surviving Corporation.
4 Presumably, the Surviving Corporation will be a wholly owned
subsidiary of Parent, which will be owned beneficially by Mr. Zinn and
members of his immediate family.
Michael F. Zinn's ownership interest in Besicorp will increase while
the Outside Shareholders' interest will be eliminated. Presently Mr. Zinn
beneficially owns approximately 44.9% of the shares of Besicorp. Following the
Merger, he and immediate relatives will indirectly own 100% of the stock of the
parent of the Surviving Corporation.
Officers and directors of Besicorp, with respect to their ownership of
Management Restricted Shares or Buyer's shares, have different federal income
tax consequences resulting from the merger than the holders of Outside
Participating Shareholders' Shares (other than Management Restricted Shares).
The table below shows these differences:
Type of Shares What Holder Will Receive in Tax Consequences
Merger
Outside Participating Merger Consideration Taxable event
Shareholders' Shares (other
than Management Restricted
Shares)
Dissenters' Shares Appraisal value Taxable event
Management Restricted Restricted Merger No taxable event(1)
Shares Consideration
Buyer's Shares All of Parent's shares of No taxable event
Besicorp Common Stock are
cancelled and Parent's shares
of Acquisition Corp. are
converted into all of the
issued and outstanding shares
of the Surviving Corporation
-28-
(1) However, a taxable event is likely to occur upon the vesting
of the Restricted Merger Consideration.
See "Factors to be Considered -- Material Federal Income Tax Consequences."
The Surviving Corporation (and any successor) is required to maintain
officers' and directors' liability insurance covering, among others, the current
officers and directors of Besicorp until the sixth anniversary of the Effective
Date and is required to indemnify such officers and directors for certain losses
they sustain if such insurance is not available throughout such period. In
addition, Mr. Zinn has agreed to guarantee, subject to certain limitations, the
Surviving Corporation's obligations to provide this insurance and
indemnification and in connection with his guaranty he has agreed to put
$100,000 in escrow. See "Plan of Merger -- Principal Covenants - -
Indemnification" and "Plan of Merger -- Principal Covenants -- Guaranty."
The effectuation of the Merger ordinarily would adversely affect the
Derivative Litigation pending against certain of Besicorp's officers and
directors; however, by assigning Besicorp's interests in the pending Bansbach
Litigation to WOM pursuant to the Spin-Off, the named plaintiff should be able
to maintain the Bansbach Litigation. The Lichtenberg Litigation is not being
assigned to WOM because the complaint has been dismissed and the dismissal of
such complaint was upheld by the Appellate Division, Third Department. The New
York Court of Appeals, the State of New York's highest court, declined to hear
an appeal of this dismissal.
It is anticipated that the executive officers of Besicorp will serve
the Surviving Corporation in the capacities in which they currently serve
Besicorp and Michael F. Zinn and Frederic Zinn will be named the only directors
of the Surviving Corporation; they may be compensated for the services they
render as employees on behalf of the Surviving Corporation.
It is anticipated that certain of the executive officers of Besicorp
will serve WOM in capacities in which they currently serve Besicorp and that
Michael F. Zinn will be named the sole director of WOM; they will not be
compensated for the services they render on behalf of WOM. Aside from the
foregoing, and the shares of WOM Common Stock that the executive officers and
directors will be entitled to receive in the Spin-Off as shareholders of
Besicorp Common Stock, the executive officers and directors will receive no
benefits as a result of the Spin-Off.
-29-
CONDITIONS TO THE MERGER
Besicorp and the Buyer are obligated to complete the Merger only, if,
among other things, the Plan of Merger is adopted by the shareholders of
Besicorp by the Requisite Vote. The Merger also is subject to other closing
conditions, including the occurrence of the Spin-Off, that may be waived by the
parties, subject to applicable law. Besicorp does not presently intend to waive
any such conditions (except for that requirement that Parent use its best
efforts to enter into agreements with the holders of the Management Restricted
Shares whereby the holders will receive Substitute Restricted Shares in
substitution for their Management Restricted Shares, which condition it has
waived) although it reserves the right to do so. See "Plan of Merger --
Conditions to the Merger."
TERMINATION
The Plan of Merger may be terminated and the Merger abandoned at any
time prior to the Effective Date by mutual written consent of Besicorp and the
Buyer, or by either Besicorp or the Buyer in certain other circumstances in
accordance with the Plan of Merger. Upon termination of the Plan of Merger,
depending upon the circumstances surrounding the termination, Besicorp may be
obligated to reimburse the Buyer for its Covered Expenses, up to $150,000, and
the Buyer may be obligated to reimburse Besicorp for its Covered Expenses up to
$500,000. See "Plan of Merger -- Termination."
EFFECTIVE DATE; CANCELLATION OF STOCK CERTIFICATES; AND RECEIPT OF
MERGER CONSIDERATION
Under the Plan of Merger, the required filing of a Certificate of
Merger is expected to be made promptly after the satisfaction or waiver of all
conditions to the Merger, including the shareholders' adopting the Plan of
Merger by the Requisite Vote at the Special Meeting. The Merger will be
effective as of the date of filing of the Certificate of Merger with the
Secretary of State of the State of New York in accordance with the NYBCL or at
such later date as provided in such Certificate of Merger.
As a result of the Merger the shares of Besicorp Common Stock (other
than Dissenters' Shares and those held by the Buyer) will be converted into the
right to receive the Merger Consideration. Promptly thereafter, Continental will
notify Besicorp's shareholders (other than the Buyer and Dissenters) of the
effectuation of the Merger and will provide such shareholders with, among other
things, the form of the Letter of Transmittal needed to exchange their shares of
Besicorp Common Stock for the Merger Consideration. DO NOT SURRENDER YOUR
CERTIFICATES OF BESICORP COMMON STOCK UNTIL YOU RECEIVE AND COMPLETE SUCH LETTER
OF TRANSMITTAL.
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Shares of Besicorp Common Stock held by the Buyer will be cancelled
without the payment of any Merger Consideration. Dissenters' Shares will not be
converted and instead Dissenters will receive the fair value of such shares
determined in accordance with the appraisal procedure. See "Voting at the
Special Meeting -- Rights of Dissenting Shareholders" and Annex C to this Proxy
Statement. The shares of Acquisition Corp. will be converted into shares of the
Surviving Corporation. See "Plan of Merger -- The Merger."
DISSENTERS' RIGHTS
Sections 623 and 910 of the NYBCL give to any shareholder of record who
wishes to object to the Merger the right to receive the court determined value
of his shares from Besicorp in cash, if the Merger is effectuated. To dissent,
the statutory procedure set forth in Sections 623 and 910 must be carefully
followed. The Dissenters' Shares will not be converted into Merger Consideration
and the Dissenters will only receive the cash to which they are entitled
pursuant to the statutory procedure (but Dissenters will still receive shares of
WOM Common Stock pursuant to the Spin-Off). Among other things, Dissenters:
o must submit a Notice of Dissent before a vote is taken on the
Merger;
o must either abstain, not vote or vote against the Plan of
Merger; and
o must submit their Certificates to Besicorp or Continental with
the Notice of Dissent or within one month thereafter for the
purpose of having a notation affixed to such Certificates
indicating that a demand for payment has been made.
Merely abstaining, not voting or voting against the Plan of Merger is
insufficient to satisfy the requirements under the NYBCL regarding the
submission of a Notice of Dissent. Dissenters who vote in favor of adopting the
Plan of Merger will be deemed to have withdrawn their dissent and will receive
the Merger Consideration, not the appraisal value, for their shares. In addition
under the NYBCL if Besicorp fails to institute a special proceeding to determine
the rights of the Dissenters in the period set forth in Section 623, Dissenters
must institute such a special proceeding within 30 days. Besicorp does not
intend to furnish any notifications with respect to any of these deadlines.
However, Besicorp will notify Dissenters of the adoption of the Plan of Merger
by its shareholders within ten days after the date of the Special Meeting.
WE URGE YOU TO CONTACT YOUR OWN ATTORNEY IF YOU ARE
INTERESTED IN DISSENTING. Beneficial holders who wish to object to the Merger
should instruct their nominees and fiduciaries to dissent on their behalf. See
"Voting at the Special Meeting -- Rights of Dissenting Shareholders" and Annex C
to this Proxy Statement.
-31-
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
As a general rule, each Outside Participating Shareholder will
recognize at the time of receipt of the Cash Merger Consideration and Combined
Deferred Payments gain or loss, for federal income tax purposes, in an amount
equal to the difference between the aggregate Cash Merger Consideration and
payments, if any, pursuant to Combined Deferred Payment Rights received by such
shareholder for his or her shares of Besicorp Common Stock (other than
Management Restricted Shares) pursuant to the Merger and the adjusted tax basis
in such shares.
Generally, each Dissenter will recognize at the time of receipt gain or
loss, for federal income tax purposes, in an amount equal to the difference
between the monies he or she receives from Besicorp (as the Surviving
Corporation) for his or her shares of Besicorp Common Stock and the adjusted tax
basis in such shares.
Each holder of Management Restricted Shares will receive Restricted
Merger Consideration, the receipt of which will not be taxed until the
Restricted Merger Consideration vests.
The Merger will not be a taxable event for the Buyer and Michael F.
Zinn (except with respect to the Restricted Merger Consideration received with
respect to his Management Restricted Shares, the receipt of which will not be
taxed until the Restricted Merger Consideration vests).
In addition, holders of Besicorp Common Stock at the Spin-Off Record
Date will receive dividend income equal to the value of the shares of WOM Common
Stock; however, since Besicorp is valuing the shares of WOM Common Stock at
$0.00 per share, holders of Besicorp Common Stock should receive no dividend
income. Additional information concerning the tax consequences of the Spin-Off
will be provided in the Information Statement that will be sent to shareholders
of Besicorp at or about the Effective Date of the Merger.
You should read carefully the discussion under "Factors to Be
Considered -- Material Federal Income Tax Consequences" and we urge you to
consult your own tax advisors as to the tax consequences to you of the Merger
and the Spin-Off.
SPIN-OFF
Prior to the Merger, Besicorp will assign to WOM the interests in the
Bansbach Litigation that Besicorp had received from Old Besicorp as a result of
the Prior Merger Order. The Bansbach Litigation is a shareholder derivative
action that was commenced in August 1997 in which Old Besicorp was named as a
nominal defendant and the other named defendants were various officers and
directors of Old Besicorp. See "Business of Besicorp -- Legal Proceedings." In
addition, prior to the Merger, Besicorp will authorize the distribution of the
WOM Common Stock to persons who are shareholders of Besicorp as of the Spin-Off
Record Date, which is expected to be the same day as the Effective Date.
-32-
Besicorp is effectuating the Spin-Off solely in order to comply with
the intent of the Prior Merger Order (which resulted in the assignment of the
Bansbach Litigation by Old Besicorp to Besicorp so that the Bansbach Litigation
could be maintained following the Prior Merger). The Plan of Merger requires
Besicorp to effectuate the Spin-Off before effectuating the Merger unless the
Prior Merger Order has been reversed by such time. Therefore Besicorp will
effectuate the Spin-Off only if all of the other conditions to the Merger have
then been satisfied or waived and the Spin-Off will occur only if the Prior
Merger Order has not been reversed.
As part of the Spin-Off, the Escrow Agreement has been amended,
effective as of the Spin-Off Record Date, to permit WOM to receive the WOM
Costs. Therefore, (i) Besicorp will be reimbursed from the Escrow Fund for the
cost of effectuating the Spin-Off, including the expenses of preparing a
registration statement (which will contain an information statement) pursuant to
the Exchange Act, the distribution of an information statement and certificates
for shares of WOM Common Stock and (ii) WOM will be reimbursed from the Escrow
Fund for (1) its reasonable operating expenses (up top $35,000 per year) and (2)
WOM's costs and expenses relating to (a) the Bansbach Litigation and (b)
litigation arising out of or relating to the Bansbach Litigation, the Spin-Off
and WOM's existence. None of these expenses would be incurred if the Merger were
effectuated without Besicorp's effectuating the Spin-Off. These reimbursements
will reduce the monies available to you as Deferred Payments.
The Information Statement that will be sent to Besicorp's shareholders
in conjunction with the Spin-Off will contain additional information regarding
the Spin-Off and WOM. See "The Spin-Off."
TRADING MARKET FOR AND MARKET PRICE OF BESICORP COMMON STOCK
The Besicorp Common Stock is not listed on any Exchange and is not
quoted on NASDAQ or any other automated quotation system. Accordingly, no
trading prices are available. On March 22, 1999, when the shares of Besicorp
Common Stock were distributed to the former holders of Old Besicorp Common Stock
in the Prior Spin-Off, the Besicorp Common Stock was deemed to have a value of
$43.01 per share for the purpose of, among other things, providing cash in lieu
of fractional shares of Besicorp Common Stock. When the Restricted Shares were
issued, which issuance was effective in May, 1999, they were valued at $43.00
per share for financial statement purposes. See "Market Information Regarding
Besicorp Common Stock."
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VOTING AT THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Besicorp for the Special Meeting. At the
Special Meeting, you will be asked to consider and vote on a proposal to adopt
the Plan of Merger.
TIME, DATE AND PLACE OF MEETING
The Special Meeting will be held at [9:00 a.m.] (local time) on [ ],
2000 at [ ].
QUORUM
Under the NYBCL and Besicorp's by-laws, the presence in person or by
properly executed proxy of holders of a majority of the shares of Besicorp
Common Stock issued and outstanding on the Record Date is required to constitute
a quorum at the Special Meeting. Accordingly, abstentions, but not broker
non-votes, will be counted in determining the presence of a quorum.
RECORD DATE; VOTE REQUIRED
The Record Date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting is February 7, 2000. Accordingly,
only shareholders of record of Besicorp at the close of business on the Record
Date have the right to receive notice of and to vote at the Special Meeting and
any postponement or adjournment thereof and each such shareholder will be
entitled to one vote for each share of Besicorp Common Stock that such
shareholder held of record on the Record Date. As of the Record Date, there were
135,882 shares of Besicorp Common Stock outstanding.
Under the NYBCL, the affirmative vote of holders of at least 50% of the
shares of Besicorp Common Stock outstanding as of the Record Date is required to
adopt the Plan of Merger. In addition, the Plan of Merger contains special
provisions regarding the voting of the Management Restricted Shares, which were
issued to employees and officers (including officers who are also directors) of
Besicorp as of May 3, 1999. To prevent these shares from affecting the outcome
of the vote, the Plan of Merger provides that the shares of Besicorp Common
Stock will be tabulated twice, first, as they actually were voted and second as
they were voted except for the Management Restricted Shares which will in the
second tabulation be tabulated as if the holders of such shares had abstained,
not voted or voted for and against the Plan of Merger in the same proportions
that the shares of Besicorp Common Stock (other than Management Restricted
Shares) are voted (or not voted) with respect to the Plan of Merger. Abstentions
and broker non- votes will have the effect of votes against the Plan of Merger.
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An example can show how the Neutralizing Tabulation operates.
VOTE ON MERGER
In Don't Total
Favor Against Abstain Vote Shares
(A) How Shares ----- ------- ------- ---- ------
(other than Management Restricted
Shares) vote 65,000 40,000 5,000 12,432 122,432
(B) How Management Restricted Shares
vote 8,450 5,000 0 0 13,450
Total Vote (A + B) 73,450 45,000 5,000 12,432 135,882
(C) Percent of Shares
(other than Management Restricted
Shares) that vote 53.1% 32.7% 4.1% 10.2% -----
(D) How Management Restricted Share
are deemed to have voted when the
Neutralizing Tabulation is applied (i.e.
the 13,450 Management Restricted
Shares multiplied by (C)) 7,141 4,394 549 1,366 13,450
(E) Effect of Neutralizing Tabulation (i.e.
A+D) 72,141 44,394 5,549 13,798 135,882
Consequently, in this example the shareholders would have approved the
adoption of the Plan of Merger by the Requisite Vote. The NYBCL requirement that
at least 50% of the issued and outstanding shares approve the adoption is
satisfied since 73,550 shares voted in favor of adoption of the Plan of Merger,
which is more than 50% of the issued and outstanding shares. In addition, when
the Neutralizing Tabulation provisions are utilized, 72,141 shares, which also
is more than 50% of the issued and outstanding shares, would have approved the
adoption.
As of the Record Date, the Buyer owned 57,967 shares of Besicorp Common
Stock, representing 42.7% of the outstanding shares of Besicorp Common Stock.
Pursuant to the Plan of Merger, the Buyer is required to vote all of its shares
of Besicorp Common Stock in favor of adopting the Plan of Merger. In addition,
as of the Record Date, Mr. Zinn owned 3,000 Management Restricted Shares and the
Trust established by Mr. Zinn owned 10,000 shares of Besicorp Common Stock. Mr.
Zinn disclaims beneficial ownership of the Trust's shares. The trustee for the
Trust and Mr. Zinn have indicated that they intend to vote all of such shares in
favor of adopting the Plan of Merger. Accordingly, if the Buyer, Mr. Zinn and
the Trust vote all of their 70,967 shares in favor of the Plan of Merger, the
Plan of Merger will be adopted even if no other shares to vote in favor of
adoption of the Plan of Merger. The 70,967 shares is more than 50% of the issued
and outstanding shares, which will satisfy the requirements of the NYBCL. In
addition, when the voting of Mr. Zinn's Management Restricted Shares is
retabulated pursuant to the Neutralizing Tabulation, at least 1,665 of Mr.
Zinn's 3,000 Management Restricted Shares would be deemed to have voted in favor
of adoption. Therefore, when the Neutralizing Tabulation is applied, at least
69,632 shares, which is more than 50% of the issued and outstanding shares,
would be deemed to have adopted the Plan of Merger.
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In addition to adoption of the Plan of Merger by the shareholders of
Besicorp, adoption by the Board and by the Buyer is required under the NYBCL.
The Board (other than Mr. Zinn, who abstained because he and members of his
immediate family own Parent) determined on October 7, 1999, that the Initial
Plan of Merger is fair, and on November 24, 1999, that the Plan of Merger is
fair to, and in the best interests of, Besicorp and its shareholders (other than
the Buyer). The Board (other than Mr. Zinn, who abstained because he and members
of his immediate family own Parent) adopted the Plan of Merger and recommends
adoption of the Plan of Merger by Besicorp's shareholders. See "Factors to be
Considered -- Recommendation of the Board of Directors, Fairness of the Merger."
The board of directors of Acquisition Corp. and the board of directors of
Parent, as the sole shareholder of Acquisition Corp. and on behalf of Parent,
have approved the Merger and adopted the Plan of Merger.
If the shareholders do not adopt the Plan of Merger, the Merger, in its
current form, will not be effectuated.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of Besicorp Common Stock represented by a properly executed
proxy received by Besicorp will, unless such proxy is properly revoked prior to
the Special Meeting, be voted at the Special Meeting in accordance with the
instructions thereon. SHARES OF BESICORP COMMON STOCK REPRESENTED BY PROPERLY
EXECUTED PROXIES THAT DO NOT CONTAIN INSTRUCTIONS TO THE CONTRARY WILL BE VOTED
FOR ADOPTION OF THE PLAN OF MERGER AND IN THE DISCRETION OF THE PROXY HOLDER AS
TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. However, shares of Besicorp Common Stock
represented by properly executed proxies will not be voted for any adjournment
or postponement in order to continue to solicit proxies to adopt the Plan of
Merger.
The Board knows of no business that will be presented for consideration
at the Special Meeting other than the proposal to adopt the Plan of Merger. If
other matters should properly come before the Special Meeting, the proxy holders
will vote on such matters in accordance with their best judgments. Proxies are
being solicited hereby on behalf of the Board.
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Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date your proxy card and return it in the
enclosed envelope. You may also return the proxy card by facsimile transmission
to Continental. To return the card by fax, you must photocopy both sides of the
signed card so that they appear on the same page and fax the photocopy to
Continental at (212) 509-5152, Attn: Proxy Department. If you have any questions
regarding this procedure call Continental at (212) 509-4000 x520.
Any shareholder of record may revoke his proxy at any time before it is
voted by executing and delivering to the Secretary of Besicorp, at Besicorp's
principal executive offices as set forth under "Summary -- The Parties," an
instrument of revocation or a proxy bearing a later date, and by delivering a
written notice to the Secretary of Besicorp stating that the proxy is revoked,
or by voting in person at the Special Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional materials furnished to shareholders, will be borne by Besicorp. If
the Merger is effectuated, Parent, as the sole shareholder of the Surviving
Corporation, will indirectly bear the costs of this solicitation. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and such persons may be reimbursed for their expenses. Proxies may be
solicited by directors, officers or employees of Besicorp in person or by
telephone, telegram, facsimile, electronic mail or other means. No additional
compensation will be paid for these services other than for their out-of-pocket
expenses (which it is anticipated will be nominal) incurred in connection
therewith.
RIGHTS OF DISSENTING SHAREHOLDERS
We are summarizing below the rights of Dissenters. This summary is not
complete and is qualified in its entirety by reference to Sections 623 and 910
of the NYBCL, a copy of which appears in Annex C to this Proxy Statement.
Sections 623 and 910 of the NYBCL give to any Dissenter of record who
wishes to object to the Merger the right to receive from Besicorp in cash, the
"appraised" value of his shares, unless the Plan of Merger is abandoned or fails
to be adopted and authorized, and provided, further, that the following
procedure is carefully followed. The Dissenters' Shares will not be converted
into Merger Consideration and the Dissenters will receive only the cash to which
they are entitled pursuant to the statutory procedure; however Dissenters will
receive shares of WOM Common Stock pursuant to the Spin-Off. Beneficial holders
should instruct their nominees and fiduciaries to dissent on their behalf.
WE URGE YOU TO CONTACT YOUR OWN ATTORNEY IF YOU ARE INTERESTED IN
DISSENTING.
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In order to dissent and have the value of your shares appraised by a
court, the following procedures must be carefully followed:
(a) The Dissenter must not vote in favor of adoption of the
Plan of Merger and, before the proposal to adopt the Plan of
Merger is submitted to a vote at the Special Meeting, he must
file with Besicorp a Notice of Dissent stating his intention
to demand payment for his shares of Besicorp Common Stock. The
Notice of Dissent should be sent to Besicorp Ltd, 1151
Flatbush Road, Kingston, New York, 12401, Attention: Joyce
DePietro; Vice President - Administration. We recommend that
this Notice of Dissent be sent by Registered Mail, Return
Receipt Requested. The Notice of Dissent may also be submitted
at the Special Meeting so long as it is submitted before a
vote is taken on the Plan of Merger.
(b) The Notice of Dissent must include;
o a notice of election to dissent;
o the Dissenter's name and residence address;
o the number of shares of Besicorp Common
Stock as to which the Dissenter dissents;
and
o a demand for payment of the appraised value
of the Dissenter's shares of Besicorp Common
Stock if the Merger is effectuated.
(c) A Dissenter may not dissent as to less than all of the
shares as to which he has a right to dissent, held by him of
record and that he owns beneficially. A nominee or fiduciary
may not dissent on behalf of any beneficial owner as to less
than all of the shares of Besicorp Common Stock of such
beneficial owner, as to which such nominee or fiduciary has a
right to dissent, held of record by such nominee or fiduciary.
(d) Within ten days after the date of the Special Meeting,
Besicorp must give written notice to each Dissenter that the
Plan of Merger has been authorized by the vote of Besicorp's
shareholders.
(e) Together with the Notice of Dissent or within one month
thereafter, the Dissenter must submit the Certificates
representing all of his shares of Besicorp Common Stock to
Besicorp or Continental for the purpose of having a notation
affixed to such Certificates indicating that a demand for
payment has been made. We recommend that Certificates be sent
by Certified or Registered Mail, Return Receipt Requested.
Dissenters should also consider obtaining insurance. After the
notation is made on the Certificates, the Certificates will be
returned to the Dissenter. If the Dissenter fails to so submit
the Certificates to Besicorp or Continental with the Notice of
Dissent or within one month thereafter, Besicorp has the
option, exercisable by written notice given within 45 days
from the date of filing of the Notice of Dissent, to eliminate
such Dissenter's right to dissent, unless a court, for good
cause shown, otherwise directs.
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(f) Within 15 days after the later of the Effective Date and
the last day of the period during which Notices of Dissent may
be made (but in no case later than 90 days after the date of
the Special Meeting), the NYBCL requires the Surviving
Corporation to make a Company Offer by registered mail to the
Dissenters to pay the Dissenters for their Dissenters' Shares
at a specified Offering Price which the Surviving Corporation
considers to be their fair value. Such Company Offer will be
accompanied by a statement setting forth the aggregate number
of shares of Besicorp Common Stock with respect to which
Notices of Dissent have been received and the aggregate number
of holders of such shares. If the Merger has been effectuated
at the time of such Company Offer, the Company Offer will also
be accompanied by (i) the advance payment to each Dissenter
who has submitted to Besicorp his Certificates as described in
paragraph (e) above of an amount equal to 80% of the amount of
such Offering Price multiplied by the number of shares
represented by such Certificates, and (ii) as to each
Dissenter who has not yet submitted his Certificates, a
statement that the Surviving Corporation will make an advance
payment to him of an amount equal to 80% of the amount of such
Offering Price multiplied by the number of shares represented
by his Certificates promptly upon submission of such
Certificates. Every advance payment or statement regarding
advance payments will advise the Dissenters that acceptance
of such payment does not constitute a waiver of any
dissenters' rights. All Company Offers will be made at the
same Offering Price to all Dissenters.
(g) If, within 30 days after the Surviving Corporation's
making such Company Offer, a Dissenter and the Surviving
Corporation agree upon the price to be paid for such
Dissenter's shares, payment must be made by the Surviving
Corporation, upon the surrender of the Certificates
representing such Dissenter's shares of Besicorp Common Stock,
within 60 days of the later of the date of the making of such
Company Offer and the Effective Date
(h) If the Surviving Corporation fails to make an Company
Offer as described in paragraph (f) above within the period
provided therein or if the Dissenter and the Surviving
Corporation fail to agree upon the price to be paid within 30
days of the date of the Company Offer, the Surviving
Corporation will, within 20 days after the expiration of the
applicable time period, institute a special proceeding in the
Supreme Court of the State of New York, County of Ulster to
determine the rights of the Dissenter and to fix the appraised
value of his Dissenters' Shares.
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(i) If the Surviving Corporation fails to institute such
special proceeding the Dissenter may do so within 30 days
after the expiration of such 20 day period. Failure of the
Dissenter to institute such proceedings will result in the
loss of his objector's rights unless the court, for good cause
shown, otherwise directs.
(j) The court will determine the appraised value of the shares
of Besicorp Common Stock, which will be the appraised value as
of the close of business on the day prior to the Special
Meeting. In fixing the value of the shares of Besicorp Common
Stock, the court will consider the nature of the Merger and
its effects on Besicorp and its shareholders, the concepts and
methods then customary in the relevant securities and
financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court will
determine the appraised value of the shares of Besicorp Common
Stock without a jury and without referral to an appraiser or
referee.
(k) The final order will include an allowance for interest at
such rate as the court finds to be equitable, from the date
the Merger was effectuated to the date of payment. If the
court finds that the refusal of any Dissenter to accept the
Company Offer for his shares of Besicorp Common Stock was
arbitrary, vexatious or otherwise not in good faith, no
interest will be allowed to him.
(l) Each party to such proceeding will bear its own costs and
expenses, including the fees and expenses of its counsel and
of any experts employed by it. Notwithstanding the foregoing,
the court may, in its discretion, apportion and assess all or
any part of the costs, expenses and fees incurred by the
Surviving Corporation against any or all of the Dissenters who
are parties to the proceeding if the court finds that their
refusal to accept the Company Offer was arbitrary, vexatious
or otherwise not in good faith. The court may in its
discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the Dissenters who
are parties to the proceeding against the Surviving
Corporation if the court finds any of the following: (A) that
the appraised value of the shares of Besicorp Common Stock as
determined materially exceeds the Offering Price; (B) that no
Company Offer or required advance payment (as described by
paragraph (f) above) was made by the Surviving Corporation;
(C) that the Surviving Corporation failed to institute the
special proceeding (as described in paragraph (h) above)
within the period specified therefor; or (D) that the action
of the Surviving Corporation in complying with its obligations
as provided in this section was arbitrary, vexatious or
otherwise not in good faith.
(m) Within 60 days after the final determination of the
special proceeding, the Surviving Corporation will pay to each
Dissenter party to such proceeding the amount found to be due
him, upon surrender of the Certificates representing his
shares of Besicorp Common Stock.
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Holders of Management Restricted Shares may dissent by following the
procedures outlined above. However, since their shares have not vested, the
appraised value paid for these shares (including any advance payments) will be
placed in escrow with the Surviving Corporation and released to the holders at
the times that the Management Restricted Shares would have been released upon
their vesting to the holders of such Management Restricted Shares. Consequently,
if the conditions to vesting for such Management Restricted Shares were not
satisfied, then the appraised value would not vest and would not be released to
the holder. For example, if the holder ceases to be an employee of the Surviving
Corporation before the Management Restricted Shares vest, the holder would lose
his right to the appraised value.
FACTORS TO BE CONSIDERED
PURPOSES, EFFECTS AND BACKGROUND OF THE MERGER
Prior to March 22, 1999, Besicorp was a wholly owned subsidiary of Old
Besicorp. Old Besicorp had held ownership interests in five Power Plants which,
pursuant to Power Purchase Agreements, provided capacity and electrical power to
Niagara Mohawk. In October 1995, Niagara Mohawk announced its intention to
renegotiate the Power Purchase Agreements and similar agreements it had with
other independent power producers. As a result of these negotiations, the
Partnerships which owned the Power Plants, Niagara Mohawk and certain other
independent power producers entered into the MRA in July 1997, which became
effective on June 30, 1998, and which provided for, among other things, the
termination or restructuring of the Power Purchase Agreements.
Five months after the consummation of the MRA, Old Besicorp entered
into the Prior Plan of Merger pursuant to which Old Besicorp was acquired by BGI
Parent. The Prior Plan of Merger required the sale of the Power Plants to third
parties, the Prior Contribution of Old Besicorp's photovoltaic and independent
power development businesses to Besicorp and the Prior Distribution of
Besicorp's shares to Old Besicorp's shareholders as a condition to the
effectuation of the Prior Merger. Before March 22, 1999, the sale of the Power
Plants was completed and on March 22, 1999, Old Besicorp effectuated the Prior
Contribution and the Prior Distribution and then Old Besicorp effectuated the
Prior Merger. As a result of the Prior Contribution and Prior Distribution,
Besicorp became an independent publicly held company. The following description
contains historical information about the subsidiaries of Besicorp when they
were subsidiaries of Old Besicorp.
At the time of the Prior Spin-Off, Management disclosed to the
shareholders of Besicorp that, after giving effect to projected operating losses
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from operations, the funds available to Besicorp were only sufficient to allow
Besicorp to continue operations for approximately two to six months. For Fiscal
1999 and Fiscal 1998, the Distributed Businesses had losses on a historical
basis of $5.8 million and $7.2 million, respectively, on total revenues of $5.7
million and $4.4 million, respectively. Therefore, without additional funds,
Besicorp might not be able to pay its obligations as they became due. The
failure of Besicorp to obtain additional funds or otherwise reduce its short
term obligations would materially adversely affect Besicorp and require it to
curtail operations.
Besicorp addressed its liquidity and capital resource problems by
reducing its overhead. Specifically, certain employees were asked to accept
salary deferrals ranging from approximately 15% to 67% of their prior salary
effective as of July 5, 1999. These reductions reduced expenses by approximately
$35,000 to $40,000 per month. This stop gap measure, as Management realized at
the time it was implemented, could not eliminate these problems and Besicorp
continued to lose money and its available funds continued to decline. In May,
Management refined its earlier estimate and projected that Besicorp only had
sufficient funds to continue operations until November 30, 1999.
The Board, on May 10, 1999, appointed a Special Committee consisting of
all of the Independent Directors to investigate and obtain information regarding
financing options available to Besicorp, including on the feasibility of raising
money by issuing additional shares or borrowing funds, and other alternatives
such as selling all or a part of Besicorp.
On May 17, 1999 and May 21, 1999, Mr. Zinn sent the Special Committee
the Memoranda in which he indicated that he believed (i) it was very unlikely
that Besicorp would be able to raise capital without significantly diluting the
equity of the existing shareholders or requiring personal guarantees from Mr.
Zinn, which he would not provide, and (ii) the costs of being a public company
were unsustainable. In Mr. Zinn's opinion, the best alternative would be to sell
Besicorp to management for cash, which would enable the shareholders to
immediately realize cash without incurring the risk of an unknown future or the
effects of substantial dilution. In the Memoranda he stated that he was willing
to purchase all of the shares of Besicorp Common Stock for cash and would pay a
25% premium over the $5.5 million value of Besicorp (based on an appraisal by
Loeb Partners at the time of the Prior Spin-Off in which appraisal Loeb Partners
indicated that based upon and subject to the qualifications in such appraisal
that, at such time, the aggregate value from a financial point of view of the
all of the issued and outstanding shares of Besicorp Common Stock was in the
range of $5 million to $6 million) adjusted for cash, excluding the Escrow Fund.
On May 21, 1999, the Board authorized the Special Committee to
represent Besicorp in evaluating, structuring and negotiating a potential
transaction in which it might be acquired by Mr. Zinn and to continue
investigating alternatives to such a transaction. The Special Committee engaged
legal counsel, Robinson Brog, and asked it to prepare a due diligence report
regarding Besicorp's contracts and other legal documents. The Special Committee
selected Robinson Brog because it had served as special counsel to Old Besicorp
-42-
in connection with the Prior Merger and the Prior Spin-Off, and was familiar
with Besicorp and its operations. Prior to retaining Robinson Brog, the Special
Committee reviewed the various aspects of Robinson Brog's representation of
Besicorp, including (i) its role as the Escrow Agent under the Escrow Agreement
(see "Escrow Agreement"), and (ii) its role as litigation counsel with respect
to various matters (see "Business - - Legal Proceedings"). In addition, it is
contemplated that Robinson Brog will serve as the agent for the beneficiaries of
Mr. Zinn's guaranty that will be entered into at the Closing Date. See "Plan of
Merger -- Principal Covenants -- Guaranty."
Besicorp retained Josephthal as its financial advisor to provide
financial advisory services to the Special Committee and to provide a fairness
opinion such as the Fairness Opinion in connection with any transaction to which
Besicorp may agree in the future. Josephthal's duties included assisting and
advising the Special Committee in responding to indications of interest from
third parties who proposed to acquire Besicorp or to provide financing to
Besicorp and to assist in the negotiation of any acquisition agreement. The
Special Committee selected Josephthal because it is a nationally recognized
investment banking firm and is familiar with Besicorp's operations since it had
assisted Old Besicorp in formulating the Prior Plan of Merger and had provided a
fairness opinion in connection with the consideration paid in the Prior Merger.
See "-- Opinions of Financial Advisor."
Because of the informal nature of the Memoranda, the Special Committee
did not view them as constituting a formal offer and the Special Committee so
advised Mr. Zinn.
On June 17, 1999 Mr. Zinn submitted to the Board and the Special
Committee his Initial Offer to acquire Besicorp for approximately $45.46 per
share of Besicorp Common Stock (based on the number of shares then outstanding)
in cash. The Initial Offer valued Besicorp at $6.2 million. In addition under
the terms of the Initial Offer all of the shares of Besicorp Common Stock would
receive a right to participate pro rata in the release of funds from the Escrow
Fund. In his Initial Offer, Mr. Zinn indicated that he believed that Besicorp
would be unable to continue operations, and that its prospects would be
extinguished, without a significant reorganization. He noted that Besicorp's
businesses (i.e., Old Besicorp's Distributed Businesses) had a history of
operating losses, and it was anticipated that Besicorp would continue to
experience operating losses in the indeterminate future. He also noted that
Besicorp's cash reserves were insufficient to fund ongoing operations after
November 30, 1999 and that Besicorp's auditors expressed concern as to the
ability of Besicorp to continue as a going concern without an infusion of
additional capital. He indicated that he expected Besicorp to gain various
benefits from his purchase. For example, as Besicorp would only have one
shareholder, Besicorp could deregister from the Exchange Act which would permit
Besicorp to reduce its expenses. Once Besicorp deregistered, it would no longer
be required to prepare annual and quarterly reports, and comply with the proxy
solicitation provisions of the Exchange Act, and would not be required to
distribute such material to shareholders. Mr. Zinn also noted that access to
capital markets had been severely limited and indicated that he would not
guarantee Besicorp's debt.
The Special Committee recognized that Besicorp only had sufficient
funds to continue operations for several months unless funds were quickly
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obtained. However, Besicorp had not succeeded in obtaining additional funds.
Based upon the experiences of Old Besicorp, the Special Committee suspected that
banks, lending institutions and other potential lenders would require a
guarantee by Mr. Zinn in connection with advancing a loan to cover operating
expenses. Therefore, under the Special Committee's direction, Management
contacted a bank to confirm that lenders would not be willing to consider
advancing a loan to cover operating expenses unless it was guaranteed by Mr.
Zinn, and he was not willing to act as a guarantor. In addition, Management did
not believe that any asset-based lender would be interested in funding the
money-losing operations of an entity that did not have significant assets with
which to secure the funding. The Special Committee also considered that even
though Besicorp might be able to raise equity, there was no guarantee that the
proceeds would be sufficient to fund on-going needs. The Special Committee noted
that the photovoltaic business had historically incurred losses and Management
estimated that it was not likely to become profitable before December 31, 2001.
Since independent power development businesses generally generate significant
revenues and profits only after plants become operational, and all of Besicorp's
power project initiatives were in very early stages, it was, in
Management's estimate, unlikely that Besicorp would be profitable during the
next several years. Moreover, since issuing additional shares would dilute the
current shareholders' holdings, the Special Committee recognized that an equity
offering might result in shareholders' finding the value of their shares in
the future to be significantly less than what Mr. Zinn was then offering. The
Special Committee also considered whether there would be any advantage to
Besicorp's voluntarily commencing a bankruptcy proceeding, but decided it
would not solve Besicorp's need for additional capital. Consequently, Besicorp
had only two realistic options: liquidation and sale.
Old Besicorp had attempted to sell the Distributed Business before the
Prior Merger as part of a sale of all of Old Besicorp. However, every
prospective purchaser of Old Besicorp except for one had insisted that Old
Besicorp either sell or distribute the Distributed Businesses prior to their
purchasing Old Besicorp. One prospective purchaser had been willing to acquire
the Distributed Businesses together with the rest of Old Besicorp but the terms
were unacceptable. Old Besicorp's limited attempts to sell the Distributed
Businesses proved to be unsuccessful. In addition, since the Prior Spin-Off,
Besicorp had not been able to identify any potential purchasers (other than Mr.
Zinn). Moreover, since Mr. Zinn and the Trust held approximately 44.9% and 7.4%
of the shares of Besicorp Common Stock, it was highly unlikely that the sale of
Besicorp, which was likely to require shareholder approval, could occur without
Mr. Zinn's voting in favor of such a sale and Mr. Zinn had not indicated that he
would so vote. In these circumstances, especially since Besicorp's available
cash declined daily and Management projected that Besicorp's funds were only
sufficient to continue operations for two to six months, the Special Committee
could not justify spending substantial sums in efforts to find another possible
purchaser, or deferring consideration of Mr. Zinn's Initial Offer while waiting
to see if another potential purchaser would emerge.
Shortly after Mr. Zinn submitted his Initial Offer to Besicorp,
Besicorp issued a press release describing the Initial Offer with the
expectation that the Initial Offer would alert potential purchasers that the
-44-
Special Committee was considering offers; by issuing the press release, Besicorp
hoped that the Initial Offer would lead others to make offers to acquire
Besicorp. No one then or subsequently expressed any interest. Therefore, unless
Besicorp negotiated with Mr. Zinn, Besicorp's only alternative might be
liquidation. The Special Committee decided to negotiate with Mr. Zinn while
continuing to evaluate the other possibilities.
Negotiations between the Special Committee and Mr. Zinn initially
focused on the consideration to be paid for Besicorp. In order for the Special
Committee to be satisfied that a fair and best possible price was being paid,
the Special Committee engaged in a review, with the assistance of Josephthal, of
Besicorp and its assets and held various meetings with, and obtained information
from, senior officers of Besicorp, including Mr. Zinn, and contacted partners to
some of Besicorp's projects.
On July 7, 1999, the Special Committee, representatives of Robinson
Brog and representatives of Josephthal met representatives of Besicorp. The
representative of Besicorp present at the meeting were Michael F. Zinn, and the
representatives of Besicorp participating by telephone were Joyce DePietro, Vice
President -- Administration, David Kulik, President of SunWize, William Seils,
President of Besicorp Development, Joseph Novarro, Vice President Project
Development of Besicorp Development, and James Curtin, the Controller and Chief
Accounting Officer of Besicorp. In preparation for the meeting Josephthal had
circulated an outline identifying various categories of assets of Besicorp which
served as a basis for seeking information from the representatives of Besicorp
regarding Besicorp's assets and businesses. At this meeting, the Special
Committee discussed, among other things, SunWize and its prospects and reviewed
SunWize's management's current projections and its recent financial results. The
Special Committee noted SunWize's improving operating results (although SunWize
was still operating at a loss), its attempts to cut costs and to accelerate
collections. The Special Committee questioned Besicorp's representatives about
development projects in New York, India, Brazil, Gabon and Mexico (including
their status, risks and the possibility of selling Besicorp's interests). In
addition, the Special Committee sought information about partnership interests,
Hydro-Credits, the Escrow Fund and real property.
The Special Committee held a conference call with representatives of
Josephthal and representatives of Robinson Brog on July 22, 1999 to discuss
generally Besicorp's alternatives to selling Besicorp to Mr. Zinn. The Special
Committee discussed obtaining additional funds for Besicorp and noted the
difficulties in determining Besicorp's precise capital resource requirements
which included at least $5 million in development fees for the Empire Newsprint
Project and which capital resource requirements were subject to the uncertainty
of when, if ever, Besicorp would internally generate sufficient monies to fund
its operations. The Special Committee also discussed raising additional equity
through a public or private offering of Besicorp's securities, and noted the
risks described above. In addition, Josephthal indicated that, in its view,
because of the high risks of an investment in Besicorp and the amount of capital
likely to be required, a prospective investor would probably expect to acquire
control of Besicorp. The Special Committee also discussed selling SunWize or
selling Besicorp to another purchaser, but it was observed that any such
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transaction would probably require approval of the holders of Besicorp Common
Stock, and because of Mr. Zinn's and the Trust's ownership of approximately
44.9% and 7.4%, respectively, of the shares of Besicorp Common Stock, it would
be impossible to obtain shareholder approval without their cooperation of Mr.
Zinn. Therefore the Special Committee decided to obtain written confirmation of
its understanding that Mr. Zinn would not vote in favor of any such sale.
In addition, during the conference call the Special Committee discussed
certain issues in valuing Besicorp: namely that while it was possible to attempt
to value Besicorp's two principal businesses -- its photovoltaic business and
its independent power development business -- certain residual interests that it
had received from Old Besicorp pursuant to the Prior Contribution or as a result
of the Prior Merger were difficult to evaluate with any precision since they
represented uncertain amounts of cash that Besicorp might realize in the future;
moreover the receipt of these amounts did not depend upon on-going investments
by Besicorp: instead such monies would be the result of the efforts of third
parties, such as Niagara Mohawk's efforts to reach agreements with certain
hydro-energy developers before July 1, 2003. The value of the Escrow Fund
depended upon the indemnification obligations to BGI Parent as a result of the
Prior Merger and various expenses to be paid from the Escrow Fund and it was
difficult to quantify these amounts since Escrow Funds would be applied at
least until March 22, 2004 in response to BGI Indemnity Claims, BGI Monitoring
Costs and Litigation Costs, including litigation matters that might be
commenced in the future. Various non-recurring residual interests, mostly
related to the Partnerships, were also difficult to value since they
primarily consist of the right to receive any additional distributions, if
any, that might occur as businesses are wound up. See "Escrow Agreement" and
"Business of Besicorp -- Potential Non-Recurring Funds." Consequently, as
the Special Committee and its advisors attempted to analyze some of these
residual interests, it was realized that they could either make a rough estimate
of the value of these residual interests, which might prove to be too low, or
they could provide that additional, deferred payments would be made to the
shareholders after the closing of any sale to reflect accurately the proceeds
obtainable from the residual interests. It was believed that most of the
distributions, if any were ever to occur, would be made in the next several
years as various escrows and contingency funds relating to the partnerships were
released to the partners of the partnerships and as certain rights to payments,
such as the right to distributions in connection with Hydro-Credits, expired,
and that the Escrow Fund probably would not be released until after March 22,
2004. The Special Committee and Josephthal discussed the advantages of
distributing the partnership distributions and Hydro-Credits to Besicorp's
shareholders.
During the meeting on July 22, 1999, the Special Committee authorized
Josephthal and Robinson Brog to commence negotiations with Mr. Zinn. Therefore,
following the meeting, representatives of the Special Committee and Mr. Zinn
held a conference call to negotiate the terms of a possible transaction.
Representing the Special Committee were Robinson Brog and Josephthal. The
Special Committee's representatives indicated that they thought that the
purchase price was inadequate. Mr. Zinn responded by expressing concern about
SunWize's sustainability and the development of the Empire Newsprint Project.
The Special Committee's representatives also sought clarification about certain
aspects of Mr. Zinn's proposal, such as whether Mr. Zinn was proposing to
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acquire cash items, such as liquidating distributions from partnerships. Mr.
Zinn responded that he proposed only acquiring certain cash items whose receipt
was expected in the near future. As a result of this conversation, Mr. Zinn
orally offered to raise his offer to approximately $54.99 per share (based on
the number of shares then outstanding) which offer effectively valued Besicorp
at $7.5 million. In addition shareholders would receive a right to participate
pro rata in (1) liquidating distributions from partnerships, (2) Hydro-Credits
and (3) the release of funds from the Escrow Fund. This $7.5 million valuation,
after giving effect to his ownership position in Besicorp (other than his
Management Restricted Shares), would result in a price to be paid by Mr. Zinn of
approximately $4.3 million in cash (including approximately $740,000 in
Restricted Merger Consideration) assuming that no shares of Besicorp Common
Stock were issued or cancelled and there were no Dissenters.
The Special Committee held another conference call with representatives
of Robinson Brog on July 23, 1999. The Special Committee discussed Mr. Zinn's
revised oral offer, and the fact that while Mr. Zinn's purchase of Besicorp
would not be a taxable event for him, it was likely that the other shareholders
would be subject to short term capital gain taxes if the transaction were
effectuated before March 22, 2000. The Special Committee also discussed the
shareholder approval that would be required before the consummation of the sale:
the Special Committee considered whether members of Management including Mr.
Zinn should be allowed to vote all of their shares, none of their shares, or
only some their shares (e.g., all but their Management Restricted Shares) or
whether their votes should be "neutralized" and if so what method of
neutralizing should be used.
The Special Committee held a conference call with representatives of
Josephthal and Robinson Brog on August 2, 1999. Josephthal and the Special
Committee discussed in detail the assumptions (including Josephthal's reliance
upon information provided by Management), its methodology and the limitations in
the analysis that Josephthal was preparing. Josephthal discussed its review of
companies that might be comparable in terms of line of business with SunWize and
the returns on investment that investors might require to invest in SunWize.
Josephthal noted that Venture Economics Information Services had conducted a
study which showed that investors in "venture capital investments" required
returns that averaged, on an annualized basis, 37.7% and 33.7% over a three year
and five year period, respectively. Josephthal stated that in its view,
investors would likely require returns in a similar range to invest in Besicorp.
Josephthal explained that in evaluating the Empire Newsprint Project it had
relied on the Financial Model and its underlying assumptions, but had not
prepared independent financial projections although Josephthal explained that it
viewed the Financial Model as "optimistic" since it had been prepared with a
view toward selling an equity position in the Empire Newsprint Project. The
Special Committee and Josephthal also discussed assumptions made by Josephthal
in preparing its analysis including its treatment of the Corporate Headquarters.
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The Special Committee again considered alternatives to the sale of
Besicorp to Mr. Zinn. The Special Committee renewed its discussion of a possible
sale of SunWize; however, the Special Committee continued to believe that Mr.
Zinn would vote against such a sale. It was observed that such a sale would
result in the shareholders continuing to own Besicorp Development which would
continue to require large amounts of capital; the Special Committee tentatively
concluded that it would be preferable to provide the shareholders with cash now
by engaging in a transaction with Mr. Zinn rather than to sell SunWize to
finance projects for Besicorp Development that might never produce any returns
for the shareholders. The Special Committee again considered having Besicorp
issue stock to raise equity since this could be done over Mr. Zinn's objections.
However, Josephthal noted that, in its view, attempting to raise addition equity
was at best speculative, would not produce any immediate returns to stockholders
and might cause Mr. Zinn to withdraw his proposal.
The Special Committee met with representatives of Josephthal and
Robinson Brog on August 9, 1999. At this meeting the Special Committee examined
in detail Josephthal's analysis of Besicorp and sought additional information
about Josephthal's assumptions, comparisons, methodology and the limitations
to its review, including its reliance, without independent verification,
on information provided by Management. Josephthal noted that it had reviewed
projections and cash flows only for SunWize and the Empire Newsprint Project.
The Special Committee discussed the process that Josephthal used in
evaluating SunWize and in particular the appropriateness of the comparable
companies identified in the Josephthal analysis. The Special Committee focused
particular attention on the fact that SunWize's growth rate was double that of
Golden Genesis, which was identified as one of the companies comparable to
SunWize. In Josephthal's view, the difference in growth rates was not
sufficiently large enough to justify a larger multiple than the multiple
indicated by Golden Genesis. The Special Committee then discussed the discount
rates used in the analysis of "free cash flow" for SunWize which ranged from
the 30-40% as compared to the 15% rate used in SunWize's own projections. It was
also noted that SunWize's operating results for Fiscal 1999 had improved
significantly over Fiscal 1998's results. Josephthal explained that
Management had advised Josephthal that even though SunWize had been in
existence for a number of years, its industry was marked by market uncertainty
and an absence of profitability. Thus, Josephthal determined that potential
investors would likely require rates of return similar to those required by
"venture capital investors" which based on the study by Venture Economics
Information Services referred to above, ranged from 37.7% to 33.7%. Josephthal
noted that the same returns would likely be required by investors in the Empire
Newsprint Project since it was an "early stage" venture. The Special Committee
asked whether there were any other valuation methodologies, such as comparable
transaction analyses, and whether they could be used to evaluate SunWize.
Josephthal indicated that it would determine whether there were any other
valuation methodologies, such as comparable transaction analyses, that could
be used to evaluate SunWize.
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At this meeting, the Special Committee also discussed the Restricted
Shares and what would happen to the Management Restricted Shares if no action
were taken by the Board to accelerate their vesting. The Special Committee also
discussed the period leading up to the Closing Date. The Special Committee
wanted to ensure that the buyer would still be required to buy Besicorp even if
Besicorp's prospects worsened following the signing of the purchase agreement
and at the same time the Special Committee wanted to protect the shareholders if
Besicorp's prospects were to improve. It was suggested that in certain
conditions, such as the receipt of a superior purchase proposal, Besicorp should
be entitled to terminate any agreement with Mr. Zinn.
Following the meeting, the Special Committee, and representatives of
Robinson Brog and Josephthal met representatives of Besicorp. The
representatives of Besicorp present at the meeting were Michael F. Zinn, Michael
J. Daley, Frederic Zinn and Joyce DePietro. The Special Committee obtained
additional information from the representatives of Besicorp regarding Besicorp's
assets and businesses and the prospects of the foreign projects.
Following the meeting with the representatives of Besicorp,
representatives of the Special Committee and Mr. Zinn met again to refine the
terms of a possible transaction . Representing the Special Committee were
Robinson Brog and Josephthal. The Special Committee's representatives relayed
the Special Committee's belief that Mr. Zinn's offer based on a $7.5 million
valuation of Besicorp was inadequate. In addition, the Special Committee's
representatives asked Mr. Zinn to clarify whether he had intended to acquire
receivables such as monies recovered as the result of Besicorp's prosecution
of its litigation claims. Mr. Zinn confirmed he did not intend to acquire
more than his pro rata interest as a shareholder in the financial benefit
from litigation claims. As a result of such meeting, Mr. Zinn orally offered to
raise the valuation from $7.5 million to $8 million.
On August 10, 1999, Mr. Zinn submitted his Revised Offer in which he
offered to increase the amount he would pay for Besicorp, which amount was based
on a valuation of Besicorp of $8 million, which is the amount Parent has agreed
to pay as the Aggregate Cash Merger Consideration pursuant to the Plan of
Merger. This $8 million valuation, after giving effect to his ownership position
in Besicorp (other than his Management Restricted Shares), would result in a
price to be paid by Mr. Zinn of approximately $4.6 million in cash (including
approximately $800,000 in Restricted Merger Consideration) assuming that (i) no
shares of Besicorp Common Stock are issued or cancelled prior to the Merger and
(ii) there are no Dissenters.
In his Revised Offer, Mr. Zinn confirmed in writing that he would
oppose, and that the Independent Trustee for the Trust had indicated that the
Trust would oppose, the sale of Besicorp to anyone other than Mr. Zinn. As Mr.
Zinn and the Trust beneficially owned more than 50% of the outstanding shares of
Besicorp Common Stock they would be able to veto a sale of Besicorp. Mr. Zinn
also indicated in the Revised Offer that he would not guarantee any loans "in a
public company," which guarantee lenders were likely to require prior to lending
funds to Besicorp. These statements made it still less likely that Besicorp
would be able to either borrow funds or attract any potential purchasers other
than Mr. Zinn and provided the first written suggestion that Mr. Zinn would be
prepared to guarantee a loan if he acquired Besicorp.
-49-
By the time of the Revised Offer, Mr. Zinn had agreed to provide a
right to payments from (1) funds released from the Escrow Fund, (2) recoveries
as a result of Besicorp's litigation claims, (3) certain distributions from
partnerships, and (4) certain distributions as a result of Hydro- Credits.
The Special Committee held a conference call with Josephthal and
Robinson Brog on August 13, 1999 to discuss Mr. Zinn's Revised Offer. At this
meeting the Special Committee decided to ask Mr. Zinn to fund Besicorp's
operations following the signing of a purchase agreement. The Special Committee
also discussed other methods of ensuring the "fairness" of the transaction such
as "neutralizing" the voting by members of the management and thought it might
be appropriate to "neutralize" the voting of the Management Restricted Shares to
since these shares had been issued recently. The Special Committee discussed the
valuations of the development projects. Even though it was recognized that it
was unlikely that any particular project would ever be completed, and that if a
project were to be completed it would not be for several years, the Special
Committee realized that if a project were completed Besicorp might
obtain a great deal of money as a result of its development activities and its
ownership of partnership interests. Some of the projects had only been initiated
recently and therefore their prospects were difficult to evaluate. Moreover,
representatives of the Special Committee had spoken to Besicorp's partners in
Brazil and Mexico and they were optimistic about the possible success of the
initiatives. Although Management asserted that Besicorp did not expect to
receive any benefits from these projects in the near future, the Special
Committee was concerned that the shareholders would lose a benefit if any of the
projects unexpectedly produced significant profits. The Special Committee
concluded that it would ask Mr. Zinn to share in the profits if Besicorp were to
sell any of its development interests within a certain period of time.
Following the meeting, representatives of the Special Committee and Mr.
Zinn held a negotiating session to further refine the terms of a possible
transaction. Representing the Special Committee were Robinson Brog and
Josephthal. The Special Committee's representatives discussed their analysis of
the foreign development projects and the status of these projects. They observed
that if any projects were sold without the expenditure of significant amounts of
money by Besicorp, such a sale would be akin to a liquidating distribution and
Mr. Zinn should not be entitled to a windfall. As a result of such meeting, Mr.
Zinn agreed (i) to provide a deferred payment if a foreign development interest
were sold within one year, (ii) to "neutralize" the votes of the Management
Restricted Shares and (iii) in principal that if a purchase agreement were
signed, the buyer would provide temporary financing in the event Besicorp ran
out of cash.
During the remainder of August, representatives of the Special
Committee and Mr. Zinn discussed possible structures for the acquisition; they
considered stock sales, asset sales and mergers. Neither a stock sale nor an
asset sale would provide better tax treatment to the Outside Shareholders than a
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merger. A merger, unlike an asset sale, would also ensure that the buyer would
acquire all of Besicorp's liabilities, including contingent and unknown
liabilities. An asset sale and a merger would be subject to shareholder
approval. A tender offer would not be subject to a shareholder vote, but it
would be necessary to follow up the tender offer with a "cash-out" merger and if
fewer than 90% of the outstanding shares were tendered, Mr. Zinn would need to
obtain shareholder approval prior to the merger, which would make a tender offer
potentially more time consuming and expensive than an asset sale or a merger.
Thus the parties determined that Mr. Zinn's purchase of Besicorp should be
effected by a merger.
The Special Committee also considered requiring adoption of the Plan of
Merger by the shareholders other than Mr. Zinn, but Mr. Zinn indicated he was
unwilling to spend time and money negotiating if approval by the unaffiliated
shareholders would be required. As no one else had expressed any interest in
acquiring Besicorp, funding for Besicorp's current operations was unavailable,
and Besicorp's best alternative to negotiating with Mr. Zinn would have been
liquidation, the Special Committee decided not to require approval by the
unaffiliated shareholders, believing that sufficient procedural safeguards were
in place to ensure procedural fairness.
Following these discussions, a draft of an agreement and a plan of
merger was prepared by the Special Committee's counsel and circulated to the
Special Committee, Besicorp, Mr. Zinn and his special counsel, Zeichner Ellman.
This draft was circulated as a means to set forth in general terms a proposed
structure in which a wholly owned subsidiary of Parent (i.e. Acquisition Corp.)
would be merged with and into Besicorp, with Besicorp as the surviving
corporation and with the shareholders of Besicorp receiving for their shares
cash and a deferred payment right.
On or about September 10, 1999, the Special Committee's representatives
delivered the September 10 Draft of an agreement and plan of merger to
representatives of Mr. Zinn. This draft reflected a number of revisions to the
initial draft based on further discussions between representatives of Mr. Zinn
and Besicorp as to structure, and especially the mechanics of the deferred
payments. The September 10 Draft revised the terms of the bridge financing to be
provided by the buyer to require Besicorp to provide a security interest to the
buyer and to contain solvency requirements as a condition to the advancing of
loans. The indemnification provisions were revised and certain other
representations, covenants and other provisions were refined. There were no
other material changes in this draft.
