Reliable Power Systems Inc – ‘PREM14A’ on 8/11/97

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Preliminary Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Form 14A                                             158    647K 
 2: EX-99.1     Dencor Proxy                                           2      7K 
 3: EX-99.2     Proven Alternatives Proxy                              2      6K 

PREM14A   —   Form 14A
Document Table of Contents

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 
[Amendment No. __________]

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 Commission Only (as permitted by Rule     

14a-6(e)(2))                                                  
|_|      Definitive Proxy Statement                                             
|_|      Definitive Additional Materials                                        
|_|      Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12    

 Dencor Energy Cost Controls, Inc.
----------------------------------------------
(Name of Registrant as Specified In Its Charter)

 Maynard L. Moe, President
 ---------------------------------------------------------------------
 (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)(4) and 0-11.   

     1)   Title of each class of securities to which transaction applies: Common
          Stock,  no par value,  of Dencor Energy Cost Controls,  Inc.  ("Dencor
          Common  Stock")  Common  Stock,  par value $.01 per  share,  of Proven
Alternatives, Inc. ("PAI Common Stock").                    
          ----------------------------------------------------------------------

     2)   Aggregate   number  of  securities  to  which   transaction   applies:
          49,014,198  shares of Dencor Common Stock (including  shares of Dencor
          Common Stock issuable (i) in the merger assuming the maximum number of
          shares of PAI Common Stock to be exchanged  and (ii) upon the exercise
          of options to purchase shares of PAI Common Stock which, following the
     merger, will constitute options to purchase Dencor Common Stock).
          ----------------------------------------------------------------------

     3)   Per unit  price  or other  underlying  value of  transaction  computed
pursuant to Exchange Act Rule 0-11 $.0033*                  
          ----------------------------------------------------------------------

4)   Proposed maximum aggregate value of transaction: $161,747*       
          ----------------------------------------------------------------------

5)   Total fee paid:                                                  
          $32* (50% or $16 paid by each of Dencor Energy Cost Controls, Inc. and
Proven Alternatives, Inc. pursuant to Rule 0- 11(c)(3)).    
          ----------------------------------------------------------------------

|_| Fee paid previously with preliminary materials.                             
|_| 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: Not applicable               
      2.       Form Schedule or Registration Statement No.: Not applicable
3.       Filing party: Not applicable                         
4.       Date Filed: Not applicable                           

* Each of the per  unit  price,  the  proposed  maximum  aggregate  value of the
transaction,  and the total fee paid was calculated pursuant to Rule 0- 11(a)(4)
based on one  third of the par  value of the PAI  Common  Stock  because  Proven
Alternatives, Inc. has an accumulated capital deficit.                          

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PRELIMINARY COPY

 Dencor Energy Cost Controls, Inc.
 1450 West Evans
Denver, Colorado 80223

                                                              ____________, 1997

Dear Dencor Energy Cost Controls, Inc. Shareholder:                             

     You are cordially  invited to attend a Special  Meeting of  Shareholders of
Dencor Energy Cost Controls,  Inc.  ("Dencor"),  which will be held at 1450 West
Evans, Denver, Colorado 80223, at _____ a.m., Denver time, on _______, _________
__, 1997.                                                                       

     At the  Special  Meeting,  you  will be asked to  approve  certain  matters
related to the  proposed  merger (the  "Merger")  of Proven  Alternatives,  Inc.
("PAI") with and into Dencor Acquisition  Corporation ("Sub"), which will result
in PAI's  being the  surviving  corporation  and a  wholly-owned  subsidiary  of
Dencor.  Specifically,  you will be asked to  consider  and vote upon a proposal
recommended  by the Board of  Directors  of  Dencor to do each of the  following
simultaneously  at the time of the Merger:  (i) effect a 1-for-50  reverse stock
split (the "Reverse Stock Split") of the  outstanding  shares of Dencor's common
stock so that each 50 shares of  outstanding  common  stock,  no par  value,  of
Dencor  ("Dencor Common Stock") shall be deemed to be one share of common stock,
no par  value,  and (ii)  amend  Dencor's  Articles  of  Incorporation  to:  (A)
authorize  Dencor to issue an aggregate of 1,000,000  shares of preferred  stock
with such preferences, conversion and other rights, voting powers, restrictions,
limitations  as to  distributions,  qualifications,  and terms and conditions of
redemption as shall be approved by the board of directors of Dencor,  and (B) to
change the name of the corporation  from "Dencor Energy Cost Controls,  Inc." to
"Proven Alternatives Inc." (collectively, the "Charter Amendments").  References
in the accompanying Joint Proxy Statement/Prospectus to numbers of shares are to
numbers of shares prior to the Reverse Stock Split.                             

     Pursuant to the terms of the Merger  Agreement,  each outstanding  share of
Common Stock of PAI will be converted  into 1.5 shares of Common Stock of Dencor
before  giving  effect to the Reverse Stock Split (.03 shares of Common Stock of
Dencor after giving  effect to the Reverse Stock  Split).  No fractional  shares
will be  issued  in  connection  with  the  Merger.  In lieu  thereof,  each PAI
stockholder  entitled to receive 0.5 or more of a share of Dencor  Common  Stock
shall  receive the total number of whole shares of Dencor  Common Stock to which
he or she is entitled and a single  whole share of Dencor  Common Stock in place
of the fractional  share.  Each PAI stockholder who would be entitled to receive
less than 0.5 of a share of Dencor  Common  Stock shall  receive  only the total
number of whole shares to which he or she is entitled,  and any such  fractional
share  shall  be  eliminated  for  all  purposes  without  compensation  for the
fractional share.                                                               

     The effect of your  approval  of the  Reverse  Stock  Split and the Charter
Amendments  will be to enable Dencor to complete the Merger with PAI. The Merger
is  described  in  the  accompanying  Joint  Proxy  Statement/Prospectus,  which
includes  a summary of the terms of the Merger  and  certain  other  information
relating to the proposed transaction.                                           

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     The Board of Directors of Dencor has determined  that the Merger is fair to
and  advisable  and in the best  interests  of the  holders  of shares of Dencor
Common  Stock.  Accordingly,  the  Board has  unanimously  approved  the  Merger
Agreement and the Merger, including the Charter Amendments,  and recommends that
you vote in favor of the Charter  Amendments at the Special  Meeting.  The Board
also has  unanimously  approved the Reverse Stock Split and recommends  that you
vote in favor of the Reverse Stock Split at the Special Meeting.                

     A Notice of the  Special  Meeting  and a Joint  Proxy  Statement/Prospectus
containing detailed  information  concerning the Merger and related transactions
accompany this letter. I urge you to read this material carefully.              

     Your  vote is very  important.  Please  mark,  date,  sign and  return  the
enclosed  proxy in the enclosed  postage  prepaid  envelope as soon as possible,
whether  or not you plan to  attend  the  meeting.  If you  have  any  questions
regarding  the proposed  transaction,  please call Maynard L. Moe,  President of
Dencor, at (303) 922-1888.                                                      

     If you plan to attend the Special Meeting, please check the box on the back
of the proxy card.                                                              

Thank you and I look forward to seeing you at the meeting.            

              Sincerely,

                  Maynard L. Moe
                                         President and Chief Executive Officer

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PRELIMINARY COPY

 Proven Alternatives, Inc.
1740 Army Street
 San Francisco, California 94124

                                                              _________ __, 1997

Dear Proven Alternatives, Inc.                                                  
Stockholder:                                                                

     You are cordially  invited to attend a Special  Meeting of  Stockholders of
Proven Alternatives,  Inc. ("PAI"),  which will be held at 1740 Army Street, San
Francisco,  California  94124,  at _____ a.m.,  San Francisco  time, on _______,
_________ __, 1997.                                                             

     At the Special Meeting, you will be asked to approve and adopt an Agreement
And Plan Of Merger  (the  "Merger  Agreement")  providing  for the  merger  (the
"Merger")  of PAI  with and  into  Dencor  Acquisition  Corporation  ("Sub"),  a
wholly-owned subsidiary of Dencor Energy Cost Controls,  Inc. ("Dencor"),  which
will  result  in  PAI's  being  the  surviving  corporation  and a  wholly-owned
subsidiary of Dencor.                                                           

     Pursuant to the terms of the Merger  Agreement,  each outstanding  share of
Common  Stock of PAI,  will be  converted  into 1.5  shares of  Common  Stock of
Dencor. The exchange ratio will be adjusted if the reverse stock split discussed
in   "THE   REVERSE   STOCK   SPLIT"   in   the    accompanying    Joint   Proxy
Statement/Prospectus is approved by Dencor's shareholders.  No fractional shares
will be  issued  in  connection  with  the  Merger.  In lieu  thereof,  each PAI
stockholder  entitled to receive 0.5 or more of a share of Dencor  Common  Stock
shall  receive the total number of whole shares of Dencor  Common Stock to which
he or she is entitled and a single  whole share of Dencor  Common Stock in place
of the fractional  share.  Each PAI stockholder who would be entitled to receive
less than 0.5 of a share of Dencor  Common  Stock shall  receive  only the total
number of whole shares to which he or she is entitled,  and any such  fractional
share  shall  be  eliminated  for  all  purposes  without  compensation  for the
fractional share.                                                               

     The effect of your  approval  will be to enable PAI to complete the Merger.
The Merger is described in the  accompanying  Joint Proxy  Statement/Prospectus,
which  includes  a  summary  of  the  terms  of the  Merger  and  certain  other
information relating to the proposed transaction.                               

     The Board of Directors of PAI has determined that the Merger  Agreement and
the Merger are fair to and advisable and in the best interests of the holders of
shares of PAI Common Stock. Accordingly,  the Board has unanimously approved the
Merger  Agreement and the Merger,  and recommends  that the holders of shares of
PAI Common  Stock vote in favor of the  Merger  Agreement  and the Merger at the
Special Meeting.                                                                

     A Notice of the  Special  Meeting  and a Joint  Proxy  Statement/Prospectus
containing detailed  information  concerning the Merger and related transactions
accompany this letter. I urge you to read this material carefully.              

     Your  vote is very  important.  Please  mark,  date,  sign and  return  the
enclosed  proxy in the enclosed  postage  prepaid  envelope as soon as possible,
whether  or not you plan to  attend  the  meeting.  If you  have  any  questions
regarding the proposed  transaction,  please call  Christopher  T. Condy,  Chief
Operating Officer of PAI, at (415) 285-0800.                                    

     If you plan to attend the Special Meeting, please check the box on the back
of the proxy card.                                                              

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Thank you and I look forward to seeing you at the meeting.            

                  Sincerely,

                        Charles T. Condy
                                            Chairman and Chief Executive Officer

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Subject to Completion, Dated August __, 1997

PRELIMINARY COPY

 DENCOR ENERGY COST CONTROLS, INC.
 AND
 PROVEN ALTERNATIVES, INC.

 JOINT PROXY STATEMENT

 ---------------------

 DENCOR ENERGY COST CONTROLS, INC.

PROSPECTUS
----------------

 Special Meeting of Shareholders of Dencor Energy Cost
Controls, Inc. to be held on _____________, 1997

Special Meeting of Stockholders of Proven Alternatives, Inc.
to be held on , 1997

 -----------------

     This Joint Proxy Statement/Prospectus  ("Joint Proxy Statement/Prospectus")
is being  furnished to  shareholders  of Dencor  Energy Cost  Controls,  Inc., a
Colorado  corporation  ("Dencor"),  and to stockholders of Proven  Alternatives,
Inc., a Delaware  corporation  ("PAI"),  in connection with the  solicitation of
proxies by the Board of  Directors  of each  corporation  for use at the Special
Meeting of Shareholders of Dencor (the "Dencor Special Meeting"), or the Special
Meeting  of  Stockholders  of PAI (the  "PAI  Special  Meeting"),  in each  case
including any  adjournments or postponements  thereof.  The Special Meetings are
both  scheduled  to be held on _______,  _________  __,  1997.  This Joint Proxy
Statement/Prospectus  relates to the proposed  merger (the "Merger") of PAI with
and into Dencor  Acquisition  Corporation,  a wholly-owned  subsidiary of Dencor
("Sub"),  pursuant to the  Agreement  And Plan Of Merger  dated as of August __,
1997 (the "Merger Agreement"),  between and among Dencor, Sub and PAI, with PAI,
as the surviving corporation in the Merger, to become a wholly-owned  subsidiary
of Dencor.                                                                      

     Subject to certain  provisions  as described  herein with respect to shares
owned by PAI and Dencor,  each issued and outstanding share of Common Stock, par
value $.01 per share ("PAI Common Stock"), of PAI and will be converted into 1.5
fully  paid and  nonassessable  shares of Common  Stock,  no par value  ("Dencor
Common Stock"),  of Dencor in the Merger. The exchange ratio will be adjusted if
the reverse stock split discussed in "THE REVERSE STOCK SPLIT" below is approved
by Dencor's shareholders. No fractional shares will be issued in connection with
the Merger.  In lieu thereof,  each PAI  stockholder  entitled to receive 0.5 or
more of a share of Dencor  Common Stock shall  receive the total number of whole
shares of Dencor  Common Stock to which he or she is entitled and a single whole
share  of  Dencor  Common  Stock  in place  of the  fractional  share.  Each PAI
stockholder  who would be entitled to receive less than 0.5 of a share of Dencor
Common Stock shall  receive only the total number of whole shares to which he or
she is  entitled,  and any such  fractional  share shall be  eliminated  for all
purposes without compensation for the fractional share.                         

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     This Joint Proxy  Statement/Prospectus  constitutes  a prospectus of Dencor
with respect to up to 49,014,198  shares of Dencor Common Stock  issuable to PAI
stockholders in the Merger pursuant to the Merger Agreement.                    

     The Dencor Common Stock is traded in the over-the-counter  market under the
symbol  "DENC".  On July 29,  1997,  the last day on which  trading  occurred in
Dencor  Common  Stock,  the bid and asked  prices of the Dencor  Common Stock as
reported  by  a   broker-dealer   were  $.04  per  share  and  $.08  per  share,
respectively.  For a description of the Dencor Common Stock, see "DESCRIPTION OF
DENCOR  COMMON STOCK" and  "COMPARISON  OF RIGHTS OF HOLDERS OF PAI COMMON STOCK
AND DENCOR COMMON STOCK."                                                       

     This Joint Proxy Statement/Prospectus,  the accompanying forms of proxy and
the other enclosed  documents are first being mailed to  shareholders  of Dencor
and the stockholders of PAI on or about _________ __, 1997.                     

     See "RISK  FACTORS"  commencing on page 16 for  information  that should be
considered  by holders of PAI Common  Stock in  connection  with the exchange of
their PAI Common Stock for Dencor Common Stock pursuant to the Merger Agreement.

----------------

 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
 THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
 ADEQUACY OF THIS JOINT PROXY STATEMENT/
 PROSPECTUS. ANY REPRESENTATION TO THE
 CONTRARY IS A CRIMINAL OFFENSE.

 ---------------

The date of this Joint Proxy Statement/Prospectus is _________ __, 1997.        

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 TABLE OF CONTENTS

                                                                        Page

AVAILABLE INFORMATION......................................................  1  

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................. 1  

SUMMARY....................................................................  3  
 The Companies...........................................................  3
 The Special Meetings....................................................  5
 The Reverse Stock Split.................................................  6
 The Merger..............................................................  6

SELECTED FINANCIAL DATA                                                         
   OF DENCOR ENERGY COST CONTROLS, INC................................... 10

SELECTED CONSOLIDATED FINANCIAL DATA                                            
   OF PROVEN ALTERNATIVES, INC........................................... 11

SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA                                  
   OF DENCOR ENERGY COST CONTROLS, INC................................... 12

COMPARATIVE STOCK PRICES AND DIVIDENDS..................................... 14  
 Dencor Common Stock..................................................... 14

RISK FACTORS............................................................... 16  

INTRODUCTION............................................................... 21  

DENCOR ENERGY COST CONTROLS, INC........................................... 21  

DENCOR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                        
CONDITION AND RESULTS OF OPERATIONS...................................... 24
 Liquidity and Capital Resources......................................... 24
 Results of Operations................................................... 25

PROVEN ALTERNATIVES, INC................................................... 27  

PAI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                           
CONDITION AND RESULTS OF OPERATIONS...................................... 32

Liquidity and Capital Resources ......................................... 33

Results of Operations.................................................... 34

POST-MERGER PROFILE AND STRATEGY........................................... 35  

MANAGEMENT AFTER THE MERGER................................................ 36  

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                                                                          Page

THE SPECIAL MEETINGS....................................................... 37  
 Matters To Be Considered at the Special Meetings........................ 37
 Votes Required.......................................................... 38
 Voting of Proxies....................................................... 39
 Revocability of Proxies................................................. 39
 Record Dates; Stock Entitled To Vote; Quorum............................ 39
 Dissenting PAI Stockholders Rights Of Appraisal......................... 40
 Solicitation of Proxies................................................. 41

THE REVERSE STOCK SPLIT.................................................... 42  

THE MERGER................................................................. 43  
 General................................................................. 43
 Background of the Merger................................................ 43
Recommendations of the Boards of Directors;                               
  Reasons for the Merger................................................. 44
 Merger Consideration.................................................... 47
 Effective Time of the Merger............................................ 48
 Conversions of Shares; Procedures for Exchange of Certificates.......... 48
 Fractional Shares....................................................... 49
 Conduct of Business Pending Merger...................................... 50
 Conditions to the Consummation of the Merger............................ 50
 Governmental and Regulatory Approvals................................... 50
 Certain Federal Income Tax Consequences................................. 50

 Anticipated Accounting Treatment........................................ 52
 Assumption of PAI Stock Options Pursuant to the Merger.................. 53
 Employee Benefits Matters............................................... 54
 Interests of Certain Persons in the Merger.............................. 54
 Resale of Dencor Common Stock........................................... 54

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS............ 56  

DENCOR EXECUTIVE COMPENSATION.............................................. 62  

PAI EXECUTIVE COMPENSATION................................................. 62  

SECURITY OWNERSHIP OF MANAGEMENT                                                
AND CERTAIN BENEFICIAL OWNERS............................................ 63
 Dencor Energy Cost Controls, Inc........................................ 63
 Proven Alternatives, Inc................................................ 64

CERTAIN DENCOR RELATIONSHIPS AND DENCOR RELATED TRANSACTIONS............... 65  

CERTAIN PAI RELATIONSHIPS AND PAI RELATED TRANSACTIONS..................... 65  

CERTAIN TRANSACTIONS BETWEEN DENCOR AND PAI................................ 66  

DESCRIPTION OF CAPITAL STOCK OF DENCOR..................................... 66  

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                                                                          Page

DESCRIPTION OF CAPITAL STOCK OF PAI........................................ 67  

COMPARISON OF RIGHTS OF HOLDERS OF                                              
  PAI COMMON STOCK AND DENCOR COMMON STOCK............................... 67
 General................................................................. 67
 Voting Rights........................................................... 68
 Classified Board of Directors........................................... 68
 Number of Directors..................................................... 68
 Filling Vacancies on the Board of Directors............................. 68
 Removal of Directors.....................................................69
 Quorum of Stockholders/Shareholders..................................... 69
 Call of Special Shareholder/Stockholder Meetings........................ 69
 Stockholders'/Shareholders' Action without a Meeting.................... 70
 Amendments to Charter................................................... 70
 Approval of Certain Transactions........................................ 70
 Preemptive Rights....................................................... 70
 Derivative Actions...................................................... 71
 Dividends............................................................... 71
Issuance of Rights or Options to Purchase Shares to Directors,            
   Officers and Employees................................................ 71
 Limitations on Directors' Liability..................................... 72
 Business Combination Statutes........................................... 72
 Indemnification of Directors and Officers............................... 72
 Dissenters' Rights of Appraisal......................................... 73

CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................. 74  
 The Merger.............................................................. 74
 Representations and Warranties.......................................... 74
 Conduct of Business Pending the Merger.................................. 75
 Access to Information................................................... 75
 Fees and Expenses....................................................... 75
 PAI Stock Options....................................................... 75
 Reasonable Efforts...................................................... 75
 Employment Agreements................................................... 76
 Conditions to the Merger................................................ 76
 Termination............................................................. 76
 Amendment............................................................... 77
 Waiver.................................................................. 78

EXPERTS.................................................................... 78  

LEGAL OPINIONS............................................................. 79  

OTHER INFORMATION AND STOCKHOLDER PROPOSALS................................ 79  

ANNEXES                                                                         

Annex I           Agreement and Plan of Merger                                  
Annex II          Delaware General Corporation Code Section 262                 

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     No persons  have been  authorized  to give any  information  or to make any
representation  other than those  contained or incorporated by reference in this
Joint Proxy  Statement/Prospectus  in connection with the offering of securities
made hereby and, if given or made, such information or  representation  must not
be relied  upon as having  been  authorized  by Dencor or PAI.  This Joint Proxy
Statement/Prospectus  does not constitute an offer to sell, or a solicitation of
an offer to buy, any  securities,  nor does it constitute the  solicitation of a
proxy,  in any  jurisdiction  to or from any  person to whom it is not lawful to
make any such offer or solicitation in such  jurisdiction.  Neither the delivery
of this Joint Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any  circumstances,  create an implication that there has
been no change in the affairs of Dencor or PAI since the date hereof or that the
information herein is correct as of any time subsequent to its date.            