On or about September 16, 1999, the Special Committee's representatives
delivered the September 16 Draft of an agreement and plan of merger to
representatives of Mr. Zinn. This draft reflected a number of revisions to the
September 10 Draft. Additional refinements were made to the mechanics of the
deferred payments. The insurance and indemnification provisions were revised and
certain other representations, covenants and other provisions were refined.
There were no other material changes in this draft.
-51-
The Special Committee held a conference call with representatives of
Josephthal and Robinson Brog on September 22, 1999. Prior to this meeting
Josephthal delivered its written opinion to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
Merger Consideration was fair, from a financial point of view, to the holders of
Besicorp Common Stock (other than the Buyer). See "-- Opinion of Financial
Advisor." Josephthal gave a presentation after which it answered questions from
the Special Committee. The Special Committee reviewed the assumptions made in
and the limitations to Josephthal's report. The Special Committee noted that
Josephthal's report included an analysis of comparable transactions, but that
there were only two comparable transactions for which there was publicly
available financial information and one involved the acquisition of only a small
percentage of a company's stock. The Special Committee noted that shareholders
would receive the cash merger consideration and deferred payment rights. The
Special Committee also noted that certain members of Besicorp's Management had
certain interests in the Merger that were in addition to or different from the
interests of the Outside Shareholders. These included (1) Mr. Zinn's increased
control of Besicorp, (2) the benefit Mr. Zinn would realize if any holders of
Management Restricted Shares were to cease to be employees of the Surviving
Corporation before the vesting of the Restricted Merger Consideration and (3)
the fact that the Merger would not be a taxable event for Mr. Zinn although it
would be a taxable event for the Outside Shareholders. See "--Interests of
Executive Officers and Directors in the Merger." The Special
Committee also reviewed the September 16 Draft and discussed various aspects,
including the merger consideration, the bridge loans to be provided by the buyer
and the indemnification and insurance provisions. The Special Committee noted
the following: (1) the deferred payment fund is under the control of the
Surviving Corporation which may act without the consent of the Outside
Shareholders, so that the Surviving Corporation has the ability to decide (a)
whether to sell a project, and if so for how much, (b) whether to use, so long
as BGI Acquisition consented, amounts in the Escrow Fund that if not used would
end up becoming a part of the deferred payment fund and (c) whether to prosecute
and settle claims; (2) there would be no effective means of monitoring expenses
that the Surviving Corporation might assert should reduce deferred payments; (3)
the Surviving Corporation has the right to and intends to restructure itself
after the closing, may not exist for many more years and sales, liquidations and
restructuring may further complicate the shareholders' ability to realize
deferred payments; (4) the draft provides for neutralized voting for the
Management Restricted Shares and requires Mr. Zinn to vote his shares in favor
of the Merger; (5) the draft provides that if the deal is terminated Besicorp
will repay within four months all monies lent by the buyer to fund Besicorp's
operations prior to the closing. The Special Committee decided to seek to revise
the plan of merger to increase control over deferred payments by requiring that
deferred payments associated with the Escrow Fund be paid over to Continental
and not to the Surviving Corporation and permit Besicorp to repay loans from the
buyer six months after the termination date.
On or about September 23, 1999, the Special Committee's representatives
delivered the September 23 Draft of the agreement and plan of merger to
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representatives of Mr. Zinn. This draft reflected a number of revisions to the
September 16 Draft. Additional refinement were made to the components of the
deferred payments, which were revised to include certain amounts received
between signing the agreement and closing. Besicorp was required to irrevocably
instruct the Escrow Agent under the Escrow Agreement to release to Continental
the Outside Participating Shareholders' pro rata share of monies released from
the Escrow Fund. Besicorp was permitted to repay loans from the buyer six months
after the termination date; however, limitations were imposed with respect to
the amount of money the buyer was required to lend to Besicorp and the
conditions that had to be satisfied before the buyer was required to advance a
loan. The insurance and indemnification provisions were revised and certain
other representations, covenants and other provisions were refined. There were
no other material changes in this draft. In addition, drafts of all of the
exhibits to the Initial Plan of Merger were circulated.
On or about September 28, 1999, the Special Committee's representatives
delivered the September 28 Draft of the agreement and plan of merger to
representatives of Mr. Zinn. There were no material changes in this draft. In
addition, revised drafts of certain exhibits to the Plan of Merger were
circulated.
In early October several additional drafts and partial drafts were
circulated. These reflected a number of further minor changes to the agreement
and plan of merger and limited the guaranty's guarantee of the payment of
deferred payment rights by providing Mr. Zinn generally had no obligation to
guarantee payments to the extent that assets of the deferred payment fund are
subject to acts by government entities that prohibit Besicorp from paying
obligations to the Outside Participating Shareholders.
The Special Committee held a conference call with representatives of
Josephthal and Robinson Brog on October 7, 1999. At this meeting the Special
Committee noted that 15 days had passed since the date of the Fairness Opinion
and discussed whether they still could rely on the Fairness Opinion. It was
noted that there had been no material improvements to Besicorp's conditions,
Empire Newsprint Project was encountering unanticipated opposition from third
parties, Besicorp's available cash had continued to decline, Management
continued to predict that Besicorp would run out of funds by November 30, 1999
and no other potential buyers had appeared. The Special Committee concluded that
these changes would not likely positively impact Besicorp's value and that it
was therefore appropriate to rely on the Fairness Opinion. The Special Committee
also reviewed the current form of the Initial Plan of Merger and the changes to
Mr. Zinn's guaranty. The Special Committee noted the matters and provisions
contained in the draft that they had discussed on September 22, 1999. The
Special Committee reviewed the deliberations it had held and the factor
identified under "-- Recommendation of the Special Committee and the Board of
Directors; Fairness of the Merger." The Special Committee then decided to
recommend to the Board that the Board adopt the Initial Plan of Merger.
Immediately after the meeting of the Special Committee, a meeting of
the Board was held. It was confirmed that there had been no material
-53-
improvements to Besicorp's conditions, and then Mr. Zinn was asked to excuse
himself so the rest of the Board could consider adopting the Initial Plan of
Merger. Josephthal made a presentation of its Fairness Opinion to the Board. The
Special Committee reviewed with the Board the various factors that it had
considered in its deliberations including the factors set forth above and the
factors identified below under "-- Recommendation of the Special Committee and
the Board of Directors, Fairness of the Merger." The Special Committee then
recommended adoption of the Initial Plan of Merger. Based upon its discussions,
the Board determined that in light of the current circumstances and future
prospects of Besicorp, and the other factors described above and the factors
identified below under "-- Recommendation of the Special Committee and the Board
of Directors, Fairness of the Merger," the Initial Plan of Merger was fair to
and in the best interest of Besicorp and its shareholders (other than the
Buyer). The Board (other than Mr. Zinn, who abstained because he and members of
his immediate family own Parent) adopted the Initial Plan of Merger. The Initial
Plan of Merger was signed on October 7, 1999.
On November 24, 1999, a meeting of the Special Committee was held to
discuss the effects of the Merger on the Bansbach Litigation. The Special
Committee was concerned that consummation of the Merger would cause the named
plaintiff in the Bansbach Litigation to lose his status as a shareholder of
Besicorp, and therefore would cause the termination of the Bansbach Litigation.
See "-- Interests of Executive Officers and Directors in the Merger." In order
to ensure that the Bansbach Litigation was not terminated as a result of the
Merger, the Special Committee decided to recommend a spin-off which would permit
the Bansbach Litigation to continue.
The Special Committee then proceeded to discuss whether the Plan of
Merger, which had been previously circulated, was in the best interest of
Besicorp and its shareholders. Among other matters, the Special Committee
discussed the effects of the Plan of Merger's changes to the Initial Plan. These
changes (i) effectuated the Spin-Off, thereby providing a benefit to Besicorp's
shareholders to the extent the Spin-Off permitted the plaintiff to maintain the
Bansbach Litigation and (ii) made technical changes to clarify certain matters,
including the treatment of shares held by Dissenters and the effect of appraisal
rights on the Merger Consideration.
In connection therewith, the Special Committee reviewed and discussed
various aspects of, and factors pertaining to the Merger and the Plan of Merger
and the transactions contemplated thereby, including the Spin-Off, and reviewed
and discussed, among other things, its deliberations of September 22, 1999 and
October 7, 1999. The Special Committee noted that approximately two months had
passed since the date of Josephthal's Fairness Opinion and discussed whether
they could still rely on the Fairness Opinion. The Special Committee invited
Management to participate in the meeting so as to obtain additional information
regarding Besicorp's financial condition and prospects. Management advised the
Special Committee that there had been no favorable material developments
regarding Besicorp since the date of the Fairness Opinion and that no offers for
Besicorp, SunWize or the project initiatives had been made. The Special
Committee concluded that it could continue to rely on the Fairness Opinion.
Based upon its discussions, the Special Committee determined that in light of
the current circumstances and future prospects of Besicorp, the Merger, the Plan
of Merger and the Merger Consideration were fair to and in the best interest of
Besicorp and its shareholders (other than the Buyer). The Special Committee
unanimously recommended that the Board adopt the Plan of Merger.
-54-
Immediately afterwards a meeting of the Board was convened. Based upon
the Special Committee's recommendations and upon (i) the Board's discussions of
the effects of the Merger on the Bansbach Litigation and the changes to the
Initial Plan contained in the Plan of Merger, (ii) the Board's review of its
deliberations on October 7, 1999, and (iii) the Board's review and discussion of
various aspects of and factors pertaining to the Merger and the Plan of Merger
and the transactions contemplated thereby, the Board, with Mr. Zinn abstaining
because he and members of his immediate family own Parent, decided to effectuate
a spin-off and determined, that in light of the current circumstances and future
prospects of Besicorp, the Merger, the Plan of Merger and the Merger
Consideration were fair to and in the best interest of Besicorp and its
shareholders (other than the Buyer). The Board (other than Mr. Zinn, who
abstained because he and members of his immediate family own Parent) adopted the
Plan of Merger. On November 24, 1999 the Plan of Merger was signed.
Accordingly, the Merger is intended to maximize the return to
Besicorp's shareholders by providing them with at least $58.87 in cash and a
Combined Deferred Payment Right, for each share of Besicorp Common Stock they
hold. However, as a result, Parent, through Acquisition Corp., will acquire all
of the outstanding shares of Besicorp Common Stock.
If the Merger is effectuated, holders of Besicorp Common Stock will no
longer have any equity interest in Besicorp. Instead, each such shareholder will
receive, upon surrender of the Certificate or Certificates evidencing Besicorp
Common Stock, the Merger Consideration in exchange for each share of Besicorp
Common Stock owned by such shareholder immediately prior to the Effective Date.
See "-- Certain Effects of the Merger."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS; FAIRNESS OF THE MERGER
The proposed Merger and the Plan of Merger were negotiated by Besicorp
and its representatives on an arms-length basis with Parent. Since Michael F.
Zinn and members of his immediate family beneficially own the Buyer, in order to
protect the unaffiliated shareholders (i.e., the shareholders other than the
Buyer) and provide procedural safeguards regarding the fairness of the
transaction, the Board appointed a Special Committee consisting solely of
Independent Directors, none of whom are employees of Besicorp, to represent
Besicorp in these negotiations and the Special Committee engaged a financial
advisor, Josephthal, which is not affiliated with Besicorp or Mr. Zinn, to
prepare a report concerning the fairness of the transaction. Josephthal was not
engaged to negotiate the terms of the proposed transaction but it did assist the
Special Committee in its negotiations. In addition, the Special Committee
retained a legal advisor, Robinson Brog, to assist it in evaluating the proposed
transaction. The Special Committee also considered requiring adoption of the
Plan of Merger by the shareholders other than the Buyer, but the Buyer indicated
it was unwilling to spend time and money negotiating if approval by the
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unaffiliated shareholders would be required. As no one else had expressed any
interest in acquiring Besicorp, funding was unavailable, and Besicorp's only
alternative to negotiating with the Buyer would have been liquidation, the
Special Committee decided not to require approval by the unaffiliated
shareholders, believing that sufficient procedural safeguards were in place to
ensure procedural fairness.
Over the course of an almost five month period, the Special Committee,
with the assistance of these advisors, analyzed and evaluated the proposed
merger and alternatives thereto and negotiated the terms of the Initial Plan of
Merger with the Buyer. As a result of the appointment of the Special Committee,
the engagement of Josephthal to prepare a fairness opinion and assist in the
negotiations and as a result of the Special Committee's analysis and evaluation,
and after taking into account the Spin-Off, the Special Committee unanimously
determined that the Merger and the Plan of Merger were fair to, and in the best
interests of Besicorp and its shareholders (other than the Buyer), and
unanimously recommended approval of the Merger and adoption of the Plan of
Merger by the Board.
Following the Special Committee's delivery of its recommendations to
the Board, the Board (other than Mr. Zinn, who abstained because he and members
of his immediate family own Parent) determined that the Merger and the Plan of
Merger are fair to, and in the best interests of, Besicorp and its shareholders
(other than the Buyer), and recommended approval of the Merger and the adoption
of the Plan of Merger by Besicorp's shareholders.
-56-
In reaching its conclusion that the Merger and Plan of Merger were in
the best interests of Besicorp and its shareholders, the Special Committee and
the Board considered all the material factors described above in "-- Purpose,
Effects and Background of the Merger," including the information and factors set
forth below.
The most significant factors in favor of adopting the Merger and the Plan of
Merger are as follows:
o Besicorp has liquidity, capital resource and cash flow
problems; in August 1999, Management estimated that Besicorp
would be unable to fund its operations after approximately mid
December, 1999. These problems left Besicorp with the
following alternatives or solutions: reduce operating expenses
or obtain financing to fund Besicorp's operations until it
became self- sustaining. Besicorp could reduce its operating
expenses by eliminating expenses relating to power plant
developments, which expenses amount to approximately $550,000
to $850,000 per year; however, this would only produce a small
savings and would only delay briefly Besicorp's running out of
cash. Besicorp had no other means of significantly reducing
its operating expenses. Besicorp could attempt to obtain debt
or equity financing and numerous discussions with Josephthal
were conducted concerning such alternatives. Because its
businesses had a history of losses, and limited prospects for
short term profitability, Besicorp would most likely be unable
to obtain debt financing to finance ongoing operations without
a guaranty from Mr. Zinn, which he was unwilling to provide.
While equity financing would not require Mr. Zinn's guaranty,
there were many uncertainties associated with any equity
financing, including how much cash could be raised and what
effect such financing would have on Besicorp's short term and
long term liquidity and capital resources. In addition, an
equity financing would dilute substantially the equity
interests of Besicorp's current shareholders. Finally, even
if Besicorp could obtain financing, there was a substantial
risk that SunWize and the power development projects would not
become profitable and that profitability, if achieved, might
only be achieved after the passage of at least three years, if
not greater. Thus, it was believed that the equity financing
might merely postpone Besicorp's running out of cash and that
the shareholders would never be able to realize any
significant return on their investment. Because of the
uncertainties associated with an equity financing; the risks
and passage of time that would be involved in waiting
for Besicorp to become profitable and the dilution that would
reduce the per share benefits of any profits, the potential
benefits associated with an equity financing were outweighed
by the benefits of accepting the Cash Merger Consideration and
the potential for getting additional cash from the
-56-
Combined Deferred Payment Rights. Thus, Besicorp concluded its
only realistic options were liquidating or selling the
Company.
o Besicorp's liquidity, capital resource and cash flow problems
could be avoided by selling it to a person or entity
unaffiliated with Mr. Zinn or the Buyer. However, no competing
proposals to acquire Besicorp emerged and it seemed unlikely
that any competing proposals would emerge in the foreseeable
future: Old Besicorp had been unsuccessful in its limited
attempts to sell the Distributed Businesses; Mr. Zi nn had
indicated his opposition to a sale to any other buyer and
because his significant ownership interest in Besicorp would
probably permit him to veto (in his capacity as a Besicorp
shareholder) any such transaction, potential buyers might be
less interested in attempting to acquire Besicorp. In
addition, almost four months had elapsed between Besicorp
publicly disclosing Mr. Zinn's offer and the Board's adopting
the Initial Plan of Merger without any other person offering
to acquire Besicorp or any of its businesses. This factor
suggested there would not be any competing offers for
Besicorp, nor any potential for a bidding war driving up the
price for Besicorp and that if it was determined to sell
Besicorp, it would be necessary to sell Besicorp to Mr. Zinn.
-57-
o Another alternative was to liquidate Besicorp. Though no
attempt was made to quantify formally Besicorp's liquidation
value, it was believed that the per share proceeds from a
liquidation would be less than the Cash Merger Consideration
payable per share; further, if a liquidation were proposed, a
significant number of Besicorp's more senior employees might
quit thereby adversely affecting Besicorp's liquidation value.
o Josephthal's presentation and the Fairness Opinion to the
effect that, as of the date of such Opinion, the Merger
Consideration to be received by the Outside Participating
Shareholders is fair, from a financial point of view, to those
shareholders, as well as the assumptions made, and the
limitations, in the Fairness Opinion, and the analysis
prepared by Josephthal. Extensive discussions were conducted
with respect to Josephthal's analysis. See "Factors to be
Considered - Purposes, Effects and Background of the Merger".
Consideration was given to the fact that the Fairness Opinion
had not been updated (i.e., approximately two months elapsed
from the rendering of the Fairness Opinion to th date of
adoption of the Plan of Merger), and the number of companies
included in the Josephthal analysis. The absence of an update
to the Fairness Opinion was considered immaterial because
there had been no favorable material developments regarding
Besicorp that would suggest that an updated fairness opinion
would result in a higher valuation for Besicorp. The number
of comparable companies and similar transactions involving
comparable companies in Josephthal's analysis was noted not
deemed to be of particularly high significance because such
number is merely a reflection of the size of the industry
in which Besicorp operates and is not reflective of Besicorp's
value. The Fairness Opinion indicated that the Merger
Consideration to be received by the Outside Participating
Shareholders was fair, from a financial point of view, to such
shareholders.
o The Outside Participating Shareholders will receive Cash
Merger Consideration of at least $58.87 per share and may
receive additional cash in the future as a result of Combined
Deferred Payments. It was observed that if the Merger was not
consummated, Besicorp either would or would not obtain
sufficient financing to fund its operations. If Besicorp did
not obtain financing to fund its operations, Outside
Participating Shareholders would receive no benefit from their
shares of Besicorp Common Stock (except to the extent the
Escrow Fund still held monies at the end of the escrow period
(which funds would, after being applied to satisfy claims of
creditors, be distributed to them at a later date)); if
Besicorp obtained financing, it was believed that the
benefits associated with a continued ownership interest in
Besicorp were likely to be less than benefits afforded by
receipt of the Merger Consideration in light of the
substantial uncertainties and risks associated with Besicorp's
businesses.
-58-
The factors that were considered to be of intermediate
significance in favor of adopting the Merger and the Plan of Merger are as
follows:
o The $8 million valuation ascribed to Besicorp by virtue of the
Cash Merger Consideration payable pursuant to the Plan of
Merger exceeded by approximately $1.3 million Besicorp's book
value at June 30, 1999 of approximately $6.7 million (after
eliminating approximately $1.4 million in total assets
reflected on Besicorp's consolidated balance sheet as such sum
represents amounts held in escrow by third parties and which
are, to the extent received by Besicorp, to be distributed
pursuant to the Combined Deferred Payments Rights). See
"Business of Besicorp - Potential Non-Recurring Funds." In
addition, it was likely that Besicorp's book value would
continue to decline because of its ongoing losses. This
suggested that the Cash Merger Consideration payable to the
Outside Participating Shareholders was fair because Buyer was
not acquiring Besicorp at a discount to Besicorp's equity
value as reflected on its consolidated financial statements.
o Besicorp should have an easier time obtaining financing
following the Merger, because Mr. Zinn indicated that if the
Buyer acquires Besicorp, he would be willing to contribute
additional equity to Besicorp or guarantee Besicorp's debt
financing, both of which he refused to do unless he and
members of his family owned Besicorp. This factor suggested
that it would be in Besicorp's best interest to "go private"
as it would have access as a private company to financial
resources that would otherwise be unavailable to it.
o By effectuating the Plan of Merger and going private, Besicorp
would be able to eliminate legal, accounting and other
miscellaneous fees and expenses associated with being a public
company. This factor suggested that it would be in Besicorp's
best interests to adopt the Plan of Merger and effectuate the
Merger as Besicorp would realize significant cost savings by
being a private company. (See "--Certain Effects of the
Merger.")
o There is no public trading market for Besicorp Common Stock;
the Merger presents to Outside Shareholders an opportunity to
convert their liquid Besicorp holdings into cash.
-59-
o Mr. Zinn guaranteed, with certain exceptions, the payment of
the Deferred Payments. This factor strengthened the prospect
that the Combined Deferred Payment Rights would provide value
to the Outside Participating Shareholders.
The factors that were in favor of adopting the Plan of Merger
and effectuating the Merger but were of less significance than the factors
identified above are as follows:
o The provisions regarding Acquisition Proposals in the Plan of
Merger that permit the Special Committee or the Board to
approve a transaction other than the Merger if either one of
them determines properly that another transaction is more
favorable to the Outside Shareholders. This factor suggested
that the Plan of Merger would not preclude the possibility
(albeit unlikely) of a competing proposal.
o The belief that the non-financial terms of the Plan of Merger,
including the parties' representations, warranties and
covenants and conditions to obligations to consummate the Plan
of Merger, are reasonable.
o The Neutralization Tabulation eliminated the ability of the
Management Restricted Shares to influence the outcome of the
vote on adopting the Plan of Merger (although the Special
Committee and the Board were aware that the Buyer together
with the Trust had the votes needed to adopt the Plan of
Merger). This factor was given only nominal significance
because notwithstanding the Neutralization Tabulation, the
Buyer (together with the Trust) has sufficient votes to adopt
the Plan of Merger.
The Special Committee and the Board of Directors also
considered potential drawbacks relating to the Merger and the Plan of Merger.
The most serious drawback associated with the Merger and Plan of Merger was as
follows:
o If Besicorp has future successes, for example, if it were to
develop the Empire Newsprint Project or another power plant
project or there were to be improvements in its photovoltaic
business, the Outside Shareholders would not share in the
benefits of such successes. This concern was addressed by,
among other things, a careful review of the contractual
arrangements and status of Besicorp's development projects and
the prospects for improvements in its photovoltaic business.
-60-
Drawbacks to the Merger and the Plan of Merger of intermediate
significance were as follows:
o The gain, if any, recognized by the Outside Participating
Shareholders from the receipt of the Cash Merger Consideration
will be taxed in 2000 (and the Cash Merger Consideration will
be taxed at short term capital gains rates if the Merger is
effectuated before March 22, 2000] and if the Merger is
effectuated after March 22, 2000, the Cash Merger
Consideration will be taxed at long term capital gain rates)
and the Combined Deferred Payments will be taxed as long term
capital gains, whereas there will be no immediate tax effect
upon the Buyer as a result of the Merger.
o The relative complexity of the Combined Deferred Payment
Rights, the uncertainties with respect to the amount of
proceeds to be received from Combined Deferred Payment Rights
and the limitations on the ability of the Outside
Participating Shareholders to monitor the Combined Deferred
Payments or ensure that the Deferred Payments will be paid.
o The degree to which the realization of Combined Deferred
Payments are within the control of the Surviving Corporation
whose actions may compromise, delay and reduce certain of such
payments and the limitations with respect to Mr. Zinn's
guarantee of such payment. These concerns, as well as the
concern identified immediately above, were addressed in part
by requiring (i) the Surviving Corporation to deliver
irrevocable instructions to the Escrow Agent to distribute to
Continental -- and not the Surviving Corporation -- any monies
payable to the Outside Participating Shareholders pursuant to
the Escrow Fund Payment Rights and (ii) the Surviving
Corporation to deliver to the Outside Participating
Shareholders certain information whenever a deferred payment
is made to them.
Drawbacks to the Merger and the Plan of Merger of lesser
significance were as follows:
o The possibility Besicorp will default under the Parent Loan
before the Merger is consummated and the probability that
Besicorp will default under the Parent Loan if the Plan of
Merger is terminated; in the event of a default under the
Parent Loan, because Parent has a security interest in
Besicorp's assets and could foreclose on those assets.
o Mr. Zinn and other executive officers and directors will
benefit (without the Outside Shareholders benefiting as well)
from the effectuation of the Merger because they have
interests in addition to or different from the interests of
the Outside Shareholders. For example, Mr. Zinn will increase
his holdings in Besicorp (and indirectly become the sole
owner).
-61-
Neither the Special Committee nor the Board considered current market
prices or historical market prices for Besicorp Common Stock because, inasmuch
as the Besicorp Common Stock is not publicly traded, no such prices were
available.
Except as set forth above, the Special Committee and the Board did not
quantify, rank or otherwise assign relative weights to the specific factors they
considered. In considering the factors described above, individual members of
the Special Committee and the Board may have given different weight to different
factors. The Special Committee and the Board considered all these factors as a
whole, and considered the factors collectively to be favorable to and to support
their determination that the Merger and the Plan of Merger are fair to, and in
the best interests of, Besicorp and its shareholders (other than the Buyer).
RECOMMENDATION OF THE BUYER: FAIRNESS OF THE MERGER
The Buyer and Michael F. Zinn believe that the procedures by which the
Merger was negotiated and the Merger Consideration was determined are fair to
the Outside Participating Shareholders of Besicorp. In order to avoid unduly
influencing Besicorp in its deliberations, including in the negotiations with
the Buyer, Michael Zinn refrained from participating in meetings and votes of
the Board (except to the extent that the Board sought information from him as an
officer of Besicorp) regarding the Merger. To further minimize his influence, a
committee (i.e., the Special Committee) consisting solely of Independent
Directors was appointed to consider Besicorp's options and ultimately to
negotiate with the Buyer. This Special Committee selected and engaged a
financial advisor, Josephthal, and Josephthal provided the Fairness Opinion.
The Special Committee also selected and engaged legal counsel. The Plan of
Merger contains additional safeguards intended to protect the Outside
Participating Shareholders: most significantly, pursuant to the Plan of Merger,
the Special Committee has the right to terminate the Plan of Merger and the
obligations of Besicorp pursuant to the Plan of Merger either (i) if Besicorp
receives an offer to buy its assets, business or securities which would be more
favorable to the shareholders than the terms contained in the Plan of Merger or
(ii) if the Special Committee concludes that the Merger Consideration is
not fair. In addition, the NYBCL provides a method by which shareholders may
seek an appraisal of their shares if they believe that the Merger Consideration
is not fair. Additional measures could have been taken: Mr. Zinn could have been
required to agree to "neutralized" voting (i.e. vote his shares in the same
manner as the other shareholders so as to not affect the vote of shareholders to
approve the Plan of Merger or any vote with respect to the sale of Besicorp or
certain of its assets to a third party). These measures were not taken since
they were not required under the NYBCL, and Mr. Zinn believed that as a
-62-
shareholder he should be allowed to vote his shares and that Besicorp's
financial condition was so precarious that it would not be in the shareholders'
best interests to unnecessarily risk delaying a closing so long that Besicorp
might be forced to liquidate before a sale could be consummated. The Buyer and
Mr. Zinn note particularly that they would not have been willing to effect the
Parent Loan if they had been required to agree to neutralized voting, since
if the shareholders had voted against the Plan of Merger Besicorp would not have
had the means to repay the Parent Loan; without the Parent Loan Besicorp would
have had no money with which to fund operations after December 15, 1999. In fact
, the Buyer and Mr. Zinn thought that Besicorp's financial condition was so
precarious that they indicated they were unwilling to spend time and money
negotiating if neutralized voting would be required.
The Buyer and Mr. Zinn believe that the Merger, Merger Consideration
and Plan of Merger are fair and in the best interests of, Besicorp's
shareholders (other than the Buyer) and recommends adoption of the Plan of
Merger by Besicorp's shareholders.
The most significant factors upon which the Buyer and Mr. Zinn base
their belief that the Merger and Merger Consideration are in the best interests
of the Outside Participating Shareholders are the necessity for Besicorp to
engage in transaction which would result in an infusion of cash; the lack of a
trading market for the Besicorp Common Stock; and the valuation of the Besicorp
Common Stock at the time of the Prior Merger.
At the time of the Prior Merger, management disclosed to shareholders
of Besicorp that, after giving effect to projected losses from operations, the
funds available to Besicorp were only sufficient to allow Besicorp to continue
operations for approximately two to six months. For Fiscal 1999 and Fiscal 1998,
the businesses which constitute Besicorp had losses on a historical basis of
$5.8 million and $7.2 million, respectively, on total revenues of $5.7 million
and $7.4 million, respectively. Although Management has taken short term steps
to reduce overhead, the failure of Besicorp to obtain additional funds or
otherwise reduce its short term obligations will materially adversely affect it
and require it to severely curtail operations. Neither the Buyer nor Michael
F. Zinn is aware of any offer which would have resulted in an infusion of cash
into Besicorp (other than the offer by Parent to engage in the Merger). Mr.
Zinn expressed his intent not to infuse capital into Besicorp or to personally
guarantee any corporate borrowings by it. Consequently, without a
transaction in which a cash infusion or other financing is a possibility,
Besicorp faces insolvency and the curtailment or termination of its business
and operations.
The Besicorp Common Stock is not listed on any Exchange. To the
knowledge of the Buyer, there has been no public trading of the Besicorp Common
Stock since it was distributed to the former holders of Old Besicorp Common
Stock in the Prior Distribution. Consequently, the Merger is a method by which
shareholders of Besicorp can realize the value of their shares of Besicorp
Common Stock in the foreseeable future.
In connection with the Prior Distribution, and for the purposes of
determining the income tax payable by shareholders because of the distribution
-63-
to them of shares of Besicorp Common Stock, Old Besicorp valued the Besicorp
Common Stock at $43.01 per share in the information statement distributed to
shareholders of Old Besicorp in connection with the Prior Distribution.
OPINION OF FINANCIAL ADVISOR
Josephthal was retained to render an opinion as to the fairness, from a
financial point of view, to the holders of Besicorp common stock, other than
Michael F. Zinn, of the consideration to be paid to the holders in the Merger.
No limits were imposed by the Board, the Special Committee or Besicorp's
Management on Josephthal's investigation or on the procedures followed by
Josephthal in preparing and rendering its opinion. On September 22, 1999,
Josephthal delivered to the Special Committee, and on October 7, 1999,
Josephthal delivered to the Board, the Fairness Opinion dated September 22, 1999
to the effect that, based upon and subject to the considerations set forth in
its opinion as of September 22, 1999, the Merger Consideration was fair to
Besicorp's shareholders (other than Michael F. Zinn) from a financial point of
view.
The full text of the Fairness Opinion, including the assumptions made
by Josephthal and the general procedures followed by Josephthal, is set forth in
Annex B to this Proxy Statement. Each shareholder is urged to read the Fairness
Opinion in its entirety. The Fairness Opinion addresses only the fairness of the
Merger Consideration and does not constitute a recommendation to any holder of
Besicorp Common Stock as to how such holder should vote on the proposal to adopt
the Plan of Merger.
In arriving at its opinion, Josephthal reviewed the following materials
and considered such financial and other factors it deemed relevant under the
circumstances, including, among others, the following: (i) certain historical
financial, operating and other data that were publicly available or were
furnished to Josephthal by Besicorp regarding the Merger including, but not
limited to: (a) projections and cash flow analyses for SunWize prepared by
management; (b) Besicorp's Annual Report on Form 10-KSB and Form 10-KSB/A for
Fiscal 1999; (c) Old Besicorp's Proxy Statement dated March 1, 1999; (d) the
Information Statement regarding Besicorp dated March 1, 1999; (e) Besicorp's
Quarterly Report on Form 10-QSB for the period ending June 30, 1999; (f)
internally generated operating reports and discussions from Management
concerning the various business segments of Besicorp; (g) the Financial Model
for the Empire Newsprint Project prepared by Besicorp, with the assistance of
Morgan Stanley Dean Witter; (h) real estate appraisals and valuations of
partnership interests and Hydro-Credits prepared by Management with the
assistance of identified third parties; (ii) various press releases regarding
the development and status of the Empire Newsprint Project and other projects;
(iii) publicly available financial, operating and stock market data for
companies engaged in business deemed comparable to Besicorp's; (iv) merger and
acquisition transactions by companies in the same or similar businesses
considered to have degrees of comparability to the Merger; and (v) such other
factors and information as Josephthal deemed appropriate.
-64-
Josephthal also met with Besicorp's senior officers to discuss the
prospects for Besicorp's businesses and such other matters as Josephthal
believed were relevant to its analysis. In addition, Josephthal reviewed the
draft, dated as of September 16, 1999, of the agreement and plan of merger.
Josephthal was advised by Michael F. Zinn that he : (i) was unwilling to
continue as an employee of Besicorp under current conditions; (ii) would not
continue as an employee at Besicorp if he were not in control; (iii) in his
capacity as a shareholder, would not approve the sale of Besicorp's assets to a
third party and would vote against such sale and had been advised by the Trustee
of the Trust that the Trust also opposes any sale of assets and would similarly
vote against such sale to a third party; (iv) was unwilling to purchase some,
but less than all, of Besicorp's business assets; and (v) would not personally
guarantee any debt or debt-related financings in a public company, including
Besicorp. Josephthal assumed that the representations and warranties in the
agreement and the plan of merger would be true and that the agreement and the
plan of merger would be completed in accordance with the terms of such
agreement. The Fairness Opinion is necessarily based on economic, market and
financial conditions, and the information made available to Josephthal, as of
the date of such Fairness Opinion.
In preparing its opinion, Josephthal reviewed the various business
segments and assets of Besicorp identified by management. Josephthal divided
assets into categories and estimated valuation ranges for each category based
upon information provided by Management and on materials obtained through due
diligence. The valuation ranges pertaining to the individual assets and Besicorp
as a whole are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
those suggested by such analyses. In addition, analyses relating to the value of
the business assets do not purport to be appraisals or necessarily reflect the
prices at which the business assets actually may be sold or valued by additional
third parties. Accordingly, such estimates are inherently subject to substantial
uncertainties.
In evaluating the fairness of the merger consideration, Josephthal
considered and evaluated the following: (i) the SunWize business; (ii) all
outstanding projects and identified prospective projects of Besicorp Development
Inc. and other subsidiaries of Besicorp and SunWize; (iii) outstanding
partnership interests and credits due to Besicorp which may result in cash
inflows to Besicorp; (iv) Besicorp real estate, including the properties
used in existing business operations and properties that were not essential to
Besicorp's existing business operations; and ( v) the Escrow Fund, established
in connection with the merger involving old Besicorp to fund the litigation
costs, judgments and/or assist in the settlement of any litigation pending
against old Besicorp or arising out of the prior Merger. Josephthal noted
that the combined Deferred Payments are excluded from the Cash Merger
Consideration, and any monies received will be segregated and distributed pro
rata to shareholders of record as of the Effective Time.
SunWize. In assessing the value of the SunWize business, Josephthal
researched publicly- available information on the photovoltaic industry, and
-65-
with management's assistance, identified public companies with operations
comparable to SunWize. Josephthal also reviewed and relied upon financial
projections with respect to SunWize prepared by Besicorp's management. To
estimate value ranges for the SunWize business, Josephthal performed an analysis
of comparable companies and comparable transactions and evaluated an analysis of
discounted cash flow.
(a) Comparable Public Company Analysis.
Josephthal analyzed certain publicly-traded companies that
Management and Josephthal believed were generally comparable to SunWize
(the "Comparable Companies"). The Comparable Companies were Golden
Genesis, Astropower, Inc. Energy Conversion Devices, Inc. and Spire
Corporation. Josephthal compared the ratio of each Comparable Company's
stock price as of September 11, 1999 to the each public company's
earnings before interest, taxes, depreciation and amortization
("EBITDA"), earnings before interest and taxes ("EBIT"), certain
operating margins, financial ratios and projected growth rates. In some
cases, information was adjusted for extraordinary or non-recurring
items.
Josephthal also compared the ratio of each company's equity
value as of September 11, 1999 plus debt less cash and equivalents
("Enterprise Value") to their respective revenues, EBITDA and EBIT
during the most recent 12-month period ("LTM"), and the ratios of their
stock prices as of September 11, 1999 to their respective LTM earnings
per share and projected fiscal year 1999 and 2000 earnings per share.
The chart below indicates the results of Josephthal's
analysis:
-66-
(thousands, except per share figures)
P/E Multiples
--------------------------
Name Tkr Stock 52 Week Shs Mkt Cap Ent Val(1) LTM(2) F99E F00E
Price High - Low
9/11/99
- ----------------------------- ------ ------------------------------------------------------------ ------ --------
$ $ $ x x x
Golden Genesis Company GGGO $ 2.31(5)2.31 - 0.78 17,153 39,666 49,007 NM (6) NM NM
Astropower, Inc. APWR $14.13 18.50 - 5.88 8,731 123,323 121,173 48.7 56.5 28.3
Energy Conversion Devices, Inc. ENER $12.50 15.00 - 4.63 13,283 166,033 146,053 NM NM NM
Spire Corporation SPIR $ 3.50 5.69 - 2.25 3,245 11,358 12,398 NM NM NM
Solar Power Industry Selected Measures of Relative Valuation
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Comparable Company Analysis Ent Val Multiples of Growth and Margin Analysis
(thousands, except per share figures) -------------------------------------------------------------
REV (7) EBITDA(3) EBIT(4) Rev. Gross Margin Operating Margin
-------------------------------------------------------------------
Name LTM LTM LTM LFY LFY LTM LFY LTM
---------------------------------------------------------------------
x x x
Golden Genesis Company 1.1 NM NM 32.0% 16.6% 16.6% (2.6%) (3.2%)
Astropower, Inc. 4.3 44.0 72.8 39.5% 25.6% 26.1% 4.7% 5.9%
Energy Conversion Devices, Inc. 4.5 NM NM 6.7% 10.4% 8.9% (53.4%) (40.3%)
Spire Corporation 1.0 NM NM (38.5%) 20.7% 21.3% (24.4%) (18.4%)
Ent Val Multiples of Gross and Margin Analysis
--------------------------------------------------------------
P/E Multiples Rev. EBITDA(3) EBIT(4) REV.
GROWTH Gross Magrin Operating Margin
--------------------- ----- ------ ------------- -------------- ----------------
Mkt. Cap Ent Val(1) LTM(2) F99E F00E LTM LTM LTM LFY LFY LTM LFY LTM
- ------------------------------------------------------------------------------------------------------------------------------------
Median $ 8.00 81,494 85,090 48.7 56.5 28.3 2.7 44.0 72.8 19.4% 18.7% 18.9% (13.5%) (10.8%)
Average $ 8.11 85,095 82,158 48.7 56.5 28.3 2.7 44.0 72.8 9.9% 18.3% 18.2% (18.9%) (14.0%)
Minimum $ 2.31 11,358 12,398 48.7 56.5 28.3 1.0 44.0 72.8 (38.5%) 10.4% 8.9% (53.4%) (40.3%)
Maximum $14.13 166,033 146,053 48.7 56.5 28.3 4.5 44.0 72.8 39.5% 25.6% 26.1% 4.7% 5.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Notes:
- -----------------------------
1 Enterprise Value is equal to total market capitilization with debt added and
cash removed.
2 LTM means Last Twelve months of reported data.
3 EBITDA means earnings before interest, depreciation, amortization and tax
expense.
4 EBIT means earnings before interest and tax expense.
5 Golden Genesis stock price as of 8/99 (Acquired by Kyocera).
6 NM means not meaningful
7 Rev. means revenues
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To eliminate the impact of differing capital structures,
Josephthal ascribed greater weight to the multiple of Enterprise Value
to LTM revenue in estimating a value for the SunWize business than to
the multiples indicated by the other ratios.
Josephthal did not rely solely on the quantitative results of
the analysis, but also made qualitative judgments concerning
differences in financial and operating characteristics of SunWize and
the Comparable Companies and other factors that could affect the values
of each. Josephthal chose the Comparable Companies because they have
general business, operating and financial characteristics similar to
those of SunWize; although, for purposes of this analysis, Josephthal
took note of management's view that Golden Genesis was the only
Comparable Company that primarily distributes, resells and markets
photovoltaic systems and related products and directly competes with
the business operations of SunWize. Based on this analysis, Josephthal
estimated a value for SunWize of approximately $5.5 million.
(b) Comparable Transaction Analysis
Josephthal also reviewed certain publicly available financial
information relating to the merger and acquisition transactions in
SunWize's industry that were completed over the prior two years that
Josephthal deemed generally comparable to the Merger (the "Comparable
Transactions"). For these Comparable Transactions, Josephthal reviewed
certain publicly available financial information for the acquired
company, including revenue, book value, EBITDA, EBIT, net income and
certain valuation statistics, as adjusted for certain extraordinary and
non-recurring items. Financial information was not available for three
of the transactions. Josephthal noted that no company used in the
analysis is identical to SunWize. Accordingly, Josephthal did not rely
solely on the results of the analysis, but also made qualitative
judgments concerning differences in financial and operating
characteristics of the Comparable Transactions and other factors that
could affect the value of the companies or transactions to which the
SunWize business is being compared. In reviewing the Comparable
Transactions, Josephthal noted that the August 1999 acquisition of
Golden Genesis by Kyocera was likely the transaction that was most
comparable to the Merger since the only other transaction for which
financial information was available involved the acquisition of only a
small percentage of the company's stock. In this transaction, Kyocera
acquired Golden Genesis for approximately $40.0 million and the
assumption of approximately $10.7 million in debt, for a transaction
value of approximately $50.7 million or a multiple of 1.1x of Golden
Genesis' LTM sales (of approximately $45.0 million). Using this
transaction as a comparable, Josephthal estimated a value for SunWize
based on its sales of approximately $5.0 million for fiscal
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year 1999 and the multiple of such sales represented by the Golden
Genesis transaction of approximately $5.6 million.
(c) Discounted Cash Flow Analysis
Josephthal also reviewed an analysis of "free cash flow"
prepared by Management and discounted these cash flows as another means
of estimating the value of SunWize. In this analysis, Josephthal
discounted to present value a stream of cash flows projected by
Management through December 31, 2003. The year to year cash flows were
all negative. Josephthal added to this stream, however, a "terminal"
year cash flow which was calculated by multiplying SunWize's projected
revenues for fiscal year 2003 as estimated by Management by the
multiple of LTM sales derived from the Golden Genesis transaction
described above. For purposes of this analysis, Josephthal reviewed and
relied upon management's projections of "free cash flow" of ($2.8
million), ($2.8 million), ($2.7 million) and ($46,000) for the years
ending March 31, 2000-2003, respectively. Josephthal defined "free cash
flow" as EBIT plus depreciation and amortization less capital
expenditures and working capital requirements. Josephthal used discount
rates ranging from 30% to 40% which it derived based on a study
conducted by Venture Economics Information Services which showed that
the three-year and five-year averaged annualized returns for early
stage venture capital investments ending December 31, 1998 were 37.7%
and 33.7%, respectively. Based on discussions with Management regarding
its view of Besicorp's financial position and future cash needs,
Josephthal assumed that equity investors in SunWize would expect
returns similar to, or better than, those required by investors in
early stage venture capital investments. Based on this analysis,
Josephthal estimated a value for SunWize of approximately $6.4 million.
Besicorp Development. In evaluating Besicorp Development, Josephthal
analyzed the status and stage of development of the following projects: (i) the
Empire Newsprint Project;; (ii) the Krishnapatnam Project; (iii) the Brazilian
development projects; (iv) the Mexican development projects; and (v) the Gabon
Initiative. Josephthal relied upon information furnished by Besicorp.
(a) Empire Newsprint Project.
Josephthal used a discounted cash flow analysis to estimate
the current Net Present Value ("NPV") of the Empire Newsprint Project.
Based upon the early nature of the Project, Josephthal assumed that the
development capital would require returns in the 30- 40% range. In
preparing its model, Josephthal accepted (without making any changes)
the cash flows projected in the Financial Model of the project
previously prepared by Morgan Stanley Dean Witter and Management. The
Financial Model had been prepared for lenders in connection with a
potential financing of the project. In Josephthal's view, the
projections likely represented the most optimistic view of the project
since the Financial Model was being used for financing purposes. The
Financial Model assumed that it would take four years to develop the
project and that Besicorp and Empire Newsprint would
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maintain an aggregate ownership of 20% in both the power plant and the
paper mill. The Financial Model further assumed a tax rate equal to 41%
with a capital structure comprise of 81% debt and 19% equity. The debt
was assumed to bear interest at a rate ranging from 7% to 9.5%. The
Financial Model presented discounted cash flows for the four-year
period of development and twenty years of operations. However, based on
the discussions with management, Josephthal assumed that the plant
would have no terminal value. Based upon the project assumptions
provided by Management and the Financial Model, Josephthal estimated
that the NPV as of July 1999 for the Empire Newsprint project ranged
from $988,000 (utilizing a 40% discount rate per annum) to $1,889,000
(utilizing a 35% discount rate per annum).
(b) Other Projects.
Josephthal also reviewed the Krishnapatnam Project, the
Brazilian development projects, the Mexico development projects and the
Gabon Initiative, focusing on: (i) the status of the development
efforts to date; (ii) Management's internal reports on the status of
projects; (iii) uncertainties and contingencies identified by Besicorp
and Josephthal; (iv) macroeconomic conditions, including, but not
limited to, government regulations and currency fluctuations; (v)
construction outlays, costs and potential financing sources; and (vi)
negotiated contracts and agreements to date. Based on numerous
discussions with management, Josephthal concluded that there is little
chance for the construction, development and success of these projects.
As a result of the analyses and due diligence performed, Josephthal did
not ascribe any value to these projects.
Real Estate. Josephthal also reviewed the current properties owned by
Besicorp and information provided to Josephthal by Management regarding the
value of these properties including appraisals. Josephthal focused on only those
properties which were not deemed necessary to Besicorp's overall businesses.
These excess properties were 1151 Flatbush Road, Cascade Drive and 48 Canal
Street.
In reviewing the information provided for the property located at 1151
Flatbush Road, which serves as Besicorp's headquarters and includes an 80 unit
self-storage facility, Josephthal noted that the property may be too large for
Besicorp's existing and near term operations and needs. Thus, Josephthal
estimated the value that Besicorp may be able to realize by selling 1151
Flatbush and relocating the corporate headquarters to a smaller location.
Josephthal then estimated the cost of purchasing a new property as well as
transaction costs associated with buying and selling real estate. To this "net"
value, Josephthal added estimated values for the Cascade and 48 Canal Street
properties which were based on Besicorp's purchase price for Cascade and a
recent appraisal for 48 Canal Street provided to Josephthal and estimated a
value of approximately $716,000 for Besicorp's "excess" real estate.
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In assessing the overall valuation range of Besicorp, including all of
the various business assets of Besicorp, Josephthal assumed and relied upon the
accuracy and completeness of all of the financial and other information provided
to it by Besicorp or that was publicly available and neither attempted
independently to verify nor assumed responsibility for verifying any of this
information. Josephthal did not conduct a physical inspection of Besicorp's
properties or facilities and did not make any independent evaluations or
appraisals of any of the properties, facilities or business segments. Josephthal
assumed that management's financial analyses were prepared on a good faith
reasonable basis reflecting the best currently available estimates and
judgments of Management and/or financial consultants or advisors to Besicorp.
Based upon the assets identified and described above and information provided to
Josephthal by Besicorp, either through materials sent to Josephthal or publicly
available, and after deducting $288,000 on account of SunWize's portion of
Besicorp's equipment lease (other than that portion included as a
depreciation expense), Josephthal estimated values for Besicorp (without
giving effect to any of the components of the Adjustment Amounts) ranging
from approximately $7.0 million to $8.8 million.
The summary above sets forth all of the material assumptions, factors
and analyses considered by Josephthal but does not purport to be a complete
description of Josephthal's analyses. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Josephthal believes that the summary and its analyses must
be considered as a whole and that selecting portions thereof, without all of its
analyses, could create an incomplete view of the processes underlying its
analyses and opinion. Josephthal based its analyses on assumptions that it
deemed reasonable, including assumptions concerning general business and
economic conditions. Josephthal's analyses are not necessarily indicative of
actual values or actual future results that might be achieved. These values may
be higher or lower than those indicated. Moreover, Josephthal's analyses are
not, and do not purport to be, appraisals or other wise reflective of the prices
at which businesses or securities actually could be bought or sold.
Josephthal was engaged on June 8, 1999 to provide financial advisory
services and to provide a fairness opinion such as the Fairness Opinion. Under
the terms of its engagement, Besicorp has paid Josephthal a total of $50,000 for
services rendered thereunder, excluding the rendering of the Fairness Opinion.
Besicorp also agreed to reimburse Josephthal for reasonable expenses incurred by
Josephthal under its engagement not to exceed $5,000 without Besicorp's approval
and to indemnify Josephthal against certain liabilities, including liabilities
under the federal securities laws. Also see "Information Regarding Parent and
Acquisition Corp." Besicorp has also agreed to pay Josephthal a fee of $75,000
for rendering the Fairness Opinion and, contingent upon completion of the
Merger, $50,000 for services rendered in connection with the Merger.
Josephthal was previously engaged by Old Besicorp to provide advisory
services, including assisting Old Besicorp in formulating and consummating a
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strategy or transaction to maximize the value of the MRA to Old Besicorp's
shareholders, to sell the Power Plants and to provide a fairness opinion in
connection with the consideration paid in the Prior Merger. Old Besicorp paid
Josephthal a total of $852,571 for services rendered thereunder, including the
rendering of a fairness opinion with respect to the MRA. Old Besicorp also paid
Josephthal a fee of $200,000 for rendering the fairness opinion in connection
with the Prior Merger and $800,000 for other services rendered in connection
with the Prior Merger. Josephthal received an aggregate of $315,000 from the
Partnerships with respect to the sale of the Power Plants
Josephthal has consented to the use of the Fairness Opinion in this
Proxy Statement but advised Besicorp that the Fairness Opinion is "solely for
the benefit and use of Besicorp and its Special Committee and Board of
Directors" and, as such, may not be relied upon by third parties, such as
Besicorp's shareholders. Josephthal believes that under the terms of its
engagement letter with Besicorp, which is governed by New York state law,
Josephthal has no legal responsibility to any other persons, including
Besicorp's shareholders, as a result of the express disclaimers described above.
Josephthal has advised the Board that it intends to assert the disclaimer as a
defense to any claims that may be brought against it by shareholders with
respect to the Fairness Opinion. However, since, according to Josephthal, no New
York state court or federal court applying New York law has definitively ruled
on the availability to a financial advisor, such as Josephthal, of an express
disclaimer as a defense to shareholder liability with respect to a fairness
opinion such as the Fairness Opinion, the issue necessarily would have to be
resolved by a court of competent jurisdiction. The availability or
non-availability of such a defense will have no effect on Josephthal's rights
and responsibilities under federal securities laws, or the rights and
responsibilities of the Board under governing state law or under federal
securities laws.
Josephthal was selected to provide a fairness opinion because it is a
nationally recognized investment banking firm and is familiar with Besicorp's
operations since it had been retained to provide advisory services to Old
Besicorp. As part of its investment banking practice, Josephthal regularly
values businesses and securities in connection with mergers and acquisitions. In
the ordinary course of business, Josephthal may trade the securities of Besicorp
for its own account and for the accounts of its customers, and may at any time
hold a long or short position in Besicorp's securities.
REPORTS OF COMMERCIAL ASSOCIATES
Commercial Associates, which was selected by Besicorp because it is a
commercial real estate broker based in Kingston, New York, provided two opinions
dated August 18, 1999. These opinions were not intended to be appraisals. The
first opinion contained a valuation of the Corporate Headquarters and an 80 unit
self-storage facility on the same property. Commercial Associates decided to
base its valuation on the income capitalization of the property as there were no
recent sales of comparable properties but there were recent leases. Commercial
Associates' analysis indicated that the Corporate Headquarter's annual net
operating income should be $78,500. Applying a 12% capitalization, which
Commercial Associates deemed typical in the market, to this income Commercial
Associates concluded that the Corporate Headquarters had a value of $650,000.
Commercial Associates' analysis of the storage facility indicated that its
annual net operating income should be $40,000 and should be capitalized at 11%,
which Commercial Associates deemed appropriate because of the lesser risks. This
produced a value of
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$364,000. However, because of the ease with which a similar facility could be
constructed elsewhere in Kingston are at a cost of $275,000, Commercial
discounted the value to $325,000, and further indicated that if the Corporate
Headquarters and the storage facility were sold together, they should be further
discounted to an aggregate of $900,000. The second opinion contained a valuation
of Besicorp's warehouse/manufacturing building in Ellenville, New York.
Commerical Associates noted that the building is located in an extremely
depressed economic market and that similar buildings have been on the market for
extended periods of time and sold for $4 to $6 per square foot. Commercial
Associates concluded that the value of the property was $225,000.
Commercial Associates, which is not affiliated with Besicorp, received
$300 for its services.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the Special Committee and the
Board with respect to the Merger, shareholders should be aware that certain
members of Besicorp's Management and the Board have certain interests in the
Merger that are in addition to or different from the interests of the Outside
Shareholders. The Special Committee and the Board were aware of these interests
and considered them, among other things, in adopting the Plan of Merger.
No officers or directors will be paid bonuses by Besicorp in connection
with the Merger nor will the consummation of the Merger give rise to any
termination or severance payments.
Pursuant to the Incentive Plan, Besicorp issued Restricted Shares to
certain of its employees, officers and directors. At present, 14,500 Restricted
Shares are issued and outstanding, consisting of 13,450 Management Restricted
Shares which are held by employees, officers and directors (but not by
Independent Directors), and 1,050 Independent Directors' Restricted Shares, all
of which are held by Independent Directors. Certain executive officers and
directors, including Michael F. Zinn, own 8,575 Management Restricted Shares.
See "Business of Besicorp -- Security Ownership of Certain Beneficial Owners and
Management." Besicorp has not granted any other Rights, including Rights to
acquire Restricted Shares, and does not anticipate granting any Rights between
now and the Effective Date. In the Spin-Off, the holders of the Restricted
Shares will receive one share of WOM Restricted Stock for each of these shares
and these shares of WOM Restricted Stock will be held in escrow by Besicorp. See
"The Spin-Off."
The following table summarizes the outstanding Restricted Shares, what
will happen to them upon the effectuation of the Spin-Off and Merger, when they
will vest and what would happen if any of Restricted Shares become forfeit prior
to their vesting:
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What will happen When Restricted Effect of Post-
Type of Restricted at Time of Securities vest(2) Merger Forfeiture (3)
Share(1) Merger
================================= ========================= =========================== =============================
Independent Directors' Receive Merger Upon the occurrence Not applicable
Restricted Shares Consideration; of Merger
WOM Restricted
Stock vests
Management Restricted Receive Restricted The Restricted The Restricted
Shares Merger Merger Merger Consideration
Consideration Consideration and will become property
(which is identical WOM Restricted of the Surviving
to the Merger Stock will vest Corporation (and will
Consideration but according to the benefit those persons
will be held in terms of the issuance who are shareholders
escrow until it of the Management at such time 4, 5) and
vests); WOM Restricted Shares WOM Restricted
Restricted Stock (generally 1/3 on Stock is cancelled.
remains in escrow May 2 2002, 1/3 on
May 2, 2003, and
1/3 on May 2, 2004)
1 Will receive one share of WOM Restricted Stock for each Restricted
Share.
2 Unless the administrator for the Incentive Plan accelerates the vesting
(and such administrator has indicated that it will not accelerate their
vesting).
3 If any Restricted Shares are forfeited and cancelled before the Merger,
assuming no Substitute Restricted Shares are issued in connection with
such cancellation, the per share Merger Consideration will increase.
See "Plan of Merger -- Merger Consideration."
4 Restricted Merger Consideration will generally be forfeited, to the
extent it has not vested, if the employee entitled to such Merger
Consideration ceases to be employed by the Surviving Corporation.
5 Presumably, the Surviving Corporation will be a wholly owned subsidiary
of Parent, which will be owned beneficially by Mr. Zinn and members of
his immediate family.
Set forth below is a table describing (i) Restricted Shares held by
executive officers and directors of Besicorp, (ii) the effect of the Merger on
each Restricted Share and (iii) and the dollar value of the Restricted Shares as
a result of the Merger:
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Name and Position Effect of Merger
of Executive Officer Number of on Dollar Value of
or Director Restricted Shares Restricted Shares Restricted Shares(1)
===================== ================= ================== ==================
Gerald Habib, Director 350 Will Vest $ 20,605
Richard Rosen, Director 350 Will Vest $ 20,605
Melanie Norden, Director 350 Will Vest $ 20,605
Michael F. Zinn, Chairman 3,000 Will Not Vest $ 176,6102
of the Board, President
and CEO
Michael J. Daley, Director, 1,750 Will Not Vest $ 103,0232
Executive Vice President
and CFO
Joseph P. Novarro, 625 Will Not Vest $ 36,7942
Vice President
Frederic M. Zinn, Senior 1,750 Will Not Vest $ 103,0232
Vice President and General
Counsel
James E. Curtin, Vice 400 Will Not Vest $ 23,5482
President and Controller
1 Based on the difference between (i) the grant price of $0.00 per share
for the issuance of the Restricted Shares and (ii) the Merger
Consideration applicable to such Restricted Shares, assuming in each
case that the Cash Merger Consideration will be $58.87 and that there
are no Combined Deferred Payments. See "Plan of Merger -- Merger
Consideration" for an explanation on how the actual Merger
Consideration will be calculated.
2 Represents the Restricted Merger Consideration to which this person is
entitled. Restricted Merger Consideration will be held in escrow by the
Surviving Corporation until the end of the restricted period.
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Michael F. Zinn's ownership interest in Besicorp will increase while
the Outside Shareholders' interest will be eliminated. Presently Mr. Zinn
beneficially owns approximately 44.9% of the shares of Besicorp. Following the
Merger, he and immediate relatives will indirectly own 100% of the stock of the
parent of the Surviving Corporation.
Officers and directors of Besicorp, with respect to their ownership of
Management Restricted Shares or Buyer's shares, may have different federal
income tax consequences resulting from the merger than the holders of other
Outside Participating Shareholders' Shares. The table below shows these
differences:
Type of Shares What Holder Will Receive in Tax Consequences
Merger
Outside Participating Merger Consideration Taxable event
Shareholders' Shares
Dissenters' Shares Appraisal value Taxable event
Management Restricted Restricted Merger No taxable event(1)
Shares Consideration
Buyer's Shares All of Parent's shares of No taxable event
Besicorp Common Stock are
cancelled and Parent's shares
of Acquisition Corp. are
converted into all of the
issued and outstanding shares
of the Surviving Corporation
(1) However, a taxable event is likely to occur upon the vesting of
the Restricted Merger Consideration.
See "Factors to be Considered -- Material Federal Income Tax Consequences."
The Plan of Merger provides that prior to the Effective Date, Besicorp
will have in force D&O Insurance covering the Covered Persons, including the
current and former directors, officers, employees and agents of Besicorp and its
subsidiaries, with respect to acts and omissions occurring on or prior to the
Closing Date.
The Plan of Merger provides that after the Effective Time the Surviving
Corporation:
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o will maintain D&O Insurance for each Covered Person for acts
and omissions occurring on or before the Effective Date, and
such coverage will continue until the sixth anniversary of the
Effective Date;
o if it liquidates, merges, consolidates, or engages in a
similar transaction, must obtain and pay for "run-off" or
"tail" insurance for each Covered Person for acts and
omissions occurring on or before the Effective Date, and such
coverage will continue until the sixth anniversary of the
Effective Date;
o will reimburse the Covered Persons with respect to any
deductibles contained in such D&O Insurance or "run-off" or
"tail" insurance policies; and
o will indemnify the Covered Persons against all Losses arising
out of or in connection with claims that would have been
covered if Besicorp's current insurance policy had remained in
effect until the sixth anniversary of the Effective Date.
Additionally, the Plan of Merger provides that for the lesser of six
years after the Closing Date or the period the Surviving Corporation maintains
its existence, the provisions of the Certificate of Incorporation and By-Laws of
the Surviving Corporation will provide indemnification to the Covered Persons on
terms, in a manner, and with respect to matters, which are no less favorable
than Besicorp's Certificate of Incorporation and By-Laws, as in effect on
October 7, 1999.
In addition, Mr. Zinn has agreed to guarantee, under certain conditions
and subject to certain limitations, the Surviving Corporation's obligations to
provide such insurance and indemnification to such officers and directors and in
connection with his guaranty he has agreed to put $100,000 in escrow. Funds
deposited by Mr. Zinn pursuant to the Guaranty Escrow Agreement may be used to
satisfy certain obligations of Besicorp and/or the Surviving Corporation to the
Covered Persons. See "Plan of Merger -- Principal Covenants -- Guaranty."
Old Besicorp and certain of its executives, officers and directors
(including former executives, officers and directors) were named as defendants
in two shareholder derivative actions, the Lichtenberg Litigation and the
Bansbach Litigation (which together are sometimes referred to as the Derivative
Litigation). Pursuant to the Prior Contribution Agreement that was executed in
conjunction with the Prior Merger, the contingent assets and/or liabilities of
Old Besicorp comprised of Old Besicorp's interests in the Derivative Litigation
were assigned to Besicorp by means of the Prior Assignment of the Derivative
Litigation. As a result of the Prior Distribution, Old Besicorp's shareholders,
including the plaintiffs in the Derivative Litigation, received shares of
Besicorp Common Stock and then, as a result of the Prior Merger, their shares of
Old Besicorp's common stock were converted into cash. A plaintiff in a
shareholder derivative action must remain a shareholder of the subject
corporation at all times during the prosecution of the action in order to be
eligible to continue to prosecute his claims. The named plaintiffs in the
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Derivative Litigation lost their status as shareholders of Old Besicorp as a
result of the Prior Merger. However, as a result of the Prior Assignment of the
Derivative Litigation from Old Besicorp to Besicorp, Besicorp became the subject
corporation of the Derivative Litigation. Therefore the Prior Assignment of the
Derivative Litigation before the Old Merger preserved the rights of the named
plaintiffs in the Derivative Litigation to pursue prosecution of their claims.
The Lichtenberg Litigation asserts that 1.2 million shares of Old
Besicorp's common stock were improperly issued to Mr. Zinn, Enowitz and Steven
Eisenberg. If Lichtenberg ultimately had prevailed on all of his claims, the
Lichtenberg Litigation could have resulted in the recovery by Besicorp of
approximately $44.5 million, which would have been an Adjustment Amount for
purposes of the Deferred Payments. Old Besicorp and the other defendants in the
Lichtenberg Litigation filed a motion to dismiss the complaint which was granted
by the Supreme Court, Ulster County, based on the recommendation of the Old
Besicorp's Board's special litigation committee (comprised of independent
outside directors of Old Besicorp) that concluded that the continuation of such
litigation was not in the best interests of Old Besicorp. The dismissal of the
complaint was unanimously affirmed in April 1999 by the Appellate Division,
Third Department. The plaintiff's motion with the Appellate Division, Third
Department seeking leave to appeal to the Court of Appeals was unanimously
denied. A further motion in the New York Court of Appeals for leave to appeal
the dismissal of the complaint to that court was denied on November 18, 1999.
Therefore, the Lichtenberg Litigation is not being assigned to WOM.
The Bansbach Litigation seeks to hold Mr. Zinn, Michael Daley, Gerald
Habib, Harold Harris and Richard Rosen liable for the legal expenses, fines,
costs and other alleged damages incurred by Old Besicorp as a result of certain
criminal proceedings relating to federal campaign financing law violations that
were the subject of the Proceeding. The Bansbach Litigation is pending, and the
parties are currently engaged in the discovery process. If Bansbach ultimately
prevails on all of his claims, the Bansbach Litigation could result in the
recovery of approximately $1 million, excluding interest and punitive damages.
Besicorp is assigning its interests in the Bansbach Litigation to WOM.
It is not anticipated that the Surviving Corporation will, following
the Effective Date, enter into employment or similar agreements or arrangements
with Besicorp's current management. It is anticipated that the executive
officers of Besicorp will serve the Surviving Corporation in the capacities in
which they currently serve Besicorp and Michael F. Zinn and Frederic Zinn will
be named the only directors of the Surviving Corporation; they may be
compensated for the services they render as employees on behalf of the Surviving
Corporation.
It is anticipated that certain of the executive officers of Besicorp
will serve WOM in capacities in which they currently serve Besicorp and that
Michael F. Zinn will be named the sole director of WOM; they will not be
compensated for the services they render on behalf of WOM. Aside from the
foregoing, and the shares of WOM Common Stock that the executive officers and
directors will be entitled to receive in the Spin-Off as shareholders of
Besicorp Common Stock, the executive officers and directors will receive no
benefits as a result of the Spin-Off.
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CERTAIN EFFECTS OF THE MERGER
Upon effectuation of the Merger, Acquisition Corp. will be merged with
and into Besicorp, the separate corporate existence of Acquisition Corp. will
cease, and Besicorp will continue as the Surviving Corporation. Parent will own
all of the outstanding shares of common stock of the Surviving Corporation and
will be entitled to all of the benefits and detriments resulting from that
interest.
After the Effective Date, the Outside Shareholders will no longer have
any equity interest in Besicorp or any right to vote on corporate matters; as a
result, they will not share in Besicorp's future profits, if any, receive
dividends or be able to sell their shares. The Outside Participating
Shareholders' Shares will automatically be converted into the right to receive
the Merger Consideration but the Outside Participating Shareholders will not be
able to appoint directors or other representatives to protect their interests
such as Combined Deferred Payment Rights. If Besicorp is restructured, sells
part of or all of its assets, successfully develops any projects, the Outside
Shareholders will not benefit except to the extent that such matters result in
Deferred Payments; moreover it is conceivable that if Besicorp is restructured
or certain sales are consummated in an unexpected manner the Combined Deferred
Payments may be adversely affected. See "Plan of Merger -- Merger Consideration
- -- Matters Applicable to both Deferred Payments and Escrow Fund Payments."
Dissenters who perfect their right to dissent in accordance with Sections 623
and 910 of the NYBCL will receive payment in accordance with those provisions.
See "Voting at the Special Meeting -- Rights of Dissenting Shareholders." The
receipt of the Merger Consideration by the Outside Participating Shareholders
and the receipt of the appraised value of the Dissenters' Shares by Dissenters
will be a taxable transaction for federal income tax purposes under the Code.
See "-- Material Federal Income Tax Matters."
As a result of the Merger, the Surviving Corporation will become a
wholly-owned subsidiary of Parent and there will cease to be any potential for a
public market for the Besicorp Common Stock. Upon such event, it is anticipated
that the Surviving Corporation will apply to the SEC for the deregistration of
the Besicorp Common Stock under the Exchange Act. As a result of this
deregistration certain provisions of the Exchange Act (including the proxy
solicitation provisions of Section 14(a), and the short swing trading provisions
of Section 16(b)), no longer will be applicable to the Surviving Corporation;
the Surviving Corporation will no longer need to prepare audited financials,
hold shareholder meetings or distribute reports to shareholders and the
Surviving Corporation will be able to realize savings which Management estimates
to equal approximately $355,000 per year in legal expenses, accounting fees,
transfer agent fees, and expenses associated with annual meetings (plus an
additional saving of approximately $300,000 in internal expenses, primarily the
cost of employee time devoted to such matters). These savings should result in
an increase in earnings of an equivalent amount. The revenues will not be
affected by the Merger, but Besicorp's book value will decrease by the amount of
Besicorp's costs resulting from the Merger, which equal approximately $580,000
as of
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January 24, 2000. The effectuation of the Merger will not be a taxable event for
Besicorp. See "-- Material Federal Income Tax Consequences."
As a result of the Merger, the Buyer's shares of Besicorp Common Stock
will be cancelled without payment therefor. The effectuation of the Merger will
not be a taxable event for Buyer. See "-- Material Federal Income Tax
Consequences." As a result of the Merger, the Buyer will own all of the shares
of the Surviving Corporation, and thus will be able to appoint all of its
directors and determine its course of action and its business and operations. It
will be the beneficiary of all earnings, will receive all dividends and be able
to sell its shares in the future. It will be able to sell Besicorp's assets.
However, the Buyer cannot be assured that there will be any profits or that it
will be able to sell the Surviving Corporation. In addition, the Buyer will need
to provide (or guarantee) all funds for the Surviving Corporation's operations
and will need to pay approximately $4.6 million for the Outside Participating
Shareholders' Shares (assuming that there are no Dissenters) (including
approximately $800,000 as Restricted Merger Consideration which will be held in
escrow by the Surviving Corporation until it vests, or, to the extent that it is
forfeited before it vests, which will revert to the Surviving Corporation). The
Buyer has informed us that it has no plans to restructure itself or the
Surviving Corporation and has not entered into discussions or negotiations with
third parties regarding the sale of stock or assets following the Merger.
In order to fund its obligations pursuant to the Plan of Merger,
including the payment of the Cash Merger Consideration, Parent intends to borrow
approximately $4.6 million from Avalon Funding, which has been granted the HSBC
Credit Facility by HSBC Bank.. The HSBC Credit Facility is a discretionary line
of credit with a maximum of $10 million principal amount of borrowing. Each
borrowing under the HSBC Credit Facility requires the approval of HSBC Bank and
all borrowings under the HSBC Credit Facility are payable on demand, or in any
event, on December 31, 2000. See "Information Regarding Parent and Acquisition
Corp."
In addition, as a result of the Spin-Off, the WOM Common Stock will be
distributed on a pro rata basis to the holders of shares of Besicorp Common
Stock, including to Outside Participating Shareholders, Dissenters, Buyer and
holders of Restricted Shares. See "The Spin- Off".
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences relating to the Merger and the Spin-Off based on the provisions of
the Internal Revenue Code of 1986, as amended, and applicable regulations,
rulings and judicial authority as in effect on the date of this Proxy Statement.
Subsequent changes in the law could alter the federal income tax consequences of
the Merger. Besicorp did not rely upon any opinion of counsel with respect to
the matters discussed in this section.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED UPON
PRESENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, YOU ARE URGED TO
CONSULT YOUR TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED
BELOW TO YOU AND THE PARTICULAR TAX EFFECTS OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt by a shareholder of the Cash Merger Consideration and
Combined Deferred Payments, if any, for shares of Besicorp Common Stock pursuant
to the Merger will be a taxable transaction for federal income tax purposes
under the Code and also may be a taxable transaction under applicable state,
local and other tax laws. The tax consequences of such receipt may vary
depending upon, among other things, the particular circumstances of the
shareholder. Generally, a shareholder will recognize gain or loss equal to the
difference between the aggregate amount of the Cash Merger Consideration and
Combined Deferred Payments, if any, received by the shareholder pursuant to the
Merger in exchange for his or her shares of Besicorp Common Stock (other than
Management Restricted Shares) and the shareholder's adjusted tax basis in such
shares. Generally, such gain or loss will be capital gain or loss if the shares
are a capital asset in the hands of the shareholder and will be long-term gain
or loss if the shares have a holding period of more than one year at the time of
the Merger. With respect to shares that a shareholder acquired in the Prior
Spin-Off, the gain or loss on account of the Cash Merger Consideration will be
short-term gain or loss if the Merger is effectuated on or before March [22,]
2000, and long-term gain or loss if the Merger is effectuated thereafter.
Long-term capital gain recognized by an individual shareholder generally will be
taxed at a maximum federal income tax rate of 20%. Short-term capital gain
recognized by an individual shareholder generally will be taxed at a maximum
federal income tax rate of 39.6%. Certain limitations apply with respect to the
deductibility of capital losses.
The receipt of the Combined Deferred Payments will be taxed to
shareholders on the installment basis (pursuant to which a taxpayer is taxed on
a deferred payment only upon receipt of the deferred payment). The Code does not
permit installment reporting for gains from the sale or disposition of stock or
securities which are traded on an established securities market. In Management's
view, however, the Besicorp Common Stock should not be treated as stock or
securities which are traded on an established securities market under the Code
and the applicable regulations. The United States Congress has passed and
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President Clinton has signed legislation which generally repeals installment
reporting for accrual basis taxpayers, effective as of December 17, 1999. The
legislation would not repeal installment reporting for cash basis taxpayers.
The receipt by a Dissenter of monies from Besicorp (as the Surviving
Corporation) for shares of Besicorp Common Stock will be a taxable transaction
for federal income tax purposes under the Code and also may be a taxable
transaction under applicable state, local and other tax laws. The tax
consequences of such receipt may vary depending upon, among other things, the
particular circumstances of the Dissenter. Generally, a Dissenter will recognize
gain or loss equal to the difference between the aggregate amount of the monies
so received for his or her shares of Besicorp Common Stock and the Dissenters'
adjusted tax basis in such shares. Generally, such gain or loss generally will
be capital gain or loss if the shares are a capital asset in the hands of the
shareholder and will be long-term gain or loss if the shares have a holding
period of more than one year at the time of the receipt of such monies.
Each holder of Management Restricted Shares will receive Restricted
Merger Consideration, the receipt of which will not be a taxable event. However,
an ordinary income taxable event will occur for the holders of the Restricted
Merger Consideration upon the vesting of such Consideration.
The effectuation of the Merger will not be a taxable event for the
Buyer and Michael F. Zinn (except with respect to the Restricted Merger
Consideration received with respect to his Management Restricted Shares, the
receipt of which will not be taxed until the Restricted Merger Consideration
vests).
The receipt by a holder of Besicorp Common Stock of shares of WOM
Common Stock (other than WOM Restricted Stock) pursuant to the Spin-Off will be
a taxable transaction for federal income tax purposes under the Code and also
may be a taxable transaction under applicable state, local and other tax laws.
The tax consequences of such receipt vary depending upon, among other things,
the particular circumstances of such holder. Such holder will receive dividend
income equal to the value of the shares of WOM Common Stock; however, since
Besicorp is valuing the shares of WOM Common Stock at $0.00 per share, holders
of Besicorp Common Stock should receive no dividend income. The distribution of
WOM Common Stock will also result in a taxable transaction to Besicorp, the
distributing corporation. The amount of corporate tax depends upon the valuation
of the WOM Common Stock; however, since Besicorp is valuing WOM at $0.00,
Besicorp should incur no corporate tax.
Each holder of Restricted Shares will receive WOM Restricted Stock, the
receipt of which will not be a taxable event. However, an ordinary income
taxable event will occur for the holders of the WOM Restricted Stock upon the
vesting of such WOM Restricted Stock. Additional information concerning the tax
consequences of the Spin-Off will be provided in the Information Statement that
will be sent to shareholders of Besicorp at or about the Effective Date of the
Merger.
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The receipt of cash by a shareholder pursuant to the Merger and the
receipt of shares of WOM Common Stock (other than WOM Restricted Stock) is
subject to backup withholding at the rate of 31% unless the shareholder (i) is a
corporation or comes within other exempt categories, or (ii) provides a
certified taxpayer identification number on Form W-9 and otherwise complies with
the backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld may be credited against the federal income tax liability of
the shareholder subject to the withholding.
This discussion applies only to shareholders holding shares of Besicorp
Common Stock as capital assets, and to shareholders holding shares of Besicorp
Common Stock received pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion does not apply to Besicorp's
shareholders who are not citizens or residents of the United States, to
Besicorp's shareholders who are tax-exempt or to other shareholders of Besicorp
of special status.
REGULATORY AND OTHER APPROVALS
We are not aware of any material governmental or regulatory
requirements to be complied with in connection with the Merger, other than
obtaining the shareholders' adoption of the Plan of Merger, and the filing of a
Certificate of Merger conforming to the requirements of the NYBCL with the
Secretary of State of the State of New York (and certain other governmental
authorities in the State of New York) and certain other requirements that must
be satisfied in connection with the Spin-Off.
PLAN OF MERGER
Set forth below is a description of the material terms of the Plan of
Merger. We urge shareholders to read carefully in its entirety the Plan of
Merger which we have attached as Annex A to this Proxy Statement and
incorporated into this document by reference. Capitalized terms that are not
defined in Appendix 1 are defined in the Plan of Merger.
GENERAL
The Plan of Merger provides that a wholly owned subsidiary of Parent
(i.e., Acquisition Corp.) will be merged with and into Besicorp, with Besicorp
surviving as a wholly owned subsidiary of Parent. The Merger will become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of New York or such other date as may be specified in the
Certificate of Merger.
At the Effective Date, as a result of the Merger:
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o each share of Besicorp Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares
then owned by the Buyer and Dissenters' Shares) will, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive the
Merger Consideration upon surrender of the Certificate
evidencing such share;
o each share of Besicorp Common Stock issued and outstanding
immediately prior to the Effective Date owned by the Buyer
will be cancelled without any conversion thereof;
o each Dissenters' Share will be converted into the right to
receive the appraised value to which such person is entitled
pursuant to the NYBCL; and
o each share of Acquisition Corp.'s common stock issued and
outstanding immediately prior to the Effective Date will be
converted into and exchanged into one validly issued, fully
paid and nonassessable share of common stock of the Surviving
Corporation.
Before the Effective Date, Buyer is required to deposit with
Continental the aggregate Cash Merger Consideration for all outstanding shares
of Besicorp Common Stock held by Outside Shareholders which is currently
approximately $4.6 million (including approximately $800,000 as Restricted
Merger Consideration which will be held in escrow by the Surviving Corporation
until it vests, or, to the extent that it is forfeited before it vests, which
will revert to the Surviving Corporation) assuming that (i) no shares of
Besicorp Common Stock are issued or cancelled prior to the Merger and (ii) there
are no Dissenters.
In order to fund its obligations pursuant to the Plan of Merger,
including the payment of the Cash Merger Consideration, Parent intends to borrow
approximately $4.6 million from Avalon Funding, which has been granted the HSBC
Credit Facility by HSBC Bank.. The HSBC Credit Facility is a discretionary line
of credit with a maximum of $10 million principal amount of borrowing. Each
borrowing under the HSBC Credit Facility requires the approval of HSBC Bank and
all borrowings under the HSBC Credit Facility are payable on demand, or in any
event, on December 31, 2000. See "Information Regarding Parent and Acquisition
Corp."
After the Effective Date, Continental will send each Outside
Participating Shareholder a Letter of Transmittal to effect the surrender of the
Certificates in exchange for the Merger Consideration. Outside Participating
Shareholders who surrender their Certificates will, along with a properly
completed Letter of Transmittal, receive:
o one Combined Deferred Payment Right for each share of Besicorp
Common Stock represented by such Certificate; and
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o cash equal to (i) the number of shares of Besicorp Common
Stock represented by such Certificate multiplied by (ii) the
Cash Merger Consideration.
Neither Combined Deferred Payment Rights, Deferred Payments nor Escrow
Fund Payment Rights will not be evidenced by certificates and will not be
transferable (other than by will and the laws of descent). Until surrendered,
each Certificate will at and after the Effective Date be deemed to represent
only the right to receive upon surrender of such Certificate the Merger
Consideration with respect to the shares of Besicorp Common Stock represented
thereby. No interest will be paid or will accrue on the cash payable upon
surrender of any Certificate. DO NOT SURRENDER YOUR CERTIFICATES OF
BESICORP COMMON STOCK UNTIL YOU RECEIVE AND COMPLETE SUCH LETTER OF TRANSMITTAL.
Funds deposited with Continental which remain unclaimed by the Outside
Participating Shareholders for nine months after the Effective Date will be
delivered to the Surviving Corporation upon its request, and the Outside
Participating Shareholders will thereafter look only to the Surviving
Corporation for payment of their claim for the Cash Merger Consideration in
respect of their shares of Besicorp Common Stock. Upon a determination by
Continental that a shareholder is a Dissenter and not an Outside Participating
Shareholder, Continental will deliver to the Surviving Corporation the amount
equal to (i) the number of shares of Common Stock held by such Shareholder
multiplied by (ii) the Cash Merger Consideration.
Sections 623 and 910 of the NYBCL give to any shareholder who wishes to
object to the Merger the right to receive the appraised value of his shares from
Besicorp in cash, unless the Merger fails to be adopted and authorized or is
abandoned, and provided, further, that the statutory procedure set forth in
Sections 623 and 910 is carefully followed. The Dissenters' Shares will not be
converted into Merger Consideration and the Dissenters will only receive the
cash to which they are entitled pursuant to the statutory procedure. IF YOU ARE
INTERESTED IN DISSENTING WE URGE YOU TO CONSULT YOUR OWN ATTORNEY REGARDING THE
PROCEDURES TO BE FOLLOWED IN ORDER TO DISSENT. See "Voting at the Special
Meeting -- Rights of Dissenting Shareholders" and Appendix C to this Proxy
Statement.
If the Plan of Merger is adopted by the Requisite Vote of the
shareholders of Besicorp and certain other conditions to the Merger are
satisfied or waived (as more fully described below), the Closing will be held
promptly following the Special Meeting.
MERGER CONSIDERATION
Each Outside Participating Shareholders' Share (which excludes
Dissenters' Shares) will be converted into the right to receive the Cash Merger
Consideration and a Combined Deferred Payment Right.
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Cash Merger Consideration
The Cash Merger Consideration equals:
$8,000,000
------------
Total Shares
The Total Shares equals the sum of:
o the number of shares of Besicorp Common Stock issued and
outstanding immediately prior to the Effective Date (other
than those shares held as treasury shares by Besicorp); plus
o the number of Substituted Management Restricted Shares.
Substituted Management Restricted Shares means Management Restricted Shares
which have been cancelled as the result of the issuance of Substitute Restricted
Shares in substitution therefor prior to the Effective Date. At the Record Date,
there were 135,882 Total Shares.
The Cash Merger Consideration will be at least $58.87 in cash. It will
increase if shares of Besicorp Common Stock are cancelled (other than the
cancellation of Substituted Management Restricted Shares). The Cash Merger
Consideration will decrease if shares of Besicorp Common Stock are issued prior
to the Effective Date. However, Besicorp does not intend to issue any additional
shares, and, pursuant to the Plan of Merger, Besicorp may issue additional
shares only with the prior consent of the Buyer. If Besicorp issues any
additional shares that would cause the Cash Merger Consideration to be less than
$58.87, we will inform you of the effect of the issuance on the Merger
Consideration prior to the Special Meeting.
The Buyer will pay approximately $4.6 million for all Outside
Participating Shareholders' Shares (including approximately $800,000 as
Restricted Merger Consideration which will be held in escrow by the Surviving
Corporation until it vests, or, to the extent that it is forfeited before it
vests, which will revert to the Surviving Corporation) assuming that (i) no
shares of Besicorp Common Stock are issued or cancelled prior to the Merger and
(ii) there are no Dissenters. This amount will increase if any shares of
Besicorp Common Stock are cancelled (other than the cancellation of Substituted
Management Restricted Shares). Also, this amount will decrease if there are any
Dissenters. To the extent that Management Restricted Shares are not cancelled,
the amount of money that Buyer will be required to pay for the shares, will be
increased although the per share Merger Consideration will be unaffected.
The Plan of Merger provides that the Restricted Merger Consideration to
be received upon the conversion of Management Restricted Shares will be placed
in escrow with the Surviving Corporation and not be transferable until it vests,
which ordinarily will occur with respect to 1/3 of such Restricted Merger
Consideration on May 2, 2002, 1/3 on May 2, 2003 and 1/3 on May 2, 2004). If a
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holder of Restricted Merger Consideration ceases to be an employee of the
Surviving Corporation during such period, it is likely that such holder will
forfeit his Restricted Merger Consideration and it will become the property of
the Surviving Corporation.
Combined Deferred Payment Right
Each Outside Participating Shareholder will receive one Combined
Deferred Payment Right for each of his shares of Besicorp Common Stock.
Dissenters will not receive any Combined Deferred Payment Rights. A Combined
Deferred Payment Right consists of one Deferred Payment Right and one Escrow
Fund Payment Right.
Deferred Payment Rights
Outside Participating Shareholders will be entitled to receive for each
Deferred Payment Right an amount equal to:
Deferred Payments Fund
------------------------------------------
Outside Participating Shareholders' Shares
The Outside Participating Shareholders' Shares equals the number of
shares of Besicorp Common Stock held of record immediately before the Effective
Date by the Outside Participating Shareholders.
The Deferred Payment Fund consists of the sum of all Adjustments (net
of corporate taxes for such Adjustments) less all amounts previously distributed
from the Deferred Payment Fund to the Outside Participating Shareholders.
The Adjustments equal:
Adjustment Amounts x Outside Participating Shareholders' Shares
------------------------------------------
Total Shares
The Adjustment Amounts equals all proceeds received by Besicorp, the
Surviving Corporation and their subsidiaries (or in the case of an entity that
is less than wholly owned by Besicorp or the Surviving Corporation, their
proportionate interest in such proceeds at the time of their receipt, from
October 7, 1999 (i.e., the date of the Initial Plan of Merger) through the
Deferred Payment Termination Date with respect to the following:
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ELEMENTS OF THE INFORMATION ABOUT THESE
COMBINED DEFERRED PAYMENTS ELEMENTS
(1) amounts, if any, released from the Escrow Fund as The Escrow Fund as of January 20,
Remaining proceeds because they were not 2000 consists of approximately $6.27
utilized to fund covered claims during the term of million, as a result of the release of
the Escrow Fund other than amounts delivered approximately $490,802, and interest
pursuant to the Instructions (see "Escrow income of approximately $259,179
Agreement"); through such date. In addition,
WOM Costs of approximately
$48,526 have been incurred (but not
reimbursed from the Escrow Fund)
through January 31, 2000. All or a
portion of the remaining Escrow
Funds will be used to cover BGI
Indemnity Claims, BGI Monitoring
Costs, Litigation Costs and WOM
Costs. If Besicorp did not effectuate
the Spin-Off because the Prior
Merger Order is reversed, no WOM
Costs would be incurred and there
would most likely be no further costs
associated with the Bansbach
Litigation assuming the Bansbach
Litigation were dismissed as a result
of the Prior Merger Order being
reversed; as a result, more money
would be available for distribution
to Outside Participating Shareholders
as Combined Deferred Payments.
Because we do not know how much of
the Escrow Fund will be used to
cover BGI Indemnity Claims, BGI
Monitoring Costs, Litigation Costs
and WOM Costs, we cannot predict how
much of the Escrow Fund will be
available for distribution
to shareholders as Combined
Deferred Payments.
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(2) amounts received, with certain exceptions, from We have not predicted how much, if
their sale of their interests in the foreign any, money will be received with
development projects (unless such foreign respect to the sale of Besicorp's
development project is sold along with the Empire interests in its foreign development
Newsprint Project in which case the proceeds are projects. The Buyer has informed us
not an Adjustment Amount) pursuant to that it has no plans to sell any of these
agreements entered into on or before the first interests and there are no discussions
anniversary of the Effective Date, less Besicorp or at present with any unaffiliated third
the Surviving Corporation's expenses (other than party regarding the sale of these
SG&A and Excluded Expenses) incurred and paid interests. Construction has not
after October 7, 1999 directly related to such commenced on any of the foreign
foreign development project (see "Business of development projects, and no efforts
Besicorp -- Power Development Activities"); are underway to obtain the financing
necessary to construct these projects.
See "Business of Besicorp -- Power
Development Activities."
(3) amounts received by Beta, distributions received The partnerships' principal assets
from Natural Dam (other than the Anticipated (excluding the Anticipated
Partnership Distribution) and any other funds that Partnership Distribution) consist of
are distributed as a result of partnership interests cash held in escrow to satisfy their
in existence as of October 7, 1999 or the Effective potential liabilities. As of December
Date (see "Business of Besicorp -- Potential Non- 31, 1999, Besicorp's share of the
Recurring Funds"); escrows is approximately $1.47
million. We have not predicted how
much will be distributed as Combined
Deferred Payments.
(4) amounts distributed as a result of Hydro-Credits The maximum amount that Besicorp
(other than the distribution with respect to Glen may receive as distributions as a
Park Associates scheduled for on or about result of Hydro-Credits (excluding
September 30, 1999, which has been received), the distribution Besicorp has received
less expenses (other than SG&A and Excluded with respect to Glen Park Associates)
Expenses) incurred and paid following October 7, is approximately $750,000 and it is
1999 directly related to distributions as a result of likely that there will be no expenses,
Hydro-Credits (see "Business of Besicorp -- No agreement has been reached to
Potential Non-Recurring Funds"); and date between any of the remaining
developers and Niagara Mohawk that
would result in such Hydro-Credits.
We have not predicted how much
money, if any, will be distributed as a
result of the Hydro-Credits
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(5) amounts received with respect to each of their We have not predicted how much
litigation claims with respect to matters arising money will be received with respect
before the Effective Date, less their expenses to these claims (of which the principal
(including reasonable SG&A expenses but claim is the RICO Action) or how
excluding Excluded Expenses) incurred and paid much the expenses will be. See
after October 7, 1999 directly related to any such "Business -- Legal Proceedings."
claim for which amounts have been received (see
"Business of Besicorp -- Litigation").
Excluded from the Adjustment Amounts are the proceeds of any transfer
of assets by the Surviving Corporation or its wholly owned subsidiaries to any
wholly owned subsidiary of the Surviving Corporation or to any Related Entity
if:
o the Related Entity assumes the obligation to make Deferred
Payments in the manner set forth in the Plan of Merger
(without the right to defer payments if the amount accrued on
a Deferred Payment Date is less than $90,000) with respect to
such asset; and
o the Surviving Corporation guarantees the Related Entity's
payment of all amounts it is required to pay to the Outside
Participating Shareholders pursuant to this assumption.
The Surviving Corporation will segregate the Deferred Payment Fund and
invest the proceeds in a separate interest bearing money market account at a
nationally recognized financial institution, and the interest on the Deferred
Payment Fund will be added to such Fund.
The Deferred Payments will be paid to the Outside Participating
Shareholders (i) annually, on or about the Deferred Payment Date (unless the
amount in the Deferred Payment Fund is less than $90,000 on such date, in which
case no payment will be made on such date) and (ii) on the Deferred Payment
Termination Date. The payments will be accompanied by a notice indicating in
reasonable detail the proceeds resulting in the Deferred Payment and the
deductions therefrom.
If the Surviving Corporation or a Related Entity transfers, sells or
otherwise assigns, directly or indirectly, any of the assets underlying the
Adjustment Amounts, the Assignee is required to consent in writing to its
assumption of the obligation to make Deferred Payments (without the right to
defer payments if the amount accrued on a Deferred Payment Date is less than
$90,000) with respect to such underlying asset other than the obligation to make
the Deferred Payment, if any, resulting from proceeds received by the Surviving
Corporation or Related Entity from such assignment; the Deferred Payment
resulting from such proceeds will be the obligation of the Surviving Corporation
or Related Entity, as applicable.
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Michael F. Zinn is required, with certain exceptions, to guarantee the
payment of the Deferred Payment Rights. See "-- Principal Covenants --
Guaranty."
Escrow Fund Payment Rights
The Plan of Merger has special provisions regarding the Remaining
Proceeds from the Escrow Fund. That portion of the Remaining Proceeds that would
otherwise have been placed in the Deferred Payment Fund (to provide Deferred
Payments) will be released to Continental as the Escrow Fund Payment
Distributions and provide Escrow Fund Payments.
The Escrow Fund Payments work as follows. The Plan of Merger requires
Besicorp to deliver the Instructions before the Merger. The Instructions will
irrevocably instruct the Escrow Agent to release, at the time that Remaining
Proceeds are released, the Escrow Fund Payment Distribution to Continental.
The Escrow Fund Payment Distribution is an amount equal to:
the Remaining Proceeds being distributed x Outside Participating Shareholders' Shares
-------------------------------------------
Total Shares
The portion of the Remaining Proceeds not released to Continental will be
released to the Surviving Corporation.
The Plan of Merger also requires Besicorp to irrevocably instruct
Continental to use the Escrow Fund Payment Distributions it receives in order to
distribute an Escrow Fund Payment to the Outside Participating Shareholders for
each of their Outside Participating Shareholders' Shares.
The Escrow Fund Payment is an amount equal to:
Escrow Fund Payment Distributions
------------------------------------------
Outside Participating Shareholders' Shares
For example, if the Remaining Proceeds were $2,750,000, and there were
135,882 Total Shares, each Outside Participating Shareholder would be entitled,
as a result of the Escrow Fund Payments, to a payment of approximately $20.22
for each of his Outstanding Participating Shareholders' Shares
Pursuant to the Plan of Merger, to the extent that monies are delivered
by the Escrow Agent to Continental, these amounts will not be Adjustment
Amounts, the Surviving Corporation will be deemed to have satisfied its
obligations to make payments of such amounts and Michael F.
Zinn will have no obligation pursuant to his Guaranty.
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Matters Applicable to both Deferred Payments and Escrow Fund Payments
As indicated above Combined Deferred Payments are dependent upon the
receipt of certain monies and no assurance can be given that any such monies
will be received. At present the Escrow Fund consists of $6.27 million: in the
first ten months following the Prior Closing approximately $490,802 was released
from the Escrow Fund, and interest income of approximately $259,179 was
received. As a result, the amount of money in the Escrow Fund has declined by
approximately $230,000, and if the Escrow Fund were to continue to incur
expenses and earn interest at its rates for this ten month period, money would
be distributed from the Escrow Fund to the Outside Participating Shareholders as
Escrow Fund Payments. See "Escrow Agreement." Two partnerships in which Besicorp
has interests hold in escrow money to satisfy certain potential liabilities: if
a tax audit of a third party's treatment of its receipt of certain funds in 1996
is not commenced by June 15, 2000 there will be a distribution to Besicorp that
would lead to a Deferred Payment; another such distribution would occur if funds
are not disbursed to satisfy certain potential liabilities by May 15, 2002. As
of December 31, 1999, Besicorp's share of the escrows was approximately $1.47
million. See "Business of Besicorp--Potential NonRecurring Funds." Still other
distributions are possible, although perhaps less likely, with respect to (i)
other partnership assets, (ii) Hydro-Credits, (iii) the sale of interests in
foreign development projects within one year of the Closing Date and (iv) as a
result of litigation. For example, the Buyer has informed us that it has no
plans to sell any of these interests and there are no discussions at present
with any unaffiliated third party regarding the sale of these interests. See
"Business of Besicorp." While there is no reason to believe that all three of
the escrow funds will be depleted in their entirety before any distribution can
be made, and that none of the other distributions will occur, it is possible
that you will receive no additional monies on account of the Combined Deferred
Payment Rights. Therefore it is possible that the Cash Merger Consideration of
$58.87 may be the only Merger Consideration you will receive.
Combined Deferred Payments are payable only with respect to proceeds
receivable by the Deferred Payment Termination Date, which is likely to be March
22, 2004. However, if on March 22, 2004, the Escrow Agent has not released all
of the Escrow Funds or the RICO Action is still pending, the Deferred Payment
Termination Date shall be the later of (i) the date of the release by the Escrow
Agent of all of the Escrow Funds and (ii) the disposition, pursuant to a final
and non-appealable judgment of a court of competent jurisdiction, including the
payment of all monies required by such disposition, of the RICO Action and any
litigation relating to the RICO Action.
It is possible that the Surviving Corporation will receive after the
Deferred Payment Termination Date amounts with respect to litigation claims
(other than the RICO Action) or distributions from partnerships; if the
Surviving Corporation does receive such proceeds, since these proceeds will have
been received after the Deferred Payment Termination Date, the Surviving
Corporation will be entitled to retain all of such proceeds. In addition,
pursuant to the Plan of Merger the Surviving Corporation is entitled to retain
all proceeds from sales of its interests in foreign development projects if the
sales occur more than a year after the Effective
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Date; therefore, if the Surviving Corporation receives any proceeds from such
sales after the Deferred Payment Termination Date, the Surviving Corporation is
entitled to retain such proceeds. However, after the Deferred Payment
Termination Date, the Surviving Corporation will not receive any money from the
Escrow Fund or any monies on account of Hydro-Credits.
Following the Merger you will not be a shareholder of Besicorp and
therefore the directors and executive officers will cease to have any fiduciary
duty to you as a shareholder although the NYBCL does permit directors to
consider the effect that a corporation's actions may have on, among others, its
customers and creditors. There is no trustee or other representative to oversee
Besicorp and any potential deferred payments, and to protect your right to
receive Combined Deferred Payments. You do, nonetheless, have some protection.
First, as indicated above, when Besicorp makes a Deferred Payment, Besicorp will
provide a notice about the Deferred Payment and the deductions therefrom.
Second, as indicated above, Besicorp will deliver the Instructions to the Escrow
Agreement so the Escrow Fund Payments will be less subject to Besicorp's
actions. Third, since Besicorp is paying Combined Deferred Payment Rights
pursuant to the terms of the Plan of Merger, Besicorp is contractually obligated
to pay the Combined Deferred Payments to the Outside Participating Shareholders
and if Besicorp does not abide by its contractual duties, Outside Participating
Shareholders may avail itself of all means of enforcing their rights, notably
their right to bring an action in court. It should be observed that it may be
difficult to bring such an action outside of New York, that it may be difficult
to find a lawyer interested in representing the Outside Participating
Shareholders unless the amount at issue is significant, it may be expensive to
bring an action, it may take a long time, to obtain a final judgment, and if
Besicorp is suffering financial problems at such time, it may be difficult to
collect.
The Plan of Merger does not impose any restrictions on Parent or
Besicorp's ability to restructure, issue stock, sell assets, charge its
operations or liquidate. However, the Buyer has informed us that it has no plans
to restructure itself or the Surviving Corporation and has not entered into
discussions or negotiations with third parties regarding the sale of stock or
assets following the Merger. See "Information Regarding Parent and Acquisition
Corp." The Plan of Merger does contain provisions that would result in Outside
Participating Shareholders receiving Combined Deferred Payments upon the
occurrence of certain such events and would ensure that purchasers assume
responsibility for paying Combined Deferred Payments upon the occurrence of
certain other events. Nonetheless it is conceivable that if Besicorp is
restructured or certain transactions are consummated in an unexpected manner,
the Combined Deferred Payments may be adversely affected.
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Disputed Shares
Old Besicorp is a party to a legal proceeding seeking a determination
that Enowitz, a former director and executive officer of Old Besicorp, is not
entitled to the 100,000 Enowitz Shares (of Old Besicorp's common stock). In
connection with this proceeding, Old Besicorp, Besicorp and Enowitz signed a
stipulation regarding the 4,000 Disputed Shares of Besicorp Common Stock that
would be issued in the Prior Spin-Off if the Enowitz Shares had been
outstanding. In calculating the Merger Consideration, the parties assumed
that such 4,000 Disputed Shares were outstanding. See "Business of Besicorp
- -- Legal Proceedings." Because of this stipulation, the Plan of Merger
provides that the Merger Consideration payable in respect of such shares
will be held in escrow pending resolution of this dispute. If it is
determined that Mr. Enowitz:
o was not entitled to the Disputed Shares, Old Besicorp's
shareholders at the effective time of the Prior Merger will
receive, on a pro rata basis, the Merger Consideration with
respect to the Disputed Shares; or
o was entitled to the Disputed Shares, Mr. Enowitz will receive
the Merger Consideration applicable to such Disputed Shares.
Besicorp has no rights to the 4,000 Disputed Shares and in no event will the
Outside Participating Shareholders (except to the extent that they were
shareholders of Old Besicorp at the effective date of the Prior Merger) receive
the Merger Consideration with respect to such shares.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties by Besicorp
The Plan of Merger contains representations and warranties of Besicorp
as to:
o The due organization, valid existence, good standing and
capital structure of Besicorp and/or certain subsidiaries;
o The authorization of the execution and delivery of the Plan of
Merger and certain related agreements, the enforceability of
such agreements, and that the Plan of Merger and the related
agreements do not contravene Besicorp's organizational
documents or any material order or judgment of a governmental
entity applicable to Besicorp;
o The absence of any Authorizations required to be obtained or
filed by Besicorp in connection with the Merger; and
o The accuracy of certain information regarding Besicorp
included in the Proxy Statement and the other SEC Documents.
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Representations by Parent and Acquisition Corp.
The Plan of Merger contains representations and warranties of each of
Parent and Acquisition Corp. as to:
o Their due organization, valid existence, good standing and/or
capital structure;
o Due authorization, execution and delivery of the Plan of
Merger and certain related agreements, the validity and
enforceability of these agreements and that the Plan of Merger
and certain related agreements do not contravene the
organizational documents of Parent and Acquisition Corp. or
other agreements to which they may be bound;
o The absence of conflicts and defaults and the absence of any
required Authorization; and
o The accuracy of the information provided in writing by Parent
and Acquisition Corp. for use in the Proxy Statement and
their other SEC Documents.
PRINCIPAL COVENANTS
Conduct of Business Pending the Merger
Each of the parties to the Plan of Merger agreed that they would:
o Not intentionally perform or omit to perform any act which
would prevent the performance of the Plan of Merger or would
result in any representation or warranty being untrue in any
material respect;
o Give the other parties notice of any event which would make
any representation or warranty in the Plan of Merger untrue or
that would otherwise prevent the consummation of transactions
contemplated by the Plan of Merger;
o Prepare and file with the SEC a Schedule 13E-3;
o Use their reasonable best efforts to respond to the SEC's
comments; and
o Timely seek all Consents required to be obtained prior to the
Effective Date in connection with the Plan of Merger and the
transactions contemplated thereby.
Besicorp also agreed in the Plan of Merger that, except for the
Spin-Off and the SunWize Project, it would not and would not permit its
subsidiaries to:
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o Amend its Certificate of Incorporation, By-Laws or other
organizational documents;
o Make any change in its authorized capital stock; adjust,
split, combine or reclassify its capital stock, or, with
certain exceptions, issue any shares of stock, or rights to
acquire capital stock or other similar rights;
o Subject to certain exceptions, sell, transfer, encumber or
otherwise dispose of any of its material properties or assets
to any person;
o Make any investments in, or contributions to capital of, or,
subject to certain exceptions, purchases of, any property or
assets from any other person;
o Change, with certain exceptions, its method of accounting as
in effect at March 31, 1999;
o Subject to certain exceptions, increase the compensation
payable to any employee, or enter into any new employment
agreements with new or existing employees;
o Pay any dividend or make any distribution on its securities
or purchase any of its securities;
o Make any tax election or settle or compromise any tax
liability, with certain exceptions; and
o Subject to certain exceptions, enter into any business or
contract not related to the Merger.
Pursuant to the Plan of Merger, Besicorp agreed:
o To call a meeting of its shareholders for the purpose of
voting upon adoption of the Plan of Merger and to hold such
meeting as soon as practicable;
o Subject to an exception regarding Acquisition Proposals (as
described below), to recommend to its shareholders the
adoption of the Plan of Merger;
o Subject to the provisions of the Plan of Merger, to use its
best efforts to obtain the adoption of the Plan of Merger by
the shareholders of Besicorp;
o To prepare and file with the SEC this Proxy Statement;
o To use its reasonable best efforts to respond to any comments
of the SEC; and
o To file all other reports and schedules required to be filed
by Besicorp with the SEC.
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Acquisition Proposals
The Plan of Merger indicates how the Board and Special Committee will
respond to Acquisition Proposals. Acquisition Proposals are proposals regarding
significant transactions, such as mergers and purchases by third parties of
significant portions of the assets or capital stock, of Besicorp or any
significant subsidiary. The Plan of Merger provides that the Board and Special
Committee will not:
o withdraw or modify their approval or recommendation of the
Plan of Merger or, the Merger;
o approve, adopt or recommend or publicly propose to approve,
adopt or recommend an Acquisition Proposal;
o cause Besicorp to enter into any agreement with respect to an
Acquisition Proposal; or
o resolve to do any of the foregoing.
However, the Plan of Merger provides that the Board or the Special
Committee may take such actions if they determine reasonably and in good faith,
after due investigation, that either:
o the Merger Consideration is not fair to the Outside
Shareholders; or
o a pending Acquisition Proposal is more favorable to the
Outside Shareholders.
Parent Loans
Pursuant to the Plan of Merger, Parent will lend Besicorp amounts (not
to exceed $350,000 in a 30 day period or an aggregate of $1,050,000) Besicorp
reasonably requests to satisfy its obligations with respect to it and its
subsidiaries normal operating expenses to the extent payable on or prior to the
Termination Date. Parent is not required to make the Parent Loan if:
o an injunction is in effect prohibiting the Merger;
o litigation is pending in a court of competent jurisdiction
seeking to enjoin the Merger;
o a request for an injunction enjoining the Merger is pending
in a court of competent jurisdiction;
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o a proxy statement for the Merger has not been filed with the
SEC; or
o certain events of bankruptcy have occurred.
The terms of Parent Loans are as follows:
o The Parent Loans will be evidenced by the Promissory Note;
o The Parent Loans are payable on the earlier of six months
after the Termination Date or upon default under the
Promissory Note;
o Interest is payable at the time the principal becomes due;
o Interest accrues at a rate of 9% per year, increasing to a
rate of 15% per year if and when the Promissory Note is not
repaid within four months after the Termination Date; and
o If the Merger is effectuated, Buyer is responsible for the
payment of the Promissory Note.
The Parent Loans are secured by a security interest on substantially
all of Besicorp's assets. These security interests will be created pursuant to
the Security Agreement and the Mortgage. As a result of the Security Agreement
and Mortgage:
o Besicorp is prohibited from selling its assets other than in
the ordinary course of business or from granting, except in
connection with financing the SunWize Project, a security
interest on its assets (with certain exceptions); and
o If Besicorp defaults on the Promissory Note (which may occur
if, among other things, the Parent Loans do not provide
sufficient funds for Besicorp to continue operations until the
Closing Date), Parent is entitled to sell Besicorp's assets in
accordance with the Security Agreement and Mortgage and apply
the proceeds to repay all amounts owing to Parent pursuant to
the Promissory Notes, the Security Agreement and the Mortgage
prior to claims of the Outside Shareholders.
Neither a default on the Promissory Notes nor foreclosure under the
Security Agreement and the Mortgage will permit the Buyer to not consummate the
transactions contemplated by the Plan of Merger. However, it is possible that
the events giving rise to such a default or foreclosure may also permit the
Buyer to not consummate the transactions contemplated by the Merger. See "--
Termination -- Right to Terminate."
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Indemnification
The Plan of Merger provides that before the Effective Date, Besicorp
will have D&O Insurance covering the Covered Persons for their acts and
omissions occurring on or prior to the Closing Date. The Plan of Merger provides
that after the Effective Time the Surviving Corporation:
o will maintain D&O Insurance for each Covered Person for acts
and omissions occurring on or before the Effective Date, and
such coverage will continue until the sixth anniversary of the
Effective Date;
o if it liquidates, merges, consolidates, or engages in a
similar transaction, must obtain and pay for "run-off" or
"tail" insurance for each Covered Person for acts and
omissions occurring on or before the Effective Date, and such
coverage will continue until the sixth anniversary of the
Effective Date;
o will reimburse the Covered Persons with respect to any
deductibles contained in such D&O Insurance or "run-off" or
"tail" insurance policies; and
o if there is no D&O Insurance, will indemnify the Covered
Persons against all Losses arising out of or in connection
with claims that would have been covered if Besicorp's current
insurance policy had remained in effect until the sixth
anniversary of the Effective Date.
Additionally, the Plan of Merger provides that for the lesser of six
years after the Closing Date or the period the Surviving Corporation maintains
its existence, the provisions of the Certificate of Incorporation and By-Laws of
the Surviving Corporation will provide indemnification to the Covered Persons on
terms, in a manner, and with respect to matters, which are no less favorable
than Besicorp's Certificate of Incorporation and By-Laws, as in effect on
October 7, 1999.
Guaranty
The Plan of Merger provides that on the Closing Date Michael F. Zinn
will execute the Guaranty in favor of the Outside Participating Shareholders and
the directors and officers of Besicorp. In the Guaranty, Mr. Zinn guarantees:
o the payment of the Deferred Payments, except to the extent
that assets of the Deferred Payment Fund are subject to liens,
judgments or acts by government entities other than liens,
judgments or acts which are the result of voluntary acts of
Besicorp that prohibit the payment by Besicorp of its
obligations to the Outside Participating Shareholders as
described under "-- Merger Consideration;" and
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o the payment of the insurance premiums, the reimbursement of
the Covered Persons with respect to any deductibles contained
in such insurance policies and the indemnification matters
described under "-- Indemnification."
In addition, Mr. Zinn has agreed to place $100,000 in escrow on the
Closing Date which will fund for six years his obligations under the Guaranty
with respect to insurance and indemnification matters.
Spin-Off
Besicorp is required to consummate the Spin-Off immediately prior to
the Merger. In order to do this, Besicorp has agreed to: (i) transfer to WOM the
interests in the Bansbach Litigation that Besicorp had received from Old
Besicorp as a result of the Prior Merger Order and (ii) distribute to the
shareholders of Besicorp on the Spin-Off Record Date all of the outstanding
capital stock of WOM.
Other Covenants
The Parent, Acquisition Corp and Michael F. Zinn are required to vote
all of their shares of Besicorp Common Stock in favor of the Plan of Merger and
the Merger.
The Plan of Merger contemplates that Parent may enter into agreements
with the holders of the Management Restricted Shares whereby the holders will
receive Substitute Restricted Shares in substitution for their Management
Restricted Shares. Parent has informed Besicorp that no such agreements will be
entered into by Parent and the holders of the Management Restricted Shares and
consequently all of the Management Restricted Shares should be outstanding
immediately prior to the Merger. Besicorp has waived any non-compliance, if any,
regarding this covenant.
The Plan of Merger contemplates that the Surviving Corporation will be
bound by the Escrow Agreement. In addition, the Plan of Merger requires Besicorp
to deliver irrevocable Instructions to the Escrow Agent before the Merger. See
"-- Merger Consideration -- Combined Deferred Consideration -- Escrow Funds
Payments."
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CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations
Each party's obligation to consummate the Merger is subject to the
satisfaction (or waiver by such party) of the following conditions:
o The adoption of the Plan of Merger by the Requisite Vote of
the shareholders of Besicorp;
o The consummation of the Spin-Off;
o No governmental entity or court has enacted any law or
regulation or order which is then in effect and has the effect
of making the Merger illegal;
o No suit, proceeding or investigation has been commenced by any
governmental entity on any grounds to restrain, enjoin or
hinder, or seek material damages on account of, the
effectuation of the Merger or the other transactions
contemplated by the Plan of Merger; and
o The approval of the Plan of Merger and the Merger by each
governmental entity
whose approval is so required.
Additional Conditions to Obligations of Besicorp
The obligation of Besicorp to effectuate the Merger is subject to the
satisfaction (or waiver by Besicorp) of certain additional conditions:
o The accuracy of the representations and warranties of Parent
and Acquisition Corp. when made and as of the Closing Date;
o The performance by Parent and Acquisition Corp. of all their
obligations required in the Plan of Merger to be performed by
them on or prior to the Closing Date; and
o Immediately prior to the Merger, Acquisition Corp. being, and,
assuming that the representations and warranties made by
Besicorp are true and correct immediately following the
Effective Date, the Surviving Corporation being solvent.
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Additional Conditions to Obligations of Buyer
The obligation of Parent and Acquisition Corp. to effectuate the Merger
is subject to the fulfillment (or waiver by such parties) of certain additional
conditions:
o The accuracy of the representations and warranties of Besicorp
when made and as of the Closing Date; and
o the performance by Besicorp of all obligations required by the
Plan of Merger to be performed by it.
TERMINATION
Right to Terminate
The Plan of Merger may be terminated and the Merger may be abandoned at
any time prior to the Effective Date as follows:
o by the mutual consent of Buyer and Besicorp.
o by either Buyer or Besicorp if:
(1) the Merger is not effectuated by the Termination Date;
(2) upon a vote at the Meeting, Besicorp's shareholders
do not adopt the Plan of Merger by the Requisite
Vote; or
(3) either the Board or the Special Committee has taken
any Acquisition Proposal Activity.
o by Buyer, if:
(1) there has been a material breach of any
representation or warranty of Besicorp which
could reasonably by expected to prevent
Besicorp from fulfilling its obligations
under the Plan of Merger or of any material
agreement or covenant under the Plan of
Merger on the part of Besicorp which is not
cured or adequate assurance of cure given on
a timely basis;
(2) a tender offer or exchange offer for 40% or
more of the shares of Besicorp Common Stock
is commenced (other than by the Buyer or an
affiliate of the Buyer), and the Board fails
to recommend against
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acceptance of such offer within the time
period required by Section 14e-2 of the
Exchange Act; or
(3) any person (other than the Buyer and its
affiliates) acquires 40% or more of the
outstanding shares of Besicorp Common Stock.
o by Besicorp, if:
(1) there has been a material breach of any
agreement of Buyer in the Plan of Merger
which is not cured (or adequate assurance of
cure given) on a timely basis; or
(2) there has been a breach of a representation
or warranty of Parent or Acquisition Corp.
which could reasonably be expected to
prevent Parent or Acquisition Corp. from
fulfilling its obligations under the Plan of
Merger.
Remedies
Notwithstanding any termination right described under "--Right to
Terminate," in the event of the nonfulfillment of any condition to a party's
closing obligations, such party may elect to proceed to close despite the
nonfulfillment of any closing condition without waiving any claim for any
breach.
Damages
If the Plan of Merger is terminated as described under "--Rights to
Terminate," no party will have any claim against the others, except as follows:
Generally, a party terminating the Plan of Merger will retain
all of such party's legal rights if the circumstances giving rise to
such termination were:
o caused by another party's willful failure to comply with a
material covenant set forth in the Plan of Merger; or
o a material representation or warranty of such other party was
materially false when made and that party knew or should have
reasonably known such representation or warranty was
materially false when made.
Besicorp will reimburse Buyer for its Covered Expenses up to a maximum
of $150,000 if:
o Buyer terminates the Plan of Merger because:
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(1) there has been a material breach of any
representation or warranty of Besicorp which could
reasonably by expected to prevent Besicorp from
fulfilling its obligations under the Plan of Merger
or of any material agreement or covenant under the
Plan of Merger on the part of Besicorp which has not
been cured or adequate assurance of cure given, in
either case within ten business days following notice
of such breach from Parent; or
(2) a tender offer or exchange offer for 40% or more of
the shares of Besicorp Common Stock is commenced
(other than by the Buyer or an affiliate of the
Buyer), and the Board fails to recommend against
acceptance of such offer within the time period
required by Section 14e-2 of the Exchange Act or
any person (other than the Buyer or an affiliate of
the Buyer) acquires by any means 40% or more of the
outstanding shares of Besicorp Common Stock; or
o the Plan of Merger is terminated because:
(1) upon a vote at the Meeting, Besicorp's shareholders
do not adopt the Plan of Merger by the Requisite
Vote; or
(2) either the Board or the Special Committee will have
taken any Acquisition Proposal Activity.
Parent will pay to Besicorp immediately upon such termination
Besicorp's Covered Expenses up to a maximum of $500,000 if:
o the Plan of Merger is terminated because the Merger will not
have been
effectuated by the Termination Date; or
o Besicorp terminates the Plan of Merger because:
(1) there has been a material breach of any agreement
therein on the part of Buyer which has not been cured
or adequate assurance of cure given within ten
business days following notice of such breach from
Besicorp; or
(2) there has been a breach of a representation or
warranty of Parent or Acquisition Corp. which could
reasonably be expected to prevent Parent or
Acquisition Corp. from fulfilling its obligations
under the Plan of Merger.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
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All representations, warranties and agreements set forth in the Plan of
Merger or in any document or certificate delivered pursuant thereto will survive
the Merger for a period of five years following the Effective Date.
FEES AND EXPENSES
The Plan of Merger provides generally that whether or not the Merger is
effectuated, all costs and expenses incurred in connection with the Plan of
Merger and the transactions contemplated thereby will be paid by the party
incurring such expenses, except as described under " -- Termination -- Damages."