 AVAILABLE INFORMATION

     Dencor is  subject  to the  informational  requirements  of the  Securities
Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"),  and in  accordance
therewith  file  reports,  proxy  statements  and  other  information  with  the
Securities  and Exchange  Commission  (the  "Commission").  The  reports,  proxy
statements  and other  information  filed by Dencor with the  Commission  can be
inspected  and  copied at the  public  reference  facilities  maintained  by the
Commission at Room 1024, 450 Fifth Street,  N.W.,  Washington,  D.C. 20549,  and
should be  available  at the  Commission's  Regional  Offices  at 7 World  Trade
Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the  Public  Reference  Section of the  Commission  at 450 Fifth  Street,  N.W.,
Washington,  D.C. 20549, at prescribed rates. In addition,  such materials filed
electronically  by Dencor with the Commission are available at the  Commission's
World Wide Web site at http://www.sec.gov.                                      

     Dencor has filed with the Commission a  Registration  Statement on Form S-4
(together with any amendments thereto,  the "Registration  Statement") under the
Securities Act of 1933, as amended (the "Securities  Act"),  with respect to the
Dencor Common Stock to be issued in the Merger pursuant to the Merger Agreement.
This Joint Proxy  Statement/Prospectus  does not contain all the information set
forth in the Registration  Statement and the exhibits  thereto.  Such additional
information  may  be  obtained  from  the   Commission's   principal  office  in
Washington,  D.C. Statements contained in this Joint Proxy  Statement/Prospectus
or in any  document  incorporated  in this Joint Proxy  Statement/Prospectus  by
reference  as to the  contents  of any  contract or other  document  referred to
herein or therein are not necessarily  complete,  and in each instance reference
is made to the copy of such  contract or other  document  filed as an exhibit to
the  Registration  Statement or such other  document,  each such statement being
qualified in all respects by such reference.                                    

 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     This Joint Proxy Statement/Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act Of 1933, as amended (the
"Securities  Act"),  and Section 21E of the Securities  Exchange Act Of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact  included  in this  Joint  Proxy  Statement/Prospectus,  including  without
limitation the statements under "RISK FACTORS",  "DENCOR MANAGEMENT'S DISCUSSION
AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS"  and "PAI
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS",  are  forward-looking  statements.  Although each of PAI and Dencor
believe that the expectations  reflected in such forward-looking  statements are
reasonable, they can give no assurance that such expectations will prove to have
been  correct.  Important  factors  that could  cause  actual  results to differ
materially  from each of PAI's and Dencor's  expectations  are disclosed in this

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Joint Proxy  Statement/Prospectus,  including without  limitation in conjunction
with   the   forward-looking   statements   included   in   this   Joint   Proxy
Statement/Prospectus. See "RISK FACTORS".                                       

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 SUMMARY

     The following is a summary of certain  information  contained  elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified  in its  entirety  by,  the more  detailed  information  contained  or
incorporated  by reference  in this Joint Proxy  Statement/  Prospectus  and the
Annexes hereto.                                                                 

     As used  herein,  unless the context  otherwise  requires,  "Dencor"  means
Dencor  Energy  Cost  Controls,   Inc.,  "Sub"  refers  to  Dencor   Acquisition
Corporation,  a  wholly-owned  subsidiary  of  Dencor,  and "PAI"  means  Proven
Alternatives, Inc. and its consolidated subsidiaries.                           

 -------------------------

     Shareholders of Dencor and stockholders of PAI are urged to read this Joint
Proxy  Statement/Prospectus  in its entirety,  and should carefully consider the
information set forth below under the heading "RISK FACTORS".                   

 -------------------------

The Companies                                                                   

     Dencor Energy Cost Controls,  Inc.  Dencor was  incorporated on January 16,
1974 under the laws of the State of  Colorado  for the  purpose  of  developing,
manufacturing,  and marketing  electronic devices.  Currently,  Dencor's primary
activity is the  manufacture  and sale of  electrical  demand  controllers  that
manage  electricity  consumed in residences  and commercial  establishments  and
energy  control  devices  used by  utilities  to modify  residential  energy use
patterns. Dencor has its headquarters,  production facilities,  and research and
development laboratories in Denver, Colorado.                                   

     Dencor is  engaged in only one  industry,  that of  designing,  developing,
manufacturing,  marketing,  and  installing  products and systems that assist in
controlling  the cost of  energy  utilization.  Management  of  Dencor  does not
recognize any significant  business  difference,  at least at this time, between
sales of residential demand controllers,  special relay equipment for utilities,
temperature   activated  duty  cyclers,   commercial  demand  controllers,   and
interlocks.                                                                     

     Dencor's  primary business is the assembly and sale of control systems that
reduce  electrical  energy costs. Its principal product is the electrical demand
controller  that  enables a  homeowner  having an electric  heating  system or a
central air  conditioning  system to control the peak use of  electricity.  This
enables the homeowner to achieve cost savings in geographic  locations served by
electric  utilities  that include a demand factor in their  residential  billing
rates.  Demand rates are used by electric  utilities  to encourage  consumers to
reduce their peak usage of electricity.                                         

     A demand  controller  monitors  the total power  consumption  and turns off
selected loads,  typically  heating circuits,  during peak consumption  periods,
restoring them at the end of that period. The controller automatically keeps the
consumption  within the level  selected.  The principal  markets for residential
demand control systems are in regions served by utilities with a demand rate for
residential  customers.  The residential demand controller is designed for homes
heated electrically by baseboard heaters,  radiant heaters, heat pumps, electric
boilers and electric furnaces, and may also be used to control air conditioners.

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     The sale of residential demand control systems  contributed 73% of Dencor's
total sales during 1996.                                                        

     Dencor has developed demand controllers for commercial buildings. One model
of the commercial  systems  includes a graphics  system to interface  commercial
demand controllers to IBM compatible computers. This graphics system can display
minute-by-minute  demand data as well as 15-minute,  daily,  monthly, and annual
summaries.  All data is also stored on computer disk for later  inspection.  The
sale of commercial demand control systems  contributed 16% of total Dencor sales
during 1996.                                                                    

     Dencor has developed a series of products  used to control  water  heaters,
space heaters, and air conditioners for specific utility applications.  Sales of
these products accounted for 11% of net sales in 1996.                          

     The  executive  offices of Dencor are located at 1450 West  Evans,  Denver,
Colorado 80223 and its telephone number is (303) 922-1888.                      

     Sub was  organized  as a Delaware  corporation  in 1997 for the  purpose of
consummating  the Merger and the other  transactions  contemplated by the Merger
Agreement.  Sub has no assets or business and has not carried on any  activities
to date other than incident to its  formation and in connection  with the Merger
and the other transactions  contemplated by the Merger Agreement.  Sub's offices
are located at 1450 West Evans, Denver, Colorado 80223, and its telephone number
at that address is (303) 922- 1888.                                             

     Proven Alternatives, Inc. PAI was incorporated in April 1991 under the laws
of the State of California and was subsequently reincorporated under the laws of
the State of Delaware in November  1991.  In July 1991,  PAI acquired 85% of the
outstanding  capital stock of Golden Bear Cogen, Inc. ("Golden Bear"); in August
1996 PAI acquired the remaining 15% of the  outstanding  capital stock of Golden
Bear.  In April 1992 the Company  acquired  100% of Luminae,  Inc.  ("Luminae").
Luminae  is a  wholly  owned  operating  subsidiary  of  PAI,  concentrating  in
specialized  lighting design.  Proven Alternatives  Capital Corporation ("PACC")
was  incorporated as a wholly owned subsidiary of PAI and is intended to develop
investment vehicles and provide related services for sophisticated institutional
investors in order to provide  project  financing for PAI. In February 1992, PAI
acquired Puget Energy Services,  Inc.  ("PESI"),  a company  specializing in the
execution of energy efficiency  projects under utility contracts.  Subsequently,
in March 1994, PAI merged PESI into PACC.                                       

     PAI is an  integrated  energy and  process  management  firm.  It  provides
process   knowledge,   energy   management   capabilities,   energy   efficiency
technologies  and capital  capabilities to solve business  problems  relating to
energy  usage.  PAI  provides its  services in six service  areas:  total energy
management,  strategic consulting,  program management, capital services, energy
procurement and energy information  management.  Typically services are provided
by PAI as a long-term  partner  with the customer  and on a  performance  basis.
PAI's services include the identification of under-performing  corporate assets,
the recommendation for and application of processes, equipment and techniques to
improve the  performance of these assets and  investment in these  applications.
PAI markets its  services to companies  that could  benefit  significantly  from
improvements in energy management, energy procurement and use and to those whose
operations are energy and process  intensive.  These clients are located both in
the United States and abroad.                                                   

     PAI's  principal  executive  offices are located at 1740 Army  Street,  San
Francisco, California 94124, and its telephone number is (415) 285-0800.        

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The Special Meetings                                                            

Time and Place                                                                  

     Dencor Special  Meeting.  The Dencor Special  Meeting will be held at _____
a.m., Denver time, on _______,  _________ __, 1997, at 1450 West Evans,  Denver,
Colorado 80223.                                                                 

     PAI Special  Meeting.  The PAI Special Meeting will be held at ______ a.m.,
San  Francisco  time, on _______,  _________ __, 1997, at 1740 Army Street,  San
Francisco, California 94124.                                                    

Matters to Be Considered at the Special Meetings                                

     Dencor Special Meeting. At the Dencor Special Meeting, holders of shares of
Dencor  Common Stock will consider and vote upon a proposal  recommended  by the
Board of Directors of Dencor to do each of the following  simultaneously  at the
time of the Merger:  (i) effect a 1-for-50  reverse  stock  split (the  "Reverse
Stock Split") of the  outstanding  shares of Dencor Common Stock so that each 50
shares of outstanding  Dencor Common Stock, no par value,  shall be deemed to be
one share of common  stock of  Dencor,  no par value,  and (ii)  amend  Dencor's
Articles of  Incorporation  to (1)  authorize  Dencor to issue an  aggregate  of
1,000,000  shares of preferred  stock (the "Dencor  Preferred  Stock") with such
preferences,   conversion  and  other  rights,   voting  powers,   restrictions,
limitations  as to  distributions,  qualifications,  and terms and conditions of
redemption  as shall be approved by the Board of  Directors  of Dencor,  and (2)
change the name of Dencor from "Dencor  Energy Cost  Controls,  Inc." to "Proven
Alternatives  Inc."  upon the  consummation  of the  Merger  (collectively,  the
"Charter Amendments"). Holders of shares of Dencor Common Stock entitled to vote
will also  consider and vote upon any other matter that may properly come before
the Dencor Special Meeting or at any  adjournments  and  postponements  thereof.
References in this Joint Proxy  Statement/Prospectus to numbers of shares are to
numbers of shares prior to the Reverse Stock Split unless otherwise indicated.  

     PAI Special Meeting.  At the PAI Special Meeting,  holders of shares of PAI
Common  Stock will  consider  and vote upon a proposal  to approve and adopt the
Merger Agreement, providing for the Merger of PAI with and into Sub, with PAI to
be the  surviving  corporation  in the Merger and a  wholly-owned  subsidiary of
Dencor.  Holders  of  shares  of PAI  Common  Stock  entitled  to vote will also
consider and vote upon any other  matter that may  properly  come before the PAI
Special Meeting or at any adjournments and postponements thereof.               

Votes Required                                                                  

     Dencor.  The approval of the Reverse Stock Split and the Charter Amendments
requires the affirmative vote of a majority of the outstanding  shares of Dencor
Common Stock.                                                                   

     Abstentions  will have the  effect of votes  against  the  approval  of the
Reverse Stock Split and the Charter  Amendments.  In addition,  brokers who hold
shares of Dencor Common Stock as nominees will not have discretionary  authority
to vote such shares in the absence of  instructions  from the beneficial  owners
thereof. Votes which are not cast for this reason ("broker non-votes") will also
have the effect of a vote against the proposal. See "THE SPECIAL MEETINGS--Votes
Required--Dencor."                                                              

     PAI.  The  adoption  and  approval  of the Merger  Agreement  requires  the
affirmative  vote of a majority of the  outstanding  shares of PAI Common  Stock
entitled to vote thereon.                                                       

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     Abstentions will have the effect of votes against the approval and adoption
of the Merger Agreement,  the Merger and the other transactions  contemplated by
the Merger Agreement. See "THE SPECIAL MEETINGS--Votes Required--PAI."          

     Record Dates.  The record date for the  determination  of holders of Dencor
Common  Stock  and PAI  Common  Stock  entitled  to notice of and to vote at the
Special Meetings is ______ __, 1997. On such record date,  Dencor had issued and
outstanding 3,671,304 shares of Dencor Common Stock, held by ____________ record
holders,  and PAI had issued  and  outstanding  28,084,848  shares of PAI Common
Stock, held by 61 record holders.                                               

     Security  Ownership of  Management;  Agreements  to Vote.  As of ______ __,
1997,  directors  and  executive  officers of Dencor and their  affiliates  were
beneficial owners of an aggregate of 891,950 shares (approximately 24.3%) of the
outstanding shares of Dencor Common Stock. As of __________, 1997, directors and
executive  officers of PAI and their  affiliates  were  beneficial  owners of an
aggregate of 23,502,447 shares  (approximately  78.7%) of the outstanding shares
of PAI Common Stock (including  1,791,216 shares subject to options  exercisable
within 60 days).                                                                

     The directors of Dencor who are also  stockholders of Dencor have agreed to
vote their shares of Dencor  Common  Stock in favor of the matters  submitted to
shareholders of Dencor at the Dencor Special  Meeting.  The directors of PAI who
are also  stockholders  of PAI have  agreed to vote  their  shares of PAI Common
Stock  in favor  of the  matters  submitted  to  stockholders  of PAI at the PAI
Special Meeting.                                                                

The Reverse Stock Split                                                         

     Effect of the Reverse  Stock Split.  If the Reverse Stock Split is approved
by the Dencor shareholders,  the effective time for the Reverse Stock Split will
be immediately before the Effective Time of the Merger. Each 50 shares of Dencor
Common Stock at that time shall be deemed to be one share of Dencor Common Stock
without further action by the Dencor shareholders.                              

     If the Reverse Stock Split is effected,  Dencor will not issue certificates
for fractional shares.  Instead persons who are Dencor shareholders  immediately
before the Effective Time of the Merger and who otherwise would be entitled to a
fractional  share will be issued one whole share for that fractional  share. See
"THE REVERSE STOCK SPLIT".                                                      

     Certain  Federal  Income  Tax  Consequences.  For U.S.  federal  income tax
purposes,  it is  anticipated  that no gain or loss will be recognized by Dencor
shareholders  as a result of the Reverse  Stock Split.  See "THE  REVERSE  STOCK
SPLIT".                                                                         

     Recommendations of the Board of Directors of Dencor. The Board of Directors
of Dencor  believes that the Reverse Stock Split is in the best interests of the
Dencor shareholders and has unanimously approved the Reverse Stock Split.       

     The Board of Directors of Dencor unanimously recommends that the holders of
Dencor Common Stock approve the Reverse Stock Split.                            

The Merger                                                                      

     Effect of  Merger.  At the  effective  time of the Merger  (the  "Effective
Time"),  Sub will be  merged  with and into  PAI,  which  will be the  surviving
corporation  in the Merger  (the  "Surviving  Corporation").  As a result of the

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Merger, PAI will become a wholly-owned  subsidiary of Dencor. Subject to certain
provisions as described herein with respect to shares owned by PAI, Dencor,  Sub
and the  subsidiaries  of PAI, each issued and  outstanding  share of PAI Common
Stock will be converted into 1.5 (the "Exchange  Ratio") validly  issued,  fully
paid and nonassessable shares of Dencor Common Stock in the Merger before giving
effect to the Reverse  Stock Split (.03 shares of Common  Stock of Dencor  after
giving effect to the Reverse Stock Split).  No fractional  shares will be issued
in connection with the Merger. In lieu thereof, each PAI stockholder entitled to
receive 0.5 or more of a share of Dencor  Common  Stock shall  receive the total
number of whole shares of Dencor Common Stock to which he or she is entitled and
a single whole share of Dencor  Common Stock in place of the  fractional  share.
Each PAI  stockholder  who would be entitled to receive less than 0.5 of a share
of Dencor  Common  Stock shall  receive only the total number of whole shares to
which he or she is entitled,  and any such fractional  share shall be eliminated
for all  purposes  without  compensation  for the  fractional  share.  See  "THE
MERGER--Fractional Shares."                                                     

     Recommendations  of the  Boards  of  Directors.  The  respective  Boards of
Directors of Dencor and PAI believe that the terms of the Merger are fair to and
advisable and in the best interests of their  respective  stockholders  and have
unanimously  approved  the Merger  Agreement,  the Merger and the other  related
transactions.                                                                   

     The Board of Directors of Dencor unanimously recommends that the holders of
Dencor Common Stock approve the Charter Amendments and the Reverse Stock Split. 

     The Board of Directors of PAI  unanimously  recommends  that the holders of
PAI Common Stock approve and adopt the Merger Agreement and the Merger.         

     For additional  information with respect to the determinations  made by and
the  recommendations  of the  Dencor  and PAI  Boards  of  Directors,  see  "THE
MERGER--Recommendations of the Boards of Directors; Reasons for the Merger."    

     Effective  Time of the Merger.  The Merger will become  effective  upon the
filing and  acceptance of the  Certificate of Merger with the Secretary of State
of the State of Delaware or such later date as is specified in such Certificate.
The  filing of the  Certificate  of  Merger  will  occur as soon as  practicable
following the  satisfaction  or waiver of the conditions set forth in the Merger
Agreement.  See "CERTAIN PROVISIONS OF THE MERGER  AGREEMENT--Conditions  to the
Merger."                                                                        

     Interests of Certain Persons in the Merger. Shares of PAI Common Stock held
by  executive  officers and  directors  of PAI will be  converted  into the same
consideration  as shares of PAI  Common  Stock  held by other  stockholders.  In
addition,  the Merger  Agreement  provides  that PAI will enter into  employment
agreements with each of Maynard L. Moe,  President and a Director of Dencor, and
Theodore  A.  Hedman,  Vice  President  and a  Director  of  Dencor.  The Merger
Agreement also states that PAI will provide Dencor with sufficient  funds to pay
outstanding  loans,  including  loans made to Dencor by Dr. Moe, Mr.  Hedman and
their relatives.                                                                

     Conditions  to the  Merger.  The  obligations  of  Dencor,  PAI  and Sub to
consummate the Merger are subject to various conditions,  including, among other
things,  obtaining the requisite stockholder approvals, the effectiveness of the
Registration  Statement and the absence of any order or other legal restraint or
prohibition preventing the consummation of the Merger.                          

     Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time (i) by mutual consent of Dencor, PAI and
Sub, (ii) by either Dencor or PAI (1) if any court or other governmental  entity

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shall have issued a final and nonappealable order, decree or ruling or taken any
other  final  and  nonappealable  action  permanently   enjoining  or  otherwise
prohibiting the Merger,  (2) if the Merger shall not have been consummated on or
before  December 31, 1997 (other than due to the failure of the party seeking to
terminate  the Merger  Agreement  to perform  its  obligations  under the Merger
Agreement  required to be performed at or prior to the Effective  Time),  or (3)
if, under  certain  circumstances,  the required  stockholder  approvals are not
obtained,  and (iii) by Dencor or PAI in certain other situations.  See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT".                                            

     Right Of  Shareholders/Stockholders  To Dissent.  Dencor's  management  has
concluded that,  because Dencor is not a constituent  corporation in the Merger,
the  shareholders  of Dencor are not entitled to dissent and obtain  payment for
their shares from Dencor.  However, it is possible that one or more shareholders
of Dencor may challenge the denial of dissenters  rights to the  shareholders of
Dencor,  and such  challenge  could result in litigation  between Dencor and the
challenging  shareholders.  The outcome of any such  litigation is uncertain and
could result in a decision denying or granting  dissenters  rights of appraisal.
If and to the extent that  dissenters  rights are claimed and granted,  it would
result in an outflow of cash from,  and a decrease in the number of  outstanding
shares of, Dencor. See "THE MERGER--Dissenting  Shareholders/Stockholders Rights
Of Appraisal".                                                                  

     Because PAI is a constituent  corporation to the Merger,  PAI's  management
believes that the Delaware  General  Corporation Law (the "DGCL")  provides that
each  shareholder of PAI who objects to the Merger is entitled to obtain payment
of the fair value of his or her shares of PAI. In order to assert these  rights,
a  shareholder  of PAI is  required  to adhere  strictly  to  certain  statutory
requirements  set forth in the DGCL. Any deviation from the  requirements of the
DGCL may result in the forfeiture of a dissenting  shareholder's right to obtain
payment  for his or her shares.  See "THE  MERGER--Dissenting  PAI  Stockholders
Rights Of Appraisal".                                                           

     See Appendix II to this Joint Proxy  Statement/Prospectus for a copy of the
provisions of the Delaware General Corporation Law concerning  dissenters rights
of appraisal.                                                                   

     Certain  Federal  Income  Tax  Consequences.  For U.S.  federal  income tax
purposes,  it is anticipated that the Merger will qualify as a  "reorganization"
within the meaning of Section  368(a) of the Internal  Revenue Code of 1986,  as
amended (the  "Code"),  no gain or loss will be recognized by Dencor or PAI as a
result of the Merger and no gain or loss will be recognized by  stockholders  of
PAI who are United  States  persons  (within  the  meaning of the Code) upon the
conversion of their PAI Common Stock into shares of Dencor Common Stock pursuant
to the Merger.                                                                  

     Special  rules may  apply to a holder of PAI  Common  Stock  who,  for U.S.
federal  income tax purposes,  is a  non-resident  alien  individual,  a foreign
corporation,  a foreign partnership or a foreign estate or trust. Each holder of
PAI  Common  Stock  should  consult  his  own  tax  advisor  regarding  the  tax
consequences  of the Merger in light of such holder's own  situation,  including
the application  and effect of any state,  local or foreign income and other tax
laws. For a discussion of these and other federal income tax  considerations  in
connection  with  the  Merger,  see  "THE  MERGER--Certain  Federal  Income  Tax
Consequences."                                                                  

     Accounting  Treatment of the Merger. The Merger is expected to be accounted
for as a "pooling of interests" in accordance with generally accepted accounting
principles. See "THE MERGER--Anticipated Accounting Treatment."                 