INDEMNIFICATION AGREEMENT
The Indemnification Agreement that was entered into at the time of the
Prior Merger provides that Besicorp will generally indemnify the Purchaser
Indemnities against and from all damages sustained or incurred by any Purchaser
Indemnitee as a result of, or arising out of, by virtue of, or in connection
with:
o any inaccuracy in or breach of any representation and
warranty made by Old Besicorp in the Prior Plan of
Merger or in any closing document delivered in
connection with the Prior Plan of Merger;
o any breach by Old Besicorp of, or failure by Old
Besicorp to comply with, any of its covenants or
obligations under the Prior Plan of Merger or under
the Indemnification Agreement;
o the existence of any liability or other obligation of
Old Besicorp as of March 22, 1999 or arising out of
or relating to the Prior Merger or any claim against
a Purchaser Indemnitee with respect to any such
liability or obligation other than certain permitted
liabilities, including, without limitation, liability
on account of taxes payable by Old Besicorp or for
which Old Besicorp is liable;
o the failure of Besicorp to pay and discharge in full
when due any of its liabilities, including liability
on account of taxes other than such permitted
liabilities;
o any claims for indemnification by current or former
officers, directors, employees, agents or consultants
of Old Besicorp;
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o any third party claim (which includes the Existing
Litigation) to the extent it arises out of or relates
to any action or inaction of, or the conduct of the
business of Old Besicorp on or prior to March 22,
1999 other than such permitted liabilities;
o any violation of, or delinquency with respect to, any
order or arbitration award or statute, or regulation
in effect on or prior to March 22, 1999 or of any
agreement of Old Besicorp with, or any license,s
permit or environmental permit granted to Old
Besicorp by any federal, state or local governmental
authority to which the properties, assets, personnel
or business activities of Old Besicorp are subject
(or to which Old Besicorp is subject) as it relates
to the properties, assets, personnel or business
activities of Old Besicorp;
o certain environmental matters;
o certain matters relating to employee pension benefit
plans of Old Besicorp;
o any federal or state taxes imposed upon Old Besicorp,
or for which Old Besicorp is liable, with respect to
any taxable period or portion of a taxable period
ending on or prior to March 22, 1999 other than a
permitted liability;
o litigation against Old Besicorp pending or threatened
as of March 22, 1999; and
o any claims, investigations, proceedings, actions or
lawsuits asserted or initiated before or after March
22, 1999 arising out of or in connection with
pre-closing occurrences involving Old Besicorp.
With certain exceptions, the Purchaser Indemnities are not entitled to
indemnification:
o unless a notice of a claim has been delivered to
Besicorp prior to March 22, 2004;
o to the extent the aggregate claims actually paid by
Besicorp or any of its subsidiaries to the Purchaser
Indemnities exceeds the aggregate Prior Merger
Consideration;
o for damages to the extent such damages were
expressly included in the adjustment amount pursuant
to the Prior Plan of Merger;
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o with respect to consequential damages relating to
lost profits or punitive damages (other than
consequential damages or punitive damages paid or
payable to, or claimed by third parties); and
o with respect to damages arising from time spent by
BGI Parent or its affiliates and their respective
officers and employees, for amounts in excess of
their actual out-of-pocket costs.
The payment of any damages to which the Purchaser Indemnities are
entitled pursuant to the Indemnification Agreement will first be satisfied from
the Escrow Fund, pursuant to the terms of the Escrow Agreement to the extent
available, until the Escrow Fund has been reduced to zero and thereafter will be
satisfied by Besicorp directly. To the extent that the Escrow Fund is reduced
because of the Indemnification Agreement and the WOM Costs, the amounts
available for Combined Deferred Payments to the Outside Participating
Shareholders will be reduced.
ESCROW AGREEMENT
In connection with the Prior Merger, Old Besicorp deposited $6.5
million into the Escrow Fund pursuant to the Escrow Agreement. The Escrow Fund
serves to fund claims for BGI Indemnity Claims, BGI Monitoring Costs and
Litigation Costs, which at present includes the Bansbach Litigation. In order to
provide that the Bansbach Litigation is still covered by the Escrow Fund after
the Spin-Off, the Escrow Agreement has been amended pursuant to the Escrow
Agreement Amendment, to provide, effective as of the Spin-Off; that (i) WOM
shall be provided from the Escrow Fund with its reasonable expenses (up to
$35,000 per annum) in connection with maintaining its existence, complying with
the Exchange Act and the rules and regulations promulgated thereunder, and such
other matters as may be reasonably necessary to permit the Bansbach Litigation
to continue and (ii) that the Bansbach Litigation will still be covered by the
Escrow Agreement following the Spin-Off. If the Merger were effectuated without
Besicorp's effectuating the Spin-Off (because the Prior Merger Order is
reversed), none of the WOM Costs would be incurred and there would most likely
be no further costs related to the Bansbach Litigation (assuming the Bansbach
Litigation were dismissed as a result of the Prior Merger Order being reversed);
any reimbursements with respect to such costs will reduce the monies available
to you as Deferred Payments. As of January 20, 2000, as a result of permitted
releases aggregating approximately $490,802, and after giving effect to interest
income aggregating approximately $259,179, the Escrow Fund contained
approximately $6,268,377.
The Escrow Agent will disburse Escrow Funds upon request (i) to BGI
Parent, with respect to BGI Indemnity Claims or BGI Monitoring Costs, (ii) to
Besicorp, with respect to Litigation Costs and (iii) once the Escrow Agreement
Amendment is effective, to WOM (and to Besicorp with respect to expenses
incurred prior to the Spin-Off), with respect to WOM Costs, unless any other
party objects. If a party objects, the Escrow Agent will disburse such funds
only in accordance with the Escrow Fund Determination Procedure. Besicorp and
WOM agreed not
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to unreasonably withhold its consent to a request by BGI Parent for payment of
BGI Indemnity Claims and BGI Parent and WOM agreed not to unreasonably withhold
consent for payment of Litigation Costs. BGI Parent and Besicorp agreed not to
unreasonably withhold consent for the payment of WOM Costs if the Escrow
Agreement Amendment becomes effective.
The terms of the Escrow Agreement provide that the Remaining Proceeds
of the Escrow Fund, if any, will be released to Besicorp at any time after March
22, 2004 provided that all of the following conditions have occurred and notice
has been provided by Besicorp to the Escrow Agent:
o no claims are then subject to the Escrow Fund
Determination Procedure;
o in the reasonable judgment of BGI Parent, no future
BGI Indemnity Claims are foreseeable;
o all Besicorp Assumed Matters have been finally
settled through either:
(1) a final, non-appealable judgment against
Besicorp and all Purchaser Indemnities; or
(2) a settlement or other conclusion to the
Besicorp Assumed Matter that (x) contains a
release from all liability in favor of
Besicorp and Purchaser Indemnities without
any further obligation by Besicorp or
Purchaser Indemnities to make any payment or
incur any other liability or obligation with
respect to such matter, (y) does not
attribute by its terms liability to Besicorp
or any Purchaser Indemnitee and (z) if the
scheduled matter is a litigation or a
proceeding, includes as a term thereof a
full dismissal of the litigation or
proceeding with prejudice; and
o the final settlement of the Bansbach Litigation
through either:
(1) a final, non-appealable judgment against
Besicorp, WOM and all Purchaser Indemnities;
or
(2) a settlement or other conclusion to the
Bansbach Litigation that (x) includes a
release from all liability in favor of WOM
without any further obligation by WOM to
make any payment or incur any other
liability or obligation with respect to such
matter, (y) does not attribute by its terms
liability to WOM and (z) includes as a term
thereof a full dismissal of the litigation
with prejudice.
-108-
BGI Parent, WOM and Besicorp also agreed to meet at least once a year to
determine whether the amount of the Escrow Fund is more than sufficient to (i)
secure BGI Parent pursuant to the Indemnification Agreement and (ii) secure WOM
(if the Escrow Agreement Amendment becomes effective) in connection with the
Bansbach Litigation and under the Escrow Agreement. Amounts released to Besicorp
as a result of such meetings are also Remaining Proceeds.
Ordinarily all of the Remaining Proceeds would be released by the
Escrow Agent to Besicorp or, after the Merger, the Surviving Corporation.
However, the Plan of Merger requires Besicorp to deliver the Instructions before
the Merger. The Instruction will irrevocably instruct the Escrow Agent to
release, at the time that Remaining Proceeds are released, the Escrow Fund
Payment Distribution to Continental.
The Escrow Fund Payment Distribution is an amount equal to:
the Remaining Proceeds being distributed x Outside Participating Shareholders' Shares
------------------------------------------
Total Shares
The portion of the Remaining Proceeds not released to Continental will be
released to the Surviving Corporation and will not be considered Adjustment
Amounts.
The Plan of Merger also requires Besicorp to irrevocably instruct
Continental to distribute the Escrow Fund Payment Distribution to the Outside
Participating Shareholders on a pro rata basis as Escrow Fund Payments.
See "Plan of Merger -- Merger Consideration -- Combined Deferred
Payments -- Escrow Fund Payments" and "Plan of Merger -- Principal Covenants --
Other Covenants."
For example, if the Remaining Proceeds were $2,750,000, and there were
135,882 Total Shares, each Outside Participating Shareholder would be entitled,
as a result of the Escrow Fund Payments, to a payment of approximately $20.24
for each of his Outstanding Participating Shareholders' Shares
Pursuant to the Plan of Merger, to the extent that monies are delivered
by the Escrow Agent pursuant to the Instructions, these amounts will not be
Adjustment Amounts, the Surviving Corporation will be deemed to have satisfied
its obligations to make payments of such amounts and Michael F. Zinn will have
no obligation pursuant to his Guaranty.
Because the amount required to be released from the Escrow Fund to
satisfy BGI Indemnity Claims, BGI Monitoring Costs, Litigation Costs and WOM
Costs, is unknown, we have not estimated the amount of the Remaining Proceeds
that will be released from the Escrow Fund, the amount of Escrow Fund Payments
or when any of these monies will be released or distributed.
-109-
SPIN-OFF
BACKGROUND
The only shareholder of the Surviving Corporation following the Merger
will be Parent. Consummation of the Merger ordinarily would cause the named
plaintiff in the Bansbach Litigation to lose his status as a shareholder of
Besicorp, and therefore ordinarily would cause him to lose his right to
prosecute the Bansbach Litigation. If the Bansbach Litigation were not
maintained certain of Besicorp's executive officers and directors who are
defendants in such suits, including Michael F. Zinn, Besicorp's Chairman of the
Board, President and Chief Executive Officer, would benefit and certain
potential Adjustment Amounts would no longer be available. See "Factors to be
Considered -- Interests of Executive Officers and Directors in the Merger" and
"Business of Besicorp -- Legal Proceedings." If the Bansbach Litigation were
maintained and if the plaintiff in such litigation were to prevail,
approximately $1 million, excluding interest and punitive damages, might be
recoverable. Therefore, in order to avoid terminating the Bansbach Litigation as
a result of the Merger, we decided to effect the Spin-Off. Effectuating the
Assignment of the Bansbach Litigation to WOM pursuant to the Contribution and
issuing shares of WOM Common Stock in the Distribution to the shareholders of
Besicorp is intended to preserve the rights of the named plaintiff in the
Bansbach Litigation to pursue prosecution of the claim.
Although the Spin-Off will not be effected unless the Merger is adopted
by Besicorp's shareholders and all other conditions precedent to the Closing
(other than the Spin-Off) have been satisfied or waived, the Spin-Off is
separate from the Merger, and the shares of WOM Common Stock to be received by
holders of Besicorp Common Stock in the Spin-Off do not constitute a part of the
Merger Consideration.
The Information Statement that will be sent to Besicorp's shareholders
in conjunction with the Spin-Off will contain additional information regarding
the Spin-Off and WOM.
THE CONTRIBUTION
Following the Special Meeting and prior to the Spin-Off, Besicorp will
transfer or cause to be transferred to WOM the interests in the Bansbach
Litigation that Besicorp had received from Old Besicorp as a result of the Prior
Merger Order. The transfer is referred to herein as the "Contribution." In
addition, the Escrow Agreement was amended to permit WOM to receive the WOM
Costs. If the Merger were effectuated without Besicorp's effectuating the
Spin-Off (because the Prior Merger Order is reversed), none of the WOM Costs
would be incurred and there would most likely be no further costs related to the
Bansbach Litigation (assuming the Bansbach Litigation were dismissed as a result
of the Prior Merger Order being reversed); any reimbursements with respect to
such costs will reduce the monies available to you as Deferred Payments. See
"Escrow Agreement." To effectuate the Contribution, Besicorp and WOM will enter
into the Contribution Agreement. Pursuant to the Contribution Agreement,
Besicorp has
-110-
agreed to furnish WOM free of charge with the services of Besicorp's employees
and the use of Besicorp's corporate headquarters.
It is anticipated that Michael F. Zinn, the Chairman of the Board,
President and Chief Executive Officer of Besicorp, will be the sole director,
President and Chief Executive Officer of WOM at the time of the Spin-Off, and,
in addition, certain of the executive officers of Besicorp will serve WOM in
capacities in which they currently serve Besicorp but that they will not be
compensated for the services they render on behalf of WOM. See "Factors to be
Considered -- Interests of Executive Officers and Directors in the Merger."
THE DISTRIBUTION
Besicorp has declared a stock dividend (the Distribution) to each
holder of record of Besicorp Common Stock as of the Spin-Off Record Date of one
share of WOM Common Stock for each share of Besicorp Common Stock held by such
holder on such Spin-Off Record Date. The Spin-Off Record Date is the date that
all conditions to the consummation of the Merger, including (i) the adoption of
the Plan of Merger by the Requisite Vote at the Special Meeting and (ii) the
Contribution, have been or will be waived or satisfied. Consequently it is
anticipated that the Spin-Off Record Date will be the date of the Special
Meeting and the same date as the Effective Date. However, the Spin-Off will
occur before the Merger.
Holders of Restricted Shares will receive WOM Restricted Stock, which
are shares of WOM Common Stock subject to the same restrictions upon
transferability as the Restricted Shares. Therefore each share of WOM Restricted
Stock will be held in escrow by Besicorp and will vest or be forfeit at the same
time as the Restricted Share for which it was issued. However, there will be
different results depending upon whether the holder is (i) an Independent
Director (i.e. a holder of the 1,050 Independent Directors' Restricted Shares)
or (ii) a holder of Management Restricted Shares.
o The shares of WOM Restricted Stock held by the Independent
Directors will vest at the Effective Date.
o The shares of WOM Restricted Stock held by the holders of
Management Restricted Shares will be held in escrow by the
Surviving Corporation and will vest or be forfeit at the same
time as such holders' Restricted Merger Consideration vests or
is forfeited.
Since all holders of record on the Spin-Off Record Date will receive WOM Common
Stock, the Buyer will receive shares of WOM Common Stock.
Since the Distribution will occur prior to the Merger, Dissenters will
receive shares of WOM Common Stock, which shares will not be forfeit on account
of the Merger.
-111-
Therefore, assuming that no shares of Besicorp Common Stock are issued
or cancelled prior to the Spin-Off, 135,882 shares of WOM Common Stock will be
issued, including 57,967 shares (or approximately 42.7% of the aggregate number
of shares) that will be issued to the Buyer, 3,000 (or approximately 2.2% of the
aggregate number of shares) that will be issued to Michael F. Zinn, and 10,000
shares (or approximately 7.4% of the aggregate number of shares) that will be
issued to the Trust; of these shares, 14,500 shares will be shares of WOM
Restricted Stock of which 1,050 will vest upon the effectuation of the Merger
and the remainder will vest at such time that the Management Restricted Shares
for which they were issued would have vested.
These 135,882 shares of WOM Common Stock include 4,000 shares that will
be issued to Enowitz on account of the 4,000 Disputed Shares of Besicorp Common
Stock that would be issued in the Prior Spin-Off if the Enowitz Shares (of Old
Besicorp's Common Stock) were outstanding at the time of the Prior Spin-Off. A
legal proceeding is pending to determine whether Enowitz is entitled to these
shares and the parties to this proceeding have signed a stipulation regarding
the 4,000 Disputed Shares which, as a result, are being held in escrow by
Continental.
See "Business of Besicorp -- Legal Proceedings."
Certificates representing shares of WOM Common Stock will be
distributed by Continental; the transfer agent for the WOM Common Stock,
following the Spin-Off Record Date. As a result of the Spin-Off, the
shareholders of record of Besicorp at the close of business on the Spin-Off
Record Date will own all of the outstanding shares of WOM Common Stock.
CONDITIONS TO THE SPIN-OFF
Besicorp will not effect the Spin-Off unless (i) Besicorp's
shareholders adopt the Plan of Merger, (ii) all other conditions to the closing
of the Merger have been waived or satisfied and (iii) a Form 10-SB containing
the Information Statement has been filed with the SEC and become effective. In
addition, the Spin-Off will occur only if the Prior Merger Order is still in
effect. Besicorp has appealed the Prior Merger Order to the United States Court
of Appeals for the Second Circuit. If the Second Circuit reverses the Prior
Merger Order before the Spin-Off, the Spin-Off will not be effectuated.
-112-
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain historical combined financial
data for Besicorp for the year ended March 31, 1999 ("Fiscal 1999") and the
year ended March 31, 1998 ("Fiscal 1998") and the six months ended September 30,
1999 and 1998. The historical financial data for Fiscal 1999 and 1998 (audited),
and the six months ended September 30, 1999 and 1998 (unaudited), were
derived from the Consolidated Financial Statements of Besicorp included
elsewhere herein. In the opinion of management, the historical consolidated
financial data of Besicorp for the six months ended September 30, 1999 and 1998
include all adjusting entries (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein. The historical
consolidated financial data are not necessarily indicative of the results of
operations for any future period. Furthermore, the results of operations
for the six months ended September 30, 1999 and 1998 should not be regarded as
indicative of the results that may be expected for the full year.
The summary pro forma consolidated financial data set forth below is
not necessarily indicative of the results of the operations or financial
position of Besicorp had the transactions reflected therein actually been
consummated on the dates assumed and is not necessarily indicative of the
Parent's future performance. The pro forma adjustments, as described in the
Notes to the Unaudited Pro Forma Consolidated Balance Sheet and Notes to the
Unaudited Pro Forma Consolidated Statements of Operations are based on available
information and upon certain assumptions that management believes are
reasonable. The summary pro forma consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis or Plan of Operation"
included elsewhere herein, the Consolidated Financial Statements of Besicorp
and notes thereto and the Unaudited Pro Forma Consolidated Financial
Information and notes thereto included elsewhere herein.
Income Statement Data
(In Millions, Except Per Share Amounts)
-------------------------------------
Year Ended March 31, Six Months Ended September 30,
1999 1998 1999 1999 1998
Historical Historical Pro Forma Historical Pro Forma Historical
(Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ----------- -------- -----------
Revenues $5.7 $4.4 $5.7 $4.6 $4.6 $2.4
Costs and Expenses 14.4 15.3 14.6 7.0 7.1 6.6
Net Loss 5.8 (7.2) (5.9) (2.5) (2.5) (2.8)
Pro Forma Per Share
Data (Unaudited)
Net loss ($43.47) ($18.57)
====== ======
Balance Sheet Data
March 31, 1999 September 30, 1999
-------------- ------------------
Historical Historical Pro Forma
(Unaudited) (Unaudited)
Working Capital $.5 $3.4 $3.4
Total Assets 10.6 8.3 8.5
Long-Term Debt 0.1 0.1 4.6
Shareholders' Equity 9.3 6.9 2.5
Book Value Per Share 76.50 50.42 18.34
-113-
BESICORP HOLDINGS, LTD.
UNAUDITED PRO
FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1999
Pro Forma
Historic Adjustments Pro Forma
-------- ----------- ---------
Revenues:
Product sales $5,103,275 $ $5,103,275
Other revenues 486,030 486,030
Interest and other investment income 20,412 20,412
Other income 106,886 106,886
--------- --------- ---------
Total Revenues 5,716,603 5,716,603
--------- --------- ---------
Costs and Expenses:
Cost of product sales 4,839,016 4,839,016
Selling, general and
administrative expenses 9,444,398 (12,400)(2) 9,590,248
158,250 (1)
Interest expense 134,110 134,110
Other expense 11,018 11,018
---------- ------- ----------
Total Costs and Expenses 14,428,542 145,850 14,574,392
---------- -------- ----------
Loss Before Income Taxes (8,711,939) (145,850) (8,857,789)
Provision (Credit) for Income Taxes (2,897,200) ( 53,800)(3) (2,951,000)
---------- ------- ---------
Net Loss $ (5,814,739) $ (92,050) $ (5,906,789)
========= ======= =========
Basic Loss per Share $ (47.90)(4) $ (43.47)(4)
See accompanying notes to unaudited pro forma consolidated financial statements.
-114-
BESICORP HOLDINGS, LTD.
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS For
the Six Months Ended September 30, 1999
Pro Forma
Historic Adjustments Pro Forma
-------- ----------- ----------
Revenues:
Product sales $ 4,287,909 $ $ 4,287,909
Other revenues 206,063 206,063
Interest and other investment income 63,222 63,222
--------- ---------- ---------
Total Revenues 4,557,194 4,557,194
--------- ----------- ---------
Costs and Expenses:
Cost of product sales 3,697,215 3,697,215
Selling, general and
administrative expenses 3,276,183 (3,100)(2) 3,294,483
21,400 (1)
Interest expense 287 287
Other expense 78 78
Loss from partnerships 75,187 75,187
--------- ------- ---------
Total Costs and Expenses 7,048,950 18,300 7,067,250
--------- ------- ---------
Loss Before Income Taxes (2,491,756) (18,300) (2,510,056)
Provision for Income Taxes 13,934 13,934
--------- ------- ---------
Net Loss $ (2,505,690) $ (18,300) $ (2,523,990)
========= ======= =========
Basic Loss per Share $ (18.86)(4) $ (18.57)(4)
========= ======= ========
See accompanying notes to unaudited pro forma consolidated financial statements.
-115-
BESICORP HOLDINGS, LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The Historic financial statements for the year ended March 31, 1999 represent
the results of operations of the Distributed Businesses of Old Besicorp for the
period April 1, 1998 through March 22, 1999, the date of the contribution of the
Distributed Businesses to Besicorp Ltd. and the operations of Besicorp Ltd. from
March 23, 1999 to March 31, 1999. The pro forma adjustments reflect transactions
which would have occurred if the Plan of Merger had been effective April 1,
1998.
(1) Represents amortization of deferred compensation on restricted share grants.
(2) Represents reduction of depreciation and amortization based on reduction of
asset values for application of excess of assets over cost on Merger.
(3) Tax effect of entries (1) & (2).
(4) For the year ended March 31, 1999, historic loss per share on the 121,382
shares assumed outstanding upon the Prior Spin Off.
For the six months ended September 30, 1999, historic loss per share based
on weighted average number of shares outstanding during the period of
132,851.
For the year ended March 31, 1999 and the six months ended September 30,
1999, Pro Forma loss per share based on the 135,882 shares to be
outstanding upon the Merger.
(5) Since they cannot presently be determined, no adjustments were made to the
historical operations for cost savings that might result should the Merger
be completed and the Company is no longer an SEC reporting company,
although the Company estimates approximately $350,000 per year in external
expenses and approximately $300,000 per year in internal costs relating to
SEC compliance.
-116-
BESICORP HOLDINGS, LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
ASSETS
Historic
-------- Pro Forma
Parent Besicorp Adjustments Pro Forma
(Unaudited) (Unaudited) ----------- ---------
---------- ---------
Current Assets:
Cash and cash equivalents $ - $ 800,399 $ $ 800,399
Trade accounts and notes receivable (less allowance
for doubtful accounts of $28,906) - 1,390,706 1,390,706
Due from affiliates - 66,470 66,470
Notes receivable: (includes interest of $5,770) - 87,320 87,320
Merger consideration 4,586,856 (1) -
(4,586,856)(2)
Inventories - 1,818,608 1,818,608
Other current assets - 439,579 439,579
------ --------- --------- ---------
Total Current Assets - 4,603,082 - 4,603,082
------ --------- --------- ---------
Property, Plant and Equipment
Land and improvements - 229,660 229,660
Buildings and improvements - 1,914,029 1,914,029
Machinery and equipment - 603,654 603,654
Furniture and fixtures - 237,424 237,424
Construction in progress - 23,369 23,369
------ --------- -------- ---------
- 3,008,136 - 3,008,136
Less: accumulated depreciation and amortization - (1,438,589) (244,638)(3) (1,683,227)
------ --------- ------- ---------
Net Property, Plant and Equipment - 1,569,547 (244,638) 1,324,909
------ --------- ------- ---------
Other Assets:
Cash escrow 791,180 (2) 791,180
Patents and trademarks, less accumulated
ammortization of $2,940 - 18,120 (2,824)(3) 15,296
Investment in Besicorp 2,492,581 - (6,288,057)(3) -
3,795,676 (2)
Investment in partnerships - 1,692,414 (260,788)(3) 1,431,626
Deferred costs - 382,719 (59,653)(3) 323,066
Other assets - 74,554 (11,620)(3) 62,934
--------- --------- --------- ---------
Total Other Assets 2,492,581 2,167,807 (2,036,086) 2,624,302
--------- --------- --------- ---------
TOTAL ASSETS $ 2,492,581 $ 8,340,436 $ (2,280,724) $ 8,552,293
========= ========= ========= =========
See accompanying notes to unaudited pro forma consolidated financial statements.
-117-
BESICORP HOLDINGS, LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
Historic
-------- Pro Forma
Parent Besicorp Adjustments Pro Forma
(Unaudited) (Unaudited)
--------- --------- ----------- ----------
Current Liabilities:
Accounts payable and accrued expenses $ - $ 1,002,200 $ $1,002,200
Current portion of long-term debt - 42,000 42,000
Current portion of accrued reserve and warranty expense - 72,946 72,946
Taxes other than income taxes - 105,885 105,885
Income taxes payable - 8,149 8,149
--------- --------- --------- ---------
Total Current Liabilities - 1,231,180 - 1,231,180
Long-Term Accrued Reserve and Warranty Expense - 190,606 190,606
Long-Term Debt - 51,070 4,586,856 (1) 4,637,926
---------- --------- --------- ---------
Total Liabilities - 1,472,856 4,586,856 6,059,712
---------- --------- --------- ---------
Shareholders' Equity:
Common stock - unrestricted 2,492,581 1,364 (139)(4) 2,492,581
(1)(5)
(1,224)(3)
Restricted merger consideration 791,180 (6) 791,180
Additional paid in capital - 10,135,677 (595,411)(4) -
(4,299)(5)
(9,535,967)(3)
Unamortized deferred compensation - (587,308) 545,921 (4) (791,180)
(791,180)(6)
41,387 (7)
Retained earnings (deficit) - (2,677,853) (41,387)(7) -
49,629 (4)
2,669,611 (3)
Treasury stock - (4,300) 4,300 (5) -
--------- --------- --------- ---------
Total Shareholders' Equity 2,492,581 6,867,580 (6,867,580) 2,492,581
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,492,581 $ 8,340,436 $ (2,280,724) $ 8,552,293
========= ========== ========= =========
See accompanying notes to unaudited pro forma consolidated financial statements.
-118-
BESICORP HOLDINGS, LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
The Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999
presents the consolidated financial position of the Parent and Besicorp as
though the Plan of Merger had been effective as of September 30, 1999 and the
fact that Parent has become the parent company as a result of the Merger. The
Parent's balance sheet reflects its investment in Besicorp immediately prior to
the Merger, Besicorp's balance sheet reflects its historical financial position
as of September 30, 1999, and the pro forma adjustments represent transactions
occurring as a result of the Merger, including the assumption of debt by Parent
to fund the Cash Merger Consideration and the write-down of certain assets to
reflect the excess of the net book value of the assets acquired over the Cash
Merger Consideration.
Debit Credit
----- ------
(1) Assumption of debt to pay Cash Merger Consideration
Cash Merger Consideration $4,586,856
Long-term debt $4,586,856
(2) Conversion of 64,465 shares of Besicorp Ltd. stock for Cash Merger
Consideration at $58.87 per share and establishing cash escrow account for
conversion of 13,450 Management Restricted Shares at $58.87 per share
Cash Escrow $ 791,180
Investment in Parent $3,795,676
Cash Merger Consideration $4,586,856
(3) Elimination of investment in Besicorp by Parent
Common stock $ 1,224
Additional paid-in capital $9,535,967
Retained earnings $2,669,611
Investment in Besicorp Ltd. $6,288,057
Other assets $ 579,523
(4) Cancellation of Management Restricted Shares (13,850), including 400
shares for employee terminated subsequent to September 30, 1999
Common stock (13,850 @ $.01) $ 139
Additional paid-in capital (13,850 @ $42.99) $ 595,411
Unamortized deferred compensation $ 545,921
Retained earnings $ 49,629
(5) Cancellation of 100 treasury shares upon merger
Common stock $ 1
Additional paid-in capital $ 4,299
Treasury stock $ 4,300
(6) Recording of Restricted Merger Consideration (13,450 @ $58.87)
Unamortized deferred compensation $ 791,180
Restricted merger consideration $ 791,180
(7) Release of restrictions on Management Restricted Stock (1,050 shares)
Retained earnings $ 41,387
Unamortized deferred compensation $ 41,387
-119-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Three and Six Months Ended September 30, 1999 Compared to Three and Six Months
Ended September 30, 1998
REVENUES
Consolidated
Consolidated revenues increased by $1,114,079, or 90%, to $2,347,793 during the
three months ended September 30, 1999 as compared to $1,233,714 during the three
months ended September 30, 1998. Consolidated revenues for the six months ended
September 30, 1998 increased by $2,179,346, or 92%, to $4,557,194, as compared
to $2,377,848 during the six months ended September 30, 1998.
Product Sales. Revenues from product sales during the three months ended
September 30, 1999 increased by $1,064,940, or 97%, to $2,162,837 as compared to
$1,097,897 for the three months ended September 30, 1998. During the six months
ended September 30, 1999, revenues increased by $2,202,219 to $4,287,909, as
compared to $2,085,690 for the six months ended September 30, 1998. The increase
for both periods is due primarily to increased sales volume of photovoltaic
products primarily as a result of increases to the sales and marketing support
staff made primarily during the fourth quarter of Fiscal 1998 and to the general
increase in demand for solar electric products associated with Year 2000
expectations. No assurance can be given that Besicorp will be able to maintain
such revenue levels or that revenues will not decrease.
Other Revenues. Other revenues are primarily comprised of contract revenue
received from various sources, including the New York State Energy Research and
Development Authority ("NYSERDA") and Motorola, Inc. in accordance with funding
agreements with Besicorp. Other revenues increased by $15,748, or 12%, for the
three months ended September 30, 1999 and decreased by $72,891, or 26%, for the
six months ended September 30, 1999 from the corresponding periods of the prior
year. Contract revenue may vary from quarter to quarter based upon the degree of
completion of the various tasks outlined in the applicable agreements.
Interest and Other Investment Income. Interest and other investment income
during the three months ended September 30, 1999 increased by $33,391 to $39,822
compared to $6,431 for the three months ended September 30, 1998. Interest and
other investment income during the six months ended September 30, 1999 increased
by $50,008 to $63,222 compared to $13,204 for the six months ended September 30,
1998. The increases in both the current periods are due primarily to higher
invested principal balances and to interest earned on the Liquidated Partnership
Funds (see Note 5, Investments in Partnerships, of the Notes to the Consolidated
Financial Statements included herein).
COSTS AND EXPENSES
Cost of Product Segment Sales
Cost of product sales for the three months ended September 30, 1999 and 1998
were $1,846,388 and $1,034,036, respectively, or 85% and 94% of revenues
attributable to product sales. During the six months ended September 30, 1999
and 1998, cost of product sales was $3,697,215 and $1,981,867, respectively, or
86% and 95% of revenues attributable to product sales. The decrease in cost of
sales percentage in both periods is due primarily to the overall increase in
product sales which has resulted in increased coverage of fixed costs resulting
in higher margins and to a lesser extent, to improved efficiencies in the
manufacturing process also contributed to higher margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased by $1,411,686,
or 45%, to $1,708,453 for the three months ended September 30, 1999 as compared
to $3,120,139 for the three months ended September 30, 1998. During the six
months ended September 30, 1999, SG&A decreased by $1,186,230 or 27% to
$3,276,183, from $4,462,413 for the corresponding period in the prior year.
SG&A for the three and six months ended September 30, 1999, decreased from the
corresponding periods in the prior year primarily because the results for the
prior year include the write-off, during the second quarter of Fiscal 1999, of
project costs previously deferred of $1,402,085. These costs were written off
due to the uncertain political and economic conditions in the countries where
the projects are located. Management determined, in accordance with its
accounting policy, that due to the uncertain development of the projects, the
carrying amounts may be impaired. For the six months ended September 30, 1999,
this decrease was partially offset by increased marketing expense of $148,300
associated with Besicorp's Photovoltaic Activities, increased professional fees
of $126,264 and increased equipment rental expense of $54,545 associated with
Besicorp's lease agreement with Old Besicorp.
Loss from Partnerships
Loss from partnerships for the three and six months ended September 30, 1999
increased to $75,187 from $0 for the comparable prior periods. The loss is
comprised primarily of adjustments made to reflect the expected realizable value
of the one unliquidated partnership investment, partially offset by income
recognized in connection with certain agreements with Niagara Mohawk, the cash
for which was received on or about November 10, 1999.
Interest Expense
Interest expense for the three months ended September 30, 1999 decreased by
$9,924 to $0 from the corresponding period in the prior year. Interest expense
for the six months ended September 30, 1999 decreased by $104,020 to $287 from
$104,307 for the six month period ended September 30, 1998. The decrease in both
the three and six month periods is due primarily to Besicorp's repayment of all
its interest bearing debt during the second and third quarter of Fiscal 1999.
Provision for Income Taxes
The provision for income taxes increased during the three months ended September
30, 1999 by $996,476, or 100%, to $3,176 compared to the credit for income taxes
of $993,300 for the same period last year. During the six-month period ended
September 30, 1999, the provision for income taxes increased by $1,429,234 to
$13,934 compared to the credit for income taxes of $1,415,300 for the same
period last year. Besicorp provides federal and state income taxes based on
enacted statutory rates adjusted for projected benefits of tax operating loss
carry forwards and other credits. The tax benefit associated with the operating
loss for the current period was offset by a corresponding increase in valuation
allowance.
Net Loss
Besicorp's net loss for the three months ended September 30, 1999 decreased by
$660,020, or 34%, to $1,285,439 from the net loss of $1,945,459 for the three
months ended September 30, 1998. During the six-month period ended September 30,
1999, Besicorp's net loss decreased by $258,556, or 9%, to $2,505,690 from the
net loss of $2,764,246 for the six months ended September 30, 1998. The factors
contributing to the decrease in net loss are discussed above.
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
This narrative discusses the financial results of Besicorp Ltd. The financial
results for Fiscal 1998 (as defined) include the results obtained from Old
Besicorp's operations relating to solar thermal and heat transfer products which
historically Old Besicorp combined with its photovoltaic operations. Old
Besicorp discontinued the sale of solar thermal and heat transfer products
effective March 31, 1998 and, therefore, neither Besicorp nor Old Besicorp
engaged in the business of selling these products in Fiscal 1999. Besicorp has
not generated any significant revenue from its power plant development
activities. Through Fiscal 1998, costs with respect to certain of these
activities are reflected as deferred costs. These costs were written off and are
included in Selling, General and Administrative Expenses ("SG&A") for Fiscal
1999 (as defined). See Notes 1 and 3 of the Notes to the Consolidated Financial
Statements of Besicorp Ltd.
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RESULTS OF OPERATIONS
REVENUES
Consolidated
Consolidated revenues increased by 1,308,181, or 30% to $5,716,603 during Fiscal
1999 as compared to $4,408,422 for Fiscal 1998. Consolidated revenues for Fiscal
1998 increased by $684,473, or 13%, from $5,092,895 for Fiscal 1997. Product
Sales. For Fiscal 1999, revenues from product sales increased by $1,264,924 (or
33%) to $5,103,275 from $3,838,351 for Fiscal 1998. The increase in Fiscal 1999
is due to increased sales volume of photovoltaic products. This increase is
primarily the result of increases to the sales and marketing support staff made
primarily during the fourth quarter of Fiscal 1998. Fiscal 1998 revenues from
product sales decreased by $636,575 (or 14%) to $3,838,351 from $4,474,925 for
Fiscal 1997. The decrease in Fiscal 1998 is due primarily to the $836,372
decrease in sales of solar thermal and heat transfer products. Factors
contributing to the decrease in product sales during Fiscal 1998 include
increasingly competitive pricing activity for solar thermal and heat transfer
products and to Besicorp=s discontinuance of the non-agricultural portion of its
heat transfer product line during the third quarter of Fiscal 1997. This
decrease was partially offset by a $199,797 (or 8%) increase during Fiscal 1998
in sales of photovoltaic products from the corresponding prior period. For
Fiscal 1999, 1998 and 1997, sales of photovoltaic products were $5,071,091,
$2,730,545 and $2,530,748, respectively. For Fiscal 1999, 1998 and 1997, sales
of solar thermal and heat transfer projects were $32,184, $1,107,806 and
$1,944,177, respectively. Sales of photovoltaic products constituted 99%, 71%,
and 57% of product sales for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively.
Other Revenues. Other revenues are primarily comprised of contract revenue from
NYSERDA and Motorola, Inc. in accordance with agreements they have with
Besicorp. Other revenues for Fiscal 1999 increased by $59,876 (or 14%) to
$486,030 from $426,154 for Fiscal 1998. Other revenues for Fiscal 1998 increased
by $115,232 (or 37%) to $426,154 from $310,922 for Fiscal 1997. The increase in
both periods was due to revenue received from NYSERDA, and for Fiscal 1999, from
Motorola, Inc. in accordance with cost sharing and development agreements with
these parties. See Note 11 of the Notes to the Consolidated Financial Statements
of Besicorp Ltd.
Interest and Other Investment Income. During Fiscal 1999, interest and other
investment income decreased by $15,070 (or 42%) to $20,412 from $35,482 for
Fiscal 1998. Interest and other investment income during Fiscal 1998 decreased
by $7,194 (or 17%) to $35,482 from $42,676 for Fiscal 1997. The decrease in both
periods is due primarily to the lower principal balances on notes receivable.
See Note 4 of Notes to the Consolidated Financial Statements of Besicorp Ltd.
Other Income. Other income for Fiscal 1999, Fiscal 1998 and Fiscal 1997 was
$106,886, $108,435 and $264,371, respectively. The amount recorded in Fiscal
1997 includes income of $150,000 earned from the settlement of a complaint
against a competitor. Other income is generally comprised of rental income
derived from storage units owned by Besicorp.
Cost of Product Sales
The cost of product sales for Fiscal 1999, Fiscal 1998 and Fiscal 1997 was
$4,839,016, $3,932,201 and $4,299,848, respectively, or 95%, 102% and 96% of the
revenues attributable to product sales for the relevant period. The decrease in
cost of sales percentage in Fiscal 1999 is due primarily to efficiencies
achieved in the photovoltaic product manufacturing process. The increase in
Fiscal 1998 from Fiscal 1997 is due primarily to increasingly competitive
pricing of solar thermal and heat transfer products and the discontinuance of
the non-agricultural and heat transfer product line discussed above. The
increases for all periods was partially offset by the improved efficiencies
achieved in the photovoltaic product fabrication and manufacturing process. The
cost of the sales of photovoltaic products for Fiscal 1999, Fiscal 1998 and
Fiscal 1997 was $4,734,861, $2,725,263 and $2,549,282, respectively, or 93%,
100% and 101% of the revenues attributable to photovoltaic product sales for the
relevant period.
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Selling, General and Administrative Expenses
During Fiscal 1999, SG&A increased by $978,038 (or 12%) to $9,444,398 from
$8,466,360 for Fiscal 1998. SG&A during Fiscal 1998 increased by $942,097 (or
13%) to $8,466,360 from $7,524,263 for Fiscal 1997. SG&A includes remuneration
of executives and sales, marketing and project development staff, but not
employees involved in the production of Besicorp's products.
The increase during Fiscal 1999 from Fiscal 1998 is primarily due to the
$1,402,085 write-off of project costs previously deferred due to the uncertain
nature of the development of the projects and due to the uncertain political and
economic conditions in the countries where the projects are located (principally
India and Brazil). Old Besicorp determined, in accordance with its existing
policy that, due to the uncertain development of the projects, the carrying
amounts may be impaired. This increase was offset by the decrease in SG&A
associated with the discontinuance of Old Besicorp's solar thermal and heat
transfer product lines and the reclassification of certain labor charges from
SG&A to cost of product sales and a decrease in professional fees. See
"Liquidity and Capital Resources" and "Business - Power Development Activities"
for information regarding the status of Besicorp's power projects and
initiatives.
The increase in Fiscal 1998 from Fiscal 1997 is primarily due to the write-off
of project costs previously deferred of $519,293, a judgment of $126,750 paid in
connection with the resolution of certain litigation, the write-down of property
of $141,468 to its net realizable value in connection with the discontinuance of
Old Besicorp's solar thermal and heat transfer technology product lines,
increased Board of Directors' compensation and related expenses of $241,529,
increased compensation expense of $535,652 resulting from the addition of
management personnel, and additional sales and marketing support staff in the
photovoltaic business. This increase was partially offset by decreased
professional fees.
Interest Expense
Interest expense for Fiscal 1999 decreased by $347,541 (or 72%) to $134,110 from
$481,651 for Fiscal 1998. The decrease during Fiscal 1999 is due primarily to
Old Besicorp's repayment of $3 million Old Besicorp borrowed from Stewart and
Stevenson Services, Inc. (the "S&S Loan").
Interest expense for Fiscal 1998 increased by $157,737 to $481,651 from $323,914
in Fiscal 1997. The increase is due primarily to interest expense of $115,585
incurred in connection with a judgment related to the resolution of certain
litigation and to higher interest payments resulting from increased borrowing
under the S&S Loan.
Other Expense
Other expense increased during Fiscal 1998 to $2,519,114 from $92,316 for Fiscal
1997, due primarily to Old Besicorp's decision to reserve for the possible
uncollectibility of a loan of $2.5 million in connection with a power project
which was ultimately written off in Fiscal 1999. The reserve and subsequent
write-off were recorded as a result of certain litigation and the subsequent
settlement thereof which resulted in the impairment of the asset and the
determination that the loan was uncollectible (the "KBA Loan"). The KBA Loan was
written off during the quarter ended December 31, 1998. See Note 4 of Notes to
the Consolidated Financial Statements of Besicorp Ltd.
Credit for Income Taxes
For Fiscal 1999, the credit for income taxes decreased by $869,800 or 23% to
$2,897,200 from $3,767,000 for Fiscal 1998. During Fiscal 1998, the credit for
income taxes increased by $1,351,600 (or 56%) to $3,767,000 from $2,415,400 for
Fiscal 1997. The credit for income taxes in all periods represents the allocated
benefits to Besicorp of the losses which Besicorp Group Inc. was able to use in
filing its consolidated tax returns.
Net Loss
Besicorp's net loss for Fiscal 1999 decreased by $1,409,265 or 20% to $5,814,739
from $7,224,004 for Fiscal 1998. Besicorp's net loss for Fiscal 1998 increased
by $2,491,958 (or 53%) to $7,224,004 from the net loss of $4,732,046 for Fiscal
1997. The factors contributing to the increases in net loss are discussed above.
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INFLATION
Besicorp's operations have not been, nor in the near term are expected to be,
materially affected by inflation. However, if Besicorp develops business
opportunities internationally, it may become subject to risks of inflation in
the foreign countries in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
Besicorp does not have any short-term material capital commitments other than
the construction of the SunWize Facility (as defined), overhead and employee
costs associated with monitoring its power plant initiatives and projects and
the development of new projects and approximately $750,000 (the "Commitment") in
third party costs (of which approximately $238,000 has been expended through
September 30, 1999) in connection with the Kingston Project. The balance of the
commitment will be expended during the next nine to twelve months. Management
has not specifically identified the manner in which it will fund its material
capital commitments with respect to the Empire Newsprint Project, other than for
the balance of the Commitment which it is anticipated, will be funded by the
Parent Loans (as defined). One possibility contemplated by management with
respect to the estimated $5 million to $7 million of total development costs
required to bring the project to the point where it is able to obtain long term
financing for actual construction of the project (the "Financial Close") would
come in the form of advances of cash or services from, among other sources,
vendors interested in participation in the construction of the project; such
vendors generally would be repaid in whole or in part at Financial Close. (No
arrangements have yet been made to finance the estimated $650 million cost of
constructing the Empire Newsprint Project though management anticipates that it
will have to surrender part of its interest in this project in connection with
the financing process. Besicorp has engaged PricewaterhouseCoopers Securities
LLC ("PWC") to provide project financing and related financial services for the
Empire Newsprint Project. PWC is to provide financial advisory services for the
project, including placement of debt, equity or equity-related securities with
institutional or strategic investors necessary to bring the project to Financial
Close. Other than cash generated by Besicorp's photovoltaic activities, which is
generally expended in these activities, management anticipates no significant
cash inflows in the near future. Consequently, the Company will, without
additional funds, not be able to pay its obligations as they become due. The
following action has been taken to address Besicorp's cash flow and liquidity
problems (though these actions may be insufficient to correct these problems):
Pursuant to the Agreement, the Parent agreed to lend Besicorp (the "Parent
Loans") such amounts as Besicorp reasonably requests in order to
satisfy its obligations with respect to certain operating expenses of
Besicorp and its subsidiaries; provided, however, that Parent is not
required to make loans within a thirty day period in excess of
$350,000, loans with a cumulative amount in excess of $1,050,000, or
under certain other circumstances relating to the status of the
proposed merger.
Besicorp implemented, as of July 5, 1999, a salary deferment plan under which
executive officers and certain key employees have been deferring
portions of their salary ranging in amounts from 15% to 67%. Effective
October 10, 1999 the Chief Executive Officer increased his deferment to
100%. The deferral arrangements are for a one-year term and are
resulting in a monthly cash savings of approximately $45,000 to
$50,000.
Given the Company's current cash use rate of $500,000 to $600,000 per month,
which management anticipates will be funded primarily from the Parent Loans,
management estimates that the Company will have sufficient funds to continue
operations only until the end of March 2000. Through January 31, 2000, Parent
has loaned Besicorp an aggregate of $162,500 in Parent Loans to allow it to
continue operations. In addition, the Parent or its affiliate has caused a
letter of credit to be issued in the amount of $450,000 to secure Besicorp's
obligation with respect to land option payments to be made in connection with
the Empire Newsprint Project. This letter of credit will be reduced as the
option payments are made.
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Other than the consummation of the Plan of Merger, the loans to be made by the
Parent and the salary deferment program, Besicorp has not developed any other
acceptable alternatives to its liquidity and capital resource problems.
During the Fiscal year ended March 31, 1999, Besicorp's working capital on a
historical basis increased by $3,468,012 from $454,991 at March 31, 1998, to
$3,923,003. The higher amount at March 31, 1999 is due primarily to cash of
$1.75 million contributed to Besicorp Ltd. as a result of the spin off and to
$314,000 of additional cash that was identified subsequent to the merger and not
included in the calculation of the merger consideration (see Note 10 of Notes to
the Consolidated Financial Statements of Besicorp Ltd.). Besicorp's working
capital decreased by $551,101 from $3,923,003 at March 31, 1999, to $3,371,900
at September 30, 1999 primarily as a result of increases in cash and inventory
partially offset by an increase in accounts payable and accrued expenses.
During Fiscal 1999, cash of $5,797,396 was used by operating activities
primarily as a result of the net loss for the period of $5,814,739, an increase
of $828,500 in accounts receivable, an increase of $221,748 in inventories and a
decrease of $471,389 in accounts payable. These decreases in cash were partially
offset by non-cash items, primarily comprised of the write-off of project costs
previously deferred of $1,402,085.
During Fiscal 1999, cash of $7,650,455 was provided by financing activities, due
primarily to cash transactions with Besicorp Group Inc., which were partially
offset by the repayment of borrowings.
During Fiscal 1999, Besicorp's investing activities used cash of $133,348 to
acquire property, plant and equipment.
During the six months ended September 30, 1999, cash of $2,961,535 was used in
operations primarily as a result of the net loss for the period of $2,505,690
and net changes in other assets and liabilities which produced a negative cash
flow of $653,771. These were partially offset by non-cash items of $197,926.
Besicorp's investing activities provided cash of $1,980,033 during the six-month
period ended September 30, 1999 primarily as a result of distributions from
partnerships of $2,034,579, partially offset by the acquisition of property,
plant and equipment of $54,546. The distributions received from partnerships are
non-recurring in nature and primarily represent Besicorp's share of the proceeds
from the sale of certain pollution control emission allowances and distributions
made upon liquidation of certain partnerships.
For the six months ended September 30, 1999, Besicorp's financing activities
resulted in a decrease in cash of $42,238, due to the repayment of borrowings.
Besicorp is currently seeking financing for the construction of a 30,000 sq. ft.
facility at the site of the corporate headquarters in Kingston to house the
solar electric product development and manufacturing operations. This facility,
estimated to cost approximately $2 million would replace space currently
occupied under a cancelable lease.
Besicorp has no significant capital commitments for Fiscal 2000 other than those
which may arise in the ordinary course of business and the Empire Newsprint
Project.
YEAR 2000
The disclosure set forth below includes actions taken by Oldco (including
actions taken by Oldco's Year 2000 Management Committee) with respect to Year
2000 issues.
Many existing computer systems and software applications use two digits, rather
than four, to record years, i.e., A98" instead of "1998". Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions, including, among other things, a temporary inability to
process transactions, send invoices, determine whether payments have been
received or engage in similar normal business activities. This is known as the
Year 2000 issue.
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Besicorp relies on computer hardware, software, and related technology primarily
in its internal operations, such as billing and accounting. During Fiscal 1998,
Besicorp formed a Year 2000 Management Committee to address the potential
financial and business consequences of Year 2000 issues, such as the disruptions
mentioned above, the failure to receive essential supplies and services or the
loss of customers, with respect to both Besicorp's hardware, software,
applications and interfaces (collectively, "IT Systems") and non-information
technology systems such as telemetry, security, power and transportation
(collectively, the "Non-IT Systems"). In general, the Year 2000 Management
Committee is dividing its efforts with respect to both the IT Systems and the
Non-IT Systems into three phases: (1) inventory and assessment ("Phase One"),
(2) strategy and contingency planning ("Phase Two") and (3) upgrades,
conversions and other solutions, at the end of which the systems are tested to
confirm Year 2000 compliance ("Phase Three").
With respect to the IT Systems, Besicorp has completed its evaluation of its
hardware, software and other IT Systems and has migrated from a 486 PC
environment to an Intel Pentium environment. All workstations and software have
been replaced as necessary to assure Y2K compliance. All key vendors have
supplied written documentation of their Y2K compliance. Besicorp expects to test
systems through January 2000.
With respect to the Non-IT Systems, Besicorp relies on outside providers for its
basic needs such as electricity, telephone service and other utilities. As part
of its evaluation of its Non-IT Systems, the Year 2000 Management Committee
generally contacted the utilities and other providers through written
correspondence. All Non-IT systems indicate that they are compliant except voice
mail, which is scheduled for an upgrade in the summer of 1999.
Besicorp has communicated with certain of its vendors, suppliers, and customers
to both monitor and encourage their respective remedial efforts regarding Year
2000 issues. Besicorp has contacted by letter or phone all of its significant
vendors and suppliers and its largest customers to determine the extent to which
Besicorp's systems might be vulnerable as a result of third parties' failure to
resolve their own Year 2000 issues. Besicorp's photovoltaic business is
dependent on components provided by photovoltaic module suppliers. Failure by
vendors and suppliers to successfully address their Year 2000 issues could
result in delays in their providing various products and services to Besicorp.
However, Besicorp has determined that it is not necessary to seek replacement
vendors to assure availability of products and services. At present, Besicorp
has no reason to believe it will not be able to obtain all necessary products
and services, either from the present vendors and suppliers, or replacement
vendors and suppliers. Failure by customers could disrupt their ability to
maximize their use of Besicorp's products and services and lead to a reduction
in revenues; therefore, Besicorp has sent a newsletter to its product customers
to help develop each customer's awareness of Year 2000 issues and their
implications.
The Year 2000 Management Committee believes that Besicorp's internal operations
will not be affected by Year 2000 problems. Besicorp does not rely solely on its
IT Systems in order to produce products it sells or to develop project
opportunities. In fact, in July 1998, Besicorp's IT Systems temporarily ceased
to function due to a lightning strike that destroyed many components of the
system, and while inconvenienced, the business operated, deadlines were met, and
relationships were cultivated.
Besicorp does not intend to develop a contingency plan. Based on Besicorp's
research, evaluation, and actions in preparation for Year 2000, at present,
Besicorp has no reason to believe it will not be able to obtain all necessary
products and services from present vendors and suppliers. In the unlikely event
that replacement vendors and suppliers are required, a situation that our
current vendors and suppliers do not believe will occur, Besicorp believes such
replacements can be made with little difficulty. Further, Besicorp does not rely
solely on its IT systems in order to produce products it sells or to develop
project opportunities. Many functions are done by hand or via in person
communication. Transitioning to manual accounting can be accommodated in the
event of an unexpected Year 2000 emergency.
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Short of any third party disaster that Besicorp is unable to control and for
which Besicorp cannot develop contingency plans, such as the failure of a
utility providing power or telecommunications, Besicorp does not believe its
business will be detrimentally impacted by potential Year 2000 problems. The
most reasonably likely worst case Year 2000 scenario would be minor delays in
production and distribution (and for a brief period higher costs) which could
reduce revenues and income, and perhaps a reduction in sales.
Through October 1, 1999 Besicorp has spent $194,327 on Year 2000 compliance.
Of this amount, $138,836 was spent during Fiscal 1999.
Besicorp does not expect additional expenditures for the balance of Fiscal 2000.
Besicorp has not experienced any material Year 2000 difficulties subsequent to
December 31, 1999.
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BUSINESS OF BESICORP
BACKGROUND
Besicorp specializes in (i) Photovoltaic Activities and (ii) Power
Development Activities.
Prior to March 22, 1999, Besicorp was a wholly owned subsidiary of Old
Besicorp, which was listed on the American Stock Exchange. Old Besicorp was a
party to the Prior Plan of Merger. Besicorp was organized in New York in 1998 in
order to satisfy a condition to the effectuation of the Prior Merger that
required the Prior Spin-Off of the Distributed Businesses to Besicorp before the
Prior Merger. On March 22, 1999, Old Besicorp effectuated the Prior Spin- Off.
As a result of the Prior Spin-Off, Besicorp became an independent publicly held
company. The following description contains historical information about the
subsidiaries of Besicorp when they were subsidiaries of Old Besicorp.
PHOTOVOLTAIC ACTIVITIES
Photovoltaic systems are systems that convert sunlight directly into
electricity. The fundamental element of a photovoltaic system is the
semiconductor device, or cell, which generates a variable electric current that
is directly proportionate to the quantity of sunlight energy absorbed. Solar
cells are electrically interconnected to form a module unit in which the cell
groupings are formatted to achieve desired electrical power specifications, such
as with respect to voltage and current. The solar module is the power-generating
component of a complete photovoltaic system. Complete systems consist of one or
more solar modules; controllers to monitor, regulate and control the electric
output; and, in most systems, batteries to store the energy generated by the
solar modules. Occasionally, backup generators or invertors, which convert DC
electric power to AC power, are included as integral components of a system.
The market for photovoltaic products and systems is primarily directed
towards those electric power applications where access to utility power is
relatively expensive, inconvenient or not available. Electric power systems that
use photovoltaic technology include residential homes, communications systems
(e.g., satellite earth stations, microwave relay stations, roadside emergency
telephones and cellular network repeater stations), power systems for remote
areas (e.g., forests and parks and rural areas) and remote monitoring systems
that are used in production, consumption and the collection of scientific data
(e.g., monitor remote gas pipelines and weather stations).
Besicorp develops, assembles, markets and distributes photovoltaic
modules, power systems and related products for a variety of applications.
Besicorp develops solar power supply products for the portable computer,
wireless electronics and telecommunications industries, solar power accessories
for motor vehicles, electric boats and telemetry, as well as a polymer
encapsulation production processes for photovoltaic modules that can be
integrated into other
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products for consumer, commercial and industrial use. In addition, Besicorp
markets and sells prepackaged solar electric power products and systems, system
components, and system accessories ranging from small battery chargers, to water
pumping kits, to outdoor lighting, to portable power generators, to PV power
stations.
In addition to utilizing Besicorp's resources, products are developed
using government grants, industry funded projects, and technology demonstration
contracts to the extent practicable. In connection therewith, Besicorp has
entered into various funding and development arrangements with NYSERDA. NYSERDA
is a public benefit corporation created by the New York State Legislature; its
principal goal is to help businesses, municipalities and residents of New York
State solve their energy and environmental problems while developing innovative
products and services that can be commercialized by New York State businesses.
The arrangements with NYSERDA generally require Besicorp to develop,
manufacture, test and deliver various types of photovoltaic products (e.g.,
solar powered telephone power supply systems, skid mounted photovoltaic systems,
controllers and photovoltaic home systems) in consideration for which NYSERDA
reimburses Besicorp with respect to a negotiated percentage of the development
cost of such product. Funds advanced by NYSERDA are recorded for financial
statement purposes as "other revenues" at the time of receipt and such advances
will be repaid, depending on the project, from revenues or profits, if any,
derived from the products developed under these agreements.
SunWize and Wespro, an English private limited company, are parties to
a memorandum of understanding dated August 13, 1998 with respect to the Gabon
Initiative whereby the parties will seek to obtain, develop and supply rural
electrification projects in Gabon in Africa. Wespro has had discussions with the
government of Gabon concerning these projects, but no agreement has been reached
and the government has not conducted any feasibility studies. The parties
obtained letters of interest from the Export Import Bank to finance 85% of these
projects up to approximately $20.5 million, which letters of interest were
subsequently revoked by the Export Import Bank because of previous defaults by
the government of Gabon. At present the Gabon Initiative is inactive and there
are no discussions between SunWize and Wespro.
Suppliers
Besicorp purchases solar electric modules and other photovoltaic
supplies from several large manufacturers, of which Siemens is the principal
supplier. Besicorp has supply agreements with its two largest suppliers.
Besicorp is not currently dependent on any suppliers for its power development
activities.
Sales and Distribution
In addition to direct sales to original equipment manufacturers,
industrial companies and governmental agencies, Besicorp markets and sells
products through dealers and distributors nationwide. At September 30, 1999,
approximately 157 solar energy dealers and distributors,
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predominantly located in North America, offered Besicorp's products. Besicorp
also employs an in-house sales and customer support staff responsible for
generating sales and assuring customer satisfaction. The distribution market is
also supported by Besicorp through a catalogue maintained by Besicorp to provide
information about sizing and installing solar energy systems.
Prices for Products and Systems
Besicorp's products and systems range from complete photovoltaic
systems that may cost as much as $50,000 to solar power supply products that
range in price from $50 to $5,000 to pre- packaged solar electric power products
that may cost as little as $50.