     Comparison  of Rights of  Holders of PAI  Common  Stock and  Dencor  Common
Stock.  See  "COMPARISON  OF RIGHTS OF HOLDERS  OF PAI  COMMON  STOCK AND DENCOR

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COMMON  STOCK" for a summary of the material  differences  between the rights of
holders of PAI Common Stock and Dencor Common Stock.                            

     Other  Significant  Considerations.  In determining  whether to approve the
transactions  pursuant to the Merger  Agreement and other related  transactions,
Dencor  shareholders and PAI stockholders  should consider that the price of the
Dencor Common Stock at the  Effective  Time as well as the prices at the date of
this Joint Proxy  Statement/Prospectus  and at the date of the Special  Meetings
may vary as a result of changes in the  business,  operations  or  prospects  of
Dencor, market assessments of the likelihood that the Merger will be consummated
and the  timing  thereof,  general  market  and  economic  conditions  and other
factors.  Because the Effective  Time may occur at a later date than the date of
the Special  Meetings,  there can be no assurance that the sales price of Dencor
Common Stock on the date of the Special Meetings will be indicative of the sales
price of Dencor Common Stock at the  Effective  Time.  The  Effective  Time will
occur  as soon as  practicable  following  the  satisfaction  or  waiver  of the
conditions  set forth in the Merger  Agreement.  See "CERTAIN  PROVISIONS OF THE
MERGER AGREEMENT--Conditions to the Merger."                                    

     Stockholders of PAI should also consider that the Exchange Ratio is a fixed
ratio in the  Merger  Agreement.  As a result,  the  Exchange  Ratio will not be
adjusted in the event of a decline or increase in the market price of the Dencor
Common  Stock.  Dencor  shareholders  and PAI  stockholders  are urged to obtain
current market quotations for the Dencor Common Stock.                          

     PAI stockholders  should also consider that the rights of holders of Dencor
Common  Stock  differ in a number of  significant  respects  from the  rights of
holders of PAI Common Stock. For a discussion of the rights of the Dencor Common
Stock, see "DESCRIPTION OF CAPITAL STOCK OF DENCOR" and "COMPARISON OF RIGHTS OF
HOLDERS OF PAI COMMON STOCK AND DENCOR COMMON STOCK."                           

     The shares of Dencor Common Stock issued to stockholders of PAI pursuant to
the Merger  Agreement  will  comprise  approximately  92% of the total number of
shares  of  Dencor  Common  Stock  issued  and  outstanding   after  the  Merger
(approximately  93% on a  fully  diluted  basis  assuming  the  exercise  of all
outstanding  PAI stock  options for 4,591,284  shares of Dencor  Common  Stock).
Immediately  prior to the Effective Time, there will be approximately  3,671,304
shares of Dencor  Common Stock issued and  outstanding.  Following the Effective
Time, there will be  approximately  915,972 shares of Dencor Common Stock issued
and  outstanding  after  giving  effect to the Reverse  Stock Split  (45,127,272
before the Reverse Stock Split).                                                

     Management After the Merger.  After the Merger,  the following persons will
have the  positions  and offices  with Dencor as  designated:  Charles T. Condy,
Chairman  of the  Board and  Chief  Executive  Officer;  Christopher  T.  Condy,
Director,  President  and Chief  Operating  Officer;  Theodore A.  Hedman,  Vice
President of Dencor Division;  Maynard L. Moe,  Director of Dencor and President
of Dencor Division;  George F. Pilloton,  Director and Chief Financial  Officer.
Dr. Moe and Mr.  Hedman will  continue to manage the Dencor  Division  after the
Merger,  which will  consist of the  business  operated  by Dencor  prior to the
Merger.  The current  officers and directors of PAI will retain their respective
positions with PAI after the Merger. The manner in which the business operations
of each of  Dencor  and PAI  will be  conducted  after  the  Merger  is  further
discussed in "POST-MERGER PROFILE AND STRATEGY".                                

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 SELECTED FINANCIAL DATA
OF DENCOR ENERGY COST CONTROLS, INC.

     The following table sets forth selected historical financial data of Dencor
and has been  derived  from and should be read in  conjunction  with the audited
financial  statements of Dencor for each of the five fiscal years ended December
31,  1996,  1995,  1994,  1993  and  1992 and the  unaudited  interim  financial
statements  of Dencor for the three  months  ended  March 31, 1997 and March 31,
1996,  including the respective notes thereto.  See "AVAILABLE  INFORMATION." In
the opinion of  management  of Dencor,  all  adjustments,  consisting  of normal
recurring  accruals,  considered  necessary  for a fair  presentation  have been
included  in the  unaudited  interim  data.  Unaudited  interim  results are not
necessarily  indicative  of results  which may be expected  for future  periods,
including the fiscal year ending December 31, 1997.                             

                                                        [Enlarge/Download Table]


                                                SELECTED FINANCIAL DATA - DENCOR                                               
                                           (in thousands, except per share amounts)                                            

Statement of Operations Data                                                                                                   

                                  Three Months Ended                                                                           
                                     March 31,                                       Year Ended December 31,                   
                             --------------------------        --------------------------------------------------------------- 
                                1997            1996             1996          1995          1994         1993         1992    
                             --------         --------         --------      --------      --------     --------    ---------- 

                                                                                                                               
Net Sales .................  $  113.1         $  103.7         $  388.7      $  567.9      $  547.3     $  549.7    $  1,035.8 
Income (loss) from                                                                                                             
  continuing operations ...      (1.5)           (11.7)           (74.4)         11.3         (42.8)      (126.3)         (1.8)
Net income (loss) .........      (1.5)           (11.7)           (74.4)         11.3         (42.8)      (126.3)         (1.8)

Weighted average                                                                                                               
   shares outstanding ......   3,671.3         3,671.3          3,671.3       3,671.3       3,671.3      3,671.3       3,671.3 
Income (loss) from                                                                                                             
   continuing operations                                                                                                       
   per common share ........  $  (0.00)       $  (0.00)        $  (0.02)     $   0.00      $  (0.01)     $ (0.03)    $   (0.00)

Balance Sheet Data (end of period)                                                                                             

Working capital ............  $  (17.1)       $   40.8         $  (16.7)     $   50.6      $   32.9      $  78.1     $   196.9 
Total assets ...............     216.7           263.8            217.4         275.8         248.7        261.9         432.7 
Long-term obligations,                                                                                                         
   excluding current                                                                                                           
   installments ............      --               --              --            --            --           --             --  
Stockholders' equity                                                                                                           
   (deficit) ...............     (12.8)           51.4            (11.3)         63.1          51.8         94.6         220.9 
Shares outstanding .........   3,671.3         3,671.3          3,671.3       3,671.3       3,671.3      3,671.3       3,671.3 
Book value per share .......  $  (0.00)       $  (0.01)        $  (0.00)     $   0.02      $   0.01      $  0.03     $    0.06 


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SELECTED CONSOLIDATED FINANCIAL DATA
OF PROVEN ALTERNATIVES, INC.

     The following table sets forth selected  consolidated  historical financial
data of PAI and has been derived from and should be read in conjunction with the
audited  consolidated  financial  statements  of PAI for each of the five fiscal
periods ended  December 31, 1996,  1995,  1994,  1993 and March 31, 1993 and the
unaudited interim consolidated  financial statements of PAI for the three months
ended March 31, 1997 and 1996,  including  the  respective  notes  thereto.  See
"AVAILABLE  INFORMATION".  In the opinion of management of PAI, all adjustments,
consisting  of  normal  recurring  accruals,  considered  necessary  for a  fair
presentation have been included in the unaudited interim data. Unaudited interim
results are not  necessarily  indicative  of results  which may be expected  for
future periods, including the year ending December 31, 1997.                    

                                                        [Enlarge/Download Table]


                                          SELECTED CONSOLIDATED FINANCIAL DATA - PAI                                              
                                            (in thousands, except per share amounts)                                              

Consolidated Statement of Operations Data                                                                                         

                                  Three Months Ended                                                   Nine Months                
                                     March 31,                       Year Ended December 31,              Ended        Year End   
                             --------------------------        ------------------------------------    December 31,     March 31, 
                                1997            1996             1996          1995         1994(4)     1993(4)(5)       1993(4)  
                             --------         --------         --------      --------      --------     ----------     ---------- 

                                                                                                                                  
Net Sales ................. $  1,705.4         $1,233.7        $ 9,763.3      $21,397.4    $12,083.8      $6,028.5     $  9,669.5 
Loss from continuing                                                                                                              
  operations ..............   (1,065.0)          (923.0)        (3,915.2)      (4,127.6)    (3,253.7)(3)  (3,814.7)(3)   (5,993.6)
Net loss ..................   (1,065.0)          (923.0)        (4,549.8)      (4,127.6)    (4,199.0)(3)  (4,223.4)(3)   (5,993.6)

Weighted average                                                                                                                  
   shares outstanding ......  28,084.8         26,977.3         27,024.4       26,987.5     26,969.6      26,967.3       11,767.3 
Loss from continuing                                                                                                              
   operations per common                                                                                                          
   share ................... $   (0.04)       $   (0.03)       $  (0.14)     $   (0.15)    $   (0.12)(3) $   (0.14)(3) $    (0.51)

Consolidated Balance Sheet Data (end of period)                                                                                   

Working capital ............ $(2,310.5)       $(1,455.6)       $ (697.7)     $(4,782.4)   $(2,148.4)(3)  $  (30.3)(3)  $  1,030.4 
Total assets ...............  26,184.6         32,530.7        28,469.7       31,447.2     20,861.3      17,148.5        21,612.7 
Long-term obligations,                                                                                                            
   excluding current                                                                                                              
   installments (9).........  26,651.8         27,128.6        28,113.1       24,271.3     13,381.3(3)    9,219.3(3)      3,654.0 
Stockholders' equity                                                                                                              
   (deficit) ............... (10,335.7)        (5,679.9)       (9,281.6)      (4,757.3)      (633.2)(3)   3,676.0(3)      8,089.7 
Shares outstanding .........  28,084.8         26,977.3        28,084.8       26,977.3     26,992.3      26,967.3        26,967.3 
Book value per share .......  $  (0.37)       $   (0.21)       $  (0.33)     $   (0.18)    $  (0.02)(3)  $   0.14(3)     $   0.30 


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SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
OF DENCOR ENERGY COST CONTROLS, INC.

     The following  table sets forth selected  unaudited pro forma  consolidated
financial data of Dencor and pro forma equivalent financial data for PAI, giving
effect to the Merger  under the pooling of  interest  method of  accounting  and
reflecting  certain  assumptions  on the  bases  described  in the  notes to the
unaudited  pro  forma  consolidated  condensed  financial  statements.  See "THE
MERGER--Anticipated  Accounting  Treatment." The pro forma  consolidated and pro
forma equivalent financial data is presented for illustrative  purposes only and
is not  necessarily  indicative of the operating  results or financial  position
that  would  have  occurred  if the  Merger  had been  consummated  on the dates
indicated,  nor is it  necessarily  indicative  of future  operating  results or
financial position.  The pro forma consolidated  financial data has been derived
from and should be read in conjunction with the unaudited pro forma consolidated
condensed financial statements, including the notes thereto, appearing elsewhere
in this Joint Proxy Statement/Prospectus.  See "UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS."                                                

                                                        [Enlarge/Download Table]


                                   SELECTED CONSOLIDATED FINANCIAL DATA - PRO FORMA COMBINED                                      
                                            (in thousands, except per share amounts)                                              

Consolidated Statement of Operations Data                                                                                         

                                  Three Months Ended                                                                              
                                     March 31,                                        Year Ended December 31,                     
                             -------------------------         ------------------------------------------------------------------ 
                                1997            1996             1996           1995         1994(4)    1993(4)(5)     1992(4)(5) 
                             --------         --------         ---------     ----------    ----------   ---------      ---------- 

                                                                                                                                  
Net Sales .................  $ 1,818.5       $ 1,337.4        $ 10,152.0     $ 21,965.3    $ 12,631.1    $ 6,578.2    $  10,705.3 
Loss from continuing                                                                                                              
  operations ..............   (1,066.5)         (934.7)         (3,989.6)      (4,116.3)     (3,296.5)    (3,941.0)      (5,995.4)
Net loss ..................   (1,066.5)         (934.7)         (4,624.2)      (4,116.3)     (4,241.8)    (4,349.7)      (5,995.4)

Weighted average shares                                                                                                           
   outstanding (1)(7)......   45,798.5        44,137.3          44,207.9       44,152.6      44,125.7     44,122.3       21,322.2 
Loss from continuing                                                                                                              
   operations per                                                                                                                 
   common share (1)(7).....  $  (0.02)       $   (0.02)       $    (0.09)     $   (0.09)   $    (0.07)   $   (0.09)    $    (0.28)
Supplemental loss from                                                                                                            
   continuing operations                                                                                                          
   per common share (10) ..     (1.16)           (1.06)            (4.51)         (4.66)        (3.74)       (4.47)        (14.06)

Consolidated Balance Sheet Data (end of period)                                                                                   

Working capital ............  $ (2,327.6)    $(1,414.8)       $   (714.4)     $(4,731.8)   $ (2,115.5)   $    47.8     $  1,227.3 
Total assets ...............    26,401.3      32,794.5          28,687.1       31,723.0      21,110.0     17,410.4       22,045.4 
Long-term obligations,                                                                                                            
   excluding current                                                                                                              
   installments (9).........    26,651.8      27,128.6          28,113.1       24,271.3      13,381.3      9,219.3        3,654.0 
Stockholders' equity                                                                                                              
   (deficit) (8)............   (10,348.5)     (5,628.5)         (9,292.9)      (4,694.2)       (581.4)     3,770.6        8,310.6 
Shares outstanding (7)......    45,810.4      44,148.7          45,810.4       44,148.7      44,171.2     44,133.7       44,133.7 
Book value per share (2)                                                                                                          
   (7)(8)...................  $    (0.23)    $   (0.13)       $    (0.20)     $   (0.11)    $   (0.01)   $    0.09     $     0.19 

Equivalent pro forma PAI                                                                                                          
   per share (6)(7)(8)                                                                                                            
  Net loss .................  $  (0.03)      $   (0.03)       $    (0.14)     $   (0.14)    $   (0.11)   $   (0.13)    $    (0.42)
  Book value ...............     (0.34)          (0.19)            (0.30)         (0.16)        (0.02)        0.13           0.28 


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 NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA

1.   The pro forma  combined  per share data for income  (loss) from  continuing
     operations  has been  calculated  using pro forma  combined  average shares
     outstanding.  PAI and Dencor pro forma combined average shares  outstanding
     have been calculated using the number of Dencor average shares  outstanding
     during the periods presented, increased by the anticipated number of shares
     of Dencor common stock to be issued to PAI  shareholders  using an Exchange
     Ratio of 1.5, for each share of PAI Common Stock deemed  outstanding during
     each of the periods  presented as if these shares were  outstanding for the
     entire period  presented.  The weighted  average shares deemed  outstanding
     calculation for PAI does not include shares issuable upon exercise of fully
     paid,  fully  vested stock  options as such shares would be  anti-dilutive.
     Such  options  would  increase  weighted  average  shares   outstanding  by
     approximately  1,592,000  shares for the three  months ended March 31, 1997
     and 1996 and the years ended December 31, 1996 and 1995,  1,629,000  shares
     for the year ended  December 31, 1994,  and  1,346,000  shares for the nine
months ended December 31, 1993.                                       

2.   The pro forma combined book value per share data has been calculated  using
pro forma combined shares outstanding.                                

3.   PAI's loss from continuing operations, net loss, working capital, long-term
     obligations,   stockholders'   equity   (deficit),   loss  from  continuing
     operations  per common  share,  and book value per share have been restated
     for the year ending  December 31, 1994 and the nine months  ended  December
     31, 1993, to reflect adjustments in deferred tax accruals in those periods.
     The impact of the  restatement  was to  decrease  the loss from  continuing
     operations  and reduce the related  deferred tax  liability by $799,000 for
     the nine months  ended  December  31,  1993,  and to increase the loss from
     continuing  operations  and  current  taxes  payable by $5,000 for the year
ended December 31, 1994.                                              

4.   Financial  data as of December 31, 1994,  December 31, 1993,  and March 31,
     1993,  reflects  the  reclassification  of fully paid,  fully  vested stock
     options  from  long-term   liabilities  to   stockholders'   equity.   Such
     reclassifications    decreased   long-term    liabilities   and   increased
     stockholders'   equity  by  approximately   $1,158,100,   $1,268,300,   and
     $1,458,600 as of December 31, 1994,  December 31, 1993, and March 31, 1993,
respectively.                                                         

5.   In 1993,  PAI changed  its fiscal  year from March 31 to December  31. As a
     result,  pro forma  information  for the year ended  December  31, 1993 was
     calculated  based on PAI's financial  information for the nine months ended
     December 31, 1993.  Pro forma  information  for the year ended December 31,
     1992 was calculated based on PAI's financial information for the year ended
March 31, 1993.                                                       

6.   The equivalent pro forma PAI per share  information  has been calculated by
     multiplying  the pro forma  combined per share data by an Exchange ratio of
1.5.                                                                  

7.   Pro forma  financial  data does not  reflect  the  proposed 50 to 1 reverse
stock split subject to shareholder approval.                          

8.   Pro forma  financial  data does not reflect  the  effects of the  potential
     preferred stock issuance or other issuance of securities.  See "POST-MERGER
PROFILE AND STRATEGY".                                                

9.   Long-term  obligations  for PAI include non  recourse  debt secured by long
     term receivables. Such long-term non recourse debt obligations  amounted to
     approximately $22.5 million,  $17.8 million, $8.4 million, and $6.1 million
     as of December 31, 1996, 1995, 1994, and 1993,  respectively.  At March 31,
     1997 and 1996, long-term  obligations included  approximately $21.1 million
and $20.7 million of non recourse debt, respectively.                 

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10.  Supplemental loss from continuing  operations per common share reflects the
     impact of the proposed 50 to 1 reverse stock split  subject to  shareholder
     approval  and was  calculated  by  multiplying  the  loss  from  continuing
operations per common share by an exchange ratio of 50.               

COMPARATIVE STOCK PRICES AND DIVIDENDS

     The Dencor  Common Stock  trades in the  over-the-counter  market  (Symbol:
DENC).  The following  table sets forth the high and low bid prices per share of
the Dencor Common Stock. Dencor obtained the following  information from brokers
who make a market in Dencor's securities. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
reflect actual transactions.  Dencor has not paid dividends on the Dencor Common
Stock. The fiscal year of Dencor ends on December 31 of each year.              

Dencor Common Stock                                                             

                                                         Sales Price
                                                         -----------

                                                          High         Low
                                                          ----         ---

Fiscal 1997                                                                     

First Quarter (ended March 31, 1997)...................    $.03         $.03

Second Quarter (ended June 30, 1997)...................     .04          .03

Fiscal 1996                                                                     

First Quarter (ended March 31, 1996)...................    $.06         $.01

Second Quarter (ended June 30, 1996)...................    $.06         $.01

Third Quarter (ended September 30, 1996)...............    $.06         $.01

Fourth Quarter (ended December 31, 1996)...............    $.06         $.01

Fiscal 1995                                                                     

First Quarter (ended March 31, 1995)...................    $.06         $.01

Second Quarter (ended June 30, 1995)...................    $.06         $.01

Third Quarter (ended September 30, 1995)...............    $.06         $.01

Fourth Third Quarter (ended December 31, 1995).........    $.06         $.01

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     On December 13, 1996,  the last day before the public  announcement  of the
Merger on June 3,  1997 on which a trade  occurred,  the low bid and high  asked
prices of the Dencor  Common  Stock  obtained by Dencor from  brokers who make a
market  in  Dencor's  securities  were  $.04  per  share  and  $.08  per  share,
respectively.                                                                   

     Recent bid and asked prices of the Dencor Common Stock are set forth on the
cover page of this Joint Proxy Statement/Prospectus.                            

          There  currently is not any public  trading  market for the PAI Common
Stock. PAI has not paid dividends on the PAI Common Stock.                      

          Dencor  shareholders  and PAI stockholders are urged to obtain current
market quotations for the Dencor Common Stock.                                  

          Dividend  Policy of Dencor  Following  the  Merger.  After the Merger,
Dencor does not expect to pay dividends on the Dencor Common Stock, although the
Board of Directors  of Dencor may  determine in the future to modify such policy
depending  on various  factors,  including  Dencor's  earnings,  then current or
anticipated  cash needs and any other factors that the Board of Directors  deems
relevant.                                                                       

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RISK FACTORS

     THE SECURITIES  OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. BEFORE MAKING AN INVESTMENT DECISION CONCERNING THE MERGER OF SUB WITH AND
INTO PAI, WITH PAI'S BECOMING A WHOLLY-OWNED  SUBSIDIARY OF DENCOR,  THE HOLDERS
OF PAI COMMON STOCK  SHOULD GIVE CAREFUL  CONSIDERATION  TO THE  FOLLOWING  RISK
FACTORS AFFECTING THE BUSINESS OF DENCOR AND ITS SECURITIES, TOGETHER WITH OTHER
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS.                           

1. No  Independent  Appraisal  of Terms of  Merger.  Although  the  terms of the
Merger,  including  the  Exchange  Ratio  upon  which PAI  Common  Stock will be
exchanged for Dencor Common Stock, were the result of arm's length  negotiations
between  the  representatives  of PAI and of  Dencor,  neither  the terms of the
Merger nor the Exchange  Ratio were  determined  on the basis of an  independent
appraisal,  or a third party  opinion  concerning  the relative  values,  of the
businesses   and   assets   of   PAI   or   Dencor   as  a   whole.   See   "THE
MERGER-Recommendations of the Boards of Directors, Reasons for the Merger."     

2.  Management.  The ability and experience of certain  individuals  who will be
engaged in the  management  and  operation  of PAI and Dencor  after the Merger,
particularly  Dr. Maynard L. Moe, Mr. Theodore A. Hedman,  Mr. Charles T. Condy,
Mr. Christopher T. Condy, and George F. Pilloton,  are crucial to the success of
PAI and Dencor. PAI has not entered into written or formal employment agreements
with Messrs.  Condy, Condy and Pilloton.  Dencor has not entered into written or
formal  employment  agreements with Dr. Moe or Mr. Hedman.  However,  the Merger
Agreement,  provides that PAI will enter into employment agreements with each of
Dr.  Moe and Mr.  Hedman  prior  to the  Closing  of the  Merger.  See  "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT-Employment  Agreements". The loss of services
of any  of  these  individuals  would  have a  material  adverse  affect  on the
businesses of PAI and Dencor. The success of PAI and Dencor will also depend, in
part, upon its ability in the future to retain current  personnel and to attract
additional qualified operating, marketing and financial personnel.              

3.  Control by PAI  Stockholders.  Following  consummation  of the  Merger,  PAI
officers,  directors and principal  stockholders with whom certain directors are
affiliated will  beneficially own or control in the aggregate  23,502,447 shares
of Dencor Common Stock (including 2,686,824 shares issuable upon the exercise of
options held by the PAI executive  officers and directors) or approximately 72.7
percent of the outstanding shares of Dencor's Common Stock after the Merger. See
"SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL  OWNERS".  Accordingly,
such PAI officers,  directors and principal stockholders,  if acting in concert,
will be able to elect all of Dencor's directors,  and affect the outcome of most
corporate actions requiring shareholder approval.                               

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4. Dilution. If the Merger is consummated, the present PAI stockholders will own
93 percent of the  outstanding  common stock of Dencor and the  existing  Dencor
shareholders will own approximately 7 percent of the outstanding common stock of
Dencor.  The  pro  forma  book  value  per  share  of  Dencor  Common  Stock  at
________________,  1997 would be diluted from  approximately  $____________  per
share to approximately $___________ per share.                                  

5.  Substantial  Doubt About  Dencor's  Ability to Continue as a Going  Concern.
Dencor's  auditors' report for its 1996 financial  statements  contains a "going
concern"  limitation.  Dencor's  operating  results  for the  fiscal  year ended
December  31,  1996  resulted in a net loss of $74,400.  At December  31,  1996,
Dencor had a shareholders  deficit and working capital deficiency of $11,300 and
$16,700, respectively. Dencor has also experienced difficulty and uncertainty in
meeting  its  liquidity  needs.  These  factors  raise  substantial  doubt about
Dencor's  ability to continue as a going  concern.  Dencor's 1997 operating plan
includes  achieving  increased  sales goals and  maintaining  its cost reduction
program,  which primarily includes a reduction of labor costs. Dencor management
believes that actions  presently being taking under its 1997 operating plan will
enable Dencor to achieve  profitability  during 1997 and  preliminary  financial
information  indicates that Dencor operated at a small profit for the six months
ended June 30, 1997. However, there is no assurance that Dencor will continue to
operate at a profit.                                                            

6. Substantial  Doubt About PAI's Ability to Continue as a Going Concern.  PAI's
auditors'  report for its 1996 financial  statements  contains a "going concern"
limitation.  PAI's operating results for the fiscal year ended December 31, 1996
resulted  in a  net  loss  of  $4,549,794.  At  December  31,  1996,  PAI  had a
stockholder's deficit and a negative working capital of $9,281,562 and $697,676,
respectively.  PAI experienced a decline in revenue and sustained losses in 1996
in conjunction with management's  decision to reengineer the marketing direction
of PAI towards large programs and energy management rather than single projects.
PAI management recognized that this reengineering would adversely affect results
in the near term,  and believes  the shift in  marketing  of PAI's  programs and
processes is now leading to the development of long term strategic relationships
that are taking shape in 1997 and into 1998.  PAI's future  success and economic
viability  will directly  relate to achieving  profitable  operations,  managing
tight liquidity,  and continuing to develop capital  resources.  PAI anticipates
meeting liquidity needs through growth in business and nonrecourse  financing of
long term energy  savings and finance  receivables.  Energy  savings and finance
receivables  consist of amounts due from customers  pursuant to long term energy
savings  contracts.  Customer  payments  are based upon a  percentage  of actual
energy savings provided.  Because energy savings realized are exceeding original
projections  for certain  projects,  PAI management  estimates that the economic
value of these receivables to be approximately  $29.9 million as of December 31,
1996, thereby exceeding book value by approximately $6.9 million.  This estimate
is based on the average  billings in 1996,  assuming such levels of  performance
will  be  sustained  for the  remaining  term of the  project,  and  using a 16%
discount  rate.  Additionally,  PAI expects to raise  capital  through a private
offering of preferred stock to be completed in the latter part of 1997. However,
there is no assurance that PAI management's  belief  concerning the estimates of
the  economic  value of the  energy  savings  receivables  is  accurate  or will
actually be  realized  due to credit and  performance  risks or that the private
placement of preferred stock will be consummated.                               

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7.  Developments  in  Technology.  The  industry in which each of PAI and Dencor
conduct business is characterized by rapidly developing  technology.  Changes in
technology  could affect the market for each of PAI's and Dencor's  products and
necessitate additional improvements and developments to such products. There can
be no  assurance  that  either of PAI's or  Dencor's  research  and  development
activities will lead to the successful  introduction of new or improved products
or that delays or problems in connection therewith will not be encountered.  The
cost  of  completing  new   technologies   to  satisfy   minimum   specification
requirements,  quality and delivery  expectations may exceed original  estimates
that could adversely affect operating results during any financial period.      

8. Limited Financial Resources of Dencor. Dencor has limited financial resources
available  to it, and this may  restrict  Dencor's  ability to grow.  Additional
capital from sources  other than  Dencor's cash flow may be necessary to develop
new products,  and there is no assurance  that such  financing will be available
from any source.  Dencor management believes that it may not be able to increase
Dencor's  business as desired  without  additional  funding.  Dencor  management
believes  that the Merger will  result in a combined  entity that will be better
able to obtain financing, although there is no assurance that this will occur.  

9. Competition. The industry in which each of PAI and Dencor conduct business is
highly  competitive.  Many of the  competitors of PAI and Dencor are established
enterprises that possess greater name  recognition,  established  customer bases
and  significantly  greater  resources  than each of PAI and Dencor and  compete
directly  with  PAI  and  Dencor  for  the  same  customers.  There  are not any
substantial  barriers to the entry of  additional  competitors  into the market.
Given  these  factors,  particularly  in the  approaching  environment  which is
expected to result from the deregulation of the electric  industry in the United
States,  it is highly  likely  that new  competitors  may emerge  and  acquire a
significant  portion  of each of PAI's and  Dencor's  market  share,  therefore,
further  diminishing  the prospects of PAI and Dencor.  PAI and Dencor  believe,
however,  that they will have certain  advantages  in  attempting to develop and
market their products and services  including a more cost effective  technology,
the  ability  to  undertake  smaller  projects,  and the  ability  to respond to
customer  requests  more  quickly  than  some  larger  competitors.  There is no
assurance that these conclusions will prove correct.                            

10.  Government  Regulation.  Each of PAI and Dencor are  subject to  government
regulation  of their  respective  business  operations  in general.  There is no
assurance that subsequent changes in the laws or regulations will not affect the
operations of PAI and Dencor.                                                   

11. The Illiquidity of an Investment and Limitation on Transferability. Although
the Dencor Common Stock is traded in the  over-the-counter  market and is quoted
in the "pink sheets" distributed by the National Quotation Bureau ("NQB"), there
currently  is not an active or liquid  market for the Common  Stock.  The Common
Stock has not traded since July 29,  1997,  at which time the "pink sheet" quote
for the Common Stock was $.04 bid and $.08 asked. The "pink sheet" quote for the
Common Stock on _______________, 1997 was $.___ bid and $.___ asked.            

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It should be assumed that even with this pink sheet quote, there is an extremely
limited  trading  market - and very  little  liquidity  - for the Dencor  Common
Stock. The trading volume of the Dencor Common Stock in 1996 was 107,500 shares.
81,300 shares of the Dencor Common Stock have traded in the period from November
13, 1996 through July 31, 1997, with all of that trading occurring in July 1997.
There is not any  assurance  that the trading  volume of the Dencor Common Stock
will increase after the Merger.                                                 

12.  Penny  Stock   Regulation.   The  SEC  has  adopted   rules  that  regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks  generally are equity  securities  with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ  system,  provided  that current  price and volume  information  with
respect to  transactions  in such  securities  is  provided  by the  exchange or
system).  The penny stock rules require a broker-dealer,  prior to a transaction
in a penny stock not otherwise  exempt from the rules, to deliver a standardized
risk disclosure  document  prepared by the SEC that provides  information  about
penny  stocks and the nature and level of risks in the penny stock  market.  The
broker-dealer  also  must  provide  the  customer  with  current  bid and  offer
quotations for the penny stock,  the compensation of the  broker-dealer  and its
salesperson in the transaction and monthly account statements showing the market
value of each penny  stock  held in the  customer's  account.  The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the  customer  orally or in  writing  before or with the  customer's
confirmation.  In  addition,  the penny  stock  rules  require  that  prior to a
transaction  in a  penny  stock  not  otherwise  exempt  from  such  rules,  the
broker-dealer must make a special written  determination that the penny stock is
a suitable  investment  for the  purchaser and receive the  purchaser's  written
agreement to the transaction.  These disclosure requirements may have the effect
of reducing the level of trading  activity in the  secondary  market for a stock
that becomes  subject to the penny stock rules.  Because the Dencor Common Stock
trades below $5.00 per share and is not traded on the NASDAQ system,  the Dencor
Common Stock is subject to the penny stock rules, and PAI stockholders will find
it difficult to sell the Dencor Common Stock they receive in the Merger.        

13. Related Party  Transactions  and Possible  Conflicts of Interest.  As of the
date of this Joint Proxy Statement/Prospectus, the Board of Directors of the PAI
consisted of Charles T. Condy, Christopher, T. Condy and George F. Pilloton, all
of whom are executive  officers and principal  stockholders of PAI. Thus,  there
has been in the past the  potential  for  conflicts  of interest in PAI and such
individuals  or entities in which such  individuals  have an  interest.  PAI has
attempted to ensure that any such  transactions  were entered into on terms that
were no less  favorable  than  could have been  obtained  in  transactions  with
unrelated third parties.                                                        

14.  Interest Rate Changes.  PAI,  through  PACC,  its wholly owned  subsidiary,
engages in project finance activities related to the Company's operations.  PACC
invests in projects  for clients of PAI and others with energy  project  finance
needs.  An increase in interest  rates would  increase the relative  cost of the
financing  and  subsequently  could  decrease  the number of project  financings
completed and/or the return on capital.                                         

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15. Foreign  Currency Risk. PAI intends to commence  operations in Europe and in
other countries  outside the United States.  PAI expects that it may be paid for
such  projects in the local  currency of the country or  countries  in which the
operations  are  completed.  These  currencies  are not  "pegged"  or in any way
directly related to the U.S. dollar.  Subsequently,  any changes in the exchange
rate between the U.S.  dollar and other  currencies,  or the  restriction by any
government  of the  flow of  currency,  or  inflation  in any of the  currencies
including the U.S. dollar could have a material adverse effect on PAI.          

16.  Disclosure   Regarding   Forward-Looking   Statements.   This  Joint  Proxy
Statement/Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the  Securities Act Of 1933, as amended (the  "Securities  Act"),
and  Section  21E of the  Securities  Exchange  Act Of  1934,  as  amended  (the
"Exchange  Act").  All  statements  other than  statements  of  historical  fact
included in this Joint Proxy Statement/Prospectus,  including without limitation
the  statements  under  "RISK  FACTORS",  "DENCOR  MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "PAI MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS",  are
forward-looking  statements.  Although each of PAI and Dencor  believes that the
expectations reflected in such forward-looking  statements are reasonable,  they
can give no assurance  that such  expectations  will prove to have been correct.
Important factors that could cause actual results to differ materially from each
of  PAI's  and  Dencor's   expectations   are  disclosed  in  this  Joint  Proxy
Statement/Prospectus,  including  without  limitation  in  conjunction  with the
forward-looking  statements  included in this Joint Proxy  Statement/Prospectus.
See "DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS".                          

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INTRODUCTION

     This Joint Proxy Statement/Prospectus is being furnished to shareholders of
Dencor in  connection  with the  solicitation  of proxies by the Dencor Board of
Directors  for use at the Dencor  Special  Meeting to be held at 1450 West Evans
Avenue,  Denver,  Colorado  80223 on _______,  ________ __, 1997,  at ____ a.m.,
Denver time, and at any adjournments or postponements thereof.                  

     This  Joint  Proxy   Statement/Prospectus   is  also  being   furnished  to
stockholders  of PAI in connection  with the  solicitation of proxies by the PAI
Board of  Directors  for use at the PAI Special  Meeting to be held at 1740 Army
Street,  San Francisco,  California  94124,  on _______,  _________ __, 1997, at
_____  a.m.,  San  Francisco  time,  and at any  adjournments  or  postponements
thereof.                                                                        

     At the Dencor  Special  Meeting,  shareholders  of Dencor  will be asked to
approve the Reverse Stock Split and the Charter  Amendments  in connection  with
the consummation of the transactions pursuant to the Merger Agreement, including
the Merger.  At the PAI Special  Meeting,  stockholders  of PAI will be asked to
approve and adopt the Merger Agreement and the Merger.                          

     This Joint Proxy  Statement/Prospectus  also  constitutes  a prospectus  of
Dencor with respect to up to 49,014,198  shares of Dencor Common Stock  issuable
to PAI stockholders in the Merger pursuant to the Merger Agreement.             

 DENCOR ENERGY COST CONTROLS, INC.

     Dencor was  incorporated on January 16, 1974 under the laws of the State of
Colorado for the purpose of developing,  manufacturing, and marketing electronic
devices.  Currently,  Dencor's  primary  activity is the manufacture and sale of
electrical demand controllers that manage electricity consumed in residences and
commercial establishments and energy control devices used by utilities to modify
residential  energy  use  patterns.  Dencor  has  its  headquarters,  production
facilities, and research and development laboratories in Denver, Colorado.      

     Dencor is  engaged in only one  industry,  that of  designing,  developing,
manufacturing,  marketing,  and  installing  products and systems that assist in
controlling  the cost of  energy  utilization.  Management  of  Dencor  does not
recognize any significant  business  difference,  at least at this time, between
sales of residential demand controllers,  special relay equipment for utilities,
temperature   activated  duty  cyclers,   commercial  demand  controllers,   and
interlocks.                                                                     

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     Dencor's  primary business is the assembly and sale of control systems that
reduce  electrical  energy costs. Its principal product is the electrical demand
controller  that  enables a  homeowner  having an electric  heating  system or a
central air  conditioning  system to control the peak use of  electricity.  This
enables the homeowner to achieve cost savings in geographic  locations served by
electric  utilities  that include a demand factor in their  residential  billing
rates.  Demand rates are used by electric  utilities  to encourage  consumers to
reduce their peak usage of electricity.                                         

     A demand  controller  monitors  the total power  consumption  and turns off
selected loads,  typically  heating circuits,  during peak consumption  periods,
restoring them at the end of that period. The controller automatically keeps the
consumption  within the level  selected.  The principal  markets for residential
demand control systems are in regions served by utilities with a demand rate for
residential  customers.  The residential demand controller is designed for homes
heated electrically by baseboard heaters,  radiant heaters, heat pumps, electric
boilers and electric furnaces, and may also be used to control air conditioners.

     The sale of residential demand control systems  contributed 73% of Dencor's
total sales during 1996.                                                        

     Dencor has developed demand controllers for commercial buildings. One model
of the commercial  systems  includes a graphics  system to interface  commercial
demand controllers to IBM compatible computers. This graphics system can display
minute-by-minute  demand data as well as 15-minute,  daily,  monthly, and annual
summaries.  All data is also stored on computer disk for later  inspection.  The
sale of commercial  demand  control  systems  contributed  16% of Dencor's total
Company sales during 1996.                                                      

     Dencor has developed a series of products  used to control  water  heaters,
space heaters, and air conditioners for specific utility applications.  Sales of
these  products  accounted  for 11% of net sales in 1996.  Dencor  anticipates a
gradual growth in this portion of the business.                                 

     Dencor's  demand  control  systems are  currently  being  marketed  through
traditional electrical  distribution channels. They are being sold to electrical
distributors  who, in turn,  market and  distribute  these systems to electrical
contractors  who provide  installation  services to the builder or the consumer.
Dencor  also sells to dealers  who  specialize  in selling  energy  products  to
customers  and also  utilizes  manufacturer's  representatives  to  promote  the
distribution  of its  products.  Dencor  also sells to  organizations  that have
lease/purchase  plans with customers.  This enables the customer to realize cost
savings which usually approximate or exceed the lease payments.                 

Dencor's foreign sales in 1996 were less than 1% of total sales.      

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     During  1996,   Dencor   developed  a  new  series  of  commercial   demand
controllers.  These  controllers  are designed to permit demand  monitoring  and
controller parameter changes from a remote location by use of a modem. These new
products are in production.                                                     

     Competition  is intense in the energy  management  control  system  market.
Dencor competes directly with several  relatively small electronic  companies in
its  residential   controller  market,  and  with  the  major  manufacturers  of
electrical controls for its commercial demand controllers.                      

     Several  companies  manufacture  systems  which are  similar  in concept to
Dencor's  demand  controllers.  Many of the companies with which Dencor competes
and will be  competing  in both  the  residential  and  commercial  market  have
substantially  greater financial and technical  capabilities.  Products of these
companies  often  compete  directly  with those being offered by Dencor and with
those currently in development.                                                 

     Dencor  has   approximately   16   suppliers   for  its   components.   Its
semi-conductor  components  are  made by a  variety  of  primary  semi-conductor
manufacturers.  Dencor also has components  made to order from several local and
national vendors.  It is believed that adequate sources are available and Dencor
has had no significant difficulty in obtaining components. Dencor believes other
alternate sources are available if required. The principal suppliers are: Circle
AW, Deltrol, Star Circuits, and X-10 USA.                                       

     Dencor's suppliers'  productive capacities are believed to be sufficient to
meet any rapid delivery requirements of customers or to any continuous allotment
of goods.                                                                       

     During 1996, two major  customers  accounted for 44% of Dencor's net sales.
These  customers  are not  affiliated  with  Dencor.  The  loss of any of  these
customers may adversely affect Dencor's business.                               