Customers and Backlog
Besicorp fills orders from inventory and draws from its inventory to
fabricate and manufacture customers' orders; therefore, backlog is generally
filled within the following quarter. Certain sales may be drop-shipped from
manufacturers' locations. Backlog of orders was $2,001,072, $274,260 and
$382,410 as at March 31, 1999, 1998 and 1997, respectively. Customers for
Besicorp's products include original equipment manufacturers, industrial and
telecommunications companies, dealers, governmental agencies and consumers, such
as inhabitants of rural areas, individuals who engage in outdoors activities and
environmentally concerned consumers. During Fiscal 1999 and Fiscal 1998, sales
to Allmand Brothers accounted for 9% and 14%, respectively, of sales of
photovoltaic products. Besicorp does not have a contract or agreement with this
customer.
Competition
Besicorp competes in North America, the principal region in which it
engages in photovoltaic activities, with approximately ten businesses engaged in
the distribution of photovoltaic products, of which five have a larger market
share than Besicorp. Besicorp believes that the market for value-added solar
electric products and systems is highly fragmented. The major competitive
factors are product price, service, technical capability and delivery.
POWER DEVELOPMENT ACTIVITIES
Besicorp, in conjunction with one or more partners, develops
independent power projects. Besicorp generally holds its ownership interests in
the form of partnership or membership interests, through special-purpose
entities. Usually, financing for these entities is secured solely by their
respective assets.
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In February 1999, Besicorp and Empire entered into the Empire
Memorandum to form a joint development partnership (in which each party would
have an initial 50% interest) to develop the Empire Newsprint Project, which is
a newsprint recycling manufacturing plant in Ulster County, New York and a 475-
megawatt natural gas-fired cogeneration power plant adjacent to the recycling
plant. The power plant would supply power to the recycling plant and would
also supply power for sale to power marketers for resale into the recently
deregulated power market. The Empire Memorandum contemplates, among other
things, that (i) Besicorp will commit $750,000 to the Empire Newsprint Project
(in consideration for its 50% interest in the partnership) of which $250,000 is
payable at the time of execution of the Empire Memorandum and the balance to be
paid monthly thereafter (a "draw") or more often as conditions require, (ii)
if Besicorp fails to fund a draw submitted by the partnership, it shall forfeit
its rights to participate in the partnership as an equal partner and all
Besicorp funding and billed time is to be converted to a development loan to be
repaid at Financial Close, (iii) at Financial Close, Besicorp and Empire shall
retain for 25 years rights to the sales and marketing of the Empire Power
Facility and the Empire Newsprint Facility, respectively, (iv) the parties will
structure the financing arrangements to maximize their development capital
and internal cost reimbursement, (v) development funds realized at Financial
Close will be shared pro rata between the parties according to the total
development cost incurred by each party, and then in accordance with their
percentage ownership of the Empire Newsprint Project and (vi) Besicorp and
Empire will enter into a definitive agreement delineating their rights and
responsibilities. Besicorp has paid its $750,000 Commitment and has funded the
Empire Newsprint Project with an additional contribution of approximately
$325,000, which contribution has not been matched by Empire. Besicorp and
Empire have an oral understanding that to the extent either party contributes
amounts that are not matched by the other party, their proportionate interests
will be adjusted to reflect their contributions. One possibility contemplated
by Management is that the estimated $5 million to $7 million of total
development costs required to bring the Empire Newsprint Project to
Financial Close would come in the form of advances of cash or services from,
among other sources, vendors interested in participating in the construction of
the Empire Newsprint Project; such vendors generally would be repaid in whole or
in part at Financial Close. Either party's interest in the Empire Newsprint
Project may be diluted if such party exchanges a portion of its interest in the
Empire Newsprint Project to obtain financing for the Empire Newsprint Project.
Besicorp has estimated in its preliminary projections for the Empire Newsprint
Project that were prepared in December, 1999 that if the Empire Newsprint
Project is completed, Besicorp may be able to receive at the Financial Close a
development fee for its role in developing the Empire Newsprint Project that
would cover its preconstruction development expenses. In addition, if the Empire
Newsprint Project is completed (which in the preliminary projections is
estimated to be in the fourth quarter of Fiscal 2003) at a cost $986 million,
Besicorp's goal is to maintain a cash flow interest of approximately 10%, which
interest might generate a net distributable pre-tax profit equivalent to $1.5
million per year (in current dollars), when using a discount rate of 15%.
In 1999 Besicorp incurred expenses of approximately $678,266 in
connection with the Empire Newsprint Project, and Besicorp also incurred
internal costs of approximately $1,160,000. Besicorp expects to incur expenses
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of approximately $5,150,000 in 2000 (unless development capital is obtained by
the Empire Newsprint Project) and internal costs of approximately $1,748,000.
No assurance can be given that the parties will enter into a definitive
agreement, that the Empire Newsprint Project will receive the necessary
approvals from the requisite governmental authorities, including the New York
State Department of Environmental Conservation and the New York State Public
Service Commission, that financing for the Empire Newsprint Project (estimated
to be approximately $650 million) will be obtained, that the Empire Newsprint
Project will be completed, or, if it is completed, that the Empire Newsprint
Project will prove profitable.
At present, Besicorp has an interest (that it obtained as a result of
the Prior Contribution) in the Krishnapatnam Project to build a coal fired power
plant near the village of Krishnapatnam located 120 miles north of Chennai
(Madras) on India's eastern coast. BBI, the project company developing the power
plant near Krishnapatnam, is 50% owned by Besicorp and 50% owned by Chesapeake.
Old Besicorp acquired its interest in the Krishnapatnam Project in 1995 for
nominal consideration and invested approximately $983,000 in the Krishnapatnam
Project, all of which investment was written off. In calendar 1999, neither Old
Besicorp nor Besicorp spent money on the Krishnapatnam Project. Besicorp does
not anticipate increasing its investment in the Krishnapatnam Project. However,
it is anticipated that, due to the size of the project and the amount of debt
and equity required to finance the project, Besicorp's ownership interest will
be reduced substantially as the result of the participation of equity investors.
Capital construction costs are currently estimated to be approximately $700
million. Approval of one or more agencies of the Indian and local governments is
also required before the project can proceed. A power purchase agreement with
respect to this project was entered into on November 24, 1994 though management
believes that such agreement will have to be renegotiated. Management is
attempting to obtain further information regarding the status of this project
from Chesapeake, which is the project manager for the Krishnapatnam Project, but
Chesapeake has not responded to such requests. The May 1998 nuclear tests
conducted by India resulted in the imposition of economic sanctions by the
United States, though such sanctions appear to have been waived by the United
States through October 1999. The ability to obtain project financing may be
adversely affected by these sanctions. Even if such sanctions are eliminated or
the waiver thereof is extended indefinitely, no assurance can be given that the
governmental approval will be granted, that financing will be obtained, that the
project will be completed, or, if it is completed, that the project will prove
profitable. However, if the Krishnapatnam Project is completed, Besicorp may
generate profits, which might be significant, from which Outside Participating
Shareholders will not benefit following the Merger.
Besicorp is always considering new power projects, both domestically
and internationally, and with entities that have served as Besicorp's partners
in past development projects and with entities that have never been partners of
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Besicorp in any of its projects. Besicorp and prospective partners have entered
into letters of intent with respect to trying to develop initiatives in Brazil
and Mexico. Besicorp entered into a Master Project Agreement with MPR Associates
Inc. which calls for equal sharing in development fees and ownership interest in
all projects developed in Brazil by such parties. Two potential projects in
Brazil have been identified (involving natural gas and bagasse fueled
co-generation facilities). Bagasse is the waste product created by a sugar mill.
Such projects are in the early stages of development and no financing or
construction contracts have been signed or are currently being negotiated with
respect to these projects. In calendar 1999 Old Besicorp (before the Prior
Contribution) and Besicorp (after the Prior Contribution) incurred expenses
in Brazil of approximately $170,000 (including approximately $75,000 in
internal expenses) in the aggregate and Management anticipates that such
expenses will increase in 2000 because, as a result of improved economy,
Besicorp and MPR Associates Inc. are increasing their efforts. Besicorp is also
in early stage marketing efforts in Mexico but at present it is still in the
process of identifying project opportunities in that country. In calendar
1999 Old Besicorp (before the Prior Contribution) and Besicorp (after the Prior
Contribution) incurred expenses of approximately $70,000 (all of which were
internal expenses) in the aggregate and Management anticipates that such
expenses will decrease sharply in 2000 as a result of Besicorp's reduced
interest in seeking opportunities in Mexico. No assurance can be given that
any such letter of intent or the Master Project Agreement will result in the
development of any projects, or that if any projects are developed, they
will prove profitable. If these projects are developed, Besicorp may earn
profits from which Outside Participating Shareholders will not benefit
following the Merger.
Besicorp anticipates that projects would be developed with partners and
Besicorp would hold its ownership interests, primarily in the form of
partnership interests, through special-purpose entities formed to be the legal
owners of the projects. Partnerships may also issue additional interests in
projects during various stages of their development (e.g., in exchange for
providing capital to the partnerships), thereby diluting Besicorp's interests in
the partnerships.
The developers prepare financial models of the project, document the
project and arrange appropriate development capital and construction and
long-term financing. In addition, developers negotiate power purchase
agreements, permitting arrangements, engineering and construction contracts and
financial participation and risk sharing agreements.
Construction, operation, engineering, and design of a project are
contracted to third parties. When development is substantially complete, the
projects typically obtain construction financing which is replaced with
long-term debt and/or equity financing when the construction is completed. To
the maximum extent possible, financing is arranged on a limited- recourse basis,
so that repayment is limited to the revenues generated by the particular
project(s) being financed. Except to the extent that a developer provides bridge
or other financing to a project, the debt of the partnership is collateralized
solely by the assets of the project(s), without guarantees of repayment by the
developer.
Besicorp would expect to earn development fees by taking an active role
in the early stage development of each project. Development fees are generally
paid from the proceeds of the project loans and are capitalized as part of the
cost of the project. The amounts and timing of such payments of development fees
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are subject to negotiations with the parties to the transaction and represent
fees for services provided to the project. Other potential sources of revenues
and cash flows are (i) management fees for coordinating and overseeing
partnership activities during the construction and operating phases of the
projects and (ii) income and distributions from project
operations. Projects are expected to generate income from the operation of the
facilities; however, in early years of operation, the partnership may incur
significant book losses, and partners will not recognize income until such time
as the operating income of the projects exceeds accumulated losses. If projects
are developed, Besicorp may receive profits. There can be no assurance that
Besicorp will develop any power projects or that it will earn development fees
on new project opportunities.
RISKS OF INTERNATIONAL OPERATIONS
Besicorp has devoted much of its efforts in developing independent
power projects towards developing foreign projects. The Krishnapatnam Project
and any future foreign projects or initiatives would be required to comply with
the applicable regulations of the jurisdictions where such projects and
initiatives are developed. In addition, Besicorp's photovoltaic activities have
included providing and installing photovoltaic systems in Mexico and, if
developed, the Gabon initiative will require providing and installing
photovoltaic systems in Gabon. At present, Management believes its foreign
operations are currently in compliance with all material applicable regulations.
However, Besicorp's foreign operations are subject to the risks of international
operations, including compliance with and unexpected changes in, foreign
regulatory requirements and currency control regulations, trade barriers,
fluctuations in exchange rates, political instability, the potential for
expropriation, local economic conditions, and difficulties in staffing and
managing foreign operations.
Projects overseas require considerable capital. Funding for
international projects may be obtained from various sources, including the
private sector (both domestically and internationally), government sponsors
(e.g., United States Trade and Development Agency, United States Agency for
International Development, the Export-Import Bank of the United States and the
Overseas Private Investment Corporation) and commercial banks. Obtaining such
funding often is more time consuming than obtaining funding for domestic
projects. There can be no assurance that sufficient funding will be available in
connection with any international project. Nor can there be any assurance that
Besicorp will be successful in international project development. Neither
Besicorp nor Old Besicorp has ever consummated a financing for an international
project. However, if projects are developed, Besicorp may receive profits
substantially greater than Besicorp's expenses associated with such projects.
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POTENTIAL NON-RECURRING FUNDS
In addition to the photovoltaic and power plant development businesses,
Besicorp pursuant to the Prior Spin-Off acquired certain of Old Besicorp's
residual interests, such as the right to receive distributions from partnerships
in which Old Besicorp had interests, including the partnerships which formerly
owned the Power Plants. As a result, Besicorp may, from time to time, obtain
non-recurring funds from these residual interests although no assurance can be
given that any such funds will be obtained.
The Partnerships which owned five of the Power Plants, Niagara Mohawk
and certain other IPPs are parties to the MRA, which became effective on June
30, 1998, and which provided for, among other things, the termination or
restructuring of the Power Purchase Agreements and power purchase agreements
with the other IPPs. It is possible that in certain circumstances certain
hydro-energy developers that withdrew from the MRA will agree to restructure or
terminate their power purchase agreements with Niagara Mohawk. If any of such
developers do reach such an agreement with Niagara Mohawk before July 1, 2003,
Niagara Mohawk will pay the Hydro-Credits to the Partnerships and the other
IPPs. If all of the developers were to enter into such agreements, Besicorp
would be entitled to receive proceeds of up to approximately $1 million. As of
the date hereof Besicorp has received an Anticipated Hydro-Credit Distribution
of $257,640 and Besicorp expects to receive no future Anticipated Hydro-Credit
Distributions although it may receive other Hydro-Credits. No agreement has been
reached to date between any of the remaining developers and Niagara Mohawk.
There can be no assurance that any of such developers will enter into such an
agreement before July 1, 2003 or that Besicorp will ever receive any of such
proceeds.
Pursuant to the MRA, Niagara Mohawk agreed to pay certain amounts to
the Partnerships and certain other IPPs in the event Niagara Mohawk materially
amended, restated or otherwise restructured the power purchase agreement of
NorCon. Niagara Mohawk has closed a transaction which has the effect of
terminating NorCon's power purchase agreement with Niagara Mohawk. Prior to
terminating NorCon's power purchase agreement, Niagara Mohawk made above-market
payments under NorCon's power purchase agreement for the period between the MRA
closing on June 30, 1998 and the NorCon settlement on December 3, 1999. Niagara
Mohawk has indicated that such payments do not require Niagara Mohawk to make
payments to the Partnerships and the other IPPs under the MRA, but at this point
it is unclear whether Niagara Mohawk's interpretation of the MRA is accurate. If
Niagara Mohawk's interpretation is inaccurate then the amount required to be
paid by Niagara Mohawk to the Partnerships and the other IPPs pursuant to the
MRA would be approximately $6.8 million of which Besicorp's share would be
approximately $500,000. At this time, the Partnerships and the other IPPs are
considering their options, including retaining counsel and proceeding against
Niagara Mohawk. Besicorp is waiting to see what the other IPPs decide to do
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before deciding what it will do. If Besicorp receives any money as a result of
the termination of the NorCon agreement, such payment would result in a Deferred
Payment. There can be no assurance that Besicorp will ever receive any such
payment, or if it does, when it will be received and how much Besicorp will
receive.
Certain of these Partnerships retained the rights to the Power Plants'
Allowances to emit Nitrogen Oxide (N0x). In June 1999, Besicorp received
approximately $1.7 million principally from the sale of these Allowances. No
additional amounts are expected to be received from the sale of Allowances.
A partnership in which Besicorp holds an interest agreed in 1996 to
indemnify a third party for any tax liability associated with the third party's
tax treatmen of its receipt of certain funds from this partnership. In
connection with this indemnification, this partnership as required by the
third party, placed an aggregate of $1,838,000 ($1,884,000 as of December 31,
1999, after giving effect to accrued interest) in the Tax Escrow, of which
Besicorp is entitled, based on its proportionate ownership interest in the
partnership, to approximately $920,000 ($946,000 as of December 31, 1999, after
giving effect to accrued interest). The partnership is entitled to the Tax
Escrow (to the extent not applied to satisfy this indemnification obligation)
after the third party settles any audit of its 1995 and 1996 tax returns. As of
December 31, 1999, there has been no indication that any audit will be required.
Besicorp's proportionate interest in the cash in the Tax Escrow (i.e., $946,000
as of December 31, 1999, plus any accrued interest thereon) will be released
to Besicorp if no audit has been commenced by June 15,2000.
Certain partnerships in which Besicorp has interests are being or have
been liquidated. In connection with these liquidations, Besicorp has received
approximately $594,000 (excluding the $1.7 million of NOx credits described
above), including an Anticipated Partnership Distribution of approximately
$280,000, and expects an additional Anticipated Partnership Distribution of
approximately $100,000 in December, 1999. It is possible that additional amounts
will be distributed but there can be no assurance that any such distributions
will occur. Funds were placed in the May 1999 Escrow as a reserve for potential
liabilities of these liquidating partnerships. To the extent that these funds
have not been disbursed to satisfy potential liabilities on or prior to May 15,
2002, they will be distributed to the partners. If no funds are disbursed to
satisfy potential liabilities, approximately $530,000 would be distributed to
Besicorp other than the Anticipated Partnership Distribution.
Old Besicorp placed $6.5 million in the Escrow Fund prior to the
effectuation of the Prior Merger. Amounts, if any, not needed to provide
indemnification pursuant to the Indemnification Agreement or to make certain
payments will be released to Besicorp, or, pursuant to the Instructions, to
Continental after March 22, 2004, so long as certain conditions have been
fulfilled. See "Escrow Agreement."
The Outside Participating Shareholders generally will be entitled to
Combined Deferred Payments with respect to distributions with respect to (i) the
Partnerships, (ii) Hydro-Credits and (iii) the Escrow Fund. However, monies
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distributed prior to October 7, 1999 and the Anticipated Hydro-Credit
Distribution and the Anticipated Partnership Distributions are excluded from
such Combined Deferred Payments. See "Plan of Merger -- Merger Consideration."
However, no assurance can be given that any such distributions will occur, or if
they occur, when they will occur.
RESEARCH AND DEVELOPMENT
Expenditures for photovoltaic research and development were $609,399,
$697,182 and $646,817 for Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively. These expenses include personnel expenses of $223,799, $330,428
and $301,055 for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. Of the
total amounts, expenses attributable to Besicorp's agreements with
NYSERDA were $331,539, $520,950 and $414,307 for Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively. No assurance can be given that funds for research and
development will be available to Besicorp from internal or external sources and
the failure to obtain such funds may have an adverse effect on Besicorp's
operations.
INTELLECTUAL PROPERTY
While Besicorp does own certain intellectual property rights (e.g.,
patents, trademarks and trade secrets), Management does not believe that these
rights are essential to Besicorp's current operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The development and manufacture of photovoltaic products are not
subject to U.S., state, foreign and local statutes and regulations (other than
statutes and regulations generally applicable to the development and manufacture
of products).
The operations of Besicorp are subject to various U.S., state, foreign
and local laws and regulations with respect to environmental matters, including
air and water quality and underground fuel storage tanks, and other regulations
intended to protect public health and the environment. Compliance by Besicorp
with such laws and regulations has not had a material adverse effect upon
Besicorp, and Besicorp believes it is in material compliance with all such
applicable laws and regulations. Based upon current laws and regulations and the
interpretations thereof, Besicorp has no reason to believe that the costs of
future environmental compliance would be likely to materially adversely impact
the business, results of operations, cash flows or financial position of
Besicorp. However, the partnerships or other special purpose entities formed to
develop power project initiatives may incur substantial costs to comply with
applicable environmental regulations.
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EMPLOYEES
As of January 31, 2000, Besicorp had approximately 71 full-time and two
part-time employees. None of these employees are represented by a union. In the
opinion of management, its relationship with its employees is satisfactory.
PROPERTIES
Besicorp owns or leases the properties identified below:
Location of Property Nature of Ownership Use of Property
- -------------------- ------------------- ---------------
Kingston, New York Owned Corporate Headquarters
(Includes land and the 8,000
square foot building thereon)
Stelle, Illinois Lease, expiring April 2000, Photovoltaic Activities uses
(Lease of 2,000 square feet) for $575 per month as sales office
Kingston, New York Term lease expiring May 31, Photovoltaic Activities
(Lease of 17,000 square feet) 2000 for $13,851 per month. Facility
Santa Cruz, California Lease for $410 per month, Photovoltaic Activities uses
(Lease of approximately 300 expiring January 2000 as sales office
square feet)
Ulster, New York Owned Investment purposes
(approximately 28 acres of
unimproved property)
San Diego, California Lease for $690 per month. Photovoltaic Activities uses
(Lease of 325 sq. feet) Term is month to month. as sales office
Besicorp sold on January 18, 2000 its property in Ellenville, New York
to an unaffiliated third party for $95,000 (with Besicorp providing 100% of the
buyer's financing).
Besicorp is building a facility for SunWize in Kingston adjacent to the
Corporate Headquarters because it must vacate its current facilities by May 31,
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2000. Management believes it can realize efficiencies and saving by building the
facility and it needs additional space. Construction commenced in October 1999
and Management estimates that the facility will be completed in May 2000 at a
cost of approximately $2 million. To finance the facility, Besicorp is
negotiating with the Ulster County Industrial Development Agency for the
issuance of Industrial Development Bonds which would cover all of the costs,
including those incurred prior to the issuance of the Bonds, of the facility.
Management anticipates that the Bonds will be issued no sooner than December
1999 and that the first payment of interest would not be due prior to June 2000.
No assurance can be given that financing will be available.
LEGAL PROCEEDINGS
Besicorp has, pursuant to the Prior Contribution Agreement, agreed to
assume all liabilities of Old Besicorp, other than certain specified liabilities
(relating to certain taxes, intercompany liabilities and merger costs) which
were retained by Old Besicorp. The total amount of liabilities (other than
contingent liabilities arising out of litigation involving Old Besicorp or
Besicorp, which liabilities, if any, Management believes would be satisfied from
the Escrow Fund) assumed by Besicorp pursuant to the Prior Contribution
Agreement was approximately $1 million. In addition, in connection with the
Prior Plan of Merger, Besicorp entered into the Indemnification Agreement
whereby Besicorp agreed to indemnify the Prior Merger Parties for damages
relating to various matters including, breaches of the Prior Merger Agreement
and substantially all of Old Besicorp's litigation that was pending at the time
of the Prior Merger. See "Indemnification Agreement." Contemporaneously with the
closing of the Prior Merger, Old Besicorp deposited $6.5 million in the Escrow
Fund to fund the indemnification obligations arising out of the Indemnification
Agreement. See "Escrow Agreement." Management anticipates that Besicorp would
not be required to make any payments pursuant to the Indemnification Agreement
or to otherwise satisfy the liabilities assumed pursuant to the Prior
Contribution Agreement because the Escrow Fund should be sufficient to satisfy
such obligations. Notwithstanding the foregoing, Besicorp has, pursuant to,
among other things, the Indemnification Agreement agreed to indemnify the Prior
Merger Parties with respect to the matters identified below and may be liable
for all damages, if any, in connection with such matters. Consequently, Besicorp
may be liable for all damages, if any, and expenses in connection with the
following matters to the extent such claims are not satisfied by the Escrow
Fund.
On March 5, 1999, James Lichtenberg and John Bansbach commenced the
March Litigation by filing the March Complaint. The two named plaintiffs are the
plaintiffs in the Bansbach Litigation and the Lichtenberg Litigation which are
described below.
The March Complaint alleges that (i) the proxy statement sent to Old
Besicorp's shareholders in connection with the meeting of Old Besicorp's
shareholders to adopt the Prior Plan of Merger was materially misleading because
it failed to adequately disclose all available material information regarding
the effect of the Prior Merger on the Derivative Litigation; (ii) the Prior
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Merger was intentionally structured to accomplish the termination of the
Derivative Litigation; and (iii) Old Besicorp and its directors breached their
fiduciary duty by (a) intentionally structuring the Prior Merger so as to cause
the termination of the Derivative Litigation, (b) failing to retain independent
counsel to act on behalf of Old Besicorp's minority shareholders, (c) failing to
retain an independent investment banker to opine on the fairness of the Prior
Merger to Old Besicorp's minority shareholders, (d) failing to form an
independent committee to ensure that the Prior Merger was fair to and in the
best interests of Old Besicorp's minority shareholders, and (e) providing for a
$1 million bonus to Michael F. Zinn and a $500,000 bonus to Michael J. Daley,
which the March Complaint deems to be excessive and/or unwarranted compensation.
The March Complaint seeks injunctive relief directing full disclosure
of the financial impact on Old Besicorp's shareholders of the termination of the
Derivative Litigation and full disclosure of the alleged intentional structuring
of the Prior Merger to cause the termination of the Derivative Litigation. The
March Complaint also seeks an order directing that the Derivative Litigation be
transferred to Besicorp, that the Prior Merger consideration payable to
Michael F. Zinn, Martin E. Enowitz and Steven I. Eisenberg for their shares
of Old Besicorp's common stock (which are subject to the Derivative Litigation)
be held in escrow, and that certain amounts at issue in the Bansbach Litigation
be held in escrow pending final adjudication of the respective actions. The
March Complaint also seeks unspecified money damages.
On March 18, 1999, the District Court entered the Prior Merger Order
requiring (i) the Prior Assignment of the Derivative Litigation to Besicorp
prior to the effectuation of the Prior Merger; (ii) that defendants Michael F.
Zinn, Steven I. Eisenberg and Martin E. Enowitz take no action to place the
Prior Merger Consideration they would receive beyond the reach of the United
States courts so as to render the defendants unable to satisfy any judgment
which may be rendered in the Lichtenberg Action; and (iii) that plaintiffs post
a bond in the amount of $100,000 within seven days of the date of the order,
which bond was posted. Besicorp has appealed the Prior Merger Order to the
United States Court of Appeals for the Second Circuit. There have been no
further significant developments in the March Litigation. The Prior Contribution
Agreement effected the Prior Assignment of the Derivative Litigation. Therefore,
the action is a Besicorp Assumed Matter and Besicorp's costs are funded from the
Escrow Fund. The effectuation of the Merger ordinarily would adversely affect
the Derivative Litigation; however, by assigning Besicorp's interests in the
pending Bansbach Litigation to WOM pursuant to the Spin-Off, the named plaintiff
should be able to maintain the Bansbach Litigation. However, as discussed below,
the Lichtenberg Litigation is not being assigned because the complaint in the
Lichtenberg Complaint has been dismissed. See "Factors to be Considered --
Interests of Executive Officers and Directors in the Merger."
In December 1998, Fenster commenced an action in the New York Supreme
Court, New York County, against Old Besicorp, BGI Parent, BGI Acquisition,
Josephthal and each of the members of the Old Besicorp Board. In the complaint
Fenster indicates that he is seeking class certification. The complaint alleges
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that the Prior Merger Consideration is inadequate and less than Old Besicorp's
intrinsic value, that in adopting the Prior Plan of Merger the Old Besicorp
Board had been unduly influenced by Michael F. Zinn, and that the Old Besicorp
Board breached its fiduciary duty to its shareholders. The complaint also
alleges that Mr. Zinn and the other members of the Old Besicorp Board will
receive the following allegedly unlawful additional consideration that the
remaining shareholders will not receive: (i) the Escrow Fund, that, according to
the complaint, has been established primarily to benefit them, (ii) the
acceleration of certain of the Old Besicorp Rights (iii) bonuses for certain
members of senior management. Fenster is seeking, among other things,
unspecified compensatory damages and an order that the defendants take
appropriate measures to maximize shareholder value. Old Besicorp filed a motion
for summary judgment to dismiss the complaint on the grounds that plaintiff's
alleged claims cannot be asserted in a class action, but rather must be alleged
in a shareholder derivative action subject to various preconditions and other
requirements. Oral arguments of the summary judgment motion were presented on
June 22, 1999. No decision has been rendered. This matter was assumed by
Besicorp pursuant to the Prior Contribution Agreement. Therefore, the action is
a Besicorp Assumed Matter and Besicorp's costs are funded from the Escrow Fund.
In December 1998, an action was commenced in the New York Supreme
Court, Westchester County, entitled Energy Investment Research Inc. v. Besicorp
Group, Inc., Index No. 98/19707. The complaint alleges, among other things, that
Old Besicorp is obligated to pay EIR 1.5% of all net cash and/or securities
received by Old Besicorp from its general partnership interests in the Carthage
and South Glen Falls Partnerships. EIR seeks, among other things, a declaratory
judgment that it is entitled to 1.5% of the distributions from the MRA and has
asked for payments in excess of $750,000. Old Besicorp answered this complaint,
denied all of the material allegations and asserted certain affirmative
defenses. The parties are currently engaged in discovery. EIR filed a mandatory
Chapter 7 petition in the U.S. Bankruptcy Court for the Southern District of New
York on or about August 2, 1999. EIR's claims will be heard in an adversary
proceeding in the bankruptcy case. It is anticipated that discovery in the
adversary proceeding will commence shortly. This matter was assumed by Besicorp
pursuant to the Prior Contribution Agreement. Therefore, the action is a
Besicorp Assumed Matter and Besicorp's costs are funded from the Escrow Fund.
In June 1997, Old Besicorp and Michael F. Zinn (then the Chairman of
the Board, President and Chief Executive Officer of Old Besicorp and currently
the Chairman of the Board, President and Chief Executive Officer of Besicorp),
each entered a guilty plea, in the United States District Court for the Southern
District of New York, to one count of causing a false statement to be made to
the Federal Election Commission and one count of filing a false tax return, all
in connection with the Proceeding. As a result of such pleas, Old Besicorp was
fined $36,400, and Mr. Zinn was fined $36,673 and sentenced to a six-month term
of incarceration (which commenced in November 1997 and has been completed), and
a two-year term (which commenced in May 1998 and was recently terminated before
the scheduled end of the term) of supervised release thereafter. He resigned as
Chairman of the Board, President and Chief Executive Officer of Old Besicorp in
November 1997 and was reappointed to such positions in May 1998.
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In August 1997, John Bansbach commenced the Bansbach Litigation. Old
Besicorp was named as a nominal defendant in this shareholder derivative action
and the other named defendants either were officers and/or directors of Old
Besicorp at the time of the alleged acts or omissions for which relief is sought
or became officers and/or directors of Old Besicorp thereafter. The plaintiff
sought to hold the defendants other than Old Besicorp liable to Old Besicorp:
(a) for all sums advanced to or on behalf of Michael F. Zinn in connection with
his defense of the Proceeding; (b) for all sums advanced to or on behalf of
Michael Daley, who was subpoenaed for information in connection with this
matter; (c) for all legal expenses, costs and fines incurred by Old Besicorp
itself in connection with the Proceeding; (d) for all harm to Old Besicorp's
reputation and goodwill resulting from the Proceeding; (e) for punitive damages;
and (f) for plaintiff's attorneys' fees, costs and expenses. The trial court
dismissed the action, stating that the plaintiff had failed to make the
requisite pre-suit demand upon the Old Besicorp Board and had failed to
demonstrate that such a demand would be futile. The plaintiff appealed this
decision. On February 4, 1999, the Appellate Division reversed the trial court's
dismissal and reinstated the action finding that the bare allegations of
the complaint sufficiently alleged that a pre-suit demand on the Old Besicorp
Board would have been futile. The parties are currently engaged in the discovery
process. This matter was assumed by Besicorp pursuant to the Prior Contribution
Agreement. Therefore, the action is a Besicorp Assumed Matter and Besicorp's
costs are funded from the Escrow Fund. If Bansbach ultimately was to prevail on
all of his claims, the Bansbach Litigation could result in the recovery by
Besicorp of approximately $1 million, excluding interest and punitive damages.
This matter will be assigned to WOM pursuant to the Spin-Off and therefore if
the plaintiff were to prevail, WOM and not Besicorp would receive any
recovery.
On March 29, 1993 James Lichtenberg commenced the Lichtenberg
Litigation. Old Besicorp is named as a nominal defendant in this shareholder
derivative action and the other defendants were directors and officers of Old
Besicorp at the time the action was filed. The complaint alleges that the
directors breached their fiduciary duties to Old Besicorp by, among other
things, the issuance of stock to themselves in lieu of cash compensation,
allegedly for inadequate consideration, and by the accounting treatment given to
Old Besicorp's interest in various partnerships which owned and operated
cogeneration facilities, which allegedly depressed the price of Old Besicorp's
common stock. The plaintiff is seeking an award of damages to Old Besicorp,
including punitive damages and interest, an accounting and the return of assets
to Old Besicorp, the appointment of independent members to the Old Besicorp
Board, the cancellation of shares allegedly improperly granted, and the award to
the plaintiff of costs and expenses of the lawsuit including fees. If
Lichtenberg ultimately was to prevail on all of his claims, the Lichtenberg
Litigation could result in the recovery by Besicorp of approximately $44.5
million. This matter was assumed by Besicorp pursuant to the Prior Contribution
Agreement. Therefore, the action is a Besicorp Assumed Matter and Besicorp's
costs are funded from the Escrow Fund.
The Supreme Court dismissed this action based on the recommendation of
the Old Besicorp Board's special litigation committee (comprised of independent
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outside directors of Old Besicorp) that concluded that the continuation of such
litigation was not in the best interests of Old Besicorp. The dismissal of the
complaint was unanimously affirmed in April 1999 by the Appellate Division,
Third Department. The plaintiff's motion with the Appellate Division, Third
Department seeking leave to appeal to the Court of Appeals, New York's highest
appellate court, was unanimously denied. A further motion in the New York Court
of Appeals for leave to appeal the dismissal of the complaint to that court was
denied on November 18, 1999. Therefore, the matter is not being assigned to WOM.
On November 8, 1990 S.N.C. commenced an action in New York Supreme
Court, New York County, against Old Besicorp, and certain of the Partnerships
and their affiliates and the Contractor. The complaint alleges that S.N.C. was
awarded the contracts to construct two power plants and that the contracts were
subsequently awarded to the Contractor in breach of S.N.C.'s contract. S.N.C.
seeks an award of compensatory damages in an undetermined amount in excess
of $680,000 and punitive damages. The Court granted the defendants' motion for
summary judgment in part but denied the motion insofar as it sought dismissal of
plaintiff's claims for: (1) breach of preliminary agreement to negotiate in good
faith; (2) unjust enrichment/quantum meruit; (3) promissory estoppel; and (4)
fraud and negligent misrepresentation. The Court's decision was upheld by the
Appellate Court. The case is proceeding through the litigation process in the
Supreme Court, New York County. Any liability arising out of this litigation
would be first satisfied by the May 1999 Escrow.
Old Besicorp is a party to a legal proceeding in New York Supreme
Court, Ulster County, that was commenced on June 20, 1995, seeking a
determination that Enowitz, a former director and executive officer of Old
Besicorp, is not entitled to the 100,000 Enowitz Shares of Old Besicorp's common
stock. Old Besicorp believes that such shares were forfeited when he left the
employ of Old Besicorp prior to the scheduled vesting dates with respect to such
shares and that, as a result, he was obligated to resell the shares to Old
Besicorp. Enowitz asserts, among other things, that such vesting schedule was
not applicable to him because he was disabled. Old Besicorp, among other things,
disputes Enowitz's allegation that he was disabled. Because of the uncertainty
with respect to the ownership of these shares, the Prior Plan of Merger provided
that the merger consideration payable in respect of such shares would be held in
escrow pending resolution of the dispute regarding the ownership of these shares
and the rights, if any, of BGI Acquisition, BGI Parent and the Surviving
Corporation to such Prior Merger Consideration would be assigned without
recourse to Old Besicorp's shareholders. Therefore, the Prior Merger
Consideration of approximately $3.7 million (and the 4,000 Disputed Shares of
Besicorp Common Stock) payable with respect to the Enowitz Shares are held by
Continental Stock Transfer & Trust Co., Besicorp's transfer agent. The Plan of
Merger also provides that the 4,000 Disputed Shares will be held in escrow
pending resolution of the dispute. (See "Plan of Merger -- Merger
Consideration"). If it is determined that Mr. Enowitz was not entitled to the
Enowitz Shares, Old Besicorp's shareholders will receive, on a pro rata basis,
such monies and the Merger Consideration attributable to the Disputed Shares
less Old Besicorp's costs (estimated to be less than $100,000) to repurchase
such shares. If it determined that Mr. Enowitz was entitled to the Enowitz
Shares, he will receive the Prior Merger Consideration attributable to those
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shares and the Merger Consideration attributable to the Disputed Shares. As a
result neither Besicorp nor its shareholders have any rights in connection with
the Enowitz Shares (including in respect to the Disputed Shares), but the costs
of the proceeding are financed with the Escrow Fund.
On September 27, 1999, Besicorp commenced the RICO Action in the
Supreme Court of the State of New York, Ulster County. The RICO Action arises
out of an alleged conspiracy by the defendants, who consist of two former
employees and several shareholders, including the plaintiff in the Lichtenberg
Litigation, to unlawfully exert or obtain control over Old Besicorp and all its
assets. Besicorp believes that the defendants, as part of their scheme to
acquire control over Old Besicorp, conspired to foment federal and civil
litigation, including the Lichtenberg Litigation, against Old Besicorp through a
continuous and ongoing campaign of false statements and accusations of
wrongdoing made to governmental agencies. The complaint alleges that at the
annual Besicorp shareholders' meeting held on September 27, 1995, the defendants
attempted to pressure Management to provide them with control over Old
Besicorp's Board of Directors. Besicorp also believes that the defendants
published false and misleading information over the Internet in order to
further their objectives of destabilizing Old Besicorp and acquiring control.
The complaint alleges that as a result of the defendants' conduct, Old Besicorp
suffered damages including legal fees associated with responding to groundless
accusations, injury to its ability to obtain capital, injury to its ability to
build and grow in accordance with its business plans and injury to its
reputation. The RICO Action asserts claims under RICOfor treble damages and
claims under New York State law including tortious interference with
prospective business advantage, business disparagement, prima facie tort,
conspiracy, and breach of contract. Besicorp's expenses connected to this
matter are being funded with monies from the Escrow Fund and any recovery, if
any, will be an Adjustment Amount for purposes of the Combined Deferred
Payments. See "Plan of Merger -- Merger Consideration." The RICO Action has
just commenced and therefore no assurances can be given as to when it will be
resolved, what amounts will be funded from the Escrow Fund, whether Besicorp
will prevail, and, if so, what damages it will recover.
Other than as discussed above, Besicorp is party to various legal
matters in the ordinary course of business, the outcome of which Besicorp does
not believe will materially affect its operations. However, Besicorp may incur
substantial legal fees and other expenses in connection with these matters.
Besicorp's liabilities and rights with respect to the legal proceedings that
were assumed pursuant to the Prior Contribution Agreement will be funded by the
Escrow Fund. See "Escrow Agreement" and "Indemnification Agreement." Besicorp is
responsible for all expenses with respect to proceedings that were not assumed
pursuant to the Prior Contribution Agreement.
The Outside Participating Shareholders generally will be entitled to
Deferred Payments with respect to recoveries from these matters, except as
indicated above. See "Plan of Merger -- Merger Consideration."
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CERTAIN RELATED PARTY TRANSACTIONS
The Airport Entities, which are owned by Michael F. Zinn, own and
operate an airport where Besicorp's plane is maintained. Besicorp provides the
administrative services required in connection with the operation of the airport
and Airport Enterprises maintains Besicorp's plane and provides Besicorp with
the use of the airport. Airport Enterprises owed Besicorp (as of March 31, 1999)
and Old Besicorp (as of March 31, 1998) $58,675 and $47,662, respectively, net
of Services performed by Airport Enterprises on behalf of Besicorp and Old
Besicorp. The cost of these Services were recorded for Fiscal 1999 and Fiscal
1998 as $59,925 and $31,939, respectively. These sums do not bear interest.
There is no specified date for the repayment of such indebtedness as Besicorp,
on an annual basis, offsets against the amount owed to it by Airport
Enterprises, the amount it owes to Airport Enterprises.
Old Besicorp and Besicorp, pursuant to applicable law and governing
documents, advanced legal expenses and disbursements on behalf of certain
officers and directors in connection with the Proceeding, the Lichtenberg
Litigation and the Bansbach Litigation.
As of March 31, 1999 and 1998, such advances on behalf of Michael F.
Zinn in connection with the Proceeding were an aggregate of $338,517. Of such
sum, Mr. Zinn agreed to reimburse Old Besicorp $186,000, subject to a
determination as to whether such reimbursement is required by the NYBCL, and as
of December 31, 1998, had reimbursed Old Besicorp $45,000. In January 1999,
after the receipt of a report from independent legal counsel addressing the
propriety under the NYBCL and Old Besicorp's by-laws of indemnifying Mr. Zinn, a
committee of Old Besicorp's Board of Directors (composed of independent
directors) determined that Mr. Zinn was entitled to full indemnification with
respect to the Proceeding and (i) authorized the repayment to Mr. Zinn of the
$36,673 fine he had paid and the refund of $45,000 he had previously reimbursed
Old Besicorp; (ii) acknowledged that Mr. Zinn had no further obligations with
respect to the $141,000 Mr. Zinn had, subject to a determination as the
propriety of indemnification, agreed to reimburse Old Besicorp; and (iii)
authorized the reimbursement of Mr. Zinn for the legal fees and expenses
(approximately $39,180) incurred by third parties in connection with the
Proceeding and which had been paid by him. All such reimbursements were made
during the fourth quarter of Fiscal 1999 and any related receivables were
written off and charged to expenses during that period. In addition, Old
Besicorp had advanced legal fees and disbursements of approximately $217,663
incurred in connection with such proceeding on behalf of certain directors,
officers, and current and former employees and their spouses who were actual or
potential witnesses in this matter.
In connection with the Lichtenberg Litigation, Old Besicorp had
advanced as of March 31, 1999 an aggregate of $829,168 in legal fees and
disbursements on behalf of Old Besicorp and Mr. Zinn (as certain other former
directors and/or officers of Old Besicorp).
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In connection with the Bansbach Litigation, Old Besicorp had advanced
as of March 31, 1999 an aggregate of $155,085 in legal fees and disbursements on
behalf of Old Besicorp, Mr. Zinn, certain other directors and officers or former
directors of Old Besicorp.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the shares of Besicorp Common Stock owned as
of February 4, 2000, after giving effect to the Pre-Record Date Transactions, by
each beneficial owner of 5% or more of the Besicorp Common Stock, each current
director, the persons currently serving as executive officers and by all current
directors and executive officers as a group. Except as otherwise provided in the
footnotes to the table, the beneficial owners have sole voting and investment
power as to all securities.
Number of Shares
Name of of Common Stock Percent of Common Stock
Beneficial Owner Beneficially Owned (1)(2) Beneficially Owned (1)(2)
- ----------------- ------------------------- -------------------------
Besicorp Holdings, Ltd. 57,967 (3) 42.7% (3)
Michael F. Zinn 3,000 (4)(5) 2.2% (4)
The Trust 10,000 (6) 7.4% (6)
Gerald A. Habib 650 (7) *
Richard E. Rosen 650 (7) *
Michael J. Daley 2,420 (8) 1.8%
Joseph P. Novarro 713 (9) *
Melanie Norden 550 (7) *
Frederic Zinn 1,750 (10) 1.3%
James Curtin 400 (11) *
Current Directors and
executive officers as
a group (8 persons) 68,100 (12) 50.1% (3)
* Less than 1 percent.
(1) Except as described below, such persons have the sole power to vote and
direct the disposition of such shares. Pursuant to the Plan of Merger,
Besicorp Holdings, Ltd. and Michael F. Zinn have agreed to vote their
shares of Besicorp Common Stock in favor of adopting the Plan of
Merger.
(2) Based on 135,882 shares of Besicorp Common Stock outstanding as of
January 31, 2000, which includes 5,824 shares that may be issued to
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former shareholders of Old Besicorp's common stock who have not yet
tendered their shares of Old Besicorp's common stock in connection with
the Prior Merger and the Prior Distribution.
(3) Michael F. Zinn, the Chairman of the Board, President and Chief
Operating Officer of Besicorp, owns beneficially approximately 94.5%,
and members of his immediate family own the remaining approximately
5.5%, of the shares of common stock of Parent. Consequently Mr. Zinn
can be deemed to have beneficial ownership of these shares.
(4) Excludes 57,967 shares held in the name of Parent, which are listed
above. Mr. Zinn owns beneficially approximately 94.5% of the shares of
common stock of Parent. Does not include 10,000 shares owned by the
Trust established by Mr. Zinn; Mr. Zinn disclaims beneficial ownership
of these shares. Mr. Zinn is the Chairman of the Board, President and
Chief Executive Officer of Besicorp.
(5) Includes 3,000 Management Restricted Shares.
(6) The Zinn Family Charitable Trust was established by Michael F. Zinn.
However, he disclaims beneficial ownership of these shares.
(7) Includes 350 Independent Directors' Restricted Shares.
(8) Includes 1,750 Management Restricted Shares.
(9) Includes 625 Management Restricted Shares.
(10) Includes 1,750 Management Restricted Shares.
(11) Includes 400 Management Restricted Shares.
(12) Includes 57,967 shares held in the name of Parent. See Note (3).
The address for each of the individuals identified above is: 1151
Flatbush Road, Kingston, New York 12401. The address for the Trust is c/o Louis
Pierro, Independent Trustee, 21 Everett Road, Albany, New York 12205.
MARKET INFORMATION REGARDING BESICORP COMMON STOCK
The Besicorp Common Stock is not listed on any Exchange or quoted on
NASDAQ or any other automated quotation system. To the knowledge of Besicorp,
there has been no trading of the Besicorp Common Stock since it was distributed
to the former holders of Old Besicorp's common stock on March 22, 1999 in the
Prior Distribution, at which time the Besicorp Common Stock was deemed to have a
value of $43.01 per share for the purpose of, among other things, providing cash
in lieu of fractional shares of Besicorp Common Stock. When the Restricted
Shares were issued, which issuance was effective in May, 1999, they were valued
at $43.00 per share for financial statement purposes. Accordingly, no trading
prices are available.
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There were approximately [1,730] shareholders of record of Besicorp
Common Stock as of the Record Date. Besicorp has never paid, and has no plans to
pay, any cash dividends on the Besicorp Common Stock.
INFORMATION REGARDING PARENT AND ACQUISITION CORP.
THE BUYER HAS ADVISED US AS FOLLOWS:
Besicorp Holdings, Ltd. ( i.e. Parent) is a New York corporation. Besi
Acquisition Corp. ( i.e. Acquisition Corp.) is a New York corporation, and is
wholly owned by Parent. Acquisition Corp. is a transitory, special purpose
corporation that was formed solely to implement the transactions in connection
with the Merger. Parent holds 57,967 shares of Besicorp Common Stock
representing approximately 42.6% of the issued and outstanding shares of
Besicorp Common Stock. Parent acquired these shares from Avalon, which, in turn,
had acquired the shares from Michael F. Zinn, who is the Chairman of the Board,
President and Chief Executive Officer of Besicorp, Parent and Acquisition Corp.,
and members of his immediate family. Acquisition Corp. and Parent have not
carried on any activities other than ( i) activities relating to their
organization, (ii) Parent's receipt of 57,967 shares of Besicorp Common
Stock and (iii) in connection with the Merger. Avalon, a limited liability
company organized under the laws of Virginia, owns approximately 94.5% of the
shares of Parent's common stock. The only members of Avalon are Michael F.
Zinn and his wife, Valerie Zinn, who owns a nominal interest in Avalon. The
remaining approximately 5.5% of the shares of Parent's common stock is owned by
immediate relatives of Mr. Zinn.
Until immediately prior to the time Parent and Acquisition Corp. will
participate in the Merger, it is anticipated that such entities will not have
any significant assets or liabilities other than those incident to their
formation and capitalization, the 57,967 shares of Besicorp Common Stock held by
Parent, and the transactions contemplated by the Merger.
The principal offices of Parent, Acquisition Corp., Avalon and Avalon
Funding are located at 1151 Flatbush Road, Kingston, New York, 12401, ( 914)
336-7700.
It is expected that following the Merger, the businesses and
operations of Besicorp will be continued by it, as the Surviving Corporation,
substantially as they have been conducted since the Prior Spin-Off . Parent has
no present intention to cause (and has not entered into discussions or
negotiations with third parties to cause) the Surviving Corporation or any
subsidiary to engage in transactions which would result in a sale of all or
material portions of the stock, businesses or assets of the Surviving
Corporation, or to acquire businesses or material assets, or to borrow funds or
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secure borrowing with the assets of Besicorp, except with respect to the HSBC
Credit Facility. The Buyer has no plans to restructure itself or the Surviving
Corporation following the Merger.
It is intended that, following the Merger, the Board of directors of
Besicorp will consist of two members, and that Michael F. Zinn and Frederic Zinn
will each be elected for a term of one year. Besicorp will not materially
increase the compensation of its key executive personnel.
Merger Consideration, Fees and Expenses.
Parent estimates that the total Cash Merger Consideration payable to
Outside Participating Shareholders upon the effectuation of the Merger will be
at least $4,587,215 in cash as the aggregate Cash Merger Consideration for all
of the shares of Besicorp Common Stock held by such shareholders, assuming that
there are no Dissenters. This amount will be provided by Parent. In the event
that Outside Participating Shareholders properly exercise their dissenter's
rights, the Surviving Corporation may be required to expend an unspecified
amount of additional finds or may not expend the full amount of the funds
referred to above. See "Factors to be Considered -- Rights of Dissenting
Shareholders." It is anticipated that such additional funds, if any, will be
derived from the HSBC Credit Facility. See -- Source of Funds." It is
anticipated that the fees and expenses incurred by the Buyer (principally,
fees, and expenses of their legal and accounting advisors) in connection with
the Merger will be approximately $100,000.
Source of Funds.
Avalon Funding, which is controlled by Michael F. Zinn, has been
granted the HSBC Credit Facility by HSBC Bank. Avalon Funding intends, in turn,
to lend Parent approximately $4.6 million which Parent will utilize to fund its
obligations pursuant to the Plan of Merger, including the payment of the Cash
Merger Consideration.
The HSBC Credit Facility is a discretionary line of credit granted by
HSBC Bank to Avalon Funding to a maximum of $10 million principal amount of
borrowing. Borrowings under the HSBC Credit Facility can be made, from time to
time, in increments up to $10 million. Each borrowing under the HSBC Credit
Facility requires the approval of HSBC Bank. All borrowings under the HSBC
Credit Facility are payable on demand, or in any event, on December 31, 2000.
There is no assurance that HSBC Bank will approve any request to borrow under
the HSBC Credit Facility, or that the HSBC Credit Facility will be renewed after
December 31, 2000.
Borrowings pursuant to the HSBC Credit Facility bear interest, at the
option of Avalon Funding, either at a rate equal to the LIBOR, plus 1.00%, or at
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the Prime Rate, minus 1.00%. LIBOR is the "London Interbank Overnight Rate," and
the Prime Rate is that rate announced as the Prime Rate by HSBC Bank from time
to time.
Repayment of the borrowings under the HSBC Credit Facility is
guaranteed by Michael F. Zinn, and is also secured by certain investment
accounts belonging to Michael F. Zinn at other institutions.
The Buyer has no other plans for financing or refinancing other than
rolling over the HSBC Credit Facility.
SOURCES AND USES OF FUNDS
It is anticipated that the fees and expenses incurred by Besicorp in
connection with the Merger will be as follows:
Attorney's Fees and Expenses $
Accountant's Fees and Expenses $
Appraisal Fees $
Financial Advisor Fees $
Printing Costs $
Attorney's Fees and Expenses $
Distribution Expenses $
Registration Fees $
Miscellaneous $
----------
$
==========
OTHER MATTERS
As of the time of preparation of this Proxy Statement, the Board of
Directors knows of no matters that will be acted on at the Special Meeting other
than the adoption of the Plan of Merger. If any other matters are presented for
action at the Special Meeting or at any adjournment or postponement thereof,
it is intended that the proxies will be voted with respect thereto in accordance
with the best judgment and in the discretion of the persons named as proxies in
the accompanying proxy card.
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ANNUAL MEETING OF SHAREHOLDERS
If the shareholders adopt the Plan of Merger, and if all other
conditions to the Merger are satisfied or waived, it is expected that the Merger
will be effectuated on or about [ ], 2000. Besicorp does not plan to hold an
annual meeting of shareholders following the Special Meeting unless the Merger
is not effectuated. If the Merger is not effectuated, shareholder proposals
received by the Secretary of Besicorp a reasonable time before Besicorp begins
to print and mail its proxy materials will be considered for inclusion in the
proxy materials for Besicorp's next Annual Meeting of Shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Besicorp's independent public accountants for the fiscal year ended
March 31, 1999 and for the current fiscal year are Citrin Cooperman & Company,
LLP. It is anticipated that representatives of such firm will be present at the
Special Meeting and that they will be available to respond to questions from
shareholders.
ADDITIONAL INFORMATION
Copies of the following materials are available for inspection and
copying at the offices of Besicorp, 1151 Flatbush Road, Kingston, New York
during regular business hours by shareholders of Besicorp or by persons who have
been designated in writing as representatives of such shareholders:
(i) Josephthal's presentation, which report was the basis for
the Fairness Opinion, and (ii) two reports of Commercial
Associates Realty regarding Besicorp's real
property.
In addition, such materials will be sent to any such shareholder or
representative, at the expense of such shareholder or representative, upon
written request (addressed to the attention of Ms. Joyce DePietro at Besicorp at
the address set forth above).
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
OF BESICORP LTD.
Index to the Consolidated Financial Statements of BESICORP LTD. ........................................ F-1
Independent Auditors' Report............................................................................ F-2
Consolidated Balance Sheet as of September 30, 1999 (Unaudited),
March 31, 1999 and March 31, 1998.............................................................. F-3
Consolidated Statement of Operations for the Three and Six
Months Ended September 30, 1999 and 1998 (Unaudited)
and the Years Ended March 31, 1999, 1998....................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended September 30, 1999 (Unaudited)
and for the Years Ended March 31, 1999 and 1998................................................ F-5
Consolidated Statement of Cash Flows for the Six Months
Ended September 30, 1999 and 1998 (Unaudited)
and the Years Ended March 31, 1999 and 1998.................................................... F-6
Notes to Consolidated Financial Statements of Besicorp Ltd.............................................. F-7
F-1
CITRIN COOPERMAN & COMPANY, LLP
Certified Public Accountants
529 Fifth Avenue, Tenth Floor
New York, NY 10017
212-697-1000
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BESICORP LTD.
Independent Auditors' Report
----------------------------
We have audited the accompanying consolidated balance sheet of Besicorp Ltd. and
subsidiaries as at March 31, 1999 and 1998 and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Besicorp Ltd. and
subsidiaries as at March 31, 1999 and 1998 and the results of their operations
and their cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has received (but will not in the future receive)
substantial financial support from the former parent company that raise
substantial doubt about its ability to continue as a going concern without such
support. Management's plans in regard to these matters are also described in
Note 15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Citrin Cooperman & Company, LLP
-------------------------------
CITRIN COOPERMAN & COMPANY, LLP
June 16, 1999
New York, New York
F-2
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
September 30,1999 March 31,1999 March 31,1998
----------------- ------------- -------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 800,399 $ 1,824,139 $ 104,428
Trade accounts and notes receivable (less allowance
for doubtful accounts of $28,906 as of September 30, 1999,
$32,000 at March 31, 1999, and $23,000 at March 31, 1998) 1,390,706 988,589 369,494
Due from affiliates 66,470 374,250 47,662
Notes receivable: (includes interest of $5,770 at
September 30, 1999, $4,057 at March 31, 1999, and $8,316
at March 31, 1998) 87,320 107,951 102,054
Inventories 1,818,608 1,165,761 944,013
Other current assets 439,579 465,566 485,052
--------- --------- ---------
Total Current Assets 4,603,082 4,926,256 2,052,703
--------- --------- ---------
Property, Plant and Equipment:
Land and improvements 229,660 229,660 237,160
Buildings and improvements 1,914,029 1,914,029 1,906,952
Machinery and equipment 603,654 726,958 714,620
Furniture and fixtures 237,424 237,423 246,702
Construction in progress 23,369 - -
--------- --------- ---------
3,008,136 3,108,070 3,105,434
Less: accumulated depreciation and amortization (1,438,589) (1,520,385) (1,478,950)
--------- --------- ---------
Net Property, Plant and Equipment 1,569,547 1,587,685 1,626,484
--------- --------- ---------
Other Assets:
Patents and trademarks, less accumulated
amortization of $2,940 at September 30, 1999 and $2,350, at
March 31, 1999, and $1,691 at March 31, 1998 18,120 12,530 7,823
Long-term notes receivable:
Affiliate - net of allowance of $555,376 at March 31, 1998 - - 129,886
Others - net of allowance of $1,944,624 at March 31, 1998 - - 1,316,693
Investment in partnerships 1,692,414 4,009,810 -
Deferred costs 382,719 - -
Other assets 74,554 76,620 95,063
--------- --------- ---------
Total Other Assets 2,167,807 4,098,960 1,549,465
--------- ---------- ---------
TOTAL ASSETS $ 8,340,436 $ 10,612,901 $ 5,228,652
========= ========== =========
See accompanying notes to consolidated financial statements.
BESICORP LTD.
CONSOLIDATED BALANCE SHEET
September 30,1999 March 31,1999 March 31,1998
----------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Accounts payable and accrued expenses $ 1,002,200 $ 763,531 $ 1,234,920
Current portion of long-term debt 42,000 20,000 109,208
Current portion of accrued reserve and warranty expense 72,946 111,215 152,891
Taxes other than income taxes 105,885 103,207 100,693
Income taxes payable 8,149 5,300 -
--------- --------- ---------
Total Current Liabilities 1,231,180 1,003,253 1,597,712
Long-Term Accrued Reserve and Warranty Expense 190,606 174,462 152,402
Long-Term Debt 51,070 115,308 3,768,233
--------- --------- ---------
Total Liabilities 1,472,856 1,293,023 5,518,347
--------- --------- ---------
Shareholders' Equity:
Common stock, $.01 par value: authorized
5,000,000 shares; issued and outstanding 136,382
at September 30, 1999 and 121,382 at March 31, 1999 1,364 1,214 -
Additional paid in capital 10,135,677 9,490,827 -
Unamortized deferred compensation (587,308) - -
Besicorp Group Inc. investment (289,695)
Retained earnings (deficit) (2,677,853) (172,163) -
--------- --------- -------
6,871,880 9,319,878 (289,695)
Less: treasury stock at cost (100 shares, 0 shares,
and 0 shares respectively) (4,300) - -
--------- --------- -------
Total Shareholders' Equity 6,867,580 9,319,878 (289,695)
--------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,340,436 $ 10,612,901 $ 5,228,652
========= ========== =========
See accompanying notes to consolidated financial statements.