     As of March 31,  1997,  Dencor  had a backlog  of orders  totaling  $56,649
consisting of equipment orders from  distributors.  Dencor  anticipates  filling
these orders during the current year.                                           

     Most of Dencor's  demand control  systems are not protected by any patents.
While  management  believes  that patent  protection  may be  desirable  in some
instances,  it does not  consider  such  protection  essential  to the  ultimate
success  of  Dencor.  A patent  was  issued  to  Dencor  on April 4,  1989 for a
Variable-Limit Demand Controller for metering electrical energy. In 1991, Dencor
entered into a non-exclusive  licensing  agreement with an unrelated third party
for use of Dencor's patent. A patent  application was filed in April 1994 for an
Adaptive Load Cycler for Controlled Reduction of Energy Use; however, Dencor has
no assurance a patent will be issued.                                           

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     In the fiscal  years  ended  December  31, 1996 and 1995,  Dencor  expended
$69,700 and $73,900,  respectively, on Dencor sponsored research and development
activities.  Dencor plans to continue research and development activities during
1997.                                                                           

     Dencor's  compliance  with  federal,  state and local laws and  regulations
relating to the discharge of material into the environment or otherwise relating
to the protection of the environment does not have a material impact on Dencor's
capital expenditures.                                                           

     On July 31, 1997, Dencor had five full-time employees.  Two were engaged in
administration,   two  in  production,  and  one  in  engineering  research  and
development.                                                                    

     Dencor leases 3400 sq. ft. of manufacturing space on a month to month basis
for  $1,687  per month  and 1700 sq.  ft. of sales,  office,  and  research  and
development  space  pursuant  to a lease for $995 per month  pursuant to a lease
expiring  on May 14,  1998 at 1450  West  Evans,  Denver,  Colorado.  Management
considers these facilities to be adequate for its requirements for the immediate
future.                                                                         

DENCOR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources                                                 

     The independent  auditors' report on Dencor's financial  statements for the
year ended December 31, 1996, included a "going concern" explanatory  paragraph,
which means that the auditors have  expressed  substantial  doubt about Dencor's
ability  to  continue  as a going  concern.  Management  plans in  regard to the
factors  which  prompted the  explanatory  paragraph  are discussed in Note 2 to
Dencor's December 31, 1996 financial statements.                                

     Dencor considers,  and currently uses for internal management  purposes,  a
number of measures of liquidity.  These measures include the Current Ratio which
is the ratio of current assets to current  liabilities  and the Sales to Working
Capital Ratio. Working capital is Current Assets less Current Liabilities.      

                               1996             1995              1994
                               ----             ----              ----

Current Ratio                        .93              1.24              1.17    

Sales to Working Capital             --              11.22             16.64    

Sales to Total Assets               1.79              2.06              2.20    

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     The major  factors  affecting  these ratios were the net income in 1995 and
the net losses for 1996 and 1994.  Dencor has made  extensive  use of short-term
debt as summarized in the following table:                                      

                                                                [Download Table]


                                    Maximum        Average                  
               Balance  Weighted    amount       outstanding      Weighted  
                 at     average   outstanding  average interest  amount rate
    Notes      end of   interest  during the     during the       during the
  Payable      period     rate      period         period           period  
  -------      ------   --------  ----------   ----------------  -----------

                                                                            
Shareholders  $93,400    18.4%      $93,400       $93,400           18.4%   

     The  weighted  average  interest  rate  during  the period was based on the
outstanding  balance and interest rate at each  month-end for each note.  Dencor
anticipates  continuing  short term borrowing in 1997.  Dencor  currently has no
line of credit.  If working  capital  beyond that provided by profits is needed,
additional debt financing will be sought.  If traditional  debt financing is not
available,  Dencor will attempt to raise  working  capital by private  borrowing
including  stockholder  loans,  or  sales of stock  through  private  placements
although no assurances can be given that financing will be available.  Dencor at
present has no long-term debt.                                                  

     The Merger  Agreement  with PAI  provides  that PAI will cause  $200,000 of
working  capital to be provided to Dencor.  If the Merger is consummated and the
$200,000  is  provided  to Dencor,  these  funds will be utilized to further the
activities  previously  undertaken by Dencor under a division to be known as the
Denver  Division  while  Dencor  and PAI  pursue  other  business  opportunities
including  those  undertaken  by PAI prior to the Merger.  In  addition,  Dencor
believes  that as a result of the  Merger,  Dencor will be better able to obtain
financing for the activities of the Dencor Division because of the combined size
of Dencor and PAI and because of the  expertise of obtaining  financing of PAI's
PACC subsidiary.  However,  there is no assurance that such additional financing
will be available on terms satisfactory to Dencor.                              

Results of Operations                                                           

Quarter Ended March 31, 1997 Compared To Quarter Ended March 31, 1996 

     Sales. Sales of $113,100 in the first quarter of 1997 were approximately 9%
greater  than the  $103,700  in sales for the  comparable  period  in 1996.  The
increase is primarily a result of an increase in sales to dealers.              

     Cost And  Expense.  Cost of  products  sold as a  percentage  of net  sales
decreased  8.4% for the first  quarter of 1997  compared  to the same  period in
1996.  The  increase  in  gross  margin  is  primarily  due an  increase  in the
percentage of sales to dealers  because dealers sales have a greater margin than
sales to utilities.                                                             

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     Selling  Expenses.  Selling expenses as a percentage of net sales increased
1% during the first quarter of 1997  compared to the first quarter of 1996.  The
increase is primarily due to increased travel expenses.                         

     General And Administrative  Expenses.  General and administrative  expenses
were  essentially  the same in each of the first  quarter  of 1997 and the first
quarter of 1996.                                                                

     Research And Development. Research and development expenses as a percentage
of net sales decreased  slightly in the quarter ended March 31, 1997 as compared
to the same quarter of 1996.                                                    

     Earnings.  Dencor's  net  loss for the  first  quarter  of 1997 was  $1,500
compared  to a loss of  $11,700  for the same  period  in the  prior  year.  The
decrease in losses was due to the decrease in cost of goods sold as a percentage
of sales.                                                                       

Year Ended December 31, 1996 Compared To Year Ended December 31, 1995.

     Sales.  Dencor's  sales in 1996 of $388,700  were 32 percent  lower than in
1995 net sales of $567,900.  Approximately  49% of the sales decrease was due to
international  sales  declines.  Dealer  sales also  experienced  a decrease  of
approximately  27%. The net loss for 1996 was $74,400  compared to net income of
$11,300 in the prior year.                                                      

     Gross  Margins.  The gross margin  percentages  were 46%,  46%, and 44%, of
sales for 1996, 1995, and 1994 respectively.                                    

     Selling  Expenses.  Selling  expenses as a percentage of sales increased to
5.6% in 1996 compared to 3.5% in 1995. The primary reasons for the increase were
an increase in trade show attendance and travel and a 32% decrease in net sales.

     General and Administrative Expense.  General and administrative expenses as
a percentage of sales have  increased to 37.7% in 1996 compared to 25.6% in 1995
primarily due to a 32% decrease in net sales.                                   

     Research and  Development.  Research  and  development  expenses  decreased
slightly in 1996 due to a decrease in activity.                                 

     Inflation. Inflation has no significant impact on the operations of Dencor.

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     Management's  Plans.   Dencor's  1997  operating  plan  includes  achieving
increased  sales goals and  continuing its cost  reduction  program.  Management
believes that actions  presently  being taken to revise  Dencor's  operating and
financial  requirements  will  enable  Dencor to achieve  profitable  operations
during 1997.                                                                    

 PROVEN ALTERNATIVES, INC.

The Company                                                                     

     PAI  was  incorporated  in  April  1991  under  the  laws of the  State  of
California and was  subsequently  reincorporated  under the laws of the State of
Delaware in November  1991.  In July 1991,  PAI acquired 85% of the  outstanding
capital stock of Golden Bear Cogen,  Inc.  ("Golden  Bear");  in August 1996 PAI
acquired the remaining 15% of the  outstanding  capital stock of Golden Bear. In
April 1992 PAI acquired 100% of Luminae, Inc.  ("Luminae").  Luminae is a wholly
owned operating subsidiary of PAI, concentrating in specialized lighting design.
Proven Alternatives  Capital  Corporation  ("PACC") was incorporated as a wholly
owned  subsidiary  of PAI and is intended  to develop  investment  vehicles  and
provide related services for sophisticated  institutional  investors in order to
provide  project  financing for PAI. In February 1992, PAI acquired Puget Energy
Services,  Inc.  ("PESI"),  a company  specializing  in the  execution of energy
efficiency  projects under utility contracts.  Subsequently,  in March 1994, PAI
merged PESI into PACC.                                                          

     PAI is an  integrated  and  process  energy  management  firm.  It provides
process   knowledge,   energy   management   capabilities,   energy   efficiency
technologies  and capital  capabilities to solve business  problems  relating to
energy  usage.  PAI  provides its  services in six service  areas:  total energy
management,  strategic consulting,  program management, capital services, energy
procurement and energy information  management.  Typically services are provided
by PAI as a long-term  partner  with the customer  and on a  performance  basis.
PAI's services include the identification of under-performing  corporate assets,
the recommendation for and application of processes, equipment and techniques to
improve the  performance of these assets and  investment in these  applications.
PAI markets its  services to companies  that could  benefit  significantly  from
improvements in energy management, energy procurement and use and to those whose
operations are energy and process  intensive.  These clients are located both in
the United States and abroad.                                                   

     The electric power industry is currently  undergoing  significant  changes.
From  a  heavily  regulated,   vertically  integrated  and  highly  bureaucratic
industry, it is rapidly transforming into a disaggregated tangle of services and
providers,  each facing significant competitive pressures.  PAI believes that as
deregulation  of  the  U.S.   electrical   industry  unfolds,   it  will  create
opportunities for companies with the capabilities of PAI.                       

     PAI has historically  marketed its services through a direct sales force to
manufacturing,  commercial,  and industrial  companies on a site-specific basis.
Starting in 1993,  PAI moved from project by project  orientation to a long-term

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service a relationship  basis, and began marketing its services to organizations
on  a  company-wide   basis.   PAI's  clients  include  Champion   International
Corporation, Kaiser Permanente,  International Paper Company and other companies
in the pulp & paper  industry,  health care and real estate  industries.  PAI is
compensated  for  its  services  through   professional   service  fees,  energy
application  sales,  capital  revenues and management fees. These fees are often
performance  based,  such that the amount  earned by PAI is  dependent  upon the
success of the programs designed and implemented by PAI.                        

PAI Offices                                                                     

     PAI's offices are located at 1740 Army Street,  San  Francisco,  California
94124 and its telephone number is (415) 285-0800.                               

Business                                                                        

General                                                               

     PAI is an integrated energy management firm. It provides process knowledge,
energy  management  capabilities,  energy  efficiency  technologies  and capital
capabilities to solve business  problems  relating to energy usage. PAI provides
its  services  in  six  service  areas:  Total  Energy   Management,   Strategic
Consulting, Program Management, Capital Services, Energy Procurement, and Energy
Information  Management.  Typically,  service  programs are provided by PAI as a
long-term partner with the customer and on a performance  basis.  PAI's services
include  the   identification  of   under-performing   corporate   assets,   the
recommendation and application of processes, equipment and techniques to improve
the  performance of these assets and investment in these  programs.  PAI markets
its services to companies which could benefit significantly from improvements in
energy  procurement and use and to those whose operations are  energy-intensive.
These clients are located both in the United States and abroad.                 

Total Energy Management                                               

     Total Energy  Management  encompasses  PAI's  varied  services and has been
created as an  opportunity  to become  customers'  single  outsource  for energy
management. The four parts of Total Energy Management are:                      

     Energy Management Business Strategy - consists of defining and prioritizing
     a customer's  energy needs and  developing  an agreement  through which PAI
begins the relationship.                                              

     Implementation  - consists of implementing  the  comprehensive  initiatives
     identified in the Energy Management  Business  Strategy,  which may include
     the energy information  management  service,  procurement,  capital program
     design, construction,  operational and maintenance management improvements,
performance monitoring and control systems and other services.        

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     Capital Investment - consists of structuring  customized capital facilities
     that are provided to the program at hand,  typically  through  non-recourse
instruments.                                                          

     Performance  Management  -  consists  of  managing  energy use and cost and
     enhancing  energy   performance   including  ongoing  data  management  and
     performance  monitoring,  energy procurement  optimization,  and continuous
improvement to operations and maintenance.                            

Strategic Consulting                                                  

     PAI  provides   strategic   management   consulting   services   including:
benchmarking   energy  policy,   standards  and  practices;   developing  energy
performance  improvement goals and objectives and creating  business  strategies
and tactics to achieve those goals;  assisting with design of new facilities and
due-diligence on facility  acquisition;  assessing  energy supply  alternatives,
negotiating  advantageously priced supply contracts;  and managing relationships
with energy  suppliers.  PAI educates,  trains and builds  energy  awareness for
clients,  evaluates and monitors  program results and customer  satisfaction and
advocates  on behalf of  customers  with  regulators,  legislators  and  opinion
leaders.  This  consulting  is  performed  largely  under  Professional  Service
Agreements,  where PAI is  compensated  on a value basis  largely in the form of
fees.  Strategic Consulting is often the first step in a Total Energy Management
solution.                                                                       

Program Management                                                    

     PAI works with  customers to create and  implement  custom,  comprehensive,
performance  based  programs  designed to achieve  specific  cost  reduction and
productivity  improvement  objectives,  such as reducing supply costs,  reducing
energy demand and consumption,  including energy cost per unit output,  reducing
operations and maintenance  costs of energy  equipment and systems and improving
product  quality and  through-put  and  increasing  process  flexibility.  PAI's
compensation  is often based upon the savings  due to the  program's  successful
implementation.                                                                 

Capital Services                                                      

     Through PACC, PAI provides capital investment options for its clients. PACC
assesses  capital  investment  options,  assists  in the  selection  of  options
available,  and invests,  primarily on a performance basis, in customers' energy
performance improvements.  PACC's performance investments are usually structured
to accelerate or avoid existing  capital budget processes which limit customers'
investment capabilities. PACC tailors capital management processes that expedite
necessary   investments,   and  creates  customized  capital  programs  to  meet
individual customer needs. PACC has financed,  on a non-recourse basis,  certain
long term energy savings contracts owned by PACC with Energy Capital Partners   

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L.P., Inc., of Boston, Massachusetts,  at rates varying from 11.25% to 16.8%. As
of  February  28,  1997 there was  $4,983,370  of senior  debt  outstanding  and
$3,352,130 of subordinated  debt  outstanding  with respect to these  contracts.
PACC may continue  financing  contracts with Energy Capital  Partners so long as
the terms are acceptable. There can be no assurance that Energy Capital Partners
will continue to offer acceptable terms and rates in the future.                

Energy Supply Management                                              

     PAI offers energy supply  services,  wherein PAI represents  clients in the
procurement of power,  natural gas and other forms of energy supply. In addition
to  developing  databases  on  electricity  and natural gas  suppliers,  PAI has
developed an energy  procurement  analysis tool that  quantitatively  integrates
customers' energy requirements,  such as reliability,  quality,  price, service,
environmental  impacts,  risk and other factors. PAI believes that the impending
deregulation  of the electric  industry  will create a greater  demand for PAI's
energy supply  services,  as companies,  which to this point have not focused on
their energy usage,  are forced to choose among competing energy  suppliers.  In
attempts to decrease  their utility  expenditure,  such  companies may employ an
energy  management  firm  such  as PAI  rather  than  create  their  own  energy
management   organization.   However,  there  can  be  no  assurance  that  such
deregulation will actually increase the demand for PAI's services.              

Energy Information Management Services                                

     PAI is developing energy accounting  capabilities  through the installation
of on-site meter reading  equipment,  which will allow  multi-site  customers to
gain knowledge about their true energy use and habits. The information collected
will be transferred  to a central  station via an internet user  interface.  The
system will track real time energy use, will provide  up-to-date  information on
load profiles and energy use  practices  and will help predict  future usage and
costs.  The system will also identify  energy  infrastructure  improvements  and
measure their performance.  PAI believes that in a deregulated  electric market,
precise   knowledge  of  usage  habits  will  be  central  to  intelligent   and
cost-effective purchasing. This aspect of PAI's business is in the developmental
stages.                                                                         

Luminae Souter Lighting Design                                                  

     Luminae,  Inc.,  d.b.a.  Luminae Souter Lighting Design, is a subsidiary of
PAI and is one of the nation's premier architectural lighting firms. Luminae has
a staff  of  lighting  engineers,  architects  and  interior  designers  and has
implemented  hundreds of architectural  projects throughout the U.S. and abroad.
Luminae's  work  includes a wide range of project  types,  including  industrial
facilities,  hotels,  resorts,  restaurants,  airports,  sports arenas, offices,
research  facilities,  schools and others.  Luminae has been  honored  with more
lighting  design  awards over the past six years than any other such firm in the
country,  including  numerous Edison Awards of Excellence and ASID, HALO and IES
design awards. In 1990-1991,  Luminae received the three most prestigious design
awards given in the lighting design industry.                                   

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Deregulation Of The Electric Utility Industry                                   

     The $400 billion per year electric power  industry is currently  undergoing
significant changes. From a heavily regulated,  vertically integrated and highly
bureaucratic industry, it is rapidly transforming into a disaggregated tangle of
services  and  providers,   each  facing  significant   competitive   pressures.
Management of PAI believes that,  within a few years,  the industry is likely to
be comprised of the following principal components:                             

     Generating  companies that own and operate power plants and sell power into
a competitive wholesale market.                             

     Transmission  companies that own and maintain (but do not operate) the high
voltage transmission system that allows bulk power transfer.

     Power marketers that purchase (and take title to) power from  producers and
 resell it to distribution utilities or directly to customers.

     Power exchanges, non-profit,  public interest entities that, in some states
          such as California,  will serve as clearinghouses  or  mega-marketers,
          determining  day  power   requirements,   purchasing  all  power  from
          producers  at  lowest  bid  price  and  selling  to  distributors  and
    customers at a mark-up designed to cover its cost of operations.

     Power brokers that arrange deals between power suppliers and customers, but
          do not take  title to the  energy.  Brokers  earn a fee,  much as real
          estate  brokers,  on each  transaction,  and are  not  required  to be
federally licensed beyond typical business licenses.        

     Load aggregators  that  bundle  loads  from many  customers  into a package
attractive to major suppliers.                              

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     Service providers  that meet a large variety of market and customer  needs,
          from  consulting,  information  management and engineering to finance,
          program  management,  operations and maintenance,  purchase management
and bill consolidation and payment.                         

     PAI believes that the completion of the Merger will  strengthen its ability
to compete in this environment.                                                 

Certain PAI Litigation                                                          

     In  1996,  PAI  settled  a  lawsuit   involving  several  of  the  minority
shareholders of Golden Bear. Under the terms of the settlement, PAI acquired the
remaining 15% minority shares and agreed to pay therefor  approximately $400,000
to such minority shareholders in monthly installments over two years.           

     In late  1996,  in an  arbitration  filed  by the  owner of  certain  micro
cogeneration  patents then  licensed to PAI,  PAI became  subject to an award in
favor of that owner in an amount in excess of  $1,100,000.  PAI has  executed an
Agreement To Satisfy  Judgment And Refrain From  Execution On Judgment  with the
owner under the terms of which PAI will pay the judgment  over a period of three
years and the owner  will  refrain  from any  collection  efforts so long as the
payments are made when due.                                                     

 PAI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
the Financial Statements and the notes thereto contained herein. This Memorandum
contains  forward-looking  statements related to business development  prospects
which involve risks and uncertainties. The Company's actual results could differ
materially  from those  anticipated  in these  forward  looking  statements as a
result of  certain  factors,  including  marketing  risks and those set forth in
"RISK FACTORS" and elsewhere in this Joint Proxy Statement/Prospectus.          

General                                                                         

     PAI and Dencor  have,  subject to  obtaining  approval of their  respective
shareholders'  agreed on a plan of merger  which  provides for the merger of PAI
with and into Dencor  Acquisition  Corporation,  a  wholly-owned  subsidiary  of
Dencor Energy Cost  Controls,  Inc, which will result in PAI being the surviving
corporation and a wholly owned subsidiary of Dencor.                            

     The following  discussion and analysis  relates to the financial  condition
and results of operations of PAI for the two years ended  December 31, 1996. PAI
has  sustained  losses  since its  inception in 1991.  Management's  decision to
reengineer  the  marketing  direction  of PAI toward  large  programs and energy
management rather than single projects was a significant  contributing factor to
such losses.  Management  recognized  that this  reengineering  would  adversely

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affect  results in the  near-term  and  believes the shift in marketing of PAI's
programs and processes is now leading to the development of long-term  strategic
relationships  that are  beginning  to take  shape in 1997 and are  expected  to
continue into 1998. While the fundamental  services and technologies  offered by
PAI have  remained  largely the same,  the  emphasis on programs (as compared to
one-off projects),  on production enhancements within the industrial sector, and
the  integration  of services  into  customer  solutions is now seen as the most
effective  manner to develop  meaningful  core  business.  For  example,  PAI is
developing a potential $200 million pulp & paper relationship,  to commence with
a $50 million  first  phase.  Additionally,  in June 1997,  PAI entered into its
first   national   energy   management   agreement   wherein  PAI  will  deliver
comprehensive  energy  management  services  on a  corporate-wide  basis to this
billion-dollar revenue customer for five years.  Throughout this period, PAI has
funded its operations through  non-recourse  financing of long term receivables.
PAI expects to raise capital in the future through  additional project financing
as well as the  sale  of its  preferred  stock.  Management  expects  to use the
proceeds  from any future  stock  offering  to provide  working  capital for the
expansion of the business.                                                      

Liquidity And Capital Resources                                                 

     The independent auditors' report on PAI's consolidated financial statements
for the years  ended  December  31,  1996 and 1995,  included a "going  concern"
explanatory  paragraph which means that the auditors have expressed  substantial
doubt about PAI's ability to continue as a going  concern.  Management  plans to
address  liquidity  and  capital  resources  are  discussed  in Note 1 to  PAI's
December 31, 1996 consolidated financial statements.                            

     At December 31, 1996 PAI had shareholders'  deficit of $9,281,562 comprised
of common stock and common stock option equity of  $16,225,825  and  accumulated
deficit of  $25,507,387.  Also, at December 31, 1996,  PAI had negative  working
capital of $697,676  compared  to  negative  working  capital of  $4,252,998  at
December  31,  1995.  During  1995 and  1996,  operations  were  supported  by a
$3,000,000  bank line provided by US Bank of Washington  that allowed cash draws
as well as letters of credit.  The balance owed US Bank at December 31, 1996 and
December 31, 1995 was $2,813,229 and $2,744,640,  respectively. PAI, through its
investment  subsidiary,  PACC,  refinanced certain long term investments,  which
generated additional working capital in 1996.                                   

     In March 1997,  the US Bank line was replaced by a working  capital line of
$4,000,000  provided  by Silicon  Valley  Bank of Santa  Clara,  California,  to
provide working  capital and letters of credit.  The initial use of the facility
was to  repay  the  outstanding  indebtedness  owed  to US  Bank.  Both  banking
arrangements  were  secured by the pledge of 160,000  shares of common  stock of
California  Energy Company by Charles T. Condy as well as Mr.  Condy's  personal
guarantee. See below, "CERTAIN PAI RELATIONSHIPS AND PAI RELATED TRANSACTIONS". 

     At March 31, 1997 negative  working  capital was  $2,310,500 as compared to
$697,676 at December 31, 1996 and $1,455,600 at March 31, 1996.                 

     PAI anticipates  meeting liquidity needs through growth in the business and
non-recourse  financings  of long-term  receivables.  Management  estimates  the
economic  value  of  PAI's  long-term  receivables  may  exceed  book  value  by
approximately  $6.9 million as of December 31, 1996.  This  estimate is based on
the  average  billings in 1996,  assuming  such  levels of  performance  will be
sustained for the remaining term of the project and using a 16% discounted rate.
However,  there is no  assurance  that PAI  managment's  belief  concerning  the
estimates of economic  value of the energy  savings  receivables  is accurate or
will actually be realized due to credit and performance risks.                  

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     PAI  anticipates  meeting  capital  resource  needs  achieving   profitable
operations  and raising  preferred and common  equity.  PAI has been involved in
discussions with potential sources of financing for PAI. It is anticipated that,
following the Merger, PAI and Dencor will pursue additional  financing through a
private placement or public offering of preferred stock,  common stock, or other
equity securities.  Any such offering will result in further dilution to PAI and
Dencor  shareholders.  There is no assurance that PAI and/or Dencor will be able
to  obtain  equity  financing  following  the  Merger or that it will be able to
obtain such  financing on terms that are favorable to the combined  entities and
their shareholders.                                                             

Results Of Operations                                                           

The Twelve Months Ended December 31, 1996 As Compared To The Twelve Months Ended
December 31, 1995                                                               

     Gross  revenues  for  the  twelve  months  ended  December  31,  1996  were
$9,763,278 as compared to  $21,397,419  for the twelve months ended December 31,
1995. The decrease of 54% is attributable to several elements.  First, PAI spent
the second half of 1995 negotiating two comprehensive  equity investments in PAI
that included substantial joint venture opportunities for PAI and the investors.
In both cases,  PAI believed  its  marketing  and sale  efforts  would have been
significantly  enhanced  by and with new  partners.  Both  investors  ultimately
declined to invest due to an inability to obtain a controlling  interest in PAI.
Despite the absence of additional working capital and the contemplated strategic
partnerships,  PAI  management  made the  decision  to  continue  to  shift  its
marketing strategy to larger customers that offered PAI long-term  relationships
and   multiple   contract   opportunities.   In  addition,   PAI's   traditional
utility-based,  project  oriented  method of selling  was ended due to less than
desired  margins  and a lack of  utility  focus  due to the  impending  electric
utility industry deregulation.                                                  

     This strategy involves targeting large industrial and commercial  customers
in  industries  wherein PAI has  established a strong track record of delivering
services  on  time  that  increase   customer   profitability   through  process
improvement as well as energy savings.  PAI believes that future revenue will be
enhanced by the redirection of the marketing plan in 1996.                      

     Revenue for 1996 reflects  lower sales of projects,  but increased  revenue
from PACC in total dollars and as a percent of total revenue. PACC revenues grew
72% in 1996,  to  $5,448,510  from  $3,160,616  in  1995,  and were 56% of total
revenues in 1996 compared to 15% in 1995. PACC revenues  represent the financing
of long term project cash flows that will continue for the most part until 2002.

     Gross  profit  in 1996  grew to  $6,104,297  from  $4,220,734  in 1995,  an
increase  of 45%.  This  increase  is  largely  explained  by the growth of PACC
revenues.                                                                       

     Selling, general and administrative expenses were $5,624,998 and $5,502,908
for  the  twelve   months  ended   December  31,  1996  and  December  31,  1995
respectively.  As a result of lowered sales volume in 1996, PAI was less able to
charge payroll and overhead expenses to projects,  resulting in a 2% increase in
SG&A.  PAI's cost base  (defined by management as SG&A plus payroll and overhead
charged  to cost of goods  sold)  declined  from  $6.5  million  in 1995 to $5.9
million in 1996.                                                                

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     Long-term debt interest expense decreased from $701,143 in 1995 to $526,722
in 1996; this expense related to accrued  interest on indebtedness of PAI on its
working  capital  line  with  U.S.  Bank of  Washington  and on a note to  Puget
Western,  Inc.  related  to the  acquisition  of  Puget  Energy  Services,  Inc.
Non-recourse interest expense increased from $1,598,527 in 1995 to $3,314,516 in
1996.  Non-recourse  debt  increased  $3,606,917 to  $25,574,125 at December 31,
1996; non-recourse debt increased $15,290,067 from December 31, 1994.           

     PAI incurred a net loss of $4,549,794  for the year ended December 31, 1996
compared to a net loss of $4,122,605 for the year ended December 31, 1995.      

The Three  Months  Ended March 31, 1997 As  Compared To The Three  Months  Ended
March 31, 1996                                                                  

     At March 31, 1997 net sales were $1,705,400 compared to $1,233,700 at March
31, 1996. Net loss from  continuing  operations was $1,065,000 at March 31, 1997
compared to $923,000 at March 31, 1996.                                         

POST-MERGER PROFILE AND STRATEGY

     It is anticipated that after the consummation of the Merger, each of Dencor
and PAI will continue  their  respective  businesses in the ordinary  course and
consistent  with past  practice  with Dencor's  activities  being  undertaken by
Dencor or a separate division to be known as the Dencor Division.  While each of
the businesses of Dencor and PAI will operate separately after the Merger, it is
anticipated that the business  activities of each will be coordinated to benefit
both companies.  Management of Dencor believes that Dencor will benefit from the
Merger  because,  among other things,  (i) the business  operations  PAI provide
potential use of an established  market for Dencor products,  (ii) PAI possesses
marketing and  distribution  personnel and expertise  that Dencor  believes will
assist in the  marketing  of Dencor  products,  and  (iii)  Proven  Alternatives
Capital Corporation,  a wholly owned subsidiary of PAI which develops investment
vehicles  and provides  related  services for  sophisticated  and  institutional
investors  to provide  project  financing  for PAI,  potentially  could  provide
financing for the  manufacture  of Dencor  products.  Management of PAI believes
that PAI will benefit from the Merger  because,  among other things,  (i) Dencor
possesses expertise in the development and manufacturing of products and systems
that assist in controlling the cost of energy  utilization  that would be useful
for energy cost  control  programs  implemented  for PAI's  customers,  and (ii)
Dencor is a publicly  held company and as a publicly  held  company  potentially
could obtain additional  capital in the public markets for PAI's operations,  of
which  there is no  assurance.  It is  expected  that the  compatibility  of the
respective  businesses of Dencor and PAI will enable both companies to expand in
a single strategic move.                                                        

     PAI has been involved in discussions  with  potential  sources of financing
for PAI. It is  anticipated  that,  following  the  Merger,  PAI and Dencor will
pursue  additional  financing  through a private placement or public offering of
preferred  stock,  common stock, or other equity  securities.  Any such offering
will  result in further  dilution  to PAI and Dencor  shareholders.  There is no
assurance  that  PAI  and/or  Dencor  will be able to  obtain  equity  financing
following  the Merger or that it will be able to obtain such  financing on terms
that are favorable to the combined entities and their shareholders.             

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 MANAGEMENT AFTER THE MERGER

     After the Effective Time of the Merger, Dencor's Board of Directors will be
Charles T. Condy, Christopher T. Condy, George E. Pilloton and Maynard L. Moe.  

     The following table sets forth,  with respect to each person who is or will
be a director or officer of Dencor after the Effective  Time of the Merger,  the
person's age and the person's  positions and offices with Dencor. In addition to
the  persons  named in the table,  Edmund  Barbour,  73,  currently  serves as a
director of Dencor.  Mr.  Barbour will not continue as a director  following the
Merger.  Individual  background  information  concerning  each of these  persons
follows the table.                                                              

Name                      Age               Position With Dencor    
----                      ---               --------------------    

Charles T. Condy                 59        Chairman of the Board; and Chief     
                       Executive Officer

Christopher T. Condy             35        Director; President and Chief        
                       Operating Officer

Theodore A. Hedman               58        Vice President of Dencor Division    

Maynard L. Moe                   62        Director; and President of Dencor    
              Division

George F. Pilloton               44        Director and Chief Financial Officer;
                       President of PACC

Edmund Barbour                   73        Director                             

     Charles T. Condy is a founder,  Chairman,  Chief Executive  Officer and the
largest  shareholder  in PAI. He is the founder,  and former  Chairman and Chief
Executive Officer of Cal Energy Company,  the largest  geothermal company in the
world.  Prior to forming Cal Energy  Company in 1971,  Mr.  Condy worked for six
years at Xerox as an  Executive  Sales  Manager.  Mr.  Condy is a founder of the
Coalition for Energy Efficiency and Renewable  Technologies and is a Director of
California Foundation on the Environment and the Economy.                       

     Christopher T. Condy is a founder, President and Chief Operating Officer of
PAI. Mr. Condy is responsible  for the  day-to-day  operations of PAI as well as
supporting business development and implementation activities of operating units
of PAI.  Prior to  co-founding  PAI,  Mr. Condy was Vice  President/Director  of
Venture Capital  Services at Montgomery  Securities where he was responsible for
developing  client exit strategies  including  corporate finance and identifying
institutional  transactions for the venture capital community.  Prior to working
at Montgomery Securities, he was a U.S. Fund Analyst at Ivory and Sime, plc.    

   Theodore A. Hedman has been Manager of Engineering for Dencor since 1979.

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     Maynard L. Moe is a founder of Dencor,  has served as Chairman of Directors
and  President  since  1974.  Dr. Moe has spent full time in the  management  of
Dencor.                                                                         

     George F. Pilloton has served as Chief Financial Officer of PAI since 1993,
and since 1997, as President of PACC,  PAI's merchant  banking  subsidiary which
works with  institutional  capital sources to invest in customer  programs.  Mr.
Pilloton has led PACC since PACC's formation in 1991. He led the development and
closing of the first  non-recourse  project financing pool for energy efficiency
projects.   Mr.  Pilloton  has  taken  a  lead  role  in  business  development,
organizational  structuring,  establishing  corporate  processes  and  corporate
development.  Prior to joining PAI, he was Managing Director and Chief Financial
Officer of D'Accord  Group, an investment  banking firm,  specializing in large,
structured capital transactions. Prior to that, he built strategic and financial
consulting practices with KPMG Peat Marwick and Booz, Allen & Hamilton. Earlier,
as a Vice  President  with Bankers Trust,  Mr.  Pilloton led the  development of
several capital markets and securities groups.                                  

     Edmund  Barbour  was  elected as a director  of Dencor in July 1997.  Since
1987,  Mr. Barbour has been a consultant in economics  specializing  in economic
analysis and other evaluation aspects of electrical utility projects.  From 1981
to 1987, Mr. Barbour served as Chief Economist for Tudor Engineering in the area
of electric  utility  economic  analysis.  From 1950 through 1981,  Mr.  Barbour
served  with the United  States  Bureau of  Reclamation  in various  capacities,
including  Chief of the Resource  Analysis Branch and Chief of the Economics and
Evaluations Systems Branch,  Western U.S. Water Plan Study. Mr. Barbour received
a B.S.  Degree in each of Accounting and Economics and a M.B.A.  Degree from the
University of Denver.                                                           

THE SPECIAL MEETINGS

Matters To Be Considered at the Special Meetings                                

     Dencor Special Meeting. At the Dencor Special Meeting, holders of shares of
Dencor Common Stock will consider and vote upon proposals to approve the Charter
Amendments  and the  Reverse  Stock  Split.  Holders  of shares of Dencor  Stock
entitled  to vote will also  consider  and vote upon any other  matter  that may
properly  come  before the Dencor  Special  Meeting  or at any  adjournments  or
postponements thereof.                                                          

     The Board of  Directors  of Dencor  has  unanimously  approved  the  Merger
Agreement, the Merger and the other transactions contemplated thereby, including
the Charter  Amendments  and the Reverse Stock Split,  and recommends a vote FOR
the approval of the Charter  Amendments  and the Reverse  Stock Split.  See "THE
MERGER--Recommendations of the Boards of Directors; Reasons for the Merger."    

     PAI Special Meeting.  At the PAI Special Meeting,  holders of shares of PAI
Common  Stock will  consider  and vote upon a proposal  to approve and adopt the
Merger Agreement and the Merger.  Holders of shares of PAI Common Stock entitled
to vote also will consider and vote upon any other matter that may properly come
before the PAI Special Meeting or at any adjournments or postponements thereof. 

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     The  Board  of  Directors  of  PAI  has  unanimously  approved  the  Merger
Agreement,  the  Merger and the other  transactions  contemplated  thereby,  and
recommends a vote FOR the approval and adoption of the Merger  Agreement and the
Merger. See "THE MERGER--  Recommendations  of the Boards of Directors;  Reasons
for the Merger."                                                                

     Subject to certain  provisions  as described  herein with respect to shares
owned by PAI and Dencor,  each issued and outstanding  share of PAI Common Stock
will be converted into 1.5 fully paid and nonassessable  shares of Dencor Common
Stock in the Merger  before giving effect to the Reverse Stock Split (.03 shares
of Dencor  Common  Stock after giving  effect to the Reverse  Stock  Split).  No
fractional shares will be issued in connection with the Merger. In lieu thereof,
each PAI stockholder entitled to receive 0.5 or more of a share of Dencor Common
Stock shall  receive the total number of whole shares of Dencor  Common Stock to
which he or she is entitled and a single  whole share of Dencor  Common Stock in
place of the fractional  share.  Each PAI  stockholder  who would be entitled to
receive less than 0.5 of a share of Dencor  Common Stock shall  receive only the
total  number  of whole  shares  to which  he or she is  entitled,  and any such
fractional share shall be eliminated for all purposes  without  compensation for
the fractional share. See "THE  MERGER--Merger  Consideration" and "--Fractional
Shares."                                                                        

Votes Required                                                                  

     Dencor.  The approval of the Charter Amendments and the Reverse Stock Split
requires the affirmative vote of a majority of the outstanding  shares of Dencor
Common Stock.                                                                   

     Abstentions  will be counted as shares  present for purposes of determining
the presence of a quorum on all matters.  See "--Record Dates; Stock Entitled to
Vote; Quorum." Abstentions will have the effect of votes against the approval of
the Charter  Amendments  and the Reverse Stock Split.  In addition,  brokers who
hold  shares of Dencor  Common  Stock as  nominees  will not have  discretionary
authority to vote such shares in the absence of instructions from the beneficial
owners thereof.  Votes which are not cast for this reason  ("broker  non-votes")
will also have the effect of a vote against the proposal.                       

     As of ______ __, 1997, directors and executive officers of Dencor and their
affiliates were beneficial owners of approximately 891,950 shares (approximately
24.3%) of the outstanding shares of Dencor Common Stock. The directors of Dencor
who are also  shareholders  of Dencor have agreed to vote their shares of Dencor
Common Stock in favor of the matters  submitted to shareholders of Dencor at the
Dencor Special Meeting or at any adjournments or postponements thereof.         

     PAI. The Merger  Agreement must be approved and adopted by the  affirmative
vote of a majority of the  outstanding  shares of PAI Common  Stock  entitled to
vote thereon.                                                                   

     Abstentions  will be counted as shares  present for purposes of determining
the presence of a quorum on all matters.  See "--Record Dates; Stock Entitled to
Vote;  Quorum."  Abstentions  will have the effect of votes against the approval
and  adoption  of the Merger  Agreement,  the Merger and the other  transactions
contemplated by the Merger Agreement.                                           

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     As of ____ __,  1997,  directors  and  executive  officers of PAI and their
affiliates  were  beneficial   owners  of  an  aggregate  of  23,502,447  shares
(approximately  78.7%) of the outstanding  shares of PAI Common Stock (including
1,791,216 shares subject to options  exercisable  within 60 days). The directors
of PAI who are also  stockholders of PAI have agreed to vote their shares of PAI
Common Stock in favor of the matters submitted to stockholders of PAI at the PAI
Special Meeting or at any adjournments or postponements thereof.                

Voting of Proxies                                                               

     Shares  represented by all properly  executed  proxies received in time for
the  Special  Meetings  and which  have not been  revoked  will be voted at such
meetings in the manner  specified by the holders  thereof.  Proxies which do not
contain an  instruction  to vote for or against or to abstain  from  voting on a
particular matter described in the proxy will be voted in favor of such matter. 

     It is not expected that any matter other than those referred to herein will
be brought before either of the Special Meetings. If, however, other matters are
properly  presented,  the persons named as proxies will vote in accordance  with
their  judgment  with  respect to such  matters,  unless  authority  to do so is
withheld in the proxy.                                                          

Revocability of Proxies                                                         

     The grant of a proxy on the  enclosed  Dencor or PAI form of proxy does not
preclude a stockholder  from voting in person.  A stockholder may revoke a proxy
at any time prior to its exercise by submitting a later dated proxy with respect
to the same  shares,  by filing with the  Secretary  of Dencor (in the case of a
Dencor shareholder) or the Secretary of PAI (in the case of a PAI stockholder) a
duly executed revocation,  or by voting in person at the meeting.  Attendance at
the relevant  Special Meeting will not in and of itself  constitute a revocation
of a proxy.                                                                     

Record Dates; Stock Entitled To Vote; Quorum                                    

     Dencor.  Only  holders  of record of  Dencor  Common  Stock at the close of
business  on ______ __,  1997 (the  "Dencor  Record  Date")  will be entitled to
receive  notice of and to vote at the  Dencor  Special  Meeting.  On the  Dencor
Record Date, Dencor had issued and outstanding 3,671,304 shares of Dencor Common
Stock, held by ____________  record holders.  The holders of Dencor Common Stock
are  entitled  to one vote per share on each matter  submitted  to a vote at the
Dencor Special Meeting. For purposes of the Dencor shareholder vote with respect
to the  approval  of the  Charter  Amendments  and the Reverse  Stock  Split,  a
majority of the outstanding  shares of Dencor Common Stock entitled to vote must
be present in person or by proxy at the  Dencor  Special  Meeting in order for a
quorum to be present. Shares of Dencor Common Stock represented by proxies which
are  marked  "abstain"  or which are not marked as to any  particular  matter or
matters  will be counted as shares  present  for  purposes  of  determining  the
presence of a quorum on all matters.  Proxies  relating to "street  name" shares
that are voted by brokers  will be counted as shares  present  for  purposes  of
determining the presence of a quorum on all matters,  but will not be treated as
shares having voted at the Dencor Special Meeting as to any proposal as to which
authority to vote is withheld by the broker.                                    