F-3
BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Product sales $ 2,162,837 $ 1,097,897 $ 4,287,909 $ 2,085,690
Other revenues 145,134 129,386 206,063 278,954
Interest and other investment income 39,822 6,431 63,222 13,204
Other income 0 0 0 0
--------- --------- --------- ---------
Total Revenues 2,347,793 1,233,714 4,557,194 2,377,848
--------- --------- --------- ---------
Costs and Expenses:
Cost of product sales 1,846,388 1,034,036 3,697,215 1,981,867
Selling, general and
administrative expenses 1,708,453 3,120,139 3,276,183 4,462,413
Loss from partnerships 75,187 0 75,187 0
Interest expense 0 9,924 287 104,307
Other expense 28 8,374 78 8,807
--------- --------- --------- ---------
Total Costs and Expenses 3,630,056 4,172,473 7,048,950 6,557,394
--------- --------- --------- ---------
Loss Before Income Taxes (1,282,263) (2,938,759) (2,491,756) (4,179,546)
Provision (Credit) for Income Taxes 3,176 (993,300) 13,934 (1,415,300)
--------- ---------- --------- ---------
Net Loss $ (1,285,439) $ (1,945,459) $ (2,505,690) $ (2,764,246)
========= ========= ========= =========
Net Loss per Share $ (9.43) $ (16.03) $ (18.86) $ (22.77)
========= ========= ========= =========
Basic Weighted Average Number
of Shares Outstanding 136,370 121,382 132,851 121,382
========= ======== ========= ========
See accompanying notes to consolidated financial statements.
BESICORP LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended March 31,
--------------------
1999 1998
Revenues:
Product sales $5,103,275 $3,838,351
Other revenues 486,030 426,154
Interest and other investment income 20,412 35,482
Other income 106,886 108,435
--------- ---------
Total Revenues 5,716,603 4,408,422
--------- ---------
Costs and Expenses:
Cost of product sales 4,839,016 3,932,301
Selling, general and
administrative expenses 9,444,398 8,466,360
Loss from partnerships
Interest expense 134,110 481,651
Other expense 11,018 2,519,114
---------- ----------
Total Costs and Expenses 14,428,542 15,399,426
---------- ----------
Loss Before Income Taxes (8,711,939) (10,991,004)
Provision (Credit) for Income Taxes (2,897,200) (3,767,000)
--------- ---------
Net Loss $(5,814,739) $(7,224,004)
========= =========
Net Loss per Share $ (47.90) $ (59.51)
========= =========
Basic Weighted Average Number
of Shares Outstanding 121,382 121,382
========= =========
See accompanying notes to consolidated financial statements.
F-4
BESICORP LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD APRIL 1, 1998 THROUGH SEPTEMBER 30, 1999
Additional Unamortized Besicorp Retained
Common Stock Paid-in Deferred Group Inc. Earnings
Shares Amount Capital Compensation Investment (Deficit)
------ ------ -------- ------------ ---------- -------
Balance April 1, 1997 $ $ $ $ 2,221,758 $
Net Loss (7,224,004)
Net transactions with Besicorp Group Inc. 4,712,551
------ ------ -------- ----------- ---------- --------
Balance at March 31, 1998 0 0 0 0 (289,695) 0
Net loss to March 22, 1999 (5,642,576)
Net transactions with Besicorp Group Inc. 15,424,312
Distribution of Besicorp Ltd. stock
by Besicorp Group Inc. 122,057 1,221 9,490,820 (9,492,041)
Net loss March 23, 1999 to
March 31, 1999 (172,163)
Payment in lieu of issuance of shares (675) (7) (29,035)
Additional capital contribution 29,042
------- ----- --------- ----------- ---------- --------
Balance at March 31, 1999 121,382 1,214 9,490,827 (172,163)
Issuance of restricted grants (unaudited) 15,000 150 644,850 (645,000)
Forfeiture of restricted shares (unaudited) 4,300
Amortization of deferred compensation (unaudited) 53,392
Net loss April 1, 1999 to
September 30, 1999 (unaudited) (2,505,690)
------- ----- ---------- ------- ---------- ---------
Balance at September 30, 1999 (Unaudited) 136,382 $ 1,364 $ 10,135,677 $ (587,308) $ $(2,677,853)
======= ===== ========== ======= ========== =========
See accompanying notes to consolidated financial statements.
BESICORP LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD APRIL 1, 1998 THROUGH SEPTEMBER 30, 1999
Treasury Stock
Shares At Cost Total
------- ------------ ----------
Balance April 1, 1997 $ $2,221,758
Net Loss (7,224,004)
Net transactions with Besicorp Group Inc. 4,712,551
------- ---------- ---------
Balance at March 31, 1998 0 0 (289,695)
Net loss to March 22, 1999 (5,642,576)
Net transactions with Besicorp Group Inc. 15,424,312
Distribution of Besicorp Ltd. stock
by Besicorp Group Inc. 0
Net loss March 23, 1999 to
March 31, 1999 (172,163)
Payment in lieu of issuance of shares (29,042)
Additional capital contribution 29,042
-------- ---------- ---------
Balance at March 31, 1999 0 0 9,319,878
Issuance of restricted grants (unaudited) 0
Forfeiture of restricted shares (unaudited) 100 (4,300) 0
Amortization of deferred compensation (unaudited) 53,392
Net loss April 1, 1999 to
September 30, 1999 (unaudited) (2,505,690)
-------- --------- ---------
Balance at September 30, 1999 (Unaudited) 100 $ (4,300) $ 6,867,680
======== ========= =========
See accompanying notes to consolidated financial statements.
F-5
BESICORP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended September 30, Year Ended March 31,
------------------------------ --------------------
1999 1998 1999 1998
(Unaudited) (Unaudited)
Operating Activities:
Net loss $ (2,505,690) $ (2,764,246) $ (5,814,739) $ (7,224,004)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of discounts on notes (833) (1,098) (2,196) (2,196)
Provision for uncollectibles 75,187 0 9,000 2,483,654
Realized and unrealized (gains) losses 53,392 0 7,500 6,066
Stock compensation (3,094) 45,929 0 0
Depreciation and amortization 73,274 81,091 165,307 243,793
Changes in assets and liabilities:
Accounts and notes receivable 156,331 (270,527) (828,500) 326,916
Inventories (652,847) (297,645) (221,748) 236,252
Accounts payable and accrued expenses 238,669 (140,869) (471,389) (510,223)
Taxes payable 5,527 12,519 7,814 (1,393)
Other assets and liabilities, net (401,451) 1,546,647 1,351,555 (94,844)
Net Cash Used --------- --------- --------- ---------
By Operating Activities (2,961,535) (1,788,199) (5,797,396) (4,535,979)
--------- --------- --------- ---------
Financing Activities:
Repayment of borrowings (42,238) (3,049,076) (3,742,133) (72,640)
Net transactions with Besicorp Group Inc. 0 4,862,765 11,392,588 4,712,551
--------- --------- ---------- ---------
Net Cash Provided (Used)
By Financing Activities (42,238) 1,813,689 7,650,455 4,639,911
-------- --------- --------- ---------
Investing Activities:
Distribution from partnerships 2,034,579 0 0 0
Acquisition of property, plant and equipment (54,546) (70,637) (133,348) (149,266)
Net Cash Provided (Used) By Investing --------- ------ ------- -------
Activities 1,980,033 (70,637) (133,348) (149,266)
--------- ------ --------- -------
Increase in Cash and Cash Equivalents (1,023,740) (45,147) 1,719,711 45,334
Cash and Cash Equivalents - Beginning 1,824,139 104,428 104,428 59,094
--------- ------- --------- -------
Cash and Cash Equivalents - Ending $ 800,399 $ 59,281 $ 1,824,139 $ 104,428
========= ======= ========= =======
Supplemental Cash Flow Information:
Interest paid $ 287 $ 161,955 $ 94,689 $ 445,601
Income taxes paid 6,456 0 0 0
See accompanying notes to consolidated financial statements.
F-6
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation.
- ----------------------
Besicorp Group Inc. ("Old Besicorp"), the former parent of Besicorp Ltd., was a
party to an Agreement and Plan of Merger dated November 23, 1998, as amended,
(the "Prior Plan of Merger") among Old Besicorp, BGI Acquisition LLC ("Old
Acquisition") and BGI Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of Old Acquisition. Pursuant to the Prior Plan of Merger, Merger Sub
was merged into Old Besicorp, which then became a wholly owned subsidiary of Old
Acquisition (the "Prior Merger"). Because Old Acquisition did not want to
acquire certain assets or assume certain liabilities of Old Besicorp, it was a
condition precedent to the Prior Merger that Old Besicorp, before the Prior
Merger, spin-off its photovoltaic and independent power development businesses
(the "Distributed Businesses") to its shareholders. Therefore, Old Besicorp
formed Besicorp Ltd. to assume the operations of the Distributed Businesses by
having Old Besicorp assign to Besicorp Ltd. all of its assets relating to the
Distributed Businesses and substantially all of Old Besicorp's other assets
(other than Old Besicorp's cash, securities, the subsidiaries which held Old
Besicorp's interests in partnerships which owned or leased five cogeneration
natural gas power plants (the "Retained Subsidiaries") and certain other assets
(including in particular, other claims of and awards made to Old Besicorp in the
aggregate stated amount of approximately $1 million)), and by having Besicorp
Ltd. (the "Company" or "Besicorp") assume substantially all of Old Besicorp's
liabilities other than the following liabilities (collectively, the "Permitted
Liabilities"): (i) the liabilities of Old Besicorp and any Retained Subsidiary
(actual or accrued) for unpaid federal income taxes for Old Besicorp's 1999
fiscal year based on the consolidated net income of Old Besicorp through the
effective date of the Prior Merger (i.e. March 22, 1999), (ii) the liabilities
of Old Besicorp or its subsidiaries for New York State income taxes for the 1999
fiscal year, and (iii) certain intercompany liabilities. The Prior Plan of
Merger contemplated that prior to the consummation of the Merger, Old Besicorp
would effect this contribution of assets to Besicorp (and the assumption of
these liabilities by Besicorp) and distribute all of Besicorp Ltd.'s stock to
Old Besicorp's shareholders. Therefore, following the contribution, which took
place shortly before the Prior Merger, which was consummated on March 22, 1999,
Old Besicorp distributed 100% of Besicorp Ltd.'s common stock (the "Prior
Distribution"), and Besicorp Ltd. became a separate, publicly held company.
Effective March 22, 1999, Old Besicorp distributed to its shareholders all of
its interests in Besicorp Ltd. and certain subsidiaries. Before the Distribution
, Besicorp Ltd. and subsidiaries were wholly-owned subsidiaries of Old
Besicorp.
Besicorp Ltd. and subsidiaries consolidated financial statements at and before
the Prior Distribution reflect the operations, financial position and cash flows
of Besicorp Ltd. and subsidiaries as if they were a separate entity. Such
financial statements were derived from the consolidated financial statements of
Old Besicorp using historical results of operations and historical basis in the
assets and liabilities of the business operated by Besicorp Ltd.
The financial information for the year ended March 31, 1999 and 1998 may not
necessarily reflect the consolidated results of operations, financial position,
cash flows and changes in shareholders' equity of Besicorp Ltd. had Besicorp
Ltd. been a separate entity during that period.
The unaudited financial statements included herein have been prepared in
accordance with the generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited financial
statements included herein contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of
Besicorp Ltd. as of September 30, 1999; the results of operations for the three
and six months ended September 30, 1999 and 1998; and the statement of cash
flows for the corresponding six-month periods.
The results of operations for the three and six months ended September 30, 1999
are not necessarily indicative of the results to be expected for any other
interim period or for the full year.
F-7
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts shown as net transactions with Old Besicorp represent the net effect of
cash generated or used by the Distributed Businesses and transferred to or from
Old Besicorp
Business.
- --------
Besicorp Ltd. specializes in the development, assembly, manufacture, marketing
and resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment").
Basis of Consolidations.
- -----------------------
The consolidated financial statements include the accounts of Besicorp Ltd. and
its wholly-owned subsidiaries. Investments in partnerships are accounted for
under the equity method. All significant intercompany transactions and accounts
have been eliminated.
Use of Estimates.
- -----------------
Management uses estimates in preparing the consolidated financial statements, in
conformity with generally accepted accounting principles. Significant estimates
include collectibility of accounts receivable, warranty costs, profitability on
long-term contracts, as well as recoverability of long-term assets and residual
values. Besicorp regularly assesses these estimates and, while actual results
may differ from these estimates, management does not anticipate a material
difference in its actual results versus estimates in the near term.
Inventories.
- ------------
Inventories are carried at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment.
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation on such assets is
computed on a straight-line basis at rates adequate to allocate the cost over
their expected useful lives as follows: (i) land improvements - 15 years, (ii)
buildings and improvements - 20 years to 39 years; (iii) furniture and fixtures
- - three years to 35 years; and (iv) machinery and equipment - three years to 35
years.
Patents and Trademarks.
- ----------------------
Costs of patents ($14,395 at March 31, 1999 and $9,029 at March 31, 1998) are
capitalized and amortized on a straight-line basis over the remaining useful
life of the patent of up to 17 years. Trademark costs ($485 at March 31, 1999
and $485 at March 31, 1998) are capitalized and amortized on a straight-line
basis over the estimated useful life of 35 years. During the year ended March
31, 1998, $690,467 of patent and trademark costs were written off upon the
discontinuance of the related product lines as a result of management's decision
to focus Besicorp's alternative energy business on photovoltaic products and
systems. The write-off of these costs is reflected in selling, general and
administrative expenses in that period.
Deferred Costs.
- --------------
Consists of engineering and legal fees, licenses and permits, site testing, bids
and other charges, including salaries and employee expenses, incurred by
Besicorp in developing projects. These costs are deferred until the date the
project construction financing is arranged and then expensed against development
fees received, or, in some cases, such costs are reimbursed periodically or at
the time of closing. When in the opinion of management it is determined that a
project will not be completed, the deferred costs are expensed.
Impairment of Long-Lived Assets.
- --------------------------------
Besicorp follows the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairments whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
F-8
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic/Diluted Earnings Per Common Share.
- ----------------------------------------
Effective December 15, 1997, Besicorp adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. The
Statement required companies with a complex capital structure to report both
Basic Earnings per Share and Diluted Earnings per Share. Diluted Earnings per
Share considers the effect of potential common shares such as stock options and
warrants. Loss per common share for Fiscal 1999 and 1998 is computed based on
121,382 shares being issued after reduction for payment of fractional shares as
adjusted after the Prior Distribution. Loss per common share for the three and
six months ended September 30, 1999 is based on the weighted average number of
shares of 136,370 and 132,851 outstanding during those periods, respectively.
Loss per common share for the three and six months ended September 30, 1998 is
computed based on 121,382 shares being issued as adjusted after the Prior
Distribution. Since there were no potential Common Shares as of September 30,
1999 and March 31, 1999, Basic and Diluted Earnings per Share are the same for
all periods.
Product Warranties.
- ------------------
Warranty expense for Besicorp's product sales is provided on the basis of
management's estimate of the future costs to be incurred under product
warranties presently in force. Adjustments to revenue or expense are reflected
in the period in which revisions to such estimates are deemed appropriate.
Revenue Recognition.
- --------------------
Revenues on product sales are recognized at the time of shipment of goods. Other
revenues, primarily cost reimbursement billings, are recognized when deemed
payable under the applicable agreement.
Research and Development.
- -------------------------
Research and development costs are expensed when incurred.
Statement of Cash Flows.
- ------------------------
For purposes of the consolidated statement of cash flows, Besicorp considers
temporary investments with a maturity of three months or less when purchased to
be cash equivalents. There were no cash equivalents in any of the periods
presented.
Concentration of Credit Risk.
- ----------------------------
Financial instruments which potentially subject Besicorp to concentrations of
credit risk consist principally of cash and trade receivables. Besicorp places
its cash and investments with high credit qualified financial institutions and,
by policy, limits the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising Besicorp's customer
base, and their dispersion across many different industries and regions. During
Fiscal 1999, no sales to a customer equaled or exceeded 10% of product sales.
During the year ended March 31, 1998 ("Fiscal 1998"), one customer accounted for
approximately 14% of product sales.
Goodwill.
- ---------
The excess of the purchase price over the book value of a corporation acquired
at March 31, 1993 of $557,898 was added to the basis of the land and buildings
of such corporation based upon an independent appraisal of the property acquired
and is being amortized on a straight-line basis over the asset lives of 31.5
years. The remaining book value at March 31, 1999 and 1998 was $458,489 and
$475,057, respectively.
Income Taxes.
- -------------
Besicorp's operations were included in the income tax returns filed by Old
Besicorp through the prior distribution date. During such time, income tax
expense (benefit) in Besicorp's consolidated financial statements was calculated
as if Besicorp had filed separate income tax returns. Deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and tax bases of existing assets and
liabilities. The tax benefits of tax operating loss carryforwards are recorded
to the extent available, less a valuation allowance if it is more likely than
not that some portion of the deferred tax asset will not be realized.
F-9
NOTE 2 - INVENTORIES
-----------
Inventories consist of the following:
September 30, 1999 March 31, 1999 March 31, 1998
------------------ -------------- ---------------
(Unaudited)
Assembly parts $ 411,472 $ 263,761 $298,239
Finished goods 1,407,136 902,000 645,774
--------- ---------- --------
$ 1,818,608 $1,165,761 $944,013
========= ========= =======
NOTE 3 - DEFERRED COSTS
--------------
Deferred and reimbursable costs at September 30, 1999 (unaudited) March 31, 1999
and March 31, 1998 were as follows:
Internal Costs Third
Payroll Expenses Party Costs Total
------- -------- ----------- -----
Balance March 31, 1997 $917,671 $267,947 $295,110 $1,480,728
Additions 259,335 34,706 388,238 682,279
Expensed (634,631) (85,142) (64,335) (784,108)
Reimbursements (58,825) - (3,381) (62,206)
----------- -------- ---------- ----------
Balance March 31, 1998 483,550 217,511 615,632 1,316,693
Additions 75,504 11,851 43,716 131,071
Expensed (513,375) (229,362) (659,348) (1,402,085)
Reimbursements (45,679) - - (45,679)
----------- ------- -------- ---------
Balance March 31, 1999 0 0 0 0
Additions 160,907 13,041 208,771 382,719
Expensed 0 0 0 0
Reimbursements 0 0 0 0
---------- ------- ---------- ---------
Balance September 30, 1999
(Unaudited) $160,907 $ 13,041 $208,771 $ 382,719
======= ======= ======= =======
Old Besicorp wrote off all deferred costs during the second quarter of Fiscal
1999 due to the uncertain nature of the development of the projects and due to
the uncertain political and economic conditions in the countries where the
projects are located (principally India and Brazil). Old Besicorp determined, in
accordance with its existing policy, that due to the uncertain development of
the projects and uncertain economic conditions in the respective countries the
carrying amounts may be impaired. Also in accordance with existing policy,
Besicorp, during the first quarter of Fiscal 2000, began deferring all costs, as
presented above, incurred with respect to the development of a recycled
newsprint manufacturing plant and adjacent 475 megawatt natural gas-fired
cogeneration power plant in Ulster County, New York (the "Kingston Project").
F-10
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES RECEIVABLE
----------------
Long-term notes receivable consist of the following:
September 30, March 31, March 31,
1999 1999 1998
------------- -------- ---------
Due from affiliate (net of allowance of (Unaudited)
$0 at September 30 and March 31, 1999 and
$555,376 at March 31, 1998 (a) $0 $0 $0
======= ======= =======
Due from others:
- Greenhouse (net of allowance of
$0 at September 30 and March 31, 1999 and
$1,944,624 at March 31, 1998 (a) $0 $0 $0
- 9% notes receivable due from limited
partnerships, receivable in annual
installments through December, 1999 (b) 81,550 103,894 223,623
Less current portion - net of interest (81,550) (103,894) (93,737)
-------- --------- -----------
TOTAL $0 $0 $129,886
======= ======= =======
(a) In connection with a project (the "Project"), Old Besicorp advanced an
aggregate of $2,500,000 (see Note 7(d)) of which, at March 31, 1998, $1,944,624
and $555,376 was owed to Besicorp by, respectively, an affiliated partnership
and an unrelated company ("Allegany"). During Fiscal 1998, Old Besicorp reserved
the full amount of such loan due to its impairment and wrote off the combined
loan during the third quarter of Fiscal 1999 because Besicorp relinquished its
rights thereunder pursuant to the plan of reorganization approved by the United
States Bankruptcy Court for the District of New Jersey (Case No. 95-28703 (WT))
and the related settlement agreements. Besicorp did not in Fiscal 1999
or Fiscal 1998 record any interest income with respect to such advances.
(b) Old Besicorp contracted to design, build, and operate energy systems with
limited partnerships. Under the terms of the agreements with these partnerships,
the partnerships provided Besicorp with initial cash payments and issued
long-term notes. Additional interest on these notes was imputed at the rate of
2% per annum to yield an effective rate of 11% per annum on substantially all of
the long-term notes.
NOTE 5 - INVESTMENTS IN PARTNERSHIPS
---------------------------
Besicorp's interests in partnerships range from 35.715% to 50.2% and are
accounted for under the equity method. The investment in partnerships of
$4,009,810 at March 31, 1999 primarily represents the amounts paid by Besicorp
of $2,310,549 which equaled the tax bases of the partnership interests of
$2,310,549, which was contributed by Old Besicorp to Besicorp. In addition,
included in the investment balance is a receivable of $1,721,175 which was also
contributed to Besicorp by Old Besicorp and represents the funds due from
certain revenues earned by the partnerships in March 1999. Except for one
partnership, which management anticipates will be liquidated around December 1,
1999, all partnerships, which owned or leased five cogeneration natural gas
power plants, were liquidated during the three months ended June 30, 1999, and
the applicable liquidating distributions of approximately $2,000,000 were
received by Besicorp on June 1, 1999. The investment in partnerships of
$1,692,414 at September 30, 1999 primarily represents (a) approximately $250,000
which management expects will be received by Besicorp Ltd. upon liquidation of
the one unliquidated partnership and which may be increased or reduced depending
upon the level of expenses incurred by the partnership and (b) approximately
$1.46 million (the "Liquidated Partnership Funds") held in cash escrow accounts
which were established in connection with three liquidated partnerships. The
Liquidated Partnership Funds are to be released, if any, to Besicorp between
June 2000 and May 2002 subject to the satisfaction of certain conditions, as to
which no assurance can be given.
F-11
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
-------------------------------------
Accounts payable and accrued expenses were comprised of the following:
March 31, 1999 March 31, 1998
-------------- --------------
Trade accounts payable $220,107 $465,584
Accrued interest expense - 39,421
Accrued legal fees - 308,281
Accrued salaries 144,871 134,640
Due to affiliate - 56,624
Deposits and other payables 398,553 230,370
-------- ---------
$763,531 $1,234,920
======= =========
NOTE 7 - LONG-TERM DEBT
--------------
Long-term debt consists of the following: September 30, March 31, March 31,
1999 1999 1998
------------ --------- --------
- Installment loans at 0% to 10.54% maturing through (Unaudited)
September 2000 (a) $0 $0 $75,639
- Mortgage loan payable in monthly installments of
$4,180 including interest at prime plus 1.5% through
April 2007, when the unpaid balance was due (b) 0 0 315,455
- Second mortgage payable in monthly installments
of $1,771 plus interest at prime plus 1.5% through
March 2002, when the unpaid balance was due (b, c) 0 0 288,646
- Mortgage loan payable in monthly installments of $1,060 plus interest
at prime plus 1.5% to March 1998
and prime plus .5% thereafter through March 2001 (b, c) 0 0 50,680
- Obligation on SunWize asset acquisition (e) 93,070 135,308 147,021
- Working capital loan (d) 0 0 3,000,000
------ ------- ---------
Total 93,070 135,308 3,877,441
Less: Current maturities 42,000 20,000 109,208
------ ------- --------
$51,070 $115,308 $3,768,233
====== ======== =========
F-12
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt maturities at March 31, 1999, including current maturities, are
as follows:
March 31, 1999
2000 $20,000
2001 20,000
2002 20,000
2003 20,000
2004 20,000
Thereafter 35,308
-------
$135,308
=======
With the exception of the SunWize acquisition obligation, which is the only debt
(other than trade and similar debt incurred in the ordinary course of business)
remaining subsequent to the spin-off effected on March 22, 1999, all debt was
repaid during Fiscal 1999.
a. Collateral for the installment loans consists of automobiles, machinery and
equipment, computer equipment and furniture and fixtures with a net book value
of $60,468 at March 31, 1998. All these loans were repaid prior to December 31,
1998.
b. Collateralized by mortgages on land and/or buildings with a net book value of
$1,153,622 at March 31, 1998. These mortgages were repaid prior to December 31,
1998.
c. As a part of his guarantees of Old Besicorp's debts of $339,326 at March 31,
1998, the principal shareholder had a security interest in various assets,
patents and personal property owned by Old Besicorp. These mortgages were repaid
prior to December 31, 1998 and the related security interests released.
d. On June 1, 1992, Old Besicorp and its partnership co-developer with respect
to certain projects, entered into a loan agreement with Stewart & Stevenson
Services, Inc. to borrow up to $3,000,000 each for working capital. Interest on
advances under the agreement were payable quarterly in arrears at the rate of 2%
above prime. The loan required payments of interest only during the initial
term. Principal was to be repaid based on termination dates of operating and
maintenance contracts on certain projects with an initial term of six years that
may be extended an additional six years. Loans were secured by cash flows of
certain of the partnerships in the event of default. During Fiscal 1993 and 1994
Old Besicorp borrowed $2,500,000 under the agreement to fund development
activities of one of the partnerships (see Note 4), and, in February 1997,
borrowed the remaining $500,000 available under the loan agreement. The loan was
repaid in full in July 1998.
e. Obligation payable on the acquisition of SunWize assets, payable on an annual
basis as a percentage of gross margins of the SunWize division. $42,238 was paid
during the first quarter of Fiscal 2000, $11,713 was paid in Fiscal 1999 and
$19,878 was paid in Fiscal 1998.
NOTE 8 - INCOME TAXES
------------
The credit for income taxes for the period through the Prior Distribution
represents the allocated benefits of the respective losses which Old Besicorp
was able to use in filing its consolidated tax returns.
Tax benefits are allocated based on the taxable loss of the companies and
deferred taxes are provided on temporary differences in recognition of income
between book and tax. Such tax benefits and deferred taxes are charged or
credited to the amount due to or from Old Besicorp and included in the net
transactions with Old Besicorp
F-13
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets of approximately $415,000 primarily from equipment and
depreciation differences are offset by valuation allowances since it is more
likely than not that some portion of the deferred tax asset will not be
realized.
Upon conclusion of the Prior Merger and Prior Distribution, Besicorp became an
independent entity and will no longer have its results included with the
consolidated tax return of Old Besicorp. Besicorp has an available net operating
loss of approximately $167,900 which expires 2019. The tax benefits of the net
operating loss carry forward of $57,000 have been offset by a corresponding
increase in valuation allowance.
NOTE 9 - CAPITALIZATION
--------------
Besicorp has authorized 1,000,000 shares of $.01 par value preferred stock, of
which none have been issued, and 5,000,000 shares of $.01 par value common
stock. Upon formation of Besicorp in November 1998, 500 shares of common stock
were issued to Old Besicorp for $500. In connection with the Prior Merger and
the Prior Distribution, approximately 122,057 shares of Besicorp are available
to be issued to the holders of Old Besicorp common stock on a one share of
Besicorp for 25 shares of Old Besicorp basis subject to adjustment based upon
the payment of cash in lieu of the issuance of fractional shares. At March 22,
1999, $40,000 was placed in escrow with the transfer agent for payment of cash
in lieu of fractional shares. Stock certificates for 121,382 shares of
Besicorp's common stock have been received for distribution in exchange of Old
Besicorp shares after payment on the issuance of fractional shares. The $29,042
of payment for fractional shares is an additional capital contribution by Old
Besicorp and the balance of the $40,000 was transferred to the escrow account
established to satisfy Besicorp'S obligations under the Indemnification
Agreement.
NOTE 10 - RELATED PARTIES
---------------
Net amounts due from affiliates at March 31, 1999 and March 31, 1998 relate to
receivables from companies owned by a major shareholder which provided certain
services to Old Besicorp, and which will continue to provide services to
Besicorp, for airport usage, plane services and engineering consulting services
totaling $56,197 and $31,939 for the years ended March 31, 1999 and 1998,
respectively.
Also, included in amounts due from affiliates at March 31, 1999 is $314,000 of
funds due from Old Besicorp Additional cash balances were identified subsequent
to the Prior Merger which were not included in the calculation of the Merger
consideration. The funds were transferred to Besicorp subsequent to the balance
sheet date.
Included in other current assets at March 31, 1998 is a receivable of $164,211
from the President of Old Besicorp representing primarily the balance due on
$186,000 of legal fees incurred in connection with a certain legal proceeding
(the "Proceeding") which the President had agreed, subject to a determination
that such repayment was not required, to reimburse Old Besicorp. In January
1999, after the receipt of a report from independent legal counsel addressing
the propriety under the BCL and Old Besicorp's by-laws of indemnifying the
President, a committee of directors of Old Besicorp (composed of independent
directors) determined that the President was entitled to full indemnification
with respect to the Proceeding and (i) authorized the repayment to the President
of the fine of $36,673 he had paid in connection with the Proceeding and the
refund of $45,000 he had previously reimbursed Old Besicorp; (ii) acknowledged
that the President had no further obligations with respect to the $141,000 he
had, subject to a determination as the propriety of indemnification, agreed to
reimburse Old Besicorp; and (iii) authorized the reimbursement of the President
for the legal fees and expenses (approximately $39,180) incurred by third
parties in connection with the Proceeding and which were paid by him. All such
reimbursements were made during the fourth quarter of Fiscal 1999 and any
related receivables were written off and charged to expense during the same
period.
F-14
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
Fiscal 1999 Fiscal 1998
----------- -----------
Advertising costs $ 72,734 $142,154
Research and development expenses(1) 603,399 697,182
Warranty expense 3,767 53,701
Amortization of patents and trademarks 659 40,632
Maintenance and repairs 105,949 84,903
Taxes other than payroll and income taxes 57,761 57,721
(1) Expenditures for research and development were $603,399 in Fiscal 1999 and
$697,182 in Fiscal 1998. Personnel expenses, comprising the largest portion of
these amounts, were $223,799 in Fiscal 1999 and $330,428 in Fiscal 1998. Of the
total amounts, expenses attributable to Besicorp's agreements with the New York
State Energy Research and Development Authority were $331,539 for Fiscal 1999
and $520,950 in Fiscal 1998.
NOTE 12 - LEGAL PROCEEDINGS
-----------------
Besicorp is a party to numerous legal proceedings in the normal course of
business and certain shareholder suits.
As part of the Prior Plan of Merger, there is (i) an indemnification agreement
which obligates Besicorp to indemnify the purchaser from any damages it suffers
arising out of, among other things, Old Besicorp's breach of representations and
warranties set forth in the Prior Plan of Merger and certain liabilities, taxes
and litigation of Old Besicorp and (ii) an escrow agreement governing the $6.5
million initially placed in escrow to satisfy Besicorp's obligations under the
indemnification agreement and provides for payment of, among other things,
certain litigation and related costs.
Management believes that there are meritorious defenses in the various legal
proceedings and that the balance in the escrow will cover any legal costs and
settlements that might result from these actions.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
-----------------------------
Other than the equipment lease described below, at March 31, 1999, Besicorp has
no significant minimum annual rental commitments under non-cancelable operating
leases for equipment and office space. Besicorp has three leases for office and
warehouse space. One lease calls for monthly rental of $575 for a period of 12
months ending April 1999 and subsequently extended for another year. The second
lease calls for monthly rental of $410 per month for a period of 12 months
ending January 2000. The third lease was for an initial period of six months,
commencing on October 1, 1995 and ending on March 31, 1996. The term
automatically renews for successive periods of six months each. Either party may
terminate the lease at any time by giving the other party at least ninety days
notice in writing. The annual rent from September 1, 1995 forward is $102,000,
which will be adjusted in future periods based on the Consumer Price Index. Rent
expense on all operating leases for Fiscal 1999 and 1998 was $176,964 and
155,197, respectively.
Since March 1994 Besicorp has been entering into cost-sharing agreements with
the New York State Energy Research and Development Authority ("NYSERDA") with
completion dates extending through April 2001. The agreements provide for
payment to Besicorp by NYSERDA of $1,442,237 (approximately $1,015,822 has been
earned through March 31, 1999) for funding and development of photovoltaic
projects with estimated costs of $2,963,235. Funds advanced by NYSERDA are to be
repaid from revenues on sales of products developed under the agreements, if
any.
Besicorp has a 401(k) plan covering substantially all full-time employees for
which Besicorp makes matching contributions as defined. Besicorp's expenses
under the plan for Fiscal 1999 and 1998 were $98,868 and $72,692, respectively.
F-15
As part of the Prior Plan of Merger, certain equipment with an original cost of
$827,000 was retained by Old Besicorp and be leased to Besicorp. Rentals under
the two year lease will be approximately $63,474 per quarter commencing July 1,
1999. Besicorp has the option to purchase the equipment after the first year for
$288,479. Old Besicorp has the option to require Besicorp to purchase the
equipment at the end of the lease for $55,000. The lease is accounted for as an
operating lease on Besicorp's books.
In February 1999, Besicorp Ltd. adopted the 1999 Incentive Plan to provide
for the issuance of up to 40,000 shares of Besicorp Ltd. common stock as an
equity incentive program. As of May 1999, restricted grants of 15,000 shares
were made under the plan.
NOTE 14 - SEGMENTS OF BUSINESS
--------------------
Besicorp specializes in the development, assembly, manufacture, marketing and
resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment"). Segments are reported
based on the subsidiary involved with the activity of that segment, with no
intersegment revenues and expenses. Export product sales, principally to Europe
and the Pacific Rim, for the years ended March 31, 1999 and 1998 were $153,543
and $299,293, respectively. A summary of industry segment information for the
six month periods ended September 30, 1999 and 1998 (unaudited) and for Fiscal
1999 and 1998 is as follows:
Project Product
September 30, 1999 Segment Segment Eliminations Total
- ------------------ ------- ------- ------------ -----
Net revenues $107,213 $4,449,981 $4,557,194
Loss before taxes (1,900,436) (591,320) 0 (2,491,756)
Income tax provision (credit) 12,193 1,741 13,934
Net income (loss) (1,912,629) (593,061) (2,505,690)
Identifiable assets 18,970,736 2,196,060 $(12,826,360) 8,340,436
Investment in partnerships 1,692,414 0 0 1,692,414
Capital expenditures 17,729 36,817 54,546
Depreciation and amortization 57,916 15,358 73,274
September 30, 1998
Net revenues $87,935 $2,289,913 0 $2,377,848
Loss before taxes (3,275,002) (904,544) (4,179,546)
Income tax provision (1,417,067) 1,767 (1,415,300)
Net income (loss) (1,857,835) (906,411) (2,764,246)
Identifiable assets 17,130,957 2,213,466 $(15,193,811) 4,150,612
Investment in partnerships 0 0 0 0
Capital expenditures 35,508 35,129 70,637
Depreciation and amortization 64,064 16,977 81,091
F-16
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended Project Product
March 31, 1999 Segment Segment Eliminations Total
- -------------- ------- ------- ------------ -----
Net revenues $ 165,161 $5,551,442 $ 5,716,603
Loss before taxes 6,856,945 1,854,994 8,711,939
Income tax credit 2,283,500 613,700 2,897,200
Net loss 4,573,445 1,241,294 5,814,739
Identifiable assets 18,315,811 2,635,574 $(10,338,484) 10,612,901
Investment in partnerships 4,009,810 - 4,009,810
Capital expenditures - 133,348 133,348
Depreciation and amortization 84,466 80,841 165,307
For the Year Ended Project Product
March 31, 1998 Segment Segment Eliminations Total
- -------------- ------- ------- ------------ -----
Net revenues $ 158,427 $4,249,995 $4,408,422
Loss before taxes 8,435,438 2,578,566 10,991,004
Income tax credit 2,868,000 899,000 3,767,000
Net loss 5,544,438 1,679,566 7,224,004
Identifiable assets 17,355,904 1,947,316 $(14,074,568) 5,228,652
Investment in partnerships - - -
Capital expenditures 39,478 109,788 149,266
Depreciation and amortization 152,662 91,131 243,793
NOTE 15 - GOING CONCERN
-------------
Besicorp has suffered recurring losses from operations and has previously
received (but will not in the future receive) substantial financial support from
Old Besicorp, which raises substantial doubt about Besicorp=s ability to
continue as a going concern without such support. The Company is exploring a
potential transaction in which a major shareholder would acquire all outstanding
shares not already owned by him (the "Transaction"). In this regard, the Company
has retained a financial advisor to render financial and other general advice,
including an evaluation of the fairness of the Transaction from a financial
point of view, and to assist the Company in responding to proposed alternative
transactions, if any. No assurance can be given that the Transaction will be
completed or that alternative transactions will be available.
NOTE 16 - PRO FORMA FINANCIAL INFORMATION
-------------------------------
The consolidated financial statements for the year ended March 31, 1999 include
the results of operations and cash flows for the period April 1, 1998 through
March 22, 1999, the date of Prior Distribution, during which Besicorp was a part
of Old Besicorp and the period March 23, 1999 through March 31, 1999 during
which Besicorp was a stand alone entity. The results of operations are
summarized as follows:
April 1, 1998 March 23, 1998
through through Year Ended
March 22, 1999 March 31, 1999 March 31, 1999
-------------- -------------- --------------
Revenues $ 5,512,576 $204,027 $5,716,603
Costs and expenses 14,057,352 371,190 14,428,542
----------- ------- ----------
Loss before income taxes (8,544,776) (167,163) (8,711,939)
Credit (provision) for income taxes 2,902,200 (5,000) 2,897,200
--------- ------- ---------
Net loss $(5,642,576) $(172,163) $(5,814,739)
========= ======= =========
Net loss per share $(46.48) $(1.42) $(47.90)
F-17
BESICORP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS (UNAUDITED)
Besicorp has entered into an amended and restated agreement and plan of merger
(the "Agreement") with Besicorp Holdings, Ltd. (the "Parent") and Besi
Acquisition Corp., a wholly-owned subsidiary of Parent. The Agreement is
generally structured as a cash merger whereby Besi Acquisition Corp. will be
merged into Besicorp Ltd., which will then be wholly-owned by Besicorp Holdings,
Ltd. Michael F. Zinn, the President and CEO of Besicorp Ltd., controls
Besicorp-Holdings, Ltd.
Generally, pursuant to the terms of the Agreement, shareholders of Besicorp
(other than shares of Besicorp stock owned by the Parent) will receive
approximately $58.87 in cash for each share of stock that they own plus the
right to receive additional cash distributions, if any, during the next several
years in the event the surviving corporation receives certain funds. No
assurance can be given that any such funds will be received.
Consummation of the merger is subject to the satisfaction of a number of
conditions, including approval by the Besicorp's shareholders. No assurance can
be given that the merger will be consummated.
The following action has been taken to address Besicorp's cash flow and
liquidity problems (though these actions may be insufficient to correct these
problems):
(i) Pursuant to the Agreement, the Parent agreed to lend Besicorp such
amounts as Besicorp reasonably requests in order to satisfy its
obligations with respect to certain operating expenses of Besicorp and
its subsidiaries; provided, however, that Parent is not required to
make loans within a 30 day period in excess of $350,000, loans with a
cumulative amount in excess of $1,050,000, or under certain other
circumstances relating to the status of the proposed merger.
(ii) Besicorp implemented, as of July 5, 1999, a salary deferment plan under
which executive officers and certain key employees have been deferring
portions of their salary ranging in amounts from 15% to 67%. Effective
October 10, 1999, the Chief Executive Officer increased his deferment
to 100%. The deferral arrangements are for a one-year term and are
resulting in a monthly cash savings of approximately $45,000 to
$50,000.
Other than the consummation of the Agreement, the loans to be made by the Parent
and the salary deferment program, Besicorp has not developed any other
acceptable alternatives to its liquidity and capital resource problems.
Besicorp is currently arranging, through an industrial development agency bond,
financing for the construction of a 30,000 sq. ft. facility at the site of the
corporate headquarters in Kingston to house the Product Segment operations
("SunWize"). This facility is estimated to cost approximately $2.0 million and
would replace space currently occupied under a lease whose term expires May 31,
2000. The bond that will fund construction of the facility will be secured by a
letter of credit to be issued by HSBC Bank USA. The letter of credit will be
secured by the building and the interest of SunWize in the real property upon
which the building will be located.
On November 30, 1999, Besicorp received a cash distribution of $280,000 from the
one unliquidated partnership. Management anticipates that additional cash of
approximately $100,000 may be received upon liquidation of the partnership which
management expects to occur around late December.
F-18
APPENDIX 1
Acquisition Corp. means Besi Acquisition Corp., a New York corporation and a
wholly owned subsidiary of Parent.
Acquisition Proposal means any bona fide offer or proposal with respect to a
merger or similar transaction involving Besicorp or the purchase of any
significant portion of the assets or capital stock of Besicorp or any
significant subsidiary or any other business combination involving Besicorp.
Acquisition Proposal Activities mean the Special Committee or Board's (1)
withdrawing or modifying their approval or recommendation of the Plan of Merger
or, the Merger; (2) approving, adopting or recommending or publicly proposing to
approve, adopt or recommend an Acquisition Proposal; (3) causing Besicorp to
enter into any agreement with respect to an Acquisition Proposal; or (4)
resolving to do any of the foregoing.
Adjustment Amounts equals all proceeds received by Besicorp, the Surviving
Corporation and their subsidiaries (or in the case of an entity that is less
than wholly owned by Besicorp or the Surviving Corporation, their proportionate
interest in such proceeds at the time of their receipt, from October 7, 1999
through the Deferred Payment Termination Date with respect to the following:
(i) amounts, if any, released from the Escrow Fund as Remaining
Proceeds because they were not utilized to fund covered claims
during the term of the Escrow Fund;
(ii) amounts received, with certain exceptions, from their sale of
their interests in the foreign development projects (unless
such foreign development project is sold along with the Empire
Newsprint Project in which case the proceeds are not an
Adjustment Amount) pursuant to agreements entered into on or
before the first anniversary of the Effective Date, less the
expenses of Besicorp or the Surviving Corporation (other than
SG&A and Excluded Expenses) incurred and paid following
October 7, 1999 directly related to such foreign development
project ;
(iii) amounts received by Beta, distributions received from Natural
Dam (other than an amount anticipated to be received by Beta
from Natural Dam in 1999 and disclosed under "Liquidity and
Capital Resources" in Item 2 of Besicorp's Form 10-QSB for the
period ended June 30, 1999) and any other funds that are
distributed as a result of partnership interests in existence
as of October 7, 1999 or the Effective Date;
(iv) amounts distributed as a result of Hydro-Credits (other than
the distribution with respect to Glen Park Associates
scheduled for on or about September 30, 1999),
less expenses (other than SG&A and Excluded Expenses) incurred
and paid following October 7, 1999 directly related to
distributions as a result of Hydro- Credits; and
(v) amounts received with respect to each of their litigation
claims with respect to matters arising before the Effective
Date, less their expenses (including reasonable SG&A expenses
but excluding Excluded Expenses) incurred and paid after
October 7, 1999 directly related to any such claim for which
amounts have been received;
provided however that the Adjustment Amount shall not include (i) the proceeds
of any transfer of assets by the Surviving Corporation or its wholly owned
subsidiaries to any wholly owned subsidiary of the Surviving Corporation or to
any Related Entity if (a) the Related Entity assumes the obligation to make
Deferred Payments in the manner set forth in the Plan of Merger (without the
right to defer payments if the amount accrued on a Deferred Payment Date is less
than $90,000) with respect to such asset and (b) the Surviving Corporation
guarantees the Related Entity's payment of all amounts it is required to pay to
the Outside Participating Shareholders pursuant to this assumption and (ii)
amounts released by the Escrow Agent pursuant to Besicorp's instructions to pay
Remaining Proceeds directly to the Outside Participating Shareholders.
Adjustments means the Adjustment Amounts multiplied by a fraction, the numerator
of which is the Outside Participating Shareholders' Shares and the denominator
of which is the Total Shares.
Aggregate Cash Merger Consideration means $8 million, which is approximately
$58.70 multiplied by the number of shares of Besicorp Common Stock issued and
outstanding on October 7, 1999.
Airport Enterprises mean entities owned by Michael F. Zinn that own and operate
the airport where Besicorp's plane is maintained.
Airport Services mean airport usage and plane services performed by Airport
Enterprises on behalf of Besicorp and Old Besicorp.
Allowances means the Power Plants' allowances to emit N0x.
Anticipated Hydro-Credit Distribution means an additional approximately $257,640
Besicorp received after October 7, 1999 with respect to Glen Park Associates.
Anticipated Partnership Distribution means an additional amount Besicorp expects
to receive with respect to Natural Dam in 1999 and disclosed under "Liquidity
and Capital Resources" in Item 2 of Besicorp's Form 10-QSB for the period ended
June 30, 1999.
Assignee means the assignee of any of the assets underlying the Adjustment
Amounts.
2
Assignment of the Bansbach Litigation means Besicorp's assignment to WOM of the
contingent assets and/or liabilities comprising Besicorp's interests in the
Bansbach Litigation.
Authorizations means any consents, notices or registrations.
Avalon means Avalon Ventures, LLC, a limited liability company organized under
the laws of Virginia.
Avalon Funding means Avalon Funding LLC, a limited liability company organized
under the laws of Delaware.
Bansbach Litigation means a shareholder derivative action commenced in August
1997 in the New York Supreme Court, Ulster County, entitled John Bansbach v.
Michael F. Zinn, Michael J. Daley, Gerald A. Habib, Harold Harris, Richard E.
Rosen, and Besicorp Group Inc., Index No. 97-2573.
BBI means BBI Power Inc., which is 50% owned by an indirect, wholly-owned
subsidiary of Besicorp and 50% owned indirectly by Chesapeake.
Besicorp means Besicorp Ltd.
Besicorp Assumed Matters means the Existing Litigation and other matters to be
prosecuted or defended by Besicorp pursuant to the Indemnification Agreement.
Besicorp Common Stock means the common stock, par value $.01 per share, of
Besicorp.
Besicorp Development means Besicorp Development, Inc., a wholly-owned subsidiary
of Besicorp.
Beta means Beta Partnerships, Inc, a wholly owned subsidiary of Besicorp.
BGI Acquisition means BGI Acquisition Corp., a wholly owned subsidiary of BGI
Parent.
BGI Indemnity Claims means all claims for indemnity made by BGI Parent pursuant
to the Indemnification Agreement, including any claims of BGI Parent with
respect to the Besicorp Assumed Matters arising from the failure of Besicorp to
diligently prosecute or defend such Besicorp Assumed Matters, BGI Monitoring
Costs and any payment of fees and expenses of the payment agent pursuant to the
Prior Plan of Merger.
BGI Monitoring Costs means BGI Parent's out-of-pocket expenses (not to exceed
$40,000 per year) incurred if it is represented by counsel with respect to the
Besicorp Assumed Matters and the Bansbach Litigation.
3
BGI Parent means BGI Acquisition LLC.
Board means the Board of Directors of Besicorp.
Buyer means Parent and Acquisition Corp.
Cash Merger Consideration means $8 million divided by the Total Shares.
Certificate of Merger means a certificate of merger executed by Besicorp and
Acquisition Corp.
Certificates means the certificates evidencing shares of Besicorp Common Stock.
Chesapeake means Chesapeake Power Transport Inc..
Closing means the consummation of the transactions contemplated by the Plan of
Merger.
Closing Date means the day of the Closing.
Code means the Internal Revenue Code of 1986, as amended.
Combined Deferred Payment Right means one Deferred Payment Right and one Escrow
Fund Payment Right.
Combined Deferred Payments mean the Deferred Payments and the Escrow Fund
Payments.
Commercial Associates means Commercial Associates Realty, Inc.
Commitment means Besicorp's commitment pursuant to the Empire Memorandum to
provide $750,000 to the Empire Newsprint Project.
Company means Besicorp Ltd.
Company Offer means a written offer of Besicorp to pay the Dissenters for their
shares of Besicorp Common Stock.
Comparable Companies mean the publicly-traded companies that Management and
Josephthal believed were generally comparable to SunWize.
Comparable Transactions mean the merger and acquisition transactions in
SunWize's industry that were completed over the prior two years that Josephthal
deemed generally comparable to the Merger.
Consents means all consents, approvals, permits, authorizations or waivers.
4
Continental means Continental Stock Transfer & Trust Co., Besicorp's transfer
agent.
Contribution means the contribution of the Contributed Assets to WOM pursuant to
the Contribution Agreement.
Contribution Agreement means the Contribution and Distribution Agreement to be
dated the date of the Spin-Off by and between Besicorp and WOM.
Contributed Assets mean the interests in the Bansbach Litigation that Besicorp
received pursuant to the Prior Contribution Agreement as a result of the Prior
Merger Order (subject to WOM's agreement to return such interests if the Second
Circuit reverses the Prior Merger Order).
Corporate Headquarters means Besicorp's corporate headquarters located at 1151
Flatbush Road, Kingston, New York 12401 (914-336-7700).
Covered Expenses means out-of-pocket costs and expenses reasonably incurred and
due to third parties in connection with the Plan of Merger (including fees and
disbursements of counsel, accountants, financial advisors and consultants,
commitment fees, due diligence expenses, travel costs, filing fees, and similar
fees and expenses, all of which shall be conclusively established by a good
faith statement therefor).
Covered Person means certain persons, including present and former directors,
officers, employees and agents of Besicorp and its subsidiaries, who at the time
of the execution of the Initial Plan of Merger were covered by Besicorp's
officers' and directors' liability insurance or will be so covered on the
Closing Date.
D&O Insurance means officers' and directors' liability insurance.
DCF means discounted cash flow analysis.
Deferred Payment Date means each June 1st commencing on June 1, 2000 and ending
on the last June 1st immediately prior to the Deferred Payment Termination Date.
Deferred Payment Fund means the sum of all Adjustments (net of corporate taxes
for such Adjustments) less all amounts previously distributed from the Deferred
Payment Fund to the Outside Participating Shareholders.
Deferred Payment Right means the right to a Deferred Payments.
Deferred Payment Termination Date means the latest of (i) March 22, 2004, (ii)
the date of the release by the Escrow Agent of all of the Escrow Funds and (iii)
the disposition, pursuant to a final and non-appealable judgment of a court of
competent jurisdiction, including the payment of all monies required by such
disposition, of the RICO Action, and any litigation in connection with
5
or relating to such lawsuit.
Deferred Payments mean the additional cash payments, if any, to be paid to the
Outside Participating Shareholders by the Surviving Corporation on the Deferred
Payment Dates and the Deferred Payment Termination Date equal to the amount in
the Deferred Payment Fund on each such date divided by the number of Outside
Participating Shareholders' Shares.
Derivative Litigation means the Bansbach Litigation and the Lichtenberg
Litigation.
Disputed Shares means the 4,000 shares of Besicorp Common Stock held in the name
of Enowitz but are being held in escrow pending resolution of the dispute
regarding the ownership of these shares.
Dissenter means any shareholder of Besicorp who wishes to object to the Merger
and complies with the procedures set forth in Sections 623 and 910 of the NYBCL.
Dissenters' Shares means the shares of Besicorp Common Stock held by Dissenters
on the Spin- Off Record Date.
Distributed Businesses means Old Besicorp's photovoltaic and independent power
development businesses.
Distribution means a dividend of one share of WOM Common Stock immediately prior
to the Merger for each share of Besicorp Common Stock outstanding on such date.
EBIT means earnings before interest and taxes.
EBITDA means earnings before interest, taxes, depreciation and amortization.
Effective Date means the date of filing of the Certificate of Merger with the
Secretary of State of the State of New York in accordance with the NYBCL or at
such later time as provided in such Certificate of Merger.
EIR means Energy Investment Research Inc.
Empire means Empire State Newsprint LLC.
Empire Memorandum means a memorandum of understanding between Besicorp and
Empire to form a joint development partnership.
Empire Newsprint Facility means a newsprint recycling manufacturing plant.
Empire Newsprint Project means a project consisting of the Empire Newsprint
Facility in Ulster County,
6
New York and the Empire Power Facility adjacent to the Empire Newsprint Facility
which Empire Power Facility would supply power to the Empire Newsprint Facility
and would also supply power for sale to power marketers for resale into the
recently deregulated power market.
Empire Power Facility means a 475-megawatt natural gas-fired cogeneration power
plant.
Enowitz means Martin Enowitz.
Enowitz Shares means 100,000 shares of Old Besicorp's common stock held of
record by Enowitz.
Enterprise Value means the ratio of equity value plus debt less cash and cash
equivalents to their revenues.
Escrow Agent means Robinson Brog as the escrow agent pursuant to the Escrow
Agreement.
Escrow Agreement means the escrow agreement entered into on March 22, 1999 by
Besicorp and certain other parties as amended or to be amended by the Escrow
Agreement Amendment.
Escrow Agreement Amendment means Amendment No. 1 to the Escrow Agreement, to be
effective as of the date of the Spin-Off, by and between Besicorp, WOM and
certain other parties.
Escrow Fund means monies held by the Escrow Agent pursuant to the Escrow
Agreement.
Escrow Fund Determination Procedure means the Escrow Agent's receipt of (i) the
joint written direction of BGI Parent, WOM and Besicorp to release funds from
the Escrow Fund, (ii) a written instrument representing a final and
non-appealable order with respect to the disposition of funds from the Escrow
Fund issued by an arbitrator or (iii) a certified copy of a final and
non-appealable judgment of a court of competent jurisdiction directing the
disbursement of such funds.
Escrow Fund Payment Right means the right to Escrow Fund Payments.
Escrow Fund Payments means additional cash payments equal to the Escrow Fund
Payment Distributions divided by the Outside Participating Shareholders' Shares.
Escrow Fund Payment Distributions mean amounts equal to the Remaining Proceeds
being distributed by the Escrow Agent multiplied by a fraction, the numerator of
which is the Outside Participating Shareholders' Shares and the denominator of
which is the Total Shares.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exchanges means the New York Stock Exchange, the American Stock Exchange and the
Nasdaq Stock Market, Inc.
7
Excluded Expenses means expenses which are funded with monies in the Escrow
Fund.
Existing Litigation means certain litigation specified in the Indemnification
Agreement.
Fairness Opinion means the fairness opinion of Josephthal dated September 22,
1999 and annexed hereto as Annex B.
Fenster means Alan Fenster.
Financial Close means the closing on the long term financing for the actual
construction of the Empire Newsprint Project.
Financial Model means a financial model for the Empire Newsprint Project
prepared in or about August 1999 by Besicorp, with the assistance of Morgan
Stanley Dean Witter.
Fiscal 1998 means the year ended March 31, 1998.
Fiscal 1999 means the year ended March 31, 1999.
Form 10-K means Besicorp's Form 10-KSB, as amended, as of and for the year ended
March 31, 1999.
Forms 10-Q means Besicorp's Forms 10-QSB, as amended, as of and for the quarters
ended June 30, 1999 and September 30, 1999.
Gabon Initiative means the efforts of SunWize and Wespro to obtain, develop and
supply rural electrification projects in Gabon.
Golden Genesis means Golden Genesis Company.
Grants means the grants of the Restricted Shares.
Guaranty means a guaranty of Michael F. Zinn to be executed on the Closing Date
for the benefit of the Outside Participating Shareholders and the directors and
officers of Besicorp.
Guaranty Escrow Agreement means an escrow agreement to be executed on the
Closing Date by Michael F. Zinn in connection with the Guaranty.
Guaranty Escrow Fund means $100,000 to be placed in escrow pursuant to the
Guaranty Escrow Agreement on the Closing Date.
HSBC Bank means the HSBC Bank USA.
8
HSBC Credit Facility means a secured line of credit by HSBC Bank.
Hydro-Credits means the amounts Niagara Mohawk will pay the Partnerships and
other IPPs when and if certain hydro-energy developers enter into agreements to
restructure or terminate their power purchase agreements with Niagara Mohawk
before July 1, 2003.
Incentive Plan means Besicorp's 1999 Incentive Plan.
Indemnification Agreement means the indemnification agreement between BGI
Parent, BGI Acquisition and Besicorp dated March 22, 1999.
Independent Directors mean the directors of Besicorp who are not employees of
Besicorp.
Independent Directors' Restricted Shares mean the 1,050 Restricted Shares issued
to Independent Directors.
Initial Offer means Michael F. Zinn's written offer, dated June 17, 1999, to
acquire Besicorp.
Initial Plan of Merger means the Agreement and Plan of Merger dated as of
October 7, 1999 by and among Besicorp, Parent and Acquisition Corp.
Instructions mean Besicorp's irrevocable instructions to the Escrow Agent to
release the Escrow Fund Payment Distributions to the Payment Agent for
distribution to the Outside Participating Shareholders.
IPPs means independent power producers.
Josephthal means Josephthal & Co., Inc.
Krishnapatnam Project means a development project to build a coal fired power
plant near the village of Krishnapatnam.
Kyocera means Kyocera International, Inc.
Letter of Transmittal means the documents needed to exchange shares of Besicorp
Common Stock for the Merger Consideration.
Lichtenberg Litigation means a shareholder derivative action commenced on March
29, 1993 in New York Supreme Court, Ulster County, entitled Lichtenberg v.
Michael F. Zinn, Steven I. Eisenberg, and Martin E. Enowitz, et al., Index No.
93-1987. This action has been dismissed.
Litigation Costs means costs and expenses relating to (i) Besicorp Assumed
Matters; (ii) litigation arising out of or relating to any such Besicorp Assumed
Matters; (iii) indemnification of claims
9
against Old Besicorp's directors and officers (prior to the Prior Merger) for
actions in their official capacity preceding the date of the Prior Merger; or
(iv) in connection with matters arising out of or relating to the Prior Merger.
Losses means any and all losses, liabilities, claims, actions, damages, and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements.
LTM means the most recent 12-month period.
Management means the management of Besicorp.
Management Restricted Shares means the Restricted Shares issued to officers,
directors (except for Independent Directors) and employees.
March Complaint means the complaint in the March Litigation.
March Litigation means a class action commenced on March 5, 1999, in the United
States District Court for the Southern District of New York, entitled James
Lichtenberg and John Bansbach v. Besicorp Group Inc., BGI Acquisition LLC, BGI
Acquisition Corp. et al.