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     In the event a quorum is not  present  in person or by proxy at the  Dencor
Special  Meeting,  the Dencor  Special  Meeting is expected to be  adjourned  or
postponed.                                                                      

     PAI. Only holders of record of PAI Common Stock at the close of business on
______ __, 1997 (the "PAI Record  Date"),  will be entitled to receive notice of
and to vote at the PAI Special  Meeting.  On the PAI Record Date, PAI had issued
and  outstanding  28,084,848  shares  of PAI  Common  Stock,  held by 61  record
holders.  The holders of PAI Common  Stock are entitled to one vote per share on
each matter  submitted  to a vote at the PAI Special  Meeting.  The holders of a
majority of the outstanding  shares of PAI Common Stock entitled to vote must be
present in person or by proxy at the PAI  Special  Meeting in order for a quorum
to be  present.  Shares of PAI Common  Stock  represented  by proxies  which are
marked "abstain" or which are not marked as to any particular  matter or matters
will be counted as shares present for purposes of determining  the presence of a
quorum on all matters.                                                          

     In the  event a quorum  is not  present  in  person  or by proxy at the PAI
Special  Meeting,  the PAI  Special  Meeting  is  expected  to be  adjourned  or
postponed.                                                                      

Dissenting PAI Stockholders Rights Of Appraisal                                 

     The DGCL  provides that a stockholder  of a  constituent  corporation  in a
merger has the right to  dissent  and  obtain  payment  for his or her shares in
connection with the merger.                                                     

     Therefore, because PAI is a constituent corporation in the Merger, PAI will
pay any dissenting PAI  stockholder the "fair value" of his or her shares of PAI
Common Stock if that stockholder fully complies with the procedures described in
this paragraph.  A PAI stockholder who wishes to dissent must do so with respect
to all of his or her shares of PAI Common  Stock.  If the Merger is  approved by
the stockholders of PAI, and if the Merger is consummated, the DGCL requires PAI
to pay any dissenting PAI stockholder the fair value of his or her shares of PAI
Common Stock if certain  requirements  set forth in the DGCL are satisfied:  (a)
each PAI stockholder electing to demand the appraisal of his or her shares shall
deliver to PAI,  before the taking of the vote on the Merger,  a written  demand
for appraisal of his or her shares; (b) the stockholder may not vote in favor of
or consent to the Merger at the PAI Special  Meeting;  (c) within 120 days after
the effective  date of the Merger,  the  stockholder  may file a petition in the
Court of  Chancery  demanding a  determination  of the value of the stock of all
such  dissenting  stockholders;  (d) upon the filing of any such  petition  by a
stockholder,  service  of a copy  thereof  shall  be  made  upon  the  Surviving
Corporation, which shall within 20 days after such service file in the office of
the  Registrar  and Chancery in which the  petition was filed and duly  verified
list  containing the names and addresses of all  stockholders  who have demanded
payment  for  their  shares  and with whom  agreements  as to the value of their
shares have not been reached by the Surviving Corporation; (e) at the hearing on
such petition,  the Court of Chancery shall determine the  stockholders who have
complied with the appraisal rights  requirements and who have become entitled to
appraisal  rights;  (f) the Court of Chancery may require the  stockholders  who
have  demanded an appraisal for their shares and who hold stock  represented  by
certificates to submit their certificates of stock to the Registrar and Chancery
for notation  thereon of the pendency of the appraisal  proceedings,  and if any
stockholder  fails to comply  with such  direction,  the Court of  Chancery  may
dismiss  the  proceedings  as to such  stockholder;  (g) after  determining  the
stockholders entitled to an appraisal,  the Court of Chancery shall appraise the
shares,  determining  their fair value exclusive of any element of value arising
from the accomplishment or expectation of the Merger,  together with a fair rate

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of interest, if any, to be paid upon the amount determined to be the fair value;
(h) upon application of the Surviving Corporation or by any stockholder entitled
to  participate in the appraisal  proceeding,  the Court of Chancery may, in its
discretion,  permit  discovery or other pretrial  proceedings and may proceed to
trial upon the appraisal  prior to the final  determination  of the  stockholder
entitled to an appraisal;  (i) the Court of Chancery shall direct the payment of
the fair value of the shares,  together with interest,  if any, by the Surviving
Corporation to the stockholders entitled thereto; (j) the cost of the proceeding
may be  determined  by the Court of  Chancery  and taxed upon the parties as the
Court of Chancery deems equitable in the circumstances; and (k) upon application
of a  stockholder,  the Court of  Chancery  may  order  all or a portion  of the
expenses   incurred  by  any   stockholder  in  connection  with  the  appraisal
proceeding,  including,  without limitation,  reasonably attorneys' fees and the
fees and  expenses of experts,  to be charged pro rata  against the value of all
the shares entitled to an appraisal. A PAI stockholder will not waive his or her
dissenter's  rights by abstaining from the vote on the Merger at the PAI Special
Meeting;  however, a PAI stockholder will waive his or her dissenter's rights if
he or she votes in favor of or consents to the Merger. Therefore, in order for a
PAI stockholder to exercise his or her dissenter's rights in connection with the
Merger, he or she must comply with the requirements outlined above.             

     From and after the effective  date of the Merger,  no  stockholder  who has
demanded his or her  appraisal  rights shall be entitled to vote such PAI Common
Stock for any purpose or to receive payment of dividends or other  distributions
on the PAI  Common  Stock  (except  dividends  or  distributions  payable to PAI
stockholders  of record at a date  which is prior to the  effective  date of the
Merger). If no petition for an appraisal shall be filed within the required time
period, then the right of such PAI stockholder to an appraisal shall cease.     

     Dencor's management has concluded that, because Dencor is not a constituent
corporation  in the  Merger,  the  shareholders  of Dencor are not  entitled  to
dissent  and  require  Dencor  to pay the fair  value of their  shares of Dencor
Common Stock in connection with the Merger.  However, it is possible that one or
more shareholders of Dencor may challenge the denial of dissenters rights to the
shareholders of Dencor,  and such a challenge could result in litigation between
Dencor and the challenging shareholders.                                        

     See Appendix II of this Joint Proxy  Statement/Prospectus for a copy of the
provisions of the Delaware General Corporation Law concerning dissenters' rights
of appraisal.                                                                   

     Dencor has the right to  terminate  the Merger  Agreement if any holders of
PAI Common Stock exercise dissenters' rights of appraisal.                      

Solicitation of Proxies                                                         

     Subject to the Merger Agreement,  each of Dencor and PAI will bear the cost
of the  solicitation of proxies from the holders of their  respective  shares of
common  stock,  except that PAI will bear the cost of printing  and mailing this
Joint Proxy Statement/Prospectus. However, if the Merger is not consummated, PAI
will reimburse Dencor for the solicitation of proxies from its shareholders.  In
addition to solicitation by mail, the directors,  officers and employees of each
corporation and its subsidiaries  may solicit proxies from  stockholders of such
corporation by telephone or telegram or in person. Such directors,  officers and
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reimbursed for out-of-pocket expenses in connection therewith. Arrangements will
also  be  made  with  brokerage  houses  and  other  custodians,   nominees  and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of shares held of record by such persons, and Dencor and PAI will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.                                                        

     HOLDERS OF DENCOR  COMMON  STOCK AND PAI COMMON STOCK SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS.                                            

 THE REVERSE STOCK SPLIT

Recommendation of the Dencor Board of Directors.                                

     Reverse Stock Split. The Dencor Board Of Directors has unanimously approved
and proposed  for  stockholder  approval a 1-for-50  Reverse  Stock  Split.  The
Reverse Stock Split is necessary in order for Dencor to have a sufficient number
of authorized shares with which to complete the Merger. In addition,  the Dencor
Board Of Directors  believes  that the Reverse  Stock Split may be beneficial to
Dencor due to the large  number of shares that  otherwise  would be  outstanding
after the Merger.  The Dencor Board Of Directors  believes  that the low trading
prices of the Dencor  Common Stock may impair  efficiency  of the market for the
Dencor Common Stock and that brokerage  commissions on the purchase or sale of a
relatively lower priced stock generally tend to represent a higher percentage of
the sales price than the  commission on a relatively  higher  priced stock.  The
Dencor Board Of  Directors  believes  that the Reverse  Stock Split will improve
these  factors and may inure to the benefit of Dencor  shareholders,  Dencor and
the market for the Dencor Common Stock.                                         

     If the Reverse  Stock Split were  effected,  Dencor would have fewer shares
outstanding.  A reduction in the number of shares would  increase the book value
per share as well as the earnings  (or loss) per share.  These  increases  could
make the Dencor Common Stock more attractive to larger brokerage houses, thereby
possibly  expanding  the group of brokers  interested in making a market for the
Dencor Common Stock. Nevertheless,  the Dencor Board Of Directors cannot predict
what effect the Reverse Stock Split would have on the market price of the Dencor
Common Stock.                                                                   

     If the Reverse  Stock Split is  approved  by the Dencor  shareholders,  the
effective  time for the  Reverse  Stock  Split  will be  immediately  before the
Effective Time of the Merger. Each 50 shares of Dencor Common Stock at that time
shall be deemed to be one share of Dencor Common Stock without further action by
the Dencor  shareholders.  It will not be necessary for a Dencor  shareholder to
exchange certificates representing stock issued prior to the Reverse Stock Split
for certificates representing shares resulting after the Reverse Stock Split.   

     If the Reverse Stock Split is effected,  Dencor will not issue certificates
for fractional shares. Instead,  persons who are Dencor shareholders immediately
before the  consummation  of the Merger and who otherwise would be entitled to a
fractional  share would be issued one whole share.  All shares of Dencor  Common
Stock held by a record holder will be  aggregated  for purposes of computing the
number of shares of Dencor Common Stock subject to the Reverse Stock Split.     

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     Dencor  has not sought and does not intend to seek an opinion of counsel or
a ruling from the Internal  Revenue  Service  regarding  the federal  income tax
consequences  of the Reverse Stock Split.  Based on  consultation  with counsel,
Dencor  believes that a shareholder who does not receive cash in connection with
the Reverse Stock Split would not recognize any gain or loss on the exchange and
Dencor  would not  recognize  any gain or loss as a result of the Reverse  Stock
Split.                                                                          

THE DENCOR BOARD OF DIRECTORS UNANIMOUSLY  RECOMMENDS THAT THE HOLDERS OF DENCOR
COMMON STOCK VOTE FOR APPROVAL OF THE REVERSE STOCK SPLIT.                      

THE MERGER

General                                                                         

     The Merger Agreement,  provides that, subject to the satisfaction or waiver
of the conditions set forth therein (see  "--Conditions  to the  Consummation of
the Merger"), PAI will be merged with and into Sub, a wholly owned subsidiary of
Dencor,  which  will  result  in PAI's  being  the  surviving  corporation  (the
"Surviving  Corporation")  and a wholly-owned  subsidiary of Dencor.  As soon as
practicable after the satisfaction of the conditions under the Merger Agreement,
the Certificate of Merger will be filed with the Secretary of State of the State
of  Delaware,  and the time of such  filing  will be the  Effective  Time unless
otherwise provided in the Certificate of Merger.                                

     The  description of the Merger and the Merger  Agreement  contained in this
Joint Proxy  Statement/Prospectus  is  qualified in its entirety by reference to
the Merger Agreement.                                                           

Background of the Merger                                                        

     In November 1996, Mr. Ogen Perry, of Helix Capital,  LLC,  contacted Dencor
to discuss a possible  merger with PAI. On November 25,  1996,  Mr.  Perry,  Mr.
Christopher  Condy, the President,  Chief Operating  Officer,  and a director of
PAI, Mr. George Pilloton, the Chief Financial Officer and a director of PAI, and
Tom Adams, Principal,  Technical Services of PAI met with Dencor representatives
at the  Dencor  offices.  At that  meeting,  PAI  representatives  presented  an
overview of PAI's  business  and  operations.  This meeting  concluded  with PAI
representatives  requesting Maynard Moe, the Chairman of the Board and President
of Dencor,  to visit the PAI  offices and to further  discuss a possible  merger
between Dencor and PAI.                                                         

     On December 4, 1996, Dr. Moe visited the PAI offices to further discuss the
possible merger. At that meeting,  Dr. Moe reviewed the financial  statements of
PAI, and discussed with PAI representatives  certain business operations of PAI.
During  that  meeting,  Mr.  Perry  proposed a framework  for a possible  merger
between PAI and Dencor.                                                         

     During  the  period  from   December   12,   1996  to  January  19,   1997,
representatives of each of PAI and Dencor further  discussed,  through telephone
conversations and written  communications,  a proposed  framework for a possible
merger.                                                                         

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     In April of 1997, Mr. Perry contacted  representatives of Dencor to further
discuss the proposed merger. On April 5, 1997, PAI  representatives  visited the
Dencor  offices  and  presented  to the  Dencor  Board of  Directors  a proposed
framework for a possible merger between PAI and Dencor.                         

     On May 8 and 9, 1997, Dr. Moe, Carol Moe, the wife of Dr. Moe, and Theodore
Hedman, the Vice President,  Secretary, Manager of Engineering and a director of
Dencor,  met with PAI  representatives  at the PAI offices.  At these  meetings,
several  items of due  diligence  and the proposed  framework of the merger were
discussed.                                                                      

     On May 28,  1997,  the Dencor  Board of  Directors  approved a  non-binding
letter of intent to merge with PAI,  subject to additional  work  concerning the
transaction being done,  negotiation of a definitive contract,  and the approval
of the holders of the common stock of each company, if necessary.               

     The ratio upon which PAI Common Stock will be exchanged  for Dencor  Common
Stock  was  determined  as a result  of arms  length  negotiations  between  the
representatives of PAI and the representatives of Dencor. The Exchange Ratio was
determined after consideration of a number of factors,  including the following:
(i) the existing  capitalization  of each of Dencor and PAI, (ii) the nature and
future  prospects  of the  businesses  of each of Dencor and PAI,  and (iii) the
matters  described  below with respect to the reasons the Boards of Directors of
each of Dencor and PAI have  concluded  that the proposed  Merger is in the best
interest  of the  holders  of their  respective  shares  of  common  stock.  See
"--Recommendation of the Boards of Directors; Reasons for the Merger."          

Recommendations of the Boards of Directors; Reasons for the Merger              

 Recommendation of the Dencor Board of Directors; Reasons for the Merger

     Merger.  At a meeting  held on August 5, 1997,  the Board of  Directors  of
Dencor  determined  that the  Merger  is fair to and  advisable  and in the best
interests of the holders of shares of Dencor Common  Stock,  approved the Merger
Agreement,  the  Merger  and the other  transactions  contemplated  thereby  and
resolved to recommend  that the holders of shares of Dencor Common Stock vote in
favor of the Charter Amendments and the Reverse Stock Split.                    

     In reaching  these  conclusions,  the Dencor Board of Directors  considered
among other things,  (i) the existing assets and business  operations of each of
Dencor and PAI, (ii) the management  experience of each of Dencor and PAI, (iii)
the earnings  record,  operations and financial  condition of each of Dencor and
PAI,  (iv) the  judgment of the Dencor  Board of  Directors as to the nature and
future  prospects of the businesses of Dencor and PAI, (v) the  compatibility of
the respective businesses of Dencor and PAI, (vi) current industry, economic and
market  conditions,  (vii) the terms of the  Merger  Agreement,  and  (viii) the
ability of the combined entity to compete in relevant markets.                  

     The Board of Directors of Dencor  believes that the Merger will result in a
stronger combined entity with the financial and management  resources to compete
effectively and to take advantage of opportunities  that may not be available to
either  company on its own.  Dencor  management  believes that this  transaction
allows Dencor and PAI to expand  substantially  in a single  strategic  move. In
particular,  the Dencor  directors  concluded  that the  transaction  is fair to
Dencor and its  shareholders  because,  among  other  things,  (i) the  business

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operations  of PAI  provide a  potential  use of and an  established  market for
Dencor products,  (ii) PAI possesses  marketing and  distribution  personnel and
expertise that Dencor believes will assist in the marketing of Dencor  products,
and (iii) Proven Alternatives Capital Corporation,  a wholly owned subsidiary of
PAI  that  develops  investment  vehicles  and  provides  related  services  for
sophisticated  institutional  investors to provide  project  financing  for PAI,
potentially could provide financing for the manufacture of Dencor products.  The
manufacture  of certain  Dencor  products  currently  is  financed by loans from
Dencor shareholders.                                                            

     The foregoing  discussion of the  information  and factors  considered  and
given weight by the Dencor Board of Directors is not intended to be  exhaustive.
In view of the variety of factors  considered in connection  with its evaluation
of the Merger,  the Dencor Board of Directors did not find it practicable to and
did not quantify or otherwise  assign relative  weights to the specific  factors
considered in reaching its determination. In addition, individual members of the
Dencor Board of Directors may have given different weights to different factors.
For a discussion of the interests of certain  members of Dencor  management  and
the Dencor  Board of  Directors in the Merger,  see "THE  MERGER--  Interests of
Certain Persons in the Merger."                                                 

     The  Board of  Directors  of Dencor  did not  obtain  an  opinion  from any
financial advisor concerning the value of PAI or the fairness of the Merger.    

     The Board of  Directors  of Dencor  realizes  that there are certain  risks
associated  with the Merger,  including that some of the potential  benefits set
forth above may not be realized or that there may be high costs  associated with
realizing  such  benefits  and also the  factors  set forth in this Joint  Proxy
Statement/Prospectus  under "RISK FACTORS".  However,  the Board of Directors of
Dencor believes that the positive factors should outweigh any negative  factors,
although there can be no assurance in that regard.                              

     Charter  Amendments.  The  Board of Dencor  has  unanimously  approved  and
proposed  for  shareholder   approval  an  amendment  to  Dencor's  Articles  of
Incorporation  to authorize a new class of capital stock consisting of 1,000,000
shares of preferred  stock, no par value (the "Dencor  Preferred  Stock"),  with
such relative  rights,  preferences and designations as may be determined by the
Board in its sole  discretion  upon the  issuance  of any  shares of the  Dencor
Preferred  Stock.  The proposal to  authorize a new class of Preferred  Stock is
intended to provide shares of Dencor  Preferred  Stock for issuance from time to
time as may be required for various  other  purposes,  including the issuance of
Dencor Preferred Stock in connection with financing or acquisition transactions.
The Dencor Preferred Stock may be utilized after the Merger for financing sought
by PAI. See "PAI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "POST-MERGER PROFILE". For a description of the terms
of the PAI Preferred  Stock,  see  "DESCRIPTION  OF CAPITAL  STOCK OF PAI".  The
shares of Dencor  Preferred Stock could be issued from time to time by the Board
in  its  sole  discretion  without  further  approval  or  authorization  by the
shareholders of Dencor,  in one or more series,  each of which series could have
any  particular  distinctive   designations  as  well  as  relative  rights  and
preferences  as  determined  by the Board of  Dencor.  The  relative  rights and
preferences  that may be determined by the Board in its discretion  from time to
time,  include but are not limited to the  following:  the rate of dividend  and
whether the dividends are to be cumulative and the priority, if any, of dividend
payments  relative to other series in the class;  whether the shares of any such
series  may be  redeemed,  and if so,  the  redemption  price  and the terms and

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conditions of  redemption;  the amount  payable upon such series in the event of
voluntary of involuntary  liquidation  and the priority,  if any, of each series
relative  to other  series in the class with  respect to  amounts  payable  upon
liquidation and sinking fund  provision,  if any, for the redemption or purchase
of the shares of that  series;  the terms and  conditions,  if any, on which the
shares of a series may be converted  into or exchanged  for shares of any class,
whether common or preferred, or into shares of any series of the same class, and
if  provision is made for  conversion  or exchange,  the times,  prices,  rates,
adjustments and other terms.                                                    

     The existence of authorized but unissued  shares of Dencor  Preferred Stock
could have  anti-takeover  effects  because Dencor could issue Dencor  Preferred
Stock with special  dividend or voting  rights that could  discourage  potential
bidders.                                                                        

     THE DENCOR BOARD OF DIRECTORS  UNANIMOUSLY  RECOMMENDS  THAT THE HOLDERS OF
DENCOR COMMON STOCK VOTE FOR APPROVAL OF THE CHARTER AMENDMENTS.                

Recommendation of the PAI Board of Directors; Reasons for the Merger  

     By the  unanimous  vote of the  Board of  Directors  at a  meeting  held on
 .............,  1997,  the PAI  Board  determined  the Merger to be fair to and
advisable and in the best interests of PAI and its stockholders and approved the
Merger and the Merger Agreement.                                                

     At its meeting held on  ...............,  1997,  the PAI Board received the
presentation of management with respect to Dencor,  including  reviews of, among
other  things:  historical  information  relating  to  the  business,  financial
condition  and  results of  operations  of  Dencor;  information  regarding  the
management  of Dencor;  historical  data  relating to market  prices and trading
volumes of Dencor Common Stock; and the likely effects of the Merger on Dencor's
financial condition, including the dilutive effects of the issuance of shares of
Dencor Common Stock in the Merger, and the market effects of the announcement of
the proposed Merger and the consummation thereof on the Dencor Common Stock.    