May 1999 Escrow means funds that were placed in escrow in May 1999 as a reserve
for potential liabilities of certain partnerships that are being or have been
liquidated.
Memoranda mean two memoranda of Mr. Zinn to the Special Committee dated May 17,
1999 and May 21, 1999.
Merger means the merger of Acquisition Corp. with and into Besicorp pursuant to
the Plan of Merger.
Merger Consideration means the Cash Merger Consideration and the Combined
Deferred Payment Right to be received as the result of the conversion of one
share of Besicorp Common Stock pursuant to the Merger.
Mortgage means a mortgage and security agreement to be executed by Besicorp at
the time of the original Parent Loan.
MRA means the Master Restructuring Agreement between the Partnerships, Niagara
Mohawk and certain other IPPs.
NASDAQ means the National Association of Securities Dealer's Automated Quotatio
System.
Natural Dam means Kamine Besicorp Natural Dam L.P., one of the Partnerships.
10
Neutralized Tabulation means tabulating the Management Restricted Shares as if
the holders of such shares had abstained, not voted or voted for and against the
Plan of Merger in the same proportions that the holders of shares of Besicorp
Common Stock abstain, do not vote or vote their shares of Besicorp Common Stock
(other than Management Restricted Shares) for and against the Plan of Merger.
Niagara Mohawk means Niagara Mohawk Power Corporation.
NorCon means NorCon Power Partners, L.P.
Notice of Dissent means a written objection of a Dissenter to the Merger stating
his intention to demand payment for his shares of Besicorp Common Stock.
NPV means Net Present Value.
NYBCL means the New York Business Corporation Law.
NYSERDA means the New York State Energy Research and Development Authority.
October 7, 1999 means the date the Initial Plan of Merger was executed.
Offering Price means a specified per share price which Besicorp offers to pay
the Dissenters pursuant to the Company Offer.
Old Besicorp means Besicorp Group Inc, which owned all of the shares of Besicorp
prior to the Prior Distribution.
Old Besicorp Board means Old Besicorp's board of directors.
Old Besicorp Rights means (i) shares of Old Besicorp's common stock containing
restrictions on transferability and (ii) options, warrants and other rights to
acquire shares of Old Besicorp's common stock.
Outside Participating Shareholders means the Outside Shareholders, except for
the Dissenters.
Outside Participating Shareholders' Shares means the number of shares of
Besicorp Common Stock held of record immediately before the Effective Date by
the Outside Participating Shareholders.
Outside Shareholders means Besicorp's shareholders, except for the Buyer.
Parent means Besicorp Holdings, Ltd., a New York corporation.
11
Parent Loans means the loans of Parent to Besicorp pursuant to the Plan of
Merger in such amounts as Besicorp reasonably requests in order to satisfy its
obligations with respect to normal operating expenses of Besicorp and its
subsidiaries to the extent payable on or prior to the Termination Date;
provided, however, that Parent shall not be required to make (i) loans within a
thirty day period in excess of $350,000, or (ii) loans with a cumulative amount
in excess of $1,050,000.
Partnerships means the partnerships which owned the Power Plants.
Payment Agent means Continental or such other person designated by the parties
prior to the Effective Date as the payment agent for the Plan of Merger.
Photovoltaic Activities means the development, assembly, manufacture, marketing
and resale of photovoltaic products and systems.
Photovoltaic Activity Facility means property leased in Kingston, New York for
Photovoltaic Activities.
Plan of Merger means the Amended and Restated Agreement and Plan of Merger,
dated as of November 24, 1999 by and among Besicorp, Parent and Acquisition
Corp.
Power Development Activities means the development of power plant projects of
various types, ranging from gas-fired cogeneration plants to coal-fired power
plants to the development of other non-nuclear power plants.
Power Plants means five domestic power plants, in which Old Besicorp formerly
held ownership interests, which provided capacity and electrical power to
Niagara Mohawk.
Power Purchase Agreements means power purchase agreements, pursuant to which the
Power Plants provided capacity and electrical power to Niagara Mohawk.
Pre-Record Date Transactions means the transactions as a result of which, prior
to the Record Date, (1) Parent will acquire 57,967 shares of Besicorp Common
Stock (which are held on the date of the preliminary proxy materials by Michael
F. Zinn and members of his immediate family), (2) Avalon will be wholly owned by
Mr. Zinn, (3) Avalon will own approximately 94.5% of the shares of Parent and
(4) immediate relatives of Mr. Zinn will own the remaining shares of Parent.
Prior Assignment of the Derivative Litigation means Old Besicorp's assignment to
Besicorp of the contingent assets and/or liabilities comprising Old Besicorp's
interests in the Derivative Litigation.
Prior Contribution means Old Besicorp's distribution of the Distributed
Businesses to Besicorp.
Prior Contribution Agreement means the Contribution and Distribution Agreement
dated March
12
22, 1999 by and among Besicorp and Old Besicorp.
Prior Distribution means a dividend on March 22, 1999 of one share of Besicorp
Common Stock for each 25 shares of Old Besicorp's common stock outstanding on
such date.
Prior Merger means the merger effectuated on March 22, 1999 pursuant to the
Prior Plan of Merger as a result of which Old Besicorp was acquired by BGI
Parent.
Prior Merger Consideration means the aggregate merger consideration paid
pursuant to the Prior Plan of Merger.
Prior Merger Order means the order of the Unites States District Court for the
Southern District of New York in the March Litigation issued on March 18, 1999,
which order, among other things, required the Prior Assignment of the Derivative
Litigation. Besicorp has appealed the Prior Merger Order to the United States
Court of Appeals for the Second Circuit.
Prior Merger Order Reversal means a reversal, revocation or other action,
however designated, which nullifies such part of the Prior Merger Order that
required the Prior Assignment of the Derivative Litigation so long as such
reversal, revocation or other action is subject to no further appeal.
Prior Merger Parties means BGI Acquisition, BGI Parent and Old Besicorp.
Prior Plan of Merger means the agreement and plan of merger between Old
Besicorp, BGI Acquisition and BGI Parent, as a result of which Old Besicorp was
acquired on March 22, 1999 by BGI Parent.
Prior Spin-Off means the Prior Contribution and the Prior Distribution.
Proceeding means a proceeding in the United States District Court for the
Southern District of New York, in connection with contributions to the 1992
election campaign of Congressman Maurice Hinchey.
Promissory Note means a promissory note of Besicorp payable six months after the
Termination Date.
Purchaser Indemnitees means BGI Parent, Old Besicorp and its subsidiaries and
their respective affiliates and agents.
Record Date means February 7, 2000.
Related Entity means any entity consisting solely of shareholders of the
Surviving Corporation on the Effective Date.
13
Remaining Proceeds means (i) the proceeds of the Escrow Fund, if any, released
to Besicorp or pursuant to the Instructions at any time following the fifth
anniversary of the date of the Escrow Agreement provided that all of the
following conditions have occurred and notice has been provided by Besicorp to
the Escrow Agent: (a) no claims are then subject to the Escrow Fund
Determination Procedure; (b) in the reasonable judgment of BGI Parent, no future
BGI Indemnity Claims are foreseeable; and (c) all Besicorp Assumed Matters and
the Bansbach Litigation have been finally settled through either (A) a final,
non-appealable judgment against Old Besicorp and all Purchaser Indemnitees; (B)
a settlement or other conclusion to each such Besicorp Assumed Matter that (x)
contains a release from all liability in favor of Old Besicorp and Purchaser
Indemnitees without any further obligation by Old Besicorp or Purchaser
Indemnitees to make any payment or incur any other liability or obligation with
respect to such matter, (y) does not attribute by its terms liability to Old
Besicorp or any Purchaser Indemnitee and (z) if the scheduled matter is a
litigation or a proceeding, includes as a term thereof a full dismissal of the
litigation or proceeding with prejudice or (C) a settlement or other conclusion
to the Bansbach Litigation that (x) contains a release from all liability in
favor of WOM without any further obligation by WOM to make any payment or incur
any other liability or obligation with respect to such matter, (y) does not
attribute by its terms liability to WOM and (z) includes as a term thereof a
full dismissal of the litigation or proceeding with prejudice; and (ii) amounts
released from the Escrow Fund to Besicorp or pursuant to the Instructions
pursuant to a determination that the amount of the Escrow Fund is more than
sufficient to secure BGI Parent pursuant to the Indemnification Agreement.
Requisite Vote means (i) the adoption of the Plan of Merger by at least 50% of
all outstanding shares of Besicorp Common Stock provided, however, that in
tabulating such vote the Management Restricted Shares shall be tabulated using
the Neutralizing Tabulation and (ii) the adoption of the Plan of Merger by at
least 50% of all outstanding shares of Besicorp Common Stock without any special
provisions regarding tabulation.
Restricted Merger Consideration means the Merger Consideration payable with
respect to the Management Restricted Shares which Merger Consideration will not
have vested and thus will be held in escrow by the Surviving Corporation and not
be transferable until it vested, which ordinarily will occur with respect to 1/3
of such Restricted Merger Consideration on May 2, 2002, 1/3 on May 2, 2003 and
1/3 on May 2, 2004.
Restricted Shares means the 14,500 shares of Besicorp Common Stock subject to
restrictions upon transferability which have been issued to directors, officers
and employees of Besicorp pursuant to the Incentive Plan.
Revised Offer means Michael F. Zinn's revised written offer dated August 10,
1999, to acquire Besicorp.
RICO means the Racketeer Influenced and Corrupt Organizations Act.
14
RICO Action means an action Besicorp commenced on September 27, 1999 in the
Supreme Court of the State of New York, Ulster County, entitled Besicorp, Ltd.,
plaintiff, against Alan R. Kahn, James Lichtenberg, Vee Hockmeyer, Paul
Vannucci, Andrew Jurun, Paul Shaheen, Debra Berenda and John Does 1 through 5,
defendants.
Rights means restricted stock, options, including restricted stock options
pursuant to which restricted stock may be acquired, warrants, and other rights
to acquire Besicorp Common Stock.
Robinson Brog means Robinson Brog Leinwand Greene Genovese & Gluck P.C.
SEC means the Securities and Exchange Commission.
SEC Documents means Besicorp's filings with the SEC under the Exchange Act.
Security Agreement means a security agreement to be executed by Besicorp at the
time of the original Parent Loan.
September 10 Draft means a revised draft of the plan of merger distributed on or
about September 10, 1999.
September 16 Draft means a revised draft of the plan of merger distributed on or
about September 16, 1999.
September 23 Draft means a revised draft of the plan of merger distributed on or
about September 23, 1999.
September 28 Draft means a revised draft of the plan of merger distributed on or
about September 28, 1999.
SG&A means selling, general and administrative expenses.
Siemens means Siemens Solar Industries.
S.N.C. means S.N.C., Ltd.
Special Committee means a committee of the Board consisting of all of the
Independent Directors.
Special Meeting means the special meeting of the shareholders of Besicorp to be
held at [ ] a.m., local time, on [ ], 1999 at [ ], and at any adjournment or
postponement thereof.
Spin-Off means the Contribution and the Distribution to be effectuated
immediately prior to the
15
Merger.
Spin-Off Record Date means the date that all conditions to the consummation of
the Merger, including (i) the shareholders' adopting of the Plan of Merger by
the Requisite Vote at the Special Meeting and (ii) the Contribution, have been
or will be waived or satisfied.
Substitute Restricted Shares means shares of common stock of Parent containing
restrictions similar to the restrictions upon the Management Restricted Shares
to be provided in substitution for the Management Restricted Shares.
Substituted Management Restricted Shares means Management Restricted Shares
which have been cancelled as the result of the issuance of Substitute Restricted
Shares in substitution therefor prior to the Effective Date.
SunWize means SunWize Technologies, Inc., a wholly owned subsidiary of Besicorp.
SunWize Project means the financing and construction of a facility for SunWize
in Kingston, New York, and all matters related thereto.
Surviving Corporation means the surviving corporation of the Merger.
Tax Escrow means certain funds placed in escrow in connection with the agreement
of a partnership (in which Besicorp holds an interest) to indemnify a third
party for any tax liability associated with the third party's tax treatment of
its receipt of certain funds from this partnership.
Tax Return Claims means certain claims for tax refunds made by Old Besicorp if
the refunds are not received prior to March 31, 1999.
Termination Date means 11:59 p.m. New York City time on March 31, 2000.
Total Shares means the sum of (i) the number of shares of Besicorp Common Stock
issued and outstanding immediately prior to the Effective Date (other than those
shares held as treasury shares by Besicorp) plus (ii) the number of Substituted
Management Restricted Shares.
Trust means The Zinn Family Charitable Trust.
Wespro means West Africa Projects Limited.
WOM means WOM, Inc., a New York corporation and wholly-owned subsidiary of
Besicorp which will be distributed to the holders of Besicorp Common Stock
pursuant to the Spin-Off.
WOM Common Stock means the common stock, par value $.01 per share, of WOM.
16
WOM Costs means (i) reasonable expenses incurred by Besicorp or WOM in
connection with (a) the formation of WOM, (b) the Spin-Off (including the cost
of distributing the shares of WOM's Common Stock (including the fees and
expenses of Continental and (c) the preparation and filing with the SEC of a
registration statement for the WOM Common Stock, (ii) WOM's reasonable expenses
(up to $35,000 per annum) (a) to maintain its existence, (b) to comply with the
Exchange Act and the rules and regulations promulgated thereunder, and (c) for
such other matters as may be reasonably necessary to permit the Bansbach
Litigation to continue and (iii) WOM Litigation Costs.
WOM Litigation Costs means WOM's costs and expenses relating to (a) the
Bansbach Litigation and (b) litigation arising out of or relating to the
Bansbach Litigation, the Spin-Off and WOM's existence.
WOM Restricted Stock means the shares of WOM Common Stock issued to the holders
of Restricted Shares pursuant to the Spin-Off, which shares are subject to the
same restrictions upon transferability as the Restricted Shares.
Zeichner, Ellman means Zeichner, Ellman and Krause, counsel to the Buyer.
17
ANNEX A
AMENDED AND REST ATED AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 24, 1999
BY AND AMONG
BESICORP LTD.,
BESICORP HOLDINGS, LTD.
AND
BESI ACQUISITION CORP.
TABLE OF CONTENTS
RECITALS:.........................................................................................................1
A G R E E M E N T S...............................................................................................1
ARTICLE I.........................................................................................................1
THE MERGER........................................................................................................1
1.1 The Merger......................................................................................1
1.2 Consummation of the Merger......................................................................1
1.3 Effects of the Merger...........................................................................1
1.4 Certificate of Incorporation; Bylaws............................................................1
1.5 Directors and Officers..........................................................................2
1.6 Time and Place of Closing.......................................................................2
1.7 Further Assurances..............................................................................2
ARTICLE II........................................................................................................2
CONVERSION AND EXCHANGE OF SHARES.................................................................................2
2.1 Conversion of Shares............................................................................2
2.2 Exchange Procedures.............................................................................3
2.3 Adjustment of Merger Consideration..............................................................5
2.4 Deferred Payments...............................................................................5
2.5 Management Restricted Shares. .................................................................7
ARTICLE III.......................................................................................................7
REPRESENTATIONS AND WARRANTIES....................................................................................7
3.1 General Statement. ............................................................................7
3.2 Representations and Warranties of the Company. .................................................7
3.3 Representations and Warranties of Parent and Acquisition Corp. .................................9
ARTICLE IV.......................................................................................................11
CONDUCT OF BUSINESS PENDING THE MERGER...........................................................................11
4.1 Obligations of Each of the Parties.............................................................11
4.2 The Company's Obligations......................................................................11
4.3 Meeting; Proxy Statement; Schedule 13E-3; Other Regulatory Matters.............................12
4.4 Indemnification Provisions in Charter and Insurance. .........................................14
4.5 Parent's Funding of the Company. .............................................................15
ii
4.6 Voting of Shares of Common Stock held by Certain Holders.......................................16
--------------------------------------------------------
4.7 Certificate and Personal Guarantee.. .........................................................16
-----------------------------------
4.8 Board Action...................................................................................17
------------
4.9 Management Restricted Shares...................................................................17
-----------------------------
4.10 Notices of Certain Events......................................................................17
--------------------------
4.11 March 1999 Escrow Fund.........................................................................17
-----------------------
ARTICLE V........................................................................................................18
CONDITIONS TO CLOSING; CLOSING DELIVERIES; BASE AMOUNT...........................................................18
5.1 Conditions to Each Party's Obligations.........................................................18
5.2 Conditions to the Company's Obligations........................................................18
5.3 Conditions to Parent's and Acquisition Corp's Obligations......................................19
5.4 Closing Deliveries.............................................................................19
ARTICLE VI.......................................................................................................20
TERMINATION/EFFECT OF TERMINATION................................................................................20
6.1 Right to Terminate.............................................................................20
6.2 Certain Effects of Termination.................................................................21
6.3 Remedies.......................................................................................21
6.4 Right to Damages; Expense Reimbursement. .....................................................21
ARTICLE VII......................................................................................................22
MISCELLANEOUS....................................................................................................22
7.1 Survival of Representations, Warranties and Agreements.........................................22
7.2 Amendment......................................................................................22
7.3 Publicity......................................................................................22
7.4 Notices........................................................................................23
7.5 Expenses; Transfer Taxes.......................................................................24
7.6 Entire Agreement...............................................................................24
7.7 Non-Waiver.....................................................................................24
7.8 Counterparts...................................................................................24
7.9 Severability...................................................................................24
7.10 Applicable Law.................................................................................24
7.11 Binding Effect; Benefit........................................................................24
7.12 Assignability..................................................................................24
7.13 Governmental Reporting.........................................................................24
7.14 Defined Terms. ................................................................................24
7.15 Headings. .....................................................................................28
7.16 Interpretation; Construction...................................................................28
iii
Exhibit 1.2 - Form of Certificate of Merger
Exhibit 4.5(a) - Form of Secured Promissory Note
Exhibit 4.5(b-1)- Form of Security Agreement
Exhibit 4.5(b-2) - Form of Mortgage and Security Agreement
Exhibit 4.7(a) - Form of Certificate
Exhibit 4.7(b-1) - Form of Guarantee
Exhibit 4.7(b-2) - Form of Escrow Agreement
Exhibit 4.11 - Form of Instructions to Escrow Agent
Exhibit 5.2.3 - Form of Legal Opinion of Parent's Counsel
Exhibit 5.3.3 - Form of Legal Opinion of Company's Counsel
Exhibit 7.14 - D&O Insurance Policy
iv
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is dated as of November 24, 1999, by and among Besicorp Holdings,
Ltd., a New York corporation ("Parent"), Besi Acquisition Corp., a New York
corporation ("Acquisition Corp"), and Besicorp Ltd., a New York corporation (the
"Company").
RECITALS:
A. The respective boards of directors of Acquisition Corp, Parent and
the Company each adopted a plan of merger as set forth in an Agreement and Plan
of Merger dated as of October 7, 1999 (the "Initial Agreement") pursuant to
which Acquisition Corp, which is a wholly-owned Subsidiary of Parent that has
been formed for the sole purpose of effectuating a merger with the Company,
would merge with and into the Company on the terms and subject to the conditions
set forth in the Initial Agreement.
B. Parent, Acquisition Corp and the Company desire to make certain
modifications to the Initial Agreement, including requiring the Company to
effectuate the Spin-Off prior to the Effective Date.
C. In order to make such modifications to the Initial Agreement, the
respective boards of directors of Acquisition Corp, Parent and the Company have
each adopted a plan of merger as set forth in this Agreement pursuant to which
Acquisition Corp will merge with and into the Company on the terms and subject
to the conditions set forth in this Agreement (the "Merger") and the New York
Business Corporation Law (the "NYBCL").
D. Parent, Acquisition Corp and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
E. Capitalized terms used in this Agreement have the meanings
identified in Section 7.14 of this Agreement.
A G R E E M E N T S
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement, on the Effective Date, in accordance with this Agreement and the
NYBCL, Acquisition Corp shall merge with and into the Company, the separate
existence of Acquisition Corp shall cease and the Company shall continue as the
surviving corporation. The Company, in its capacity as the corporation surviving
the Merger, is sometimes referred to herein as the "Surviving Corporation," and
Acquisition Corp and the Company are sometimes referred to collectively herein
as the "Constituent Corporations."
1
1.2 Consummation of the Merger. In order to effectuate the Merger, on
the Closing Date, the parties hereto will cause a certificate of merger (the
"Certificate of Merger") substantially in the Form of Exhibit 1.2 to be filed
with the Secretary of State of the State of New York and such counties within
the state of New York as required by Section 904 of the NYBCL, in such form as
required by, and executed in accordance with the NYBCL . The Merger shall be
effective as of the date of filing of the Certificate of Merger or if later, the
date specified in the Certificate of Merger (the "Effective Date") in accordance
with Section 906 of the NYBCL.
1.3 Effects of the Merger. On and after the Effective Date, the Merger
shall have the effects provided in this Agreement and as set forth in Section
906 of the NYBCL.
1.4 Certificate of Incorporation; Bylaws. On and after the Effective
Date, the Certificate of Incorporation and By-Laws of the Company, as in effect
immediately prior to the Effective Date, shall be adopted as the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and shall thereafter
continue in effect until amended as provided therein and in accordance with the
NYBCL.
1.5 Directors and Officers. On and after the Effective Date, the
directors of Acquisition Corp. shall be the directors of the Surviving
Corporation and the officers of the Company holding office immediately prior to
the Effective Date shall be the officers of the Surviving Corporation, until
their respective successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-Laws.
1.6 Time and Place of Closing. Subject to the provisions of Article V
and Section 6.1 hereof, the transactions contemplated by this Agreement shall be
consummated (the "Closing") at 10:00 a.m., prevailing New York City time, at the
offices of Robinson Brog Leinwand Greene Genovese & Gluck P.C., 1345 Avenue of
the Americas, New York, NY on the day which is three (3) business days after the
first date on which each of the conditions to Closing set forth in Article V
hereof shall have been satisfied or waived (and continue to be satisfied or
waived), or on such other date, or at such other place, as shall be agreed upon
by the parties hereto. The date on which the Closing shall occur in accordance
with the preceding sentence is referred to in this Agreement as the "Closing
Date."
1.7 Further Assurances. If, at any time after the Effective Date, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title and interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Company or Acquisition Corp, or (ii) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized to execute and deliver, in the name and
on behalf of either the Company or Acquisition Corp, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of such
corporations, all such other acts and things as
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may be necessary, desirable or proper to vest, perfect or confirm the Surviving
Corporation's right, title and interest in, to and under any of the rights,
privileges, powers, franchises, properties or assets of such corporations and
otherwise to carry out the purposes of this Agreement.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.1 Conversion of Shares. On the Effective Date, by virtue of the
Merger, and without any action on the part of the holders thereof:
2.1.1 Each share of common stock, $.01 par value, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
Effective Date (other than shares of Common Stock held as treasury shares by the
Company or its Subsidiaries, shares of Common Stock then owned of record by
Acquisition Corp and Parent (the "Ineligible Holders") and shares held by person
who follow the procedure set forth in Sections 623 and 910 of the NYBCL (the
"Objecting Shareholders") shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive in
cash (i) the Cash Merger Consideration without interest plus (ii) the right (a
"Deferred Payment Right") to Deferred Payments as set forth in Section 2.4
hereto plus (iii) the right (a "Escrow Fund Payment Right" and together with the
Deferred Payment Right, the "Combined Deferred Payment Right") to Escrow Fund
Payments as set forth in Section 2.4 hereto (collectively, the "Merger
Consideration"). Each share of Common Stock outstanding immediately prior to the
Effective Date (other than shares of Common Stock held as treasury shares by the
Company or its Subsidiaries and shares of Common Stock then owned of record by
Ineligible Holders and the Objecting Shareholders) shall be deemed to be no
longer outstanding and shall represent solely the right to receive the Merger
Consideration upon surrender of the certificate formerly representing such share
of Common Stock in accordance with the provisions of this section. "Cash Merger
Consideration" shall mean the Aggregate Cash Merger Consideration divided by the
sum of (i) the number of shares of Common Stock issued and outstanding
immediately prior to the Effective Date (other than those shares held as
treasury shares by the Company) and (ii) the number of Management Restricted
Shares for which substitute securities have been issued pursuant to Section 4.9
hereof prior thereto. The "Aggregate Cash Merger Consideration" is
$8,000,000.00.
2.1.2 Each share of Common Stock issued and outstanding
immediately prior to the Effective Date which is then held as a treasury share
by the Company or is held by any of the Company's Subsidiaries or by Parent or
Acquisition Corp. shall, by virtue of the Merger and without any action on the
part of the Company, be cancelled and retired and cease to exist, without any
conversion thereof. The Surviving Corporation shall make such payments to the
Objecting Shareholders as are required by Sections 623 and 910 of the NYBCL for
each share of Common Stock issued and outstanding immediately prior to the
Effective Date which is then held by such Objecting Shareholders, and the
Objecting Shareholders shares of Common Stock shall be cancelled and retired and
cease to exist, without any conversion thereof.
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2.1.3 Each share of common stock, without par value, of
Acquisition Corp outstanding immediately prior to the Effective Date shall be
converted into and exchanged into one validly issued, fully-paid and non-
assessable share of common stock, $.01 par value, of the Surviving Corporation.
2.2 Exchange Procedures.
2.2.1 Immediately prior to the Effective Date, Parent or
Acquisition Corp will deposit or cause to be deposited with Continental Stock
Transfer & Trust Co., or another paying agent mutually acceptable to Parent and
the Company (the "Paying Agent"), in trust for the holders of record of Common
Stock (excluding Management Restricted Shares for which substitute securities
are to be issued pursuant to Section 4.9 hereof) immediately prior to the
Effective Date other than the Ineligible Holders and the Objecting Shareholders
(the "Company Shareholders") cash in an aggregate amount equal to (i) the number
of shares of Common Stock held of record by the Company Shareholders and the
Objecting Shareholders multiplied by (ii) the Cash Merger Consideration (such
deposit with the Paying Agent pursuant to this paragraph is referred to as the
"Payment Fund"). The Payment Fund shall not be used for any purpose except as
provided in this Agreement.
2.2.2 As soon as practicable after the Effective Date, the
Surviving Corporation shall cause the Paying Agent to mail to each Company
Shareholder a letter of transmittal and instructions for use (the "Letter of
Transmittal") in effecting the surrender of certificates representing shares of
Common Stock outstanding immediately prior to the Effective Date
("Certificates"). The Letter of Transmittal shall be in customary form, include
provisions stating that delivery shall be effected, and risk of loss and title
to such Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent, provide instructions for effecting the surrender of such
Certificates in exchange for the Merger Consideration and provide such other
provisions as Parent may reasonably specify (including those provisions
described in this Section 2.2). Upon surrender of a Certificate for cancellation
to the Paying Agent, together with such Letter of Transmittal, duly and properly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefore (A) the amount equal to (i) the number of shares of Common
Stock represented by such Certificate multiplied by (ii) the Cash Merger
Consideration, and (B) one Combined Deferred Payment Right for each share of
Common Stock represented by such Certificate. If the Cash Merger Consideration
(or any portion thereof) is to be delivered to any person other than the person
in whose name the Certificate representing shares of Common Stock surrendered in
exchange therefor is registered on the record books of the Company, it shall be
a condition to such exchange that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of such consideration to a person
other than the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been paid or
is not applicable. Combined Deferred Payment Rights shall not be evidenced by
certificates and shall not be transferable, except as required by law. All
payments, if any, with respect to the Combined Deferred Payment Rights shall be
paid to the persons in whose name the Certificates are registered on the books
of the Company immediately prior to the Effective Date. No interest will be paid
or will accrue on the cash payable upon surrender of any Certificate. Until
surrendered as contemplated by this Section 2.2, each Certificate shall, on and
after the Effective Date, be deemed to represent only the
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right to receive, upon surrender of such Certificate, the Merger Consideration
with respect to the shares of Common Stock represented thereby.
2.2.3 On and after the Effective Date, there shall be no
transfers on the stock transfer books of the Company of the shares of Common
Stock which were outstanding immediately prior to the Effective Date. If, after
the Effective Date, Certificates are presented to the Surviving Corporation,
they shall be cancelled and exchanged as provided in this Section 2.2. In the
event of a transfer of ownership of shares of Common Stock which is not
registered in the transfer records of the Company, payment may be made with
respect to such share of Common Stock to such a transferee only if the
Certificate representing such shares of Common Stock is presented to the Paying
Agent, accompanied by all documents required to evidence and effect such
transfer and evidence that any applicable stock transfer taxes have been paid.
2.2.4 In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, upon the posting by such person of a bond in such
amount as the Surviving Corporation may reasonably direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in respect of such lost, stolen or destroyed
Certificate, the Merger Consideration with respect to the shares of Common Stock
represented thereby.
2.2.5 Upon the determination by the Paying Agent that a
shareholder is an Objecting Shareholder and not a Company Shareholder, the
Paying Agent shall deliver to the Surviving Corporation that amount equal to (i)
the number of shares of Common Stock held by such Shareholder multiplied by (ii)
the Cash Merger Consideration. Any portion of the Payment Fund which remains
unclaimed by any of the Company Shareholders for nine (9) months after the
Effective Date shall be delivered to the Surviving Corporation upon demand of
the Surviving Corporation, and the holders of shares of Common Stock shall
thereafter look only to the Surviving Corporation for payment of their claim for
the Cash Merger Consideration in respect of their shares of Common Stock.
Neither Parent, Acquisition Corp nor the Surviving Corporation shall be liable
to any holder of shares of Common Stock for any Merger Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
2.2.6 Parent or the Paying Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of a Certificate surrendered for the Merger Consideration such
amount as Parent or the Paying Agent is required to deduct and withhold with
respect to the making of such payment under the Internal Revenue Code as of
1986, as amended (the "Code"), or any provision of any state, local or foreign
tax law. To the extent that amounts are so deducted and withheld, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of such Certificate.
2.2.7 In the case of 4,000 shares of Common Stock held of
record by Martin Enowitz or his assigns which the Company represents are the
subject of a dispute between Besicorp Group Inc. ("BGI") and Mr. Enowitz, the
Merger Consideration shall be placed in the existing escrow
5
with respect to such 4,000 shares, and appropriate provision will be made in the
Paying Agent agreement for the holding of Combined Deferred Payments, if any,
and the Cash Merger Consideration payable in respect of such shares in such
escrow, pending resolution of the dispute.
2.2.8 The fees and expenses of the Paying Agent will be paid
from earnings on the Payment Fund. To the extent earnings on the Payment Fund
are insufficient to pay such fees and expenses, such fees and expenses shall be
paid by the Surviving Corporation. The Company and Parent and Acquisition Corp
agree that any interest earned on the Payment Fund and not utilized to pay the
fees and expenses of the Paying Agent will be transferred to the Surviving
Corporation.
2.3 Adjustment of Merger Consideration. In the event of any
reclassification, stock split, stock dividend or other general distribution of
securities, cash or other property (other than the Distribution) with respect to
shares of Common Stock (or if a record date with respect to any of the foregoing
should occur) on or after the date of the Initial Agreement and on or prior to
the Effective Date, appropriate and equitable adjustments, if necessary, shall
be made to the calculation of the Merger Consideration and all references herein
shall be deemed to be to the Merger Consideration as so adjusted.
2.4 Combined Deferred Payments.
2.4.1 The parties hereto agree that the Company Shareholders
shall receive from the Surviving Corporation for each share of their Common
Stock, in addition to the Cash Merger Consideration, an additional payment or
payments ("Deferred Payments") on the Deferred Payment Dates equal in the
aggregate to (i) the amount in the Deferred Payment Fund on such date divided by
(ii) the number of shares of Common Stock held of record immediately prior to
the Effective Date by the Company Shareholders. The "Deferred Payment Fund"
consists of the sum of all Adjustments (net of corporate taxes for such
Adjustments) less all amounts previously distributed from the Deferred Payment
Fund to the Company Shareholders. The "Adjustments" equal the Adjustment Amounts
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock held of record by the Company Shareholders immediately prior to the
Effective Date and the denominator of which is the sum of the number of shares
of Common Stock held of record by the Company Shareholders, the Objecting
Shareholders and the Ineligible Shareholders immediately prior to the Effective
Date and the number of Management Restricted Shares which have been cancelled
pursuant to Section 4.9 hereof prior thereto. The "Adjustment Amounts" equals
all proceeds received by the Company, the Surviving Corporation and their
Subsidiaries (provided that in the case of proceeds received by an entity that
is less than wholly owned, directly or indirectly, by the Company (or the
Surviving Corporation), such proceeds shall be multiplied by a percentage equal
to the percentage of the entity owned, directly or indirectly, at the time of
receipt of such proceeds by the Company (or the Surviving Corporation)) on or
after the date of the Initial Agreement and on or before the latest of (i) March
22, 2004, (ii) the date of the release by the escrow agent for the March 1999
Escrow Agreement of all of the March 1999 Escrow Funds and (iii) the
disposition, pursuant to a final and non-appealable judgment of a court of
competent jurisdiction, including the payment of all monies required by such
disposition, of the lawsuit encaptioned "Besicorp, Ltd., plaintiff, against Alan
R. Kahn, James Lichtenberg, Vee Hockmeyer, Paul Vannucci, Andrew Jurun,
6
Paul Shaheen, Debra Berenda and John Does 1 through 5, defendants" which was
filed on September 24, 1999 in the Supreme Court of the State of New York,
County of Ulster, and any litigation in connection with or relating to such
lawsuit (such latest date, the "Deferred Payment Termination Date") with respect
to the following: (i) amounts, if any, released from the March 1999 Escrow Fund
pursuant to Section 4 of the March 1999 Escrow Agreement (other than amounts
released pursuant to the Instructions, (ii) amounts received with respect to
each of the litigation claims of the Company, the Surviving Corporation and
their Subsidiaries with respect to matters arising before the Effective Date,
less the Company's expenses (including reasonable SG&A but excluding expenses
which are funded with monies in the March 1999 Escrow Fund (the "Excluded
Expenses")) incurred and paid following the date of the Initial Agreement
directly related to any such claim for which amounts have been received, (iii)
amounts received with respect to the sale of the Company's interests, directly
or indirectly, except for debt financing for development capital purposes which
might have an equity carried interest in a Foreign Development Project, in each
of the Foreign Development Projects (unless such Foreign Development Project is
sold along with the Empire Project in which case the proceeds are not an
Adjustment Amount) pursuant to agreements entered into on or before the first
anniversary of the Effective Date, less the Company's expenses (other than SG&A
and Excluded Expenses) incurred and paid following the date of the Initial
Agreement directly related to such Foreign Development Project, (iv) amounts
received by Beta Partnerships, Inc. "Beta") and distributions received from
Kamine Besicorp Natural Dam L.P., ("Natural Dam") (other than an amount
anticipated to be received by Beta from Natural Dam on or before December 31,
1999 and disclosed under "Liquidity and Capital Resources" in Item 2 of the
Company's Form 10QSB for the period ended June 30, 1999) and any other funds
that are distributed as a result of partnership interests in existence as of the
date of the Initial Agreement or the Effective Date and (v) amounts, net of
expenses (other than SG&A and Excluded Expenses) incurred and paid following the
date of the Initial Agreement directly related to distributions as a result of
Hydro-Credits, distributed as a result of Hydro-Credits (other than the
distribution with respect to Glen Park Associates scheduled for on or about
September 30, 1999); provided however that the Adjustment Amount shall not
include the proceeds of any transfer of assets by the Surviving Corporation or
any wholly owned Subsidiary of the Surviving Corporation to any wholly owned
Subsidiary of the Surviving Corporation or to any entity (a "Related Entity")
consisting solely of shareholders of the Surviving Corporation on the Effective
Date, if, and only if (i) the Related Entity shall consent in writing to its
assumption of the obligation to make Deferred Payments in the manner described
in Section 2.4.4 (without the right to defer payments if the amount accrued on a
Deferred Payment Date is less than $90,000) with respect to such asset and (ii)
the Surviving Corporation will be required to guarantee the Related Entity's
payment of all amounts it is required to pay to the Company Shareholders
pursuant to this assumption. The Surviving Corporation shall segregate the
Deferred Payment Fund and invest its proceeds in a separate interest bearing
money market account at Bankers Trust Company or any other nationally recognized
financial institution, and all interest on the Deferred Payment Fund shall be
added to such Fund.
2.4.2 The Surviving Corporation shall make Deferred
Payments to the Company Shareholders (ii) annually on each June 1st commencing
on June 1, 2000 and ending on the last June 1st, immediately prior to the
Deferred Payment Termination Date (each, a "Deferred Payment Date"), (provided
that if on any Deferred Payment Date the amount in the Deferred Payment Fund is
less than $90,000, no Deferred Payment shall be made on such date) and (ii) on
the Deferred Payment Termination Date. All such Payments shall be accompanied
by a notice stating in reasonable detail the proceeds and the expenses that
were deducted.
7
2.4.3 If the Surviving Corporation or a Related
Entity transfers, sells or otherwise assigns, directly or indirectly, any of the
Underlying Assets, the assignee (the "Assignee") of such Underlying Asset shall
be required to consent in writing to its assumption of the obligation to make
Deferred Payments (without the right to defer payments if the amount accrued on
a Deferred Paymen Date is less than $90,000) with respect to such Underlying
Asset other than the obligation to make the Deferred Payment, if any, resulting
from proceeds received by the Surviving Corporation or Related Entity from such
assignment (which Deferred Payment resulting from such Proceeds, shall be the
obligation of the Surviving Corporation or Related Entity, as applicable) in
the manner described in Section 2.4.4.
2.4.4 Payments by a Related Entity or an Assignee
(the "Payor") shall be made on Deferred Payment Dates as follows: such payments
shall be equal to (i) the amount in the Substitute Deferred Payment Fund on such
date divided by (ii) the number of shares of Common Stock held of record
immediately prior to the Effective Date by the Company Shareholders. The
"Substitute Deferred Payment Fund" consists of the sum of all Substitute
Adjustments (net of all corporate taxes for such Adjustment) less all amounts
previously distributed from the Substitute Deferred Payment Fund to the Company
Shareholders. The "Substitute Adjustments" equal the Substitute Adjustment
Amounts multiplied by a fraction, the numerator of which is the number of shares
of Common Stock held of record by the Company Shareholders immediately prior to
the Effective Date and the denominator of which is the sum of the number of
shares of Common Stock held of record by the Company Shareholders, the Objecting
Shareholders and the Ineligible Shareholders immediately prior to the Effective
Date and the number of Management Restricted Shares which have been cancelled
pursuant to Section 4.9 hereof prior thereto. The "Substitute Adjustment
Amounts" equals all proceeds received by the Payor on or after the date of the
Initial Agreement and on or before Deferred Payment Termination Date with
respect to the following: (i) amounts, if any, released from the March 1999
Escrow Fund pursuant to Section 4 of the March 1999 Escrow Agreement, (ii)
amounts received with respect to each of the litigation claims assigned by the
Company with respect to matters arising before the Effective Date, less the
expenses of the Company and Payor (including reasonable SG&A but excluding
Excluded Expenses) incurred and paid following the date of the Initial Agreement
directly related to any such claim with respect to any such claim for which
amounts have been received, (iii) amounts received with respect to the sale of
the Payor's interests, directly or indirectly, except for debt financing for
development capital purposes which might have an equity carried interest in a
Foreign Development Project, in each of the Foreign Development Projects (unless
such Foreign Development Project is sold along with the Empire Project in which
case the proceeds are not a Substitute Adjustment Amount) pursuant to agreements
entered into on or before the first anniversary of the Effective Date, less the
expenses of the Company and Payor (other than SG&A and Excluded Expenses)
incurred and paid following the date of the Initial Agreement directly related
to such Foreign Development Project, (iv) amounts received by Beta and
distributions received from Natural Dam (other than an amount anticipated to be
received by Beta from Natural Dam on or before December 31, 1999 and disclosed
under
8
"Liquidity and Capital Resources" in Item 2 of the Company's Form 10QSB for the
period ended June 30, 1999), and any other funds that are distributed as a
result of partnership interests in existence as of the date of the Initial
Agreement or the Effective Date and (v) amounts, net of the expenses of the
Company and Payor (other than SG&A and Excluded Expenses) incurred and paid
following the date of the Initial Agreement directly related to distributions as
a result of Hydro-Credits, distributed as a result of Hydro-Credits (other than
the distribution with respect to Glen Park Associates scheduled for on or about
September 30, 1999). If a Payee (or assignee of a Payee) attempts to assign any
Underlying Asset, the assignee of such Underlying Asset shall be required to
consent in writing to its assumption of the obligation to make Deferred Payments
(without the right to defer payments if the amount accrued on a Substitute
Deferred Payment Date is less than $90,000) with respect to such Underlying
Asset other than the obligation to make the Deferred Payment, if any, resulting
from proceeds received by the assignor from such assignment (which Deferred
Payment resulting from such Proceeds, shall be the obligation of the assignor)
in the manner described above.
2.4.5 Escrow Fund Payments. The parties hereto agree
that the Company Shareholders shall receive for each share of their Common
Stock, in addition to the Cash Merger Consideration and the Deferred Payments
pursuant to Deferred Payment Rights, an additional payment or payments ("Escrow
Fund Payments") to be paid by the Paying Agent equal in the aggregate to (i) the
amount in the Escrow Fund Payment Distributions received by the Paying Agent
pursuant to the Instructions, and not yet distributed by the Paying Agent,
divided by (ii) the number of shares of Common Stock held of record immediately
prior to the Effective Date by the Company Shareholders.
2.5 Management Restricted Shares. The Merger Consideration,
including the Cash Merger Consideration and the Combined Deferred Payment
Rights, with respect to all Management Restricted Shares, if any, the vesting of
which has not been accelerated pursuant to the Incentive Plan, and which are not
subject to Substitution Agreements, shall be placed in escrow with the Surviving
Corporation and such Merger Consideration shall be held in accordance with the
terms of the Restricted Stock Grant Agreements with respect to such Management
Restricted Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 General Statement. The parties only make the representations and
warranties to each other which are set forth in this Article III or in Exhibit
4.7(a).
3.2 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Acquisition Corp that as of the date of
the Initial Agreement and, in the case of Section 3.2.2, the date of this
Agreement:
9
3.2.1 Organization and Authority. Each of the Company and each
of its Subsidiaries: (i) is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the State of its organization;
and (ii) has all necessary corporate or partnership power and authority to
conduct its business as now being conducted or as proposed to be conducted
through Closing. Each of the Company and each of its Subsidiaries is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which the nature of its business or the nature or location of its assets
require such qualification except where the failure to be so qualified would not
have a Material Adverse Effect.
3.2.2 Authority Relative to this Agreement and Related
Matters. The Board of Directors of the Company (the "Board"), at a meeting duly
called and held has (A) determined that the Agreement and Merger are fair to,
and in the best interests of, the Company and its shareholders, including the
Company Shareholders, (B) adopted and approved this Agreement, the Merger and
the Distribution, and (C) resolved to submit to the shareholders of the Company
and recommend to the shareholders of the Company that they adopt and authorize
the Agreement and the Merger. The Company has full corporate power and
authority, subject to shareholder adoption and authorization with respect to the
Agreement, to enter into and perform this Agreement, and the other agreements
(the "Transaction Agreements") to be entered into in connection with this
Agreement, the Merger and the Distribution to which it is a party. The execution
and delivery of this Agreement and each of the other Transaction Agreements by
the Company and the performance by the Company of its obligations hereunder and
thereunder have been (or, in the case of Transaction Agreements not yet entered
into, will be) duly authorized and approved by all requisite corporate action
other than the approval of the holders of at least one-half of the outstanding
shares of Common Stock voting at the Meeting with respect to the Merger. This
Agreement has been and, when executed, each of the other Transaction Agreements
will have been, duly executed and delivered by duly authorized officers of the
Company and each constitutes, or will constitute when so executed and delivered,
a valid, legal and binding obligation of the Company enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally. The affirmative vote of the holders of at least
one-half of the outstanding shares of Common Stock voting at the Meeting with
respect to the adoption and authorization of the Agreement and the Merger are
the only votes of the holders of any class or series of the Company's capital
stock necessary to approve the Merger.
3.2.3 Capitalization. The authorized capital stock of the
Company consists solely of 5,000,000 shares of Common Stock, and 1,000,000
shares of preferred stock, par value $0.01 per share ("Preferred Stock"). As of
October 4, 1999, (i) 136,282 shares of Common Stock were outstanding, all of
which are entitled to vote as a class, including (a) 13,850 Management
Restricted Shares which will not vest as a result of the Merger and (b) 5,824
shares of Common Stock reserved for issuance upon the delivery of shares of
common stock of BGI in connection with the March 1999 Merger (the "Reserved
Shares"), (ii) 100 shares of Common Stock were held in the treasury of the
Company, (iii) no options, warrants or similar rights to purchase shares of
Common Stock ("Stock Options") were outstanding and (iv) no shares of Preferred
Stock were outstanding. There are no other shares of capital stock of the
Company authorized, issued or outstanding. All of the outstanding shares of
Common Stock (other than the Reserved Shares which, upon their issuance, will be
fully paid and nonassessable) have been validly issued and are fully paid and
nonassessable subject to the restrictions on the Restricted Shares set forth in
the agreements for such Restricted
10
Shares. There are no subscriptions, options, stock appreciation rights,
warrants, rights (including preemptive rights), calls, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Company obligating the Company
to issue, or register the sale of, any securities of any kind.
3.2.4 Brokers. No broker, finder, investment banker or other
Person is entitled to a broker's commission, finder's fee, investment banker's
fee or similar payment from the Company in connection with the Merger other than
amounts payable to Josephthal & Co., Inc. ("Josephthal") pursuant to a letter
agreement dated June 9, 1999 between Josephthal and the Company.
3.2.5 Fairness Opinion. The Company has received the written
opinion of Josephthal (the "Fairness Opinion") dated September 22, 1999 to the
effect that, as of such date, the Merger Consideration to be received by Company
Shareholders for each share of Common Stock is fair from a financial point of
view. The Company has provided a true and correct copy of the Fairness Opinion
to Parent. The Company is authorized by Josephthal to include a copy of such
opinion in the proxy statement relating to the Agreement and the Merger to be
approved at the Meeting (as amended or supplemented, the "Proxy Statement").
3.2.6 Full Disclosure. The representations, warranties and
statements of the Company in this Agreement or contained in any schedule, list
or document delivered pursuant to this Agreement are true, complete and correct.
The copies of all documents furnished by the Company pursuant to or in
connection with this Agreement are true, complete and correct.
3.2.7 SEC Filings. None of the information provided by the
Company and included in the Proxy Statement, the Rule 13e-3 transaction
statement on Schedule 13E-3 to be filed by the Company, Acquisition Corp and
Parent with respect to the transactions to be consummated pursuant to this
Agreement and the other Transaction Agreements (the "Schedule 13E-3") pursuant
to the rules and regulations promulgated pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Form 10-SB will, at the time
of the filing thereof, the mailing thereof, at the time of the Meeting and at
the Effective Date, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
3.2.8 Required Filings. Other than the Proxy Statement, the
Schedule 13E-3 and the Form 10-SB, no consent, approval or authorization of,
expiration or termination of any waiting period requirement of, or filing,
registration, qualification, declaration or designation ("Authorization") is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the other Transaction Agreements by the Company or
the consummation by the Company of the transactions contemplated hereby or
thereby.
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3.2.9 No Conflicts. Neither the execution and delivery of this
Agreement or any of the other Transaction Agreements by the Company, nor the
consummation by the Company of the transactions contemplated hereby or thereby,
will conflict with or result in a breach of any of the terms or provisions of
the Certificate of Incorporation or By-Laws of the Company or of any statute
or administrative regulation, or of any order, writ, injunction, judgment or
decree of any court or governmental authority or of any arbitration award to
which the Company is a party or by which the Company is bound.
3.3 Representations and Warranties of Parent and Acquisition Corp.
Parent and Acquisition Corp jointly and severally represent and warrant to the
Company that as of the date of the Initial Agreement and, in the case of Section
3.3.2, the date of this Agreement:
3.3.1 Organization and Authority. Each of Parent and
Acquisition Corp is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Each of Parent and Acquisition
Corp has all necessary corporate power and authority to conduct its business as
now being conducted.
3.3.2 Authority Relative to this Agreement. Each of Parent and
Acquisition Corp has full corporate power and authority to enter into and
perform this Agreement and each of the other Transaction Agreements to which it
is a party. The execution and delivery of this Agreement and each of the other
Transaction Agreements by Acquisition Corp and Parent and the performance by
Acquisition Corp and Parent of their respective obligations hereunder or
thereunder have been duly authorized by all requisite corporate action. This
Agreement has been, and each of the other Transaction Agreements to which it is
a party will be, duly executed and delivered by duly authorized officers of
Acquisition Corp and Parent and each constitutes, or will constitute when so
executed and delivered, a valid, legal and binding obligation of Acquisition
Corp and Parent enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
3.3.3 Required Filings. No Authorization is required by or
with respect to Parent or Acquisition Corp in connection with the execution and
delivery of this Agreement or the other Transaction Agreements by Parent and
Acquisition Corp or the consummation by Parent and Acquisition Corp of the
transactions contemplated hereby or thereby.
3.3.4 No Conflicts. Neither the execution and delivery of this
Agreement or any of the other Transaction Agreements by Parent or Acquisition
Corp, nor the consummation by Parent or Acquisition Corp of the transactions
contemplated hereby or thereby, will (i) conflict with or result in a breach of
any of the terms or provisions of the Certificate of Incorporation or By-Laws of
Acquisition Corp or of Parent or of any statute or administrative regulation, or
of any order, writ, injunction, judgment or decree of any court or governmental
authority or of any arbitration award to which Parent or Acquisition Corp is a
party or by which Acquisition Corp or Parent is bound; or (ii) violate, conflict
with, breach, constitute a default (or give rise to an event which, with notice
or lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien or other claim, equity, security interest, preemptive
right, judgment or other encumbrance ("Encumbrance") upon any of the properties
or assets of Parent or Acquisition Corp under, any note, bond, mortgage,
indenture, deed of trust,
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license, lease, agreement or other instrument or obligation to which Parent or
Acquisition Corp is a party or to which Parent or Acquisition Corp or any of its
properties or assets are subject (the "Parent Obligations"), except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other Encumbrances that do not and will not, individually
or in the aggregate, (x) have a Material Adverse Effect on Parent or Acquisition
Corp or (y) impair Parent or Acquisition Corp's ability to perform its
obligations under this Agreement or any of the other Transaction Agreements.
Without limiting the generality of the foregoing, neither Parent nor Acquisition
Corp is subject to any Parent Obligation pursuant to which timely performance of
this Agreement or the Merger may be prohibited, prevented or materially delayed.
3.3.5 Capitalization. The authorized capital stock of
Acquisition Corp consists of 200 shares of common stock, without par value, of
which 100 shares are outstanding. All of the outstanding shares of common stock
of Acquisition Corp have been validly issued and are fully paid and
nonassessable, are entitled to vote as a class and are owned of record by
Parent.
3.3.6 SEC Filings. None of the information provided by Parent
or Acquisition Corp and included in the Proxy Statement and the Schedule 13E-3
will, at the time of the filing thereof, the mailing thereof, at the time of the
Meeting and at the Effective Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
3.3.7 Brokers. No broker, finder, investment broker or other
person is entitled to a broker's commission, finders fee, investment banker's
fee or similar payment from the Acquisition Corp or Parent in connection with
the Merger.
3.3.8 Full Disclosure. The representations, warranties and
statements of Acquisition Corp and Parent in this Agreement or contained in any
schedule, list or document delivered pursuant to this Agreement are true,
complete and correct. The copies of all documents furnished by Parent and the
Acquisition Corp pursuant to or in connection with this Agreement are true,
complete and correct.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Obligations of Each of the Parties. From and after the date of the
Initial Agreement and until and including the Effective Date, the following
shall apply with equal force to the Company, on the one hand, and Parent and
Acquisition Corp, on the other hand:
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4.1.1 Each party shall promptly give the other parties written
notice of the existence or occurrence of any event or condition which would make
any representation or warranty herein contained of any party untrue or which
might reasonably be expected to prevent the consummation of the transactions
contemplated hereby.
4.1.2 No party shall intentionally perform any act which, if
performed, or omit to perform any act which, if omitted to be performed, would
prevent or excuse the performance of this Agreement by any party or which would
result in any representation or warranty herein of that party being untrue in
any material respect at any time after the date of the Initial Agreement through
and including the Closing Date as if originally made at such time.
4.1.3 Subject to the terms and conditions of this Agreement,
each of the parties agrees to use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as expeditiously as reasonably
practicable.
4.2 The Company's Obligations. From and after the date of the Initial
Agreement and until and including the Effective Date, without the prior written
consent of Parent, and without limiting the generality of any other provision of
this Agreement, except for the dissolution of Beta Brasil Inc., Beta BGE Inc.,
Beta International Power Corp. and Besicorp International Power Corp., the
Spin-Off and the SunWize Project, the Company shall not, and shall not permit
any of its Subsidiaries to:
(a) amend its Certificate of Incorporation, By-
Laws or other organizational documents;
(b) make any change in its authorized capital stock;
adjust, split, combine or reclassify any capital stock; or
issue any shares of stock of any class, or issue or become a
party to any subscription, warrant, rights, options,
convertible securities or other agreements or commitments of
any character relating to its issued or unissued capital
stock, or other equity securities, or grant any stock
appreciation or similar rights except for the issuance of
Reserved Shares as contemplated by Section 3.2.3 hereof;
(c) sell, transfer, mortgage, encumber or otherwise
dispose of any of its material properties or assets to any
individual, corporation or other entity other than a
Subsidiary of the Company, except pursuant to contracts or
agreements in force at the date of the Initial Agreement or as
specifically set forth in this Agreement;
(d) make (x) any investments, either by purchase of
stock or securities, in, (y) any contributions to capital of,
or (z) except in the ordinary course of business, any
purchases of any property or assets from, any other
individual, corporation or other entity;
14
(e) change its method of accounting in effect at
March 31, 1999, except as may be required by changes in
generally accepted accounting principles ("GAAP") upon the
advice of its independent accountants;
(f) increase the compensation payable to any
employee, or enter into any new employment agreements with new
or existing employees which create other than an at will
relationship, in each case, except in the ordinary course of
business consistent with past practices other than bonuses to
officers and employees which are paid prior to the Effective
Date;
(g) pay or declare any dividend or make any
distribution on its securities of any class or purchase or
redeem any of its securities of any class;
(h) except with respect to Taxes subject to the New
York State tax appeal, make any Tax election or settle or
compromise any Tax liability;
(i) fail to maintain in full force and effect
insurance coverage substantially similar to that in effect on
the date of the Initial Agreement; or
(j) except with respect to the Empire Project, enter
into any business or contract outside of the ordinary course
of business and not related to the Merger other than contracts
which are not material or which will be fully performed prior
to the Effective Date.
4.3 Meeting; Proxy Statement; Schedule 13E-3; Other Regulatory
Matters.
4.3.1 The Company will (i) call a meeting of its shareholders
(the "Meeting") for the purpose of voting upon adoption and authorization of the
Merger, (ii) hold the Meeting as soon as practicable following the date of the
Initial Agreement, (iii) subject to Section 4.8 hereof, recommend, through its
Board, to its shareholders the approval of the Merger, and (iv) use its best
efforts to obtain the necessary adoption and authorization of this Agreement by
the shareholders of the Company.
4.3.2 The Company will (i) as soon as practicable following
the date of the Initial Agreement, prepare in correct and appropriate form and
file with the Securities and Exchange Commission (the "SEC") a preliminary Proxy
Statement and (ii) use its reasonable best efforts to respond to any comments of
the SEC or its staff and to enable the Proxy Statement to be cleared by the SEC.
The Company will notify Parent of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will supply
Parent with copies of all correspondence and summaries of all conversations
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel (who shall provide any
comments thereon as soon as practicable) the opportunity to review the Proxy
Statement prior to being filed with the SEC and shall give Parent and its
counsel (who shall provide any comments thereon as soon as practicable) the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC.
15
Each of the Company and Parent agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. The Acquisition Corp and the Parent shall
supply to the Company on a timely basis in connection with the preparation of
the Proxy Statement all information necessary to be included therein.
The Company, Acquisition Corp and Parent will (i) as soon as
practicable following the date of the Agreement, prepare in correct and
appropriate form and file with the SEC the Schedule 13E-3 and (ii) use their
reasonable best efforts to respond to any comments of the SEC or its staff and
to enable the Schedule 13E-3 be cleared by the SEC. Each party hereto will
notify the other parties of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Schedule 13E-3 or for additional information and will supply such other
parties with copies of all correspondence and summaries of all conversations
between such party or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Schedule 13E-3 or the
Merger. Each of the Company, Acquisition Corp and Parent agrees to use its
reasonable best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC. The
Acquisition Corp and the Parent shall supply to the Company on a timely basis in
connection with the preparation of the Schedule 13E-3 all information necessary
to be included therein.
As promptly as practicable after the Proxy Statement and the Schedule
13E-3 have been cleared by the SEC, the Company shall mail the Proxy Statement
to the shareholders of the Company.
4.3.3 Each party agrees to notify the other parties of, and to
correct, any information contained in the Proxy Statement and Schedule 13E-3
furnished by such party to any other party for inclusion therein, which
information shall be, at the time of furnishing, or become, prior to the
Meeting, false or misleading in any respect. If at any time prior to the Meeting
or any adjournment thereof there shall occur any event that should be set forth
in an amendment to the Proxy Statement, the Company will prepare and mail to its
shareholders such an amendment. If at any time prior to the Closing Date there
shall occur any event that should be set forth in an amendment to the Schedule
13E-3, the Company, Acquisition Corp and Parent will prepare and file with the
SEC such an amendment.
4.3.4 The Company will file all reports, schedules, definitive
proxy statements (including the Proxy Statement) and information statements
(including the Form 10-SB) (the "Company Filings") required to be filed by the
Company with the SEC (including reports required by Section 13(d) or 13(g) of
the Exchange Act) and will provide copies thereof to the Parent promptly upon
the filing thereof. The Company represents, warrants and covenants that each
Company Filing (except to the extent prepared by Parent or Acquisition Corp or
based upon information supplied by Parent or Acquisition Corp) as of the date of
its filing will comply in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations of the SEC thereunder and
none of the Company Filings (except to the extent prepared by Parent or
Acquisition Corp or based upon information supplied by Parent or Acquisition
Corp) as of the date of its filing will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading. Upon learning of any such false or
misleading information, the Company will cause all required Company Filings
(including the Proxy Statement) to be corrected,
16
filed with the SEC and disseminated to holders of the shares of Common Stock, in
each case as and to the extent required by applicable law.
4.3.5 Parent and Acquisition Corp will file all reports,
schedules and definitive proxy statements (the "Parent Filings") required to be
filed by the Parent and Acquisition Corp with the SEC (including reports
required by Section 13(d) or 13(g) of the Exchange Act) and will provide copies
thereof to the Company promptly upon the filing thereof. The Parent and the
Acquisition Corp represent, warrant and covenant that each Parent Filing (except
to the extent prepared by the Company or based upon information supplied by the
Company) as of the date of its filing will comply in all material respects with
the requirements of the Exchange Act and the applicable rules and regulations of
the SEC thereunder and none of the Parent Filings (except to the extent prepared
by the Company or based upon information supplied by the Company) will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading. Upon
learning of any such false or misleading information, the Parent and Acquisition
Corp will cause all required Parent Filings to be corrected, filed with the SEC
and disseminated to holders of the shares of Common Stock, in each case as and
to the extent required by applicable law.
4.3.6 Subject to the terms and conditions herein provided, the
Company and Parent and Acquisition Corp will cooperate and consult with one
another in (a) determining which consents, approvals, permits, licenses,
certifications, authorizations and waivers (collectively, "Consents") are
required to be obtained prior to the Effective Date from federal, state, local
or foreign courts, administrative agencies, commissions and other governmental
authorities and instrumentalities ("Governmental Entities") or other third
parties in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, (b) preparing all Consents
and all other filings, submissions and presentations required or prudent to
obtain all Consents, including by providing to the other parties drafts of such
material reasonably in advance of the anticipated filing or submission dates,
and (c) timely seeking all such Consents (it being understood that the parties
will make or seek Consents, whether mandatory or voluntary, and that the Parent
will be responsible and pay for the costs, penalties and expenses associated
with the Consents).
4.4 Indemnification Provisions in Charter and Insurance.
4.4.1 Acquisition Corp, Parent and the Company agree that
prior to the Effective Date the Company shall have in force officers' and
directors' liability insurance ("D&O Insurance") covering each present and
former director, officer, employee and agent of the Company and each of its
Subsidiaries and each present and former director, officer, employee or agent of
the Company and its Subsidiaries (individually, an "Indemnified Person", and
collectively, the "Indemnified Persons"), with respect to actions and omissions
occurring on or prior to the Effective Date (including, without limitation, any
which arise out of or relate to the transactions contemplated by this
Agreement). The parties hereto agree that the Surviving Corporation (i) (a)
shall maintain D&O Insurance covering each Indemnified Person who is currently
covered by the Company's officers' and directors' liability insurance or will be
so covered on the Effective Date with respect to actions and omissions occurring
on or prior to the Effective Date (including, without limitation, any which
arise
17
out of or relate to the transactions contemplated by this Agreement) for a
period ending no earlier than the sixth anniversary of the Effective Date and
(b) in the event of a liquidation, merger, consolidation, or similar occurrence
procure and pay for "run-off" or "tail" insurance covering each Indemnified
Person who is currently covered by the Company's officers' and directors'
liability insurance or will be so covered on the Effective Date with respect to
actions and omissions occurring on or prior to the Effective Date (including,
without limitation, any which arise out of or relate to the transactions
contemplated by this Agreement) (A)for a period of the lesser of (1) two years
and (2) the period ending on the sixth anniversary of the Effective Date (B) and
thereafter for a period ending no earlier than the sixth anniversary of the
Effective Date and (ii) will reimburse the Indemnified Persons with respect to
any deductibles contained in such D&O Insurance or "run-off" or "tail" insurance
policies.
4.4.2 Acquisition Corp, Parent and the Surviving Corporation
hereby jointly and severally agree that, for the lesser of (a) six (6) years
after the Closing Date, or (b) the period during which the Surviving Corporation
maintains its existence, the provisions of the Certificate of Incorporation and
By-Laws of the Surviving Corporation shall provide indemnification to the
Indemnified Persons on terms, in a manner, and with respect to matters, which
are no less favorable to the Indemnified Persons than the Company's Certificate
of Incorporation and By-Laws, as in effect on the date of the Initial Agreement,
and further agree that such indemnification provisions shall not be modified or
amended except as required by law, unless such modification or amendment expands
the rights of the Indemnified Persons to indemnification.
4.4.3 (a) Subject to the provisions of Sections 4.4.3 (b), (c) and (d)
hereof, the Company shall indemnify, defend, and hold harmless the Indemnified
Persons, promptly upon demand at any time and from time to time, against any and
all losses, liabilities, claims, actions, damages, and expenses, including,
without limitation, reasonable attorneys' fees and disbursements (collectively,
"Losses"), arising out of or in connection with claims that would have been
covered if the Current Insurance Policy had remained in effect until the sixth
anniversary of the Effective Date.
(b) With respect to Section 4.4.3 hereof, if any Indemnified
Person wishes to make a claim for indemnification against the Company with
respect to any matter which may give rise to a claim for indemnification, then
that Indemnified Person shall notify the Company thereof promptly (which notice
shall set forth with reasonable specificity all facts relating to such claim for
indemnification). The Company shall pay to the Indemnified Person any amount
required to be paid pursuant to this Section 4.4.3 within 90 days after receipt
by the Company of such notice and such evidence that the claimed Losses have
been incurred or come due as the Company may reasonably request, unless the
payment of such amount is contested prior to the expiration of such 90 day
period by notice to the Indemnified Person. If such payment is so contested,
then such payment shall be made within 30 days after the first to occur of the
following: (i) the Company and the Indemnified Person agreeing in writing to
make such payment or (ii) such payment has been declared due in a judgment or
award entered against the Company by a court of competent jurisdiction.
18
(c) If any third person shall notify an Indemnified Person
with respect to any matter which shall give rise to a claim for indemnification
against a party to this Agreement pursuant to this Section 4.4.3, then the
Indemnified Person shall notify the Company thereof promptly (which notice shall
set forth with reasonable specificity all facts relating to such claim for
indemnification). Within thirty (30) days after receipt of written notice of a
particular matter, the Company may assume the defense of such matter; provided
however, that: (i) the Company shall retain counsel reasonably acceptable to
the Indemnified Person, and (ii) the Company shall not, without the prior
written consent of the Indemnified Person (which shall not be unreasonably
withheld), enter into any settlement of a claim, consent to the entry of any
judgment with respect to a claim, or cease to defend such claim, if pursuant
to or as a result of such settlement, consent or cessation, injunctive or other
equitable relief shall be imposed against the Indemnified Person or if such
settlement does not expressly unconditionally release the Indemnified Person
from all liabilities and obligations with respect to such claim, with prejudice.
If, within the thirty (30) day period, the Company does not assume the defense
of such matter which the Company is obligated to defend, the Indemnified Person
may defend against the matter in any manner that it reasonably may deem
appropriate. The Company shall bear all the reasonable fees and expenses of
defending any such matter. The Indemnified Person may participate in the
defense of such claim with co-counsel of its choice, provided, however, that
the fees and expense of the Indemnified Person's counsel shall be at the expense
of the Indemnified Person unless the Company is liable for the Losses forming
the basis of such claim pursuant to Section 4.4.3 and the Company has failed to
assume the defense and employ counsel as provided herein.
(d) No amount shall be payable by the Company with respect to
claims for indemnification asserted pursuant to this Section 4.4.3 in excess of
(i) the limitations of the Current Insurance Policy and (ii) the deductibles
contained in such Policy.
4.5 Parent's Funding of the Company.
4.5.1 So long as (i) no Governmental Entity or court of
competent jurisdiction shall have issued an injunction (which is still in
effect) prohibiting the Merger, no litigation shall have been commenced and be
pending in a court of competent jurisdiction seeking to enjoin the Merger and no
request for such an injunction is pending in a court of competent jurisdiction,
(ii) a proxy for the Merger has been filed with the SEC, (iii) all
representations and warranties made by the Company in this Agreement shall be
materially accurate at the time of the Loan Funding Date; (iv) the Company shall
not have (A) commenced any case, proceeding or other action under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition, or other relief with respect to its
debts; (B) commenced any case, proceeding or other action seeking appointment of
a receiver, trustee, custodian, or other similar official for it or for all or
any substantial part of its assets; or (C) made a general assignment for the
benefit of its creditors; (v) there shall not have been commenced against the
Company any case, proceeding or other action of a nature referred to in clause
(iv) above that (A) results in the entry of an order for relief or any such
adjudication or appointment, or (B) remains undismissed, undischarged, or
unbonded for a period of thirty (30) days; and (vi) there shall have not been
commenced against the Company any case, proceeding, or other action seeking
issuance of a warrant
19
of attachment, execution, distraint, or similar process against all or any
substantial part of its assets that results in the entry of an order for any
such relief that shall not have been vacated, discharged, or stayed or bonded
pending appeal within thirty (30) days from the entry thereof, Parent will lend
("Parent Loans") to the Company, subject to the conditions set forth in Section
4.5.2, such amounts as the Company reasonably requests in order to satisfy its
obligations with respect to normal operating expenses of the Company and its
subsidiaries to the extent payable on or prior to the Termination Date.
4.5.2 The obligations of Parent to make the Parent Loans are
subject to the following prerequisites:
A. Parent shall not be required to make (i)
Parent Loans within a thirty day period in excess of $350,000, or (ii) with a
cumulative amount in excess of $1,050,000;
B. The Parent Loans shall be evidenced by
promissory notes (substantially in the form of Exhibit 4.5 (a)); and
C. The Parent Loan shall be secured pursuant
to a Security Agreement (substantially in the form of Exhibit 4.5 (b-1)) and
a Mortgage and Security Agreement (substantially in the form of Exhibit
4.5 (b-2)) and such security shall have a value in an amount to be approved by
Parent, which approval shall not be unreasonably withheld and which security
shall include, but not be limited to, the unencumbered real property owned by
Reina Distributing, Inc.
4.6 Voting of Shares of Common Stock held by Certain Holders. Subject
to the requirements of the Exchange Act and the rules promulgated thereunder,
the Parent, Acquisition Corp and Michael F. Zinn shall vote all of their shares,
if any, of Common Stock in favor of the Agreement and the Merger.
4.7 Certificate and Personal Guarantee..
4.7.1 Each of the Executives shall execute a Certificate
(substantially in the form of Exhibit 4.7(a)).
4.7.2 Michael Zinn shall execute a Guarantee (substantially in
the form of Exhibit 4.7(b-1)) and an Escrow Agreement (substantially in the form
of Exhibit 4.7 (b-2)).
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4.8 Board Action
4.8.1 Neither the Special Committee nor the Board shall (i)
withdraw or modify its approval, adoption or recommendation of this Agreement,
the Merger or any of the transactions contemplated hereby, (ii) approve, adopt
or recommend or publicly propose to approve, adopt or recommend an Acquisition
Proposal (as defined below), (iii) cause the Company to enter into any letter
agreement, agreement in principle or definitive agreement with respect to an
Acquisition Proposal, or (iv) resolve to do any of the foregoing unless the
Special Committee or the Board determines reasonably and in good faith, after
due investigation that either the Merger Consideration is not fair to the
Company Shareholders or a pending Acquisition Proposal is more favorable to the
Company Shareholders, taking into account the Distribution. In such case, the
Special Committee or the Board may withdraw or modify its recommendation, and,
in the case of an Acquisition Proposal, approve and recommend such Acquisition
Proposal, provided in the case of a withdrawal or modification of a
recommendation or an Acquisition Proposal, the Special Committee or the Board,
as applicable, provides to Parent and Acquisition Corp written notice of the
Company's intention to do so at least two business days prior to taking such
action and, at the end of such two business day period (y) simultaneously
terminates this Agreement, and (z) concurrently pays to Parent the Covered
Expenses pursuant to Section 6.4.2 hereof. Nothing contained in this Section 4.8
shall prohibit or restrict the Company from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act so long as the Company does not withdraw or modify its position
with respect to the Merger or approve or recommend an Acquisition Proposal
(except as described in the immediately preceding sentence).
4.8.2 For purposes of this Agreement, "Acquisition Proposal"
means any bona fide offer or proposal with respect to a merger, consolidation,
share exchange or similar transaction involving the Company or any purchase of
all or any significant portion of the assets or capital stock of the Company or
any significant Subsidiary of the Company or any other business combination
(including the acquisition of any equity interest therein) involving the
Company.
4.9 Management Restricted Shares.. Parent shall use its best efforts to
enter into agreements (the "Substitution Agreements"), in form reasonably
satisfactory to the Company, with the holders of the Management Restricted
Shares whereby the holders shall receive from Parent in substitution for their
Management Restricted Shares (which shares shall be cancelled prior to the
Effective Date), shares of restricted securities of Parent.
4.10 Notices of Certain Events. From the date of the Initial Agreement
until the Closing Date, the Parties hereto shall notify the Special Committee of
the receipt of (i) any proceeds which would constitute Adjustment Amounts if
such proceeds had been received on or after the Effective Date and on or before
the Deferred Payment Termination Date and (ii) any proceeds received with
respect to the sale of interests in foreign development projects.
21
4.11 March 1999 Escrow Fund. The parties hereto acknowledge and agree
that the Surviving Corporation shall be subject to and bound by the terms of the
March 1999 Escrow Agreement and the Surviving Corporation shall send
instructions (the "Instructions") substantially in the form of Exhibit 4.11
hereto to the Escrow Agent for such Escrow Agreement whereby such Escrow Agent
shall be irrevocably instructed to distribute the Escrow Fund Payment
Distributions to the Paying Agent.
4.12 Spin-Off.
Promptly following the execution of this Agreement, the Company will
cause the following actions to be taken in accordance with the requirements of
applicable law, including the NYBCL, and the Company's certificate of
incorporation and bylaws with the objective of effecting the Spin-Off (as
defined below) on the date that all conditions to the consummation of the
Merger, including the shareholders' adopting of the Plan of Merger by the
Requisite Vote at the Special Meeting and have been or will be waived or
satisfied, (the "Spin-Off Date"):
(a) the due and valid formation of WOM;
(b) the execution and delivery by the Company and WOM of a
contribution and distribution agreement (the "Contribution Agreement") to
effectuate the Contribution (as defined below) and the Distribution (as defined
below) and such other agreements and arrangements which are customary in
connection with all on terms reasonably acceptable to Buyer;
(c) the filing and effectiveness of Registration Statement on
Form 10-SB (the "Form 10-SB") and the preparation and distribution to the
Company's shareholders of record on the Spin-Off Date of an information
statement, all in accordance with applicable law, including the Exchange Act;
(d) the transfer to, and assumption by, WOM on the Spin-Off
Date of the contingent assets and/or liabilities of Besicorp comprised of
Besicorp's interests in the Bansbach Litigation pursuant to an assignment of the
Bansbach Litigation (the "Contribution");
(e) the distribution of the outstanding capital stock of WOM
to the Company's shareholders of record on the Spin-Off Date (the "Distribution"
and together with the Contribution, the "Spin-Off;") in the escrow described in
Section 2.2.7 and
(f) all other actions necessary or appropriate to effect the
Spin-Off.
4.13 Compliance with requirements regarding appraisal Rights. The
parties agree to comply with the requirements of Sections 623 and 910 of the
NYBCL applicable to them and to notify, or to instruct the Paying Agent in a
timely basis to notify, all Objecting Shareholders and other shareholders
required to be notified, of the adoption of the Plan of Merger within ten days
of the date of such adoption.
22
4.14 Paying Agent. The parties agree to instruct the Paying Agent, and
use their best efforts to cause the Paying Agent, promptly to distribute the
Merger Consideration in accordance with this Agreement and to maintain such
records of the holders of shares of Besicorp Common Stock as may be necessary to
make such distributions through the Deferred Payment Termination Date.
ARTICLE V
CONDITIONS TO CLOSING; CLOSING DELIVERIES; BASE AMOUNT
5.1 Conditions to Each Party's Obligations. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
5.1.1 The Agreement shall have been adopted and authorized by
the Requisite Vote of the shareholders of the Company.
5.1.2 This Agreement and the Merger shall have been approved
by each Governmental Entity whose approval is required for the consummation of
the Merger, such approvals shall remain in full force and effect and all waiting
periods relating to such approvals shall have expired.
5.1.3 No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of making the Merger illegal.
5.1.4 No suit, proceeding or investigation shall have been
commenced by any Governmental Entity on any grounds to restrain, enjoin or
hinder, or seek material damages on account of, the consummation of the Merger
or the other transactions contemplated hereby.
5.2 Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated hereby is subject to the
fulfillment (or waiver) of all of the conditions set forth in Sections 5.2.1
through 5.2.5 prior to the Effective Date. Upon the non- fulfillment (and
non-waiver) of any of the conditions set forth in Sections 5.2.1 through 5.2.5
this Agreement may, at the Company's option, be terminated pursuant to and with
the effect set forth in Article VI:
5.2.1 Each and every representation and warranty made by
Parent and Acquisition Corp shall be true and correct when made in the Initial
Agreement and as if originally made on and as of the Closing Date.
5.2.2 All obligations of Parent and Acquisition Corp to be
performed hereunder through, and including on, the Closing Date shall have been
fully performed.
5.2.3 Parent and Acquisition Corp shall have delivered to the
Company the written opinion of Zeichner, Ellman & Krause, counsel for Parent,
dated as of the Closing Date, in substantially the form of Exhibit 5.2.3
attached hereto (the "Parent's Opinion").
5.2.4 Immediately prior to the Merger the Acquisition Corp is,
and assuming that the condition set forth in Section 5.3.1 hereof is satisfied
immediately following the effectiveness of the Merger, the Surviving Corporation
shall be, solvent.
23
5.2.5 The Special Committee (the "Special Committee") of the
Board that was formed by the Board on May 10, 1999 or the Board shall not have
withdrawn its approval, adoption or recommendation of the Agreement and the
Merger.
5.3 Conditions to Parent's and Acquisition Corp's Obligations. The
obligations of Parent and Acquisition Corp to consummate the transactions
contemplated hereby are subject to the fulfillment (or waiver) of all of the
conditions set forth in Sections 5.3.1 through 5.3.3 on or prior to the Closing
Date. Upon the non-fulfillment (and non-waiver) of any of conditions set forth
in Sections 5.3.1 through 5.3.3 this Agreement may, at Parent's option, be
terminated pursuant to and with the effect set forth in Article VI:
5.3.1 The representations and warranties made by the Company
shall be true and correct when made in the Initial Agreement and as if
originally made on and as of the Closing Date.
5.3.2 All obligations of the Company to be performed hereunder
through, and including on, the Closing Date shall have been fully performed.
5.3.3 The Company shall have delivered to Parent the written
opinion of Robinson Brog Leinwand Greene Genovese & Gluck P.C., counsel to the
Company, dated as of the Closing Date, in substantially the form of Exhibit
5.3.3 attached hereto (the "Company's Opinion").
5.4 Closing Deliveries.
5.4.1 At the Closing, the Company shall cause to be executed
and delivered to Parent and Acquisition Corp all of the following:
(a) a closing certificate dated the Closing Date
and executed on behalf of the Company by a duly authorized officer of the
Company to the effect set forth in Sections 5.1.1, 5.2.5, 5.3.1 and 5.3.2 hereof
(b) certified copies of such corporate records
of the Company and its Subsidiaries and copies of such other documents as Parent
or its counsel may reasonably have requested in connection with the consummation
of the transactions contemplated hereby;
(c) the Company's Opinion; and
(d) the minute books and corporate records of
the Company and its Subsidiaries and originals of the stock certificates
evidencing all of the outstanding capital stock of each of its Subsidiaries free
of all Encumbrances.
24
5.4.2 At the Closing, Parent and Acquisition Corp shall cause
to be delivered to the Company all of the following:
(a) a closing certificate dated the Closing Date
and executed on behalf of Parent and Acquisition Corp by a duly authorized
officer of Parent and Acquisition Corp to the effect set forth in Sections
5.1.2, 5.1.3, 5.1.4, 5.2.1, 5.2.2 and 5.2.4 hereof;
(b) certified copies of such corporate records
of Parent and Acquisition Corp and copies of such other documents as the Company
or its counsel may reasonably have requested in connection with the consummation
of the transactions contemplated hereby;
(c) the Parent's Opinion;
(d) the certificates, guarantee and escrow
agreement referred to in Section 4.7 hereof;
(e) evidence of delivery to the Paying Agent of
the Cash Merger Consideration for each of the shares of Common Stock (excluding
Management Restricted Shares for which substitute securities have been issued
pursuant to Section 4.9 hereof prior thereto) held of record on the Effective
Date by the Company Shareholders and the Objecting Shareholders;
(f) the instructions referred to in Section 4.11
hereof; and
(g) evidence of the execution of the Substitution
Agreements.
ARTICLE VI
TERMINATION/EFFECT OF TERMINATION
6.1 Right to Terminate. Anything to the contrary herein
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Effective Date by prompt notice given in
accordance with Section 7.4 hereof:
6.1.1 by the mutual written consent of Parent and Acquisition
Corp and the Company (with the approval of their respective Boards of Directors
or, in the case of the Company, the Special Committee);
6.1.2 by Acquisition Corp and Parent or by the Company (by
action of their Board of Directors or, in the case of the Company, the Special
Committee) if:
(a) the Effective Date shall not have occurred
at or before the Termination Date; provided, however, that the right to
terminate this Agreement under this Section 6.1.2 (a) shall
25
not be available to any party whose failure to fulfill any of its obligations
under this Agreement has been the cause of the failure of the Effective Date to
have occurred as of such time;
(b) upon a vote at the Meeting, either this
Agreement or the Merger shall fail to be adopted and authorized by the Requisite
Vote; or
(c) either the Board or the Special Committee
shall have taken any action contemplated by clause (i), (ii), (iii) or (iv) of
the first sentence of Section 4.8.1;
6.1.3 by Parent and Acquisition Corp, by giving written notice
of such termination to the Company, if:
(a) there has been a material breach of any
representation or warranty of the Company which could reasonably by expected
to prevent the Company from fulfilling its obligations hereunder or of any
material agreement or covenant hereunder on the part of the Company which has
not been cured or adequate assurance of cure given, in either case within ten
(10) business days following notice of such breach from Parent; or
(b) a tender offer or exchange offer for 40% or
more of the shares of Common Stock of the Company is commenced by a person who
is not affiliated with any Executive, any shareholder of Parent, or Parent
and the Board fails to recommend against acceptance of such tender offer or
exchange offer by its shareholders within the time period required by Section
14e-2 of the Exchange Act (the taking of no position before the expiration of
such period with respect to the acceptance of such tender offer or exchange
offer by the Company's shareholders constituting such a failure) or any Person
other than an Executive, any shareholder of Parent or Parent acquires (other
than from Executives, shareholders of Parent and Parent) by any means 40% or
more of the outstanding shares of Common Stock; or
6.1.4 by the Company (by action of the Board or the Special
Committee), by giving written notice of such termination to Parent and
Acquisition Corp, if:
(a) there has been a material breach of any
agreement herein on the part of Acquisition Corp or Parent which has not been
cured or adequate assurance of cure given, in either case within ten (10)
business days following notice of such breach from the Company;
(b) there has been a breach of a representation
or warranty of Parent or Acquisition Corp herein which could reasonably be
expected to prevent Parent or Acquisition Corp from fulfilling their obligations
under this Agreement and which, in the reasonable opinion of the Company, by its
nature cannot be cured within ten (10) days (or, if sooner, the Closing Date);
(c) there has been a material breach of any
representation or warranty of any of the Executives in any of the Certificates.
26
6.2 Certain Effects of Termination. In the event of the termination of
this Agreement as provided in Section 6.1 hereof, each party, if so requested by
any other party, will return promptly every document furnished to it by or on
behalf of such other party in connection with the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, and
any copies thereof (except for copies of documents publicly available) which may
have been made, and will use reasonable efforts to cause its representatives and
any representatives of financial institutions and investors and others to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made. This Section 6.2 shall survive any
termination of this Agreement.
6.3 Remedies. Notwithstanding any termination right granted in Section
6.1 hereof, in the event of the nonfulfillment of any condition to a party's
closing obligations, such party may elect to proceed to close despite the
nonfulfillment of any closing condition without waiving any claim for any
breach.
6.4 Right to Damages; Expense Reimbursement.
6.4.1 If this Agreement is terminated in accordance with
Section 6.1 hereof, no party will have any claim against the others, subject to
the following sentence and, if applicable, the remaining provisions of this
Section 6.4. A party terminating this Agreement in accordance with Section 6.1
hereof (other than Section 6.1.1) will retain any and all of such party's legal
and equitable rights and remedies if, but only if, the circumstances giving rise
to such termination were (i) caused by another party's willful failure to comply
with a material covenant set forth herein or (ii) that a material representation
or warranty of such other party was materially false when made and that party
knew or should have reasonably known such representation or warranty was
materially false when made. In either of such events, termination shall not be
deemed or construed as limiting or denying any legal or equitable right or
remedy of said party, and said party shall also be entitled to recover its costs
and expenses which are incurred in pursuing its rights and remedies (including
reasonable attorneys' fees).
6.4.2 If (x) this Agreement is terminated pursuant to Section
6.1.2(b), 6.1.2 (c) hereof or (y) Acquisition Corp and Parent terminate this
Agreement pursuant to 6.1.3, the Company will reimburse Parent and Acquisition
Corp for their out-of-pocket costs and expenses reasonably incurred and due to
third parties in connection with this Agreement (including fees and
disbursements of counsel, accountants, financial advisors and consultants,
commitment fees, due diligence expenses, travel costs, filing fees, and similar
fees and expenses, all of which shall be conclusively established by a good
faith statement therefor) (collectively, "Covered Expenses"), up to a maximum of
$150,000, by wire transfer of same-day funds to an account designated by Parent,
immediately following receipt of Parent's statement evidencing the Covered
Expenses.
6.4.3 If (x) the Agreement is terminated pursuant to Section
6.1.2(a) hereof or (y) the Company terminates this Agreement pursuant to Section
6.1.4 hereof, Parent will pay to the Company immediately upon such termination
the Company's Covered Expenses up to a maximum of $500,000 by wire transfer of
same day funds to an account designated by the Company.
27
6.4.4 If the Company or Parent and Acquisition Corp fail to
promptly pay any amounts owing pursuant to this Section 6.4. when due, the
Company or Parent and Acquisition Corp, as the case may be, shall in addition to
paying such amounts pay all costs and expenses (including, fees and
disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received by the
Company or Parent and Acquisition Corp, as the case may be, at the rate of 15%
per annum during such period. This Section 6.4 shall survive the termination of
this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 Survival of Representations, Warranties and Agreements. All of the
representations and warranties contained in this Agreement or in any certificate
or other document delivered pursuant to this Agreement shall survive the Merger
for a period of five years (the "Survival Period") following the Effective Date.
7.2 Amendment. This Agreement may be amended by the parties hereto,
with the approval of their respective Boards of Directors, at any time prior to
the Effective Date, whether before or after approval hereof by the shareholders
of the Company, but, after such approval by the shareholders of the Company, no
amendment shall be made without the further approval of such shareholders if
such amendment would violate Section 903 of the NYBCL. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.3 Publicity. Except as otherwise required by law, press releases and
other publicity concerning the transactions contemplated by this Agreement shall
be made only with the prior agreement of the Company and Parent.
7.4 Notices. All notices required or otherwise given hereunder shall be
in writing and may be delivered by hand, by facsimile, by nationally recognized
private courier, or by United States mail. Notices delivered by mail shall be
deemed given three (3) business days after being deposited in the United States
mail, postage prepaid, registered or certified mail, return receipt requested.
Notices delivered by hand, by facsimile, or by nationally recognized private
courier shall be deemed given on the day of receipt (if such day is a business
day or, if such day is not a business day, the next succeeding business day);
provided, however, that a notice delivered by facsimile shall only be effective
if and when confirmation is received of receipt of the facsimile at the number
provided in this Section 7.4. All notices shall be addressed as follows:
28
If to the Company:
Besicorp Ltd.
1151 Flatbush Road
Kingston, New York 12401
Attention: Joyce DePietro, Vice President - Administration
Fax: (914) 336-7172
with a copy to:
Robinson Brog Leinwand Greene Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105
Attention: A. Mitchell Greene, Esq.
Fax: (212) 956-2164
If to Parent, Acquisition Corp or the Surviving Corporation:
Michael F. Zinn
c/o Besicorp Ltd.
1151 Flatbush Road
Kingston, New York 12401
Fax: (914) 336-7172
with a copy to:
Zeichner, Ellman & Krause
575 Lexington Avenue
New York , New York 10022
Attention: William Poltarak, Esq.
Fax: (212) 753-0396
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 7.4.
7.5 Expenses; Transfer Taxes. Except as set forth in Section 6.4
herein, each party shall bear all of its fees and expenses incurred in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, financial
advisors', attorneys', accountants' and other professional fees and expenses.
7.6 Entire Agreement. This Agreement and the instruments to be
delivered by the parties pursuant to the provisions hereof constitute the entire
agreement between the parties with respect to
29
their subject matter and supersedes any and all prior understandings and
agreements. This Agreement and the instruments to be delivered by the parties
pursuant to the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, successors and
permitted assigns. Each Exhibit and schedule hereto shall be considered
incorporated into this Agreement.
7.7 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
7.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
7.9 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
7.10 Applicable Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York applicable to contracts
made in that State.
7.11 Binding Effect; Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their successors and permitted
assigns. Except as expressly provided herein, nothing in this Agreement, express
or implied, shall confer on any person other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, including, without
limitation, third party beneficiary rights.
7.12 Assignability. This Agreement shall not be assignable by any party
without the prior written consent of the other parties.
7.13 Governmental Reporting. Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other person must make or file, or cooperate in the making or
filing of, any return or report to any Governmental Entity in any manner that
such person or such party reasonably believes or reasonably is advised is not in
accordance with law.
7.14 Defined Terms. (a) As used in this Agreement:
Bansbach Litigation means an action commenced in August 1997
in the New York
30
Supreme Court, Ulster County, entitled John Bansbach v.
Michael F. Zinn, Michael J. Daley, Gerald A. Habib, Harold
Harris, Richard E. Rosen, and Besicorp Group Inc., Index No.
97-2573.
"Current Insurance Policy" means the Company's directors and
officers' insurance policy in effect on the date of the
Initial Agreement (a copy of which policy is attached hereto
as Exhibit 7.14).
"Empire Project" means the projects being developed with
Empire State Newsprint.
"Escrow Fund Payment Distribution" means an amount equal to
the monies released pursuant to Section 4 of the March 1999
Escrow Agreement multiplied by a fraction, the numerator of
which is the number of shares of Common Stock held of record
by the Company Shareholders immediately prior to the Effective
Date and the denominator of which is the sum of the number of
shares of Common Stock held of record by the Company
Shareholders, the Objecting Shareholders and the Ineligible
Shareholders immediately prior to the Effective Date and the
number of Management Restricted Shares which have been
cancelled pursuant to Section 4.9 hereof prior thereto.
"Executives" means James Curtin, David Kulik, William Seils,
and Michael Zinn.
"Foreign Development Projects" mean the projects being
developed in Brazil, Gabon, India and Mexico by the Company
(directly or indirectly), either by itself or with a partner,
on the Effective Date.
"Hydro-Credits" mean payments by Niagara Mohawk Power
Corporation as contemplated by its letter dated July 9, 1997.
"Incentive Plan" means the Company's 1999 Incentive Plan.
"Loan Funding Date" means the date the Company makes a request
for a Parent Loan.
"Management Restricted Shares" mean the 13,850 Restricted
Shares (as of October 7, 1999) which will not vest as a result
of the Merger).
"Material Adverse Effect" means an effect which involves
$50,000 or more on the business, operations (or results of
operations), condition (financial or otherwise), properties,
assets, liabilities, or prospects of such Person or its
Subsidiaries.
"March 1999 Escrow Agreement" means that certain Escrow
Agreement dated as of March 22, 1999 by and among the Company
, BGI, BGI Acquisition Corp. and BGI Acquisition LLC.
31
"March 1999 Escrow Fund" means the fund created pursuant to
the March 1999 Escrow Agreement.
"March 1999 Merger" means the merger that was consummated on
March 22, 1999 between BGI and BGI Acquisition Corp.
"Person" means an individual, partnership, corporation,
limited liability company, business, business trust, joint
stock company, trust, unincorporated association, joint
venture, Governmental Entity or other entity of whatever
nature or a group, including any pension, profit sharing or
other benefit plan or trust.
"Requisite Vote" means the affirmative vote of the holders of
at least one-half of the outstanding shares of Besicorp Common
Stock and in tabulating such vote the Management Restricted
Shares shall be tabulated in the manner contemplated by
Section 4.6 hereof regardless of the manner in which they were
voted; provided however, that nothing herein shall lessen the
requirements of Section 9.03 of the NYBCL.
"Restricted Shares" means the 14,900 shares of Common Stock
(as of October 7, 1999) issued pursuant to the Incentive Plan
and subject to restrictions on transferability prior to
vesting.
"SG&A" means expenses of the type that were classified as
selling, general and administrative expenses for the year
ended March 31, 1999 in the Company's financial statements
included in the Company's Form 10-KSB for the year ended March
31, 1999.
"Subsidiary" means any corporation, partnership, joint venture
or other legal entity of which a Person (either alone or
through or together with any other Subsidiary or
Subsidiaries), either (A) owns, directly or indirectly, 25% or
more of the capital stock or other equity interests, the
holders of which are generally entitled to vote with respect
to matters to be voted on in such corporation, partnership,
joint venture or other legal entity or a 25% or more of the
interest in the assets of the corporation, partnership, joint
venture or other legal entity upon its liquidation or (B) is
otherwise a Significant Subsidiary (as such term is defined in
Section 1-02(w) of Regulation S-X promulgated in connection
with the Securities Act of 1933, as amended).
"SunWize Project" means the financing and construction of a
facility for SunWize in Kingston, New York, and all matters
related thereto.
"Taxes" means all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease,
32
service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatever, together with any
interest and any penalties, additions to tax or additional
amounts with respect thereto, and the term "Tax" means any one
of the foregoing Taxes.
"Termination Date" means 11:59 p.m. New York City time on
December 15, 1999; provided however, that each party has the
right in its sole discretion, exercisable at any time prior to
11:59 p.m. New York City time on December 15, 1999, by written
\notice to the other parties, to extend the Termination Date
to 11:59 p.m. New York City time on March 1, 2000 in which
case for all purposes pursuant to this Agreement, the
Termination Date shall be deemed to mean 11:59 p.m. New York
City time on March 1, 2000.
"Underlying Assets" means any asset which is capable of
generating proceeds that would constitute an Adjustment Amount
or Substitute Adjustment Amount.
(b) In addition to the terms defined in Section 7.4(a), the
following terms are defined in the following sections of this Agreement:
Defined Term Where Found
Acquisition Corp. Preamble
Acquisition Proposal 4.8.2
Adjustment Amounts 2.4.1
Adjustment 2.4.1
Aggregate Cash Merger Consideration 2.1.1
Agreement Preamble
Assignee 2.4.3
Authorization 3.2.8
Beta 2.4.1
BGI 2.2.7
Board 3.2.2
Cash Merger Consideration 2.1.1
33
Defined Term Where Found
- ------------
Certificate of Merger 1.2
Certificates 2.2.2
Closing 1.6
Closing Date 1.6
Code 2.2.6
Combined Deferred Payment Right 2.1.1
Common Stock 2.1.1
Company Preamble
Company Filings 4.3.4
Company Shareholders 2.2.1
Company's Opinion 5.3.3
Consents 4.3.6
Constituent Corporation 1.1
Contribution 4.12
Covered Expenses 6.4.2
D&O Insurance 4.4.1
Deferred Payment Date 2.4.2
Deferred Payment Fund 2.4.1
Deferred Payment Right 2.1.1
Deferred Payment Termination Date 2.4.1
Deferred Payments 2.4.1
Distribution 4.12
Effective Date 1..2
Encumbrance 3.3.4
34
Defined Term Where Found
- ------------
Escrow Fund Payment Right 2.1.1
Escrow Fund Payments 2.4.5
Exchange Act 3.2.7
Excluded Expenses 2..4.1
Fairness Opinion 3.2.5
Form 10-SB 4.12
GAAP 4.2
Government Entity 4.3.6
Indemnified Person 4.4.1
Indemnified Persons 4.4.1
Ineligible Holders 2.1.1
Initial Agreement Preamble
Instructions 4.11
Josephthal 3.2.4
Letter of Transmittal 2.2.2
Losses 4.4.3
Meeting 4.3.1
Merger Preamble
Merger Consideration 2.1.1
Natural Dam 2.4.1
NYBCL Preamble
Objecting Shareholders 2.1.1
Parent Preamble
Parent Filings 4.3.5
35
Defined Term Where Found
- ------------
Parent Loan 4.5.1
Parent Obligations 3.3.4
Parent's Opinion 5.2.3
Paying Agent 2.2
Payor 2.4.4
Proxy Statement 3.2.5
Related Entity 2.4.1
Reserved Shares 2.1.1
Schedule 13E-3 3.2.7
SEC 4.3.2
Special Committee 5.2.5
Spin-Off 4.12
Spin-Off Date 4.12
Stock Option 3.2.3
Substitute Adjustment Amounts 2.4.4
Substitute Adjustments 2.4.4
Substitute Deferred Payment Fund 2.4.4
Substitution Agreement 4.9
Survival Period 7.1
Surviving Corporation 1.1
Transaction Agreements 3.2.2
36
7.15 Headings. The headings contained in this Agreement and this
Agreement's Table of Contents are for convenience of reference only and shall
not affect the meaning or interpretation of this Agreement.
7.16 Interpretation; Construction. Whenever the term "including" is
used in this Agreement it shall mean "including, without limitation," (whether
or not such language is specifically set forth) and shall not be deemed to limit
the range of possibilities to those items specifically enumerated. All joint
obligations herein shall be deemed to be joint and several whether or not
specifically so specified. The Exhibits referred to herein shall be construed as
an integral part of this Agreement to the same extent as if they were set forth
verbatim herein. Disclosure of any fact or item in any Article or Section of
this Agreement or any Exhibit hereto shall, should the existence of the fact or
item be relevant to any other Section of this Agreement or any Exhibit hereto,
be deemed disclosed with respect to such other Article or Section of this
Agreement or such other Exhibit.
37
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Agreement and Plan of Merger on the date first above written.
PARENT:
BESICORP HOLDINGS, LTD.
By: /s/ Michael F. Zinn
--------------------
Name: Michael F. Zinn
Title: President
ACQUISITION CORP:
BESI ACQUISITION CORP.
By: /s/ Michael F. Zinn
--------------------
Name: Michael F. Zinn
Title: President
THE COMPANY:
BESICORP LTD.
By: /s/ Michael J. Daley
--------------------
Name: Michael J. Daley
Title: Executive Vice President
AGREED TO AND ACCEPTED
WITH RESPECT TO SECTION
4.6 BY MICHAEL F. ZINN
/s/ Michael F. Zinn
- -------------------
Michael F. Zinn
38
ANNEX B
PRIVATE AND CONFIDENTIAL
September 22, 1999
The Board of Directors
Besicorp, Ltd.
1151 Flatbush Road
Kingston, New York 12401
Dear Board Member:
We understand that Besi Acquisition Corp ("Acquisition Corp"), a
wholly-owned Subsidiary of Besicorp Holdings, Ltd. ("Parent"), a company
controlled by Michael F. Zinn, currently the Chairman of the Board, President
and Chief Executive Officer of Besicorp, Ltd. (the "Company" or "Besicorp"),
Parent and the Company are considering a proposed transaction in which
Acquisition Corp will merge with and into the Company (the "Merger"), subject to
all of its liabilities, on or before an agreed upon date ("Effective Time") as
set forth in the Agreement and Plan of Merger by and between Besi Acquisition
Corp and Parent (the "Merger Agreement")1. The consummation of the Merger is
subject to the execution of a certificate of merger ("Certificate of Merger")
between Acquisition Corp and Besicorp. As more specifically set forth in the
Agreement, and subject to the terms and conditions thereof, each share of common
stock of Besicorp, $0.01 par value, (the "Common Shares") issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares of
Common Shares held as treasury shares by the Company or its Subsidiaries and
shares of Common Stock then owned of record by Acquisition Corp and Parent (the
"Ineligible Holders")), shall be converted into the right to receive in cash an
aggregate of $8.0 million divided by the sum of (i) the number of shares of
Common Stock issued and outstanding immediately prior to the Effective Date
(other than those shares held as treasury shares by the Company) and (ii) the
number of Management Restricted Shares for which substitute securities have been
issued, or $58.70 per share2 ("Cash Merger Consideration") and the right to
receive on a pro-rata basis in accordance with the provisions of the Merger
Agreement (i) monies, if any, that may be released from the approximately $6.5
million March 1999 Escrow Fund established in connection with the merger
involving the Company's former parent, Besicorp Group Inc., (ii) amounts
received with respect to litigation claims by Besicorp from matters arising
before the Effective Time, (iii) amounts received by Beta Partnership, Inc. and
distributions received from Kamine Besicorp Natural Dam L.P. Inc. (other than an
amount anticipated to be received by Beta from Natural Dam in November, 1999)
and any other funds that are distributed as a result of remaining partnership
interests in existence as of the date of the Merger Agreement, (iv) any realized
funds that may be distributed to the Company as a result of outstanding hydro
credits, and (v) amounts received with respect to the sale of the Company's
interests, directly or indirectly (except for debt financing for development
capital purposes which might have an equity carried interest in a foreign
development project) in each of its non-U.S. development projects within twelve
months following the Effective Time, less expenses (other than SG&A) incurred
and paid towards the project within the twelve months following the Effective
Time (in the aggregate, the "Deferred Payments"), collectively, the "Merger
Consideration". The Zinn Family Trust (the "Trust") in which Michael F. Zinn
disclaims beneficial ownership may be offered an opportunity to participate with
Parent in the Merger. We have been advised that the Trust will vote its Common
Shares in favor of the Merger irrespective of whether it is a participant with
Parent in the Merger.
1 Capitalized terms used herein without definitions shall have the meaning
ascribed to them in the Merger Agreement.
2 Based upon 122,432 Common Shares issued and outstanding and 13,850
restricted Common Shares owned by management. We were not involved in the
issuance of the restricted shares and do not opine on their value or
participation in the merger.
You have requested our opinion as to the fairness from a financial
point of view, to the Company and its stockholders, other than the Michael F.
Zinn, of the consideration to be paid by Acquisition Corp to the holders of
Common Shares in the Merger (the "Fairness Opinion"). We do not perform tax,
accounting, legal services or render such advice. In addition, we were not
involved in the issuance of the restricted shares and do not opine on their
value or participation in the merger.
In conducting our review and analyses, and arriving at the opinion
expressed herein, we have assumed and relied upon the accuracy and completeness
of all of the financial and other information provided to us by the Company or
publicly available and have neither attempted independently to verify nor
assumed responsibility for verifying any of this information. We have not
conducted a physical inspection of Besicorp's properties or facilities, nor have
we made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the related properties,
facilities or business segments. We have assumed that management's financial
analyses have been prepared on a good faith reasonable basis reflecting the best
currently available estimates and judgments of Besicorp's management and/or
financial consultants or advisors to Besicorp. Further, the Company represents
and warrants the accuracy and completeness of the information it has provided.
In evaluating the Merger and Merger Consideration, we have taken into
account statements by Michael F. Zinn in his offer letter, dated June 17, 1999,
and revised offer dated August 10, 1999. We understand that Michael F. Zinn: (i)
will not agree to be employed by a Company in which he is not in control; (ii)
is unwilling to personally guarantee any debt or debt related financing in a
public company; (iii) in his capacity as a shareholder, will not approve the
sale of assets to a third party and will vote against such sale, and has been
advised by the Independent Special Trustee of the Zinn Family Trust that the
Zinn Family Trust also opposes any sale of assets and would similarly vote
against such sale to a third party; (iv) is unwilling to purchase some but less
than all of the business assets of Besicorp; (v) is unwilling to continue in the
employment of the Company under current conditions; and (vi) continues to hold
to the beliefs and conclusions contained in the offer letter dated June 17, 1999
under the heading "Certain Factors Influencing Offeror." The Company has given
the Special Committee and its advisors unrestricted access to information and
employees and the Purchaser has removed himself from the diligence process and
has recused himself from the Special Committee process of analyzing the Merger.
In conducting our analyses and reviewing the information provided to us
by the Company, we understand and have considered the following asset categories
to be included in the Company: (i) the SunWize business ("SunWize"); (ii) all
outstanding projects and identified prospective projects of Besicorp Development
Inc. ("BDI") and other subsidiaries of the Company and SunWize; (iii)
outstanding partnership interests and credits due to Besicorp which may result
in cash inflows to the Company; (iv) Besicorp real estate, including the
properties used in existing business operations and properties that are
exogenous to existing business operations; and (v) the March 1999 Escrow Fund,
established in connection with the merger involving Besicorp Group Inc. to fund
the litigation costs, judgements, and/or assist in the settlement of any
litigation pending against Besicorp Group Inc. and/or arising out of the
Besicorp Group Inc. merger transaction consummated March 22, 1999. We understand
the Deferred Payments are excluded from the Cash Merger Consideration and any
monies received will be segregated and distributed pro rata to shareholders of
record as of the Effective Time.
In order to arrive at our opinion, we have reviewed the following
materials and considered such financial and other factors as we deemed relevant
under the circumstances, including, among others, the following: (i) certain
historical financial, operating and other data that were publicly available or
were furnished to us by Besicorp regarding the Merger including, but not limited
to: (a) projections and cash flow analyses for SunWize prepared by management;
(b) Form 10KSB and Form 10KSB/A for the period ending 3/31/99, Proxy Statement
of Besicorp Group Inc. dated 3/1/99 and Information Statement dated 3/19/99; (c)
Form 10Q for the period ending 6/30/99; (d) internally generated operating
reports and discussions from management concerning the various business segments
of Besicorp; (e) Empire Project financial model prepared by Morgan Stanley Dean
Witter and Besicorp; (f) real estate appraisal and partnership interests and
hydro credit valuations prepared by management with the assistance of identified
third parties; (ii) various press releases regarding the development and status
of the Empire Project and other projects; (iii) publicly available financial,
operating and stock market data for companies engaged in businesses deemed
comparable to those of the Company; (iv) merger and acquisition transactions by
companies in the same or similar businesses considered to have degrees of
comparability to the Merger; and (v) such other factors and information as we
deemed appropriate. We have met with senior officers of the Company to discuss
prospects for Besicorp's business and such matters as we believed relevant. In
addiiton, we have reviewed the Agreement and Plan of Merger dated as of
September 16, 1999.
In conducting our analyses and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of
Besicorp; (ii) the business prospects of Besicorp; (iii) the historical and
current market for the Common Shares and (iv) the nature and terms of other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise this presentation based upon circumstances or events occurring
after the date hereof. In that regard, we have not considered any acquisition or
similar transaction to which Besicorp might become a party whether announced or
not, that has not closed prior to the date hereof. This presentation is limited
to the fairness, from a financial point of view, of the Merger Consideration to
be paid to the holders of Common Shares of Besicorp other than Michael F. Zinn
in the Merger. This presentation does not address in any way Besicorp's
underlying business decision to effect the Merger. We have not been involved in
forming Parent, Acquisition Corp or the Merger Consideration and have not
assumed any responsibility for making or obtaining an independent evaluation or
appraisal of Besicorp's properties or other assets, nor do we opine on the
capital requirements or availability of capital for Besicorp.
As you know, Josephthal & Co. Inc. ("Josephthal") has been retained by
Besicorp to render this opinion and provide other financial advisory services,
and will receive fees for such services. In addition, in the ordinary course of
the business, Josephthal may actively trade the Common Shares for its own
account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities.
This Fairness Opinion is solely for the use of Besicorp (including its
Board of Directors) and is not to be publicly-disclosed, used, excerpted,
reproduced or disseminated, quoted or referred to at any time, in any manner or
for any purpose, without the prior written consent of Josephthal; provided,
however, that Besicorp may include the Fairness Opinion in whole but not in part
as an annex to the Proxy Statement to be filed with the Securities and Exchange
Commission and delivered to the stockholders of Besicorp. This opinion does not
constitute a recommendation to any holder of Common Shares as to how any such
stockholder should vote on any aspect of the Merger, including the Merger
Consideration, nor does this opinion address the relative merits of the Merger
or any other transactions or business strategies discussed by the Board of
Directors of Besicorp as alternatives to the Merger or the decision of the Board
of Directors of Besicorp to proceed with the Merger.
Based upon and subject to the foregoing it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration to be received by
the holders of Common Shares of Besicorp (other than Michael F. Zinn) in the
Merger is fair from a financial point of view.
Very truly yours,
/s/ JOSEPHTHAL & CO, INC.
---------------------------
JOSEPHTHAL & CO. INC.
ANNEX C
DISSENTER'S RIGHTS PROVISIONS
623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT FOR SHARES.--(a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the corporation,
before the meeting of shareholders at which the action is submitted to a vote,
or at such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares if the action is taken.
Such objection is not required from any shareholder to whom the corporation did
not give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term as
used in this section means the date on which the shareholders' vote authorizing
such action was taken, or the date on which such consent without a meeting was
obtained from the requisite shareholders, the corporation shall give written
notice of such authorization or consent by registered mail to each shareholder
who filed written objection or from whom written objection was not required,
excepting any shareholder who voted for or consented in writing to the proposed
action and who thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder from
whom written objection was not required and who elects to dissent shall file
with the corporation a written notice of such election, stating his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares. Any shareholder who elects
to dissent from a merger under section 905 (Merger of subsidiary corporation) or
paragraph (c) of section 907 (Merger or consolidation of domestic and foreign
corporations) or from a share exchange under paragraph (g) of section 913 (Share
exchanges) shall file a written notice of such election to dissent within twenty
days after the giving to him of a copy of the plan of merger or exchange or an
outline of the material features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to which
he has a right to dissent, held by him of record, that he owns beneficially. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner, as to which such nominee or fiduciary
has a right to dissent, held of record by such nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease to
have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if
1
the corporation fails to make a timely offer, as provided in paragraph (g), the
time for withdrawing a notice of election shall be extended until sixty days
from the date an offer is made. Upon expiration of such time withdrawal of a
notice of election shall require the written consent of the corporation. In
order to be effective, withdrawal of a notice of election must be accompanied by
the return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his fights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the corporation, the fair value thereof in cash as determined
by the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in the
interim.
(f) At the time of filing the notice of election to dissent or within one month
thereafter the shareholder of shares represented by certificates shall submit
the certificates representing his shares to the corporation, or to its transfer
agent, which shall forthwith note conspicuously thereon that a notice of
election has been filed and shall return the certificates to the shareholder or
other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon
2
submission of his certificates. If the corporate action has not been consummated
at the time of the making of the offer, such advance payment or statement as to
advance payment shall be sent to each shareholder entitled thereto forthwith
upon consummation of the corporate action. Every advance payment or statement as
to advance payment shall include advice to the shareholder to the effect that
acceptance of such payment does not constitute a waiver of any dissenters'
rights. If the corporate action has not been consummated upon the expiration of
the ninety day period after the shareholders' authorization date, the offer may
be conditioned upon the consummation of such action. Such offer shall be made at
the same price per share to all dissenting shareholders of the same class, or if
divided into series, of the same series and shall be accompanied by a balance
sheet of the corporation whose shares the dissenting shareholder holds as of the
latest available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not less
than a twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make such
offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of whichever
is applicable of the two periods last mentioned, institute a special proceeding
in the supreme court in the judicial district in which the office of the
corporation is located to determine the rights of dissenting shareholders and to
fix the fair value of their shares. If, in the case of merger or consolidation,
the surviving or new corporation is a foreign corporation without an office in
this state, such proceeding shall be brought in the county where the office of
the domestic corporation, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such period of
twenty days, any dissenting shareholder may institute such proceeding for the
same purpose not later than thirty days after the expiration of such twenty day
period. If such proceeding is pot instituted within such thirty day period, all
dissenter's rights shall be lost unless the supreme court, for good cause shown,
shall otherwise direct.
3
(3) All dissenting shareholders, excepting those who, as provided in paragraph
(g), have agreed with the corporation upon the price to be paid for their
shares, shall be made parties to such proceeding, which shall have the effect of
an action quasi in rem against their shares. The corporation shall serve a copy
of the petition in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service of a
summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to whom
the corporation requests the court to make such determination, is entitled to
receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the corporation
in favor of each dissenting shareholder who is a party to the proceeding and is
entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate as the
court finds to be equitable, from the date the corporate action was consummated
to the date of payment. In determining the rate of interest, the court shall
consider all relevant factors, including the rate of interest which the
corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts, employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election as
provided in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or
4
otherwise not in good faith. The court may, in its discretion, apportion and
assess all or any part of the costs, expenses and fees incurred by any or all of
the dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair value of
the shares as determined materially exceeds the amount which the corporation
offered to pay; (B) that no offer or required advance payment was made by the
corporation; (C) that the corporation failed to institute the special proceeding
within the period specified therefor; or (D) that the action of the corporation
in complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificate for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
j) No payment shall be made to a dissenting shareholder under this section at a
time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under subparagraph (1)
or (2) by written notice filed with the corporation within thirty days after the
corporation has given him written notice that payment for his shares cannot be
made because of the restrictions of this paragraph. If the dissenting
shareholder fails to exercise such option as provided, the corporation shall
exercise the option by written notice given to him within twenty days after the
expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other fight to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and
5
except that this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(1) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided in
subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
910 RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE
EXCHANGE.--(a) A shareholder of a domestic
corporation shall, subject to and by complying with section 623 (Procedure to
enforce shareholder's right to receive payment for shares), have the right to
receive payment of the fair value of his shares and the other rights and
benefits provided by such section, in the following cases:
(1) Any shareholder entitled to vote who does not assent to the taking of an
action specified in clauses (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a party;
except that the right to receive payment of the fair value of his shares shall
not be available:
(i) To a shareholder of the parent corporation in a merger authorized by section
905 (Merger of parent and subsidiary corporations), or paragraph (c) of section
907 (Merger or consolidation of domestic and foreign corporations); or
(ii) To a shareholder of the surviving corporation in a merger authorized by
this article, other than a merger specified in subclause (i), unless such merger
effects one or more of the changes specified in subparagraph (b)(6) of section
806 (Provisions as to certain proceedings) in the rights of the shares held by
such shareholder, - or
(iii) Notwithstanding subclause (ii) of this clause, to a shareholder for the
shares of any class or series of stock, which shares or depository- receipts in
respect thereof, at the record date fixed to determine the shareholders
entitled to receive notice of the meeting of shareholders to vote upon the plan
of merger or consolidation, were listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
(B) Any sale, lease, exchange or other disposition of all or substantially all
of the assets of a corporation which requires shareholder approval under section
909 (Sale, lease, exchange or other disposition of assets) other than a
transaction wholly for cash where the shareholders' approval thereof is
conditioned upon the dissolution of the corporation and the distribution of
substantially all of its net assets to the shareholders in accordance with their
respective interests within one year after the date of such transaction.
6
(C) Any share exchange authorized by section 913 in which the corporation is
participating as a subject corporation; except that the right to receive
payment of the fair value of his shares shall not be available to a shareholder
whose shares have not been acquired in the exchange or to a shareholder for the
shares of any class or series of stock, which shares or depository receipt in
respect there of, at the record date fixed to determine the shareholders
entitled to receive notice of the meeting of shareholders to vote upon the plan
of exchange, were listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc.
(2) Any shareholder of the subsidiary corporation in a merger authorized by
section 905 or paragraph (c) of section 907, or in a share exchange authorized
by paragraph (g) of section 913, who files with the corporation a written notice
of election to dissent as provided in paragraph (c) of section 623.
(3) Any shareholder, not entitled to vote with respect to a plan of merger or
consolidation to which the corporation is a party, whose shares will be
cancelled or exchanged in the merger or consolidation for cash or other
consideration other than shares of the surviving or consolidated corporation or
another corporation.
7
Besicorp Ltd.
1151 Flatbush Road
Kingston, New York 12401
-----------------------------
PROXY
For Special Meeting of Shareholders of Besicorp Ltd. to be held on March [ ],
2000
--------------------------------
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Frederic Zinn and Michael J. Daley as
Proxies, each with the power of substitution, and hereby authorizes each of them
to represent and to vote, as designated below, all the shares of common stock of
Besicorp Ltd. held of record by the undersigned on February 7, 2000 at the
Special Meeting of Shareholders to be held on March [ ], 2000, or any
adjournment or postponement thereof.
1. TO ADOPT THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER DATEDAS OF NOVEMBER 24, 1999, BY AND AMONG BESICORP LTD.,
BESICORP HOLDINGS, LTD. AND BESI ACQUISITION CORP. AND THE MERGER
PROVIDED FOR THEREIN.
{ } FOR { } AGAINST { } ABSTAIN
2. TO CONSIDER AND ACT UPON ANY OTHER BUSINESS AS MAY COME BEFORE THE
SPECIAL MEETING OF SHAREHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, THE COMPANY'S TRANSFER
AGENT.
This Proxy when properly executed will be voted in the manner directed
herein by the
undersigned stockholder. (IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 and in the discretion of the named proxies with respect to any
other matter that may properly come before the meeting or any adjournment or
postponement thereof.)
-----------------------------------
Signature
-----------------------------------
Signature, if held jointly
Dated _____________________, 2000
Please date and sign exactly as
name appears on your stock
certificate. Joint owners should
each sign personally.
Trustees, custodians, executors
and others signing in a
representative capacity should
indicate the capacity in which they
sign.
NOTE: YOU MAY ALSO RETURN THIS PROXY CARD BY FACSIMILE TRANSMISSION TO
CONTINENTAL STOCK TRANSFER & TRUST COMPANY ("CONTINENTAL"). TO RETURN THIS CARD
BY FAX, YOU MUST PHOTOCOPY BOTH SIDES OF THE SIGNED PROXY CARD SO THAT THEY
APPEAR ON THE SAME PAGE AND FAX THE PHOTOCOPY TO CONTINENTAL AT (212) 509-5152,
Attn: Proxy Department. IF YOU HAVE ANY QUESTIONS REGARDING THIS PROCEDURE CALL
CONTINENTAL AT (212) 509-4000 x520.