     During  the  course  of its  deliberations,  the  PAI  Board  of  Directors
considered  a  number  of  other  factors,  including  the  following:  (i)  the
historical  performance and strategic objectives of Dencor, as well as the risks
involved in achieving those prospects and objectives  under current economic and
market  conditions,  (ii) the  structure  of the Merger,  which would permit the
holders of PAI Common Stock to exchange  all their  shares  solely for shares of
Dencor Common Stock on a tax free basis, (iii) the expected accounting treatment
of the Merger as a pooling of interests, (iv) the likelihood that holders of PAI
Common  Stock would have  greater  liquidity  in their  holdings in the combined
entity following the Merger, (v) the existing assets and business  operations of
each of Dencor and PAI,  (vi) the  management  experience  of each of Dencor and
PAI, (vii) the earnings  record,  operations and financial  condition of each of
Dencor and PAI,  (viii) the  judgment of the Board of Directors of PAI as to the
nature and future  prospects of the  businesses  of Dencor and PAI, and (ix) the
compatibility of the respective businesses of Dencor and PAI.                   

     In particular,  the PAI directors concluded that the transaction is fair to
PAI and its  stockholders,  because,  among other things,  (i) Dencor  possesses
expertise  in the  development  and  manufacturing  of products and systems that
assist in controlling the cost of energy utilization and would be useful for    

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energy cost control programs implemented for PAI's customers, and (ii) Dencor is
a publicly held company and potentially could obtain  additional  capital in the
public markets for PAI's operations, of which there is no assurance.            

     The foregoing  discussion of the  information  and factors  considered  and
given weight by the PAI Board is not intended to be  exhaustive.  In view of the
variety of factors  considered in connection  with its evaluation of the Merger,
the PAI Board of Directors did not find it  practicable  to and did not quantify
or otherwise  assign  relative  weights to the specific  factors  considered  in
reaching its determination.  In addition, individual members of the PAI Board of
Directors  may  have  given  different  weights  to  different  factors.  For  a
discussion of the  interests of certain  members of PAI  management  and the PAI
Board of Directors in the Merger, see "THE  MERGER--Interests of Certain Persons
in the Merger."                                                                 

     The Board of Directors of PAI did not obtain an opinion from any  financial
advisor concerning the value of Dencor or the fairness of the Merger.           

     The  Board of  Directors  of PAI  realized  that  there are  certain  risks
associated  with the Merger,  including that some of the potential  benefits set
forth above may not be realized or that there may be high costs  associated with
realizing  such  benefits  and also the  factors  set forth in this Joint  Proxy
Statement/Prospectus  under "RISK FACTORS".  However,  the Board of Directors of
PAI believes that the positive  factors  should  outweigh any negative  factors,
although there can be no assurance in that regard.                              

     Based  on  the  factors   described  above,  the  PAI  Board  of  Directors
unanimously  declared the Merger fair to and advisable and in the best interests
of the holders of PAI Common Stock.                                             

THE BOARD OF  DIRECTORS  OF PAI  UNANIMOUSLY  RECOMMENDS  TO THE  HOLDERS OF PAI
COMMON STOCK THAT THE MERGER AND THE MERGER AGREEMENT BE APPROVED.              

Merger Consideration                                                            

     Subject to certain provisions as described herein with respect to shares of
PAI Common Stock owned by PAI,  Dencor or any subsidiary of PAI or Dencor,  upon
consummation of the Merger each issued and outstanding share of PAI Common Stock
will be converted into 1.5 validly issued,  fully paid and nonassessable  shares
of Dencor  Common Stock  before  giving  effect to the Reverse  Stock Split (.03
shares of Dencor Common Stock after giving effect to the Reverse Stock Split).  

     Fractional  shares of Dencor Common Stock will not be issued in the Merger.
See "--Fractional Shares" below.                                                

     The Exchange Ratio was determined through  negotiations  between Dencor and
PAI.  Based on the  number of shares of PAI  Common  Stock and the number of PAI
Stock Options outstanding on the PAI Record Date, a maximum of 42,127,272 shares
of Dencor Common Stock may be issued in respect of shares of PAI Common Stock in
the Merger and  6,886,926  shares would be reserved for issuance  upon  exercise
under the terms of PAI Stock Options  which,  pursuant to the Merger  Agreement,
following  the merger will  constitute  options to purchase  Dencor Common Stock
upon the terms set forth in the Merger Agreement and the PAI Stock Options.     

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     Any shares of PAI Common Stock owned by PAI or any of its  subsidiaries  or
by Dencor will  automatically  be cancelled at the Effective Time and will cease
to exist and no capital stock of Dencor or other consideration will be delivered
in exchange therefor.                                                           

Effective Time of the Merger                                                    

     The Merger  will become  effective  upon the filing and  acceptance  of the
Certificate  of Merger with the  Secretary  of State of the State of Delaware or
such  later  date  as is  specified  in  such  Certificate.  The  filing  of the
Certificate  of  Merger  will  occur  as  soon  as  practicable   following  the
satisfaction or waiver of the conditions set forth in the Merger Agreement.  See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Conditions to the Merger."         

     The Merger Agreement  provides that,  subject to certain  limitations,  the
Merger  Agreement  may be  terminated by one or all parties at any time prior to
the filing of the Certificate of Merger with the Delaware Secretary of State if,
among other reasons,  the Merger has not been  consummated on or before December
31,  1997,   notwithstanding   approval  of  the  Merger  Agreement  or  related
transactions by the  stockholders of PAI or Dencor.  See "CERTAIN  PROVISIONS OF
THE MERGER AGREEMENT-- Termination."                                            

Conversions of Shares; Procedures for Exchange of Certificates                  

     The  conversion  of PAI Common Stock into Dencor Common Stock will occur at
the Effective Time. As soon as practicable after the Effective Time, Dencor will
deposit with American  Securities  Transfer & Trust Co., Inc., as exchange agent
(the "Exchange  Agent"),  for the benefit of the holders of  certificates  which
immediately  prior to the Effective Time represented  shares of PAI Common Stock
(the "Certificates") certificates representing the shares of Dencor Common Stock
(such  shares  of  Dencor   Common   Stock,   together  with  any  dividends  or
distributions with respect thereto payable as described below, being hereinafter
referred to as the "Exchange Fund") issuable in exchange for outstanding  shares
of PAI Common Stock.                                                            

     As soon as  practicable  after the Effective  Time, the Exchange Agent will
mail to each holder of record of a Certificate  whose shares are converted  into
shares of Dencor Common Stock a letter of  transmittal  (which will specify that
delivery will be effected,  and risk of loss and title to the Certificates  will
pass, only upon actual and proper  delivery of the  Certificates to the Exchange
Agent and will contain  instructions  for use in effecting  the surrender of the
Certificates in exchange for certificates  representing  shares of Dencor Common
Stock and will be in such form and contain such other  provisions  as Dencor and
PAI may reasonably specify). Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such  Certificate  will be entitled to receive in exchange  therefor a
certificate  representing  that number of whole  shares of Dencor  Common  Stock
which such  holder  has the right to receive  pursuant  to the  Merger,  and the
Certificate so  surrendered  will be cancelled.  Until  surrendered as described
above,  each  Certificate  will, at and after the  Effective  Time, be deemed to
represent  only the right to receive,  upon surrender of such  Certificate,  the

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certificate representing the appropriate number of shares of Dencor Common Stock
and certain dividends and other distributions as described below.               

     PAI STOCKHOLDERS  SHOULD NOT FORWARD PAI STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.                       

     No  dividends  or other  distributions  that are  declared  on or after the
Effective  Time on Dencor  Common  Stock or are payable to the holders of record
thereof  on or after the  Effective  Time will be paid to  persons  entitled  by
reason of the Merger to receive  certificates  representing  Dencor Common Stock
until such persons surrender their Certificates,  as described above. Subject to
the effect of  applicable  law,  there will be paid to the record  holder of the
certificates  representing  such  Dencor  Common  Stock  (i) at the time of such
surrender or as promptly as practicable thereafter,  the amount of any dividends
or other  distributions  theretofore  paid with  respect to whole shares of such
Dencor Common Stock and having a record date on or after the Effective  Time and
a payment date prior to such surrender and (ii) at the appropriate  payment date
or as promptly  as  practicable  thereafter,  the amount of  dividends  or other
distributions  payable with  respect to whole shares of Dencor  Common Stock and
having a record date on or after the Effective Time but prior to surrender and a
payment date  subsequent to surrender.  In no event will the person  entitled to
receive such dividends or other distributions be entitled to receive interest on
such dividends or other distributions.  If any cash or certificate  representing
shares of Dencor  Common  Stock is to be paid to or issued in a name  other than
that in which the Certificate surrendered in exchange therefor is registered, it
will be a condition of such  exchange that the  Certificate  so  surrendered  be
properly  endorsed and otherwise in proper form for transfer and that the person
requesting  such exchange pay to the Exchange  Agent any transfer or other taxes
required  by reason of the  issuance of  certificates  for such shares of Dencor
Common  Stock  in a name  other  than  that  of  the  registered  holder  of the
Certificate surrendered,  or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable.                               

Fractional Shares                                                               

     No certificates or scrip  representing  fractional  shares of Dencor Common
Stock will be issued upon the surrender for exchange of Certificates pursuant to
the Merger  Agreement,  and no Dencor  dividend or other  distribution  or stock
split or combination will relate to any fractional security, and such fractional
interests  will not  entitle  the owner  thereof  to vote or to any  rights of a
security  holder of Dencor.  No  fractional  shares will be issued in connection
with the Merger. In lieu thereof,  each PAI stockholder  entitled to receive 0.5
or more of a share of Dencor  Common  Stock shall  receive  the total  number of
whole shares of Dencor  Common Stock to which he or she is entitled and a single
whole share of Dencor Common Stock in place of the  fractional  share.  Each PAI
stockholder  who would be entitled to receive less than 0.5 of a share of Dencor
Common Stock shall  receive only the total number of whole shares to which he or
she is  entitled,  and any such  fractional  share shall be  eliminated  for all
purposes without compensation for the fractional share.                         

     Any portion of the Exchange Fund which remains  undistributed to the former
stockholders  of PAI for one year after the Effective  Time will be delivered to
Dencor,  upon demand of Dencor, and any former  stockholders of PAI who have not
theretofore  complied with the provisions  described  above will thereafter look
only to Dencor  for  payment  of their  claim for  Dencor  Common  Stock and any

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dividends or distributions  with respect to Dencor Common Stock. None of Dencor,
PAI or the surviving  corporation  of the Merger will be liable to any holder of
shares of PAI Common  Stock for  shares  (or  dividends  or  distributions  with
respect thereto) of Dencor Common Stock delivered to a public official  pursuant
to any applicable abandoned property, escheat or similar law.                   

Conduct of Business Pending Merger                                              

     Pursuant  to the Merger  Agreement,  Dencor and PAI have each  agreed  that
during the period from the date of the Merger  Agreement  through the  Effective
Time  (except  as  otherwise  specifically  required  by the terms of the Merger
Agreement), it will, and it will cause its respective subsidiaries,  if any, to,
in all material respects,  carry on their respective  businesses in the ordinary
course and consistent with past practice and, to the extent consistent therewith
and with the  terms of the  Merger  Agreement,  use all  reasonable  efforts  to
preserve  intact  their  current  business  organizations,  keep  available  the
services  of  their  current   officers  and   employees   and  preserve   their
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing businesses will be unimpaired at
the Effective Time. The parties also have agreed to certain other covenants,  as
described herein under "CERTAIN PROVISIONS OF THE MERGER  AGREEMENT--Conduct  of
Business Pending the Merger."                                                   

Conditions to the Consummation of the Merger                                    

     The  obligations  of Dencor and PAI to consummate the Merger are subject to
various  conditions,  including,  among other  things,  obtaining  the requisite
stockholder approvals,  the effectiveness of the Registration Statement, and the
absence of any order or other legal  restraint  or  prohibition  preventing  the
consummation  of the Merger.  The  obligation of PAI to consummate the Merger is
subject  to  the  fulfillment  or  waiver  of  various  additional   conditions,
including,  among other things,  Dencor's  compliance with the Merger Agreement.
See  "--Governmental  and Regulatory  Approvals" and "CERTAIN  PROVISIONS OF THE
MERGER AGREEMENT--Conditions to the Merger."                                    

Governmental and Regulatory Approvals                                           

The Merger is not subject to governmental or regulatory approvals.    

Certain Federal Income Tax Consequences                                         

     The following is a general summary of the material U.S.  federal income tax
consequences  of the Merger to the  holders  of PAI  Common  Stock and PAI Stock
Options and is based upon current  provisions of the Code,  existing,  temporary
and final  regulations  thereunder  and the current  administrative  rulings and
court  decisions  all of which are subject to change  (possibly on a retroactive
basis).  No  attempt  has been made to comment  on all U.S.  federal  income tax
consequences of the Merger that may be relevant to particular holders, including
holders  that are  subject to special  tax rules such as dealers in  securities,
mutual funds,  insurance  companies,  tax-exempt entities and holders who do not
hold their shares as capital assets.                                            

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     The tax  discussion  set forth  below is included  for general  information
only.  It is not  intended to be, nor should it be construed to be, legal or tax
advice to any  particular  holder  of PAI  Common  Stock or PAI  Stock  Options.
Holders of PAI Common  Stock or PAI Stock  Options are  advised and  expected to
consult with their own legal and tax advisers  regarding the U.S. federal income
tax consequences of the Merger in light of their particular  circumstances,  and
any other  consequences to them of the Merger under state, local and foreign tax
laws.                                                                           

Exchange of PAI Common Stock Pursuant to the Merger.                  

     General.  Subject to the discussion set out below,  the U.S. federal income
tax consequences of the Merger will be as follows:                              

          (i) the Merger will constitute a  "reorganization"  within the meaning
     of Section 368(a) of the Code and PAI,  Dencor and Sub will each be a party
  to that reorganization within the meaning of Section 368(b) of the Code;

          (ii) no gain or loss will be  recognized by PAI,  Dencor,  or Sub as a
result of the Merger;                                                 

          (iii) no gain or loss will be  recognized by the  stockholders  of PAI
     who are United States  persons within the meaning of the Code (each a "U.S.
     Stockholder")  upon the conversion of their PAI Common Stock into shares of
Dencor Common Stock pursuant to the Merger;                           

          (iv) the aggregate basis of the shares of Dencor Common Stock received
     by a U.S.  Stockholder  in exchange for shares of PAI Common Stock pursuant
     to the Merger will be the same as the  aggregate  federal  income tax basis
for such shares of PAI Common Stock at the time of the Merger; and    

          (v) the holding period for shares of Dencor Common Stock received by a
     U.S. Stockholder in exchange for shares of PAI Common Stock pursuant to the
     Merger will include the holding  period of such shares of PAI Common Stock,
     provided such shares of PAI Common Stock were held as capital assets by the
holder at the Effective Time.                                         

     The foregoing is based upon the  assumption  that the Merger is carried out
in  accordance   with  the  Merger   Agreement  and  the  assumption   that  the
representations  and warranties  contained in the Merger  Agreement are true and
correct and will be true and correct as of the Effective  Time as though made as
of the Effective Time.                                                          

     One of the requirements for a tax-free  reorganization is that stockholders
of PAI retain a  significant  continuing  equity  interest  in Dencor  after the
Merger. In that regard, the foregoing is based on the assumption that, as of the
Effective Time of the Merger,  there will be no plan or intention on the part of
the  stockholders of PAI to sell,  exchange or otherwise  dispose of a number of
shares of Dencor  Common Stock  received in the Merger that would reduce the PAI
stockholders'  ownership of Dencor  Common Stock to a number of shares  having a
value,  as of the date of the  Merger,  of less than 50% of the value of all the
formerly  outstanding  shares  of PAI  Common  Stock  as of the same  date.  For

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purposes of this  assumption,  shares of PAI Common Stock  exchanged for cash or
other  property will be treated as  outstanding  PAI Common Stock on the date of
the Merger.  Moreover,  shares of PAI Common Stock otherwise  sold,  redeemed or
disposed  of prior to the  Merger in  connection  with the  Merger  will also be
considered for purposes of this  assumption.  PAI has  represented in the Merger
Agreement to the effect that, to the knowledge of the executive officers of PAI,
such  assumption is correct.  However,  if a  significant  portion of the Dencor
Common Stock  received by PAI  stockholders  in the Merger is sold shortly after
the Merger,  the Merger could be treated as a taxable  transaction  in which all
stockholders of PAI (including stockholders who did not sell their Dencor Common
Stock) would  recognize  gain or loss equal to the  difference  between the fair
market value of the Dencor Common Stock  received and the basis of the PAI Stock
surrendered in the Merger.                                                      

     Dividends and other distributions paid with respect to the shares of Dencor
Common Stock issued upon  exchange of the PAI Common Stock,  as described  under
"THE MERGER-Conversion of Shares; Procedures for Exchange of Certificates", will
generally  be taxable as dividend  income to the extent of Dencor's  current and
accumulated earnings and profits.                                               

     If the Merger is not treated as a  reorganization  for  federal  income tax
purposes,  no  gain or  loss  will be  recognized  by  Dencor  or PAI.  However,
exchanges  of PAI Common Stock for Dencor  Common  Stock  pursuant to the Merger
will be taxable  transactions  for federal  income tax purposes.  In that event,
each  exchanging  holder of PAI  Common  Stock will  recognize  gain or loss for
federal  income tax  purposes  equal to the  difference  between  such  holder's
adjusted  basis in the PAI Common Stock  exchanged  and the fair market value of
Dencor  Common  Stock  received by such holder in the Merger.  Such gain or loss
will be capital  gain or loss if the  shares of PAI Common  Stock were held as a
capital  asset and will be  long-term  gain or loss if such shares had been held
for more than one year at the time of consummation of the exchanges.            

     Non-U.S.  Shareholders. A holder of PAI Common Stock that, for U.S. federal
income tax purposes, is a non-resident alien individual,  a foreign corporation,
a foreign  partnership or a foreign  estate or trust (a "Non-U.S.  Stockholder")
generally  will not be subject to U.S.  federal  income tax (by  withholding  or
otherwise)  on the  receipt  of Dencor  Common  Stock  pursuant  to the  Merger.
However,  if the Merger  were to fail to qualify  as a  reorganization  for U.S.
federal  income tax purposes,  a Non-U.S.  Stockholder  that holds shares of PAI
Common  Stock  will  generally  be  subject  to U.S.  federal  income tax on the
conversion  of PAI Common  Stock into shares of Dencor  Common  Stock if (i) the
resulting income or gain is effectively connected with the conduct of a trade or
business of the Non-U.S. Stockholder within the United States, (ii) the Non-U.S.
Stockholder is a non-resident  alien individual present in the United States for
183 days or more in the taxable year of the Merger and certain other  conditions
are met, or (iii) the  Non-U.S.  Stockholder  is subject to tax  pursuant to the
provisions  of  U.S.  federal  tax  law  applicable  to  certain  United  States
expatriates. Different rules may apply to any amounts treated as dividend income
under the rules referred to above.                                              

     Dividends  on Dencor  Common  Stock  paid to a  Non-U.S.  Stockholder  will
generally be subject to a U.S. withholding tax.                                 

Anticipated Accounting Treatment                                                

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     Dencor and PAI expect that the Merger will qualify for pooling of interests
accounting  treatment.  Under this method of  accounting,  Dencor's prior period
financial  statements  will be restated  on a combined  basis with those of PAI,
with all intercompany accounts being eliminated and all expenses relating to the
Merger being deducted from combined income.                                     

Assumption of PAI Stock Options Pursuant to the Merger                          

     Holders of PAI Stock Options that are assumed by Dencor as described  below
under "CERTAIN PROVISIONS OF THE MERGER  AGREEMENT--PAI Stock Options" generally
will not  recognize  income or gain for federal  income tax  purposes  upon such
assumption, assuming the Merger is a tax-free reorganization as described above.

     A  holder  of  an  assumed  PAI  Stock  Option  will   recognize   ordinary
compensation  income,  and Dencor will be allowed a deduction for federal income
tax  purposes,  on the date such option is  exercised  in an amount equal to the
excess of the fair market value on such date of the Dencor Common Stock acquired
by  exercise of such  option  over the  exercise  price of such shares of Dencor
Common Stock.  The tax basis of the Dencor Common Stock  acquired by exercise of
an  assumed  PAI  Stock  Option  will be its  fair  market  value on the date of
exercise  of such  option and the holding  period for  purposes  of  determining
whether  a  subsequent  sale of the  Dencor  Common  Stock  would  result in the
recognition of short-term or long-term capital gain or loss will commence on the
date of transfer of the Dencor Common Stock to the holder of the option.        

     Under  current law, the tax rate imposed on long-term  capital gains cannot
exceed 28%. The Code imposes limitations on the amount of capital loss which can
be deducted in a taxable year.                                                  

     If the  holder of an assumed  PAI Stock  Option  delivers  shares of Dencor
Common Stock in payment of the exercise  price of the Dencor Common Stock,  such
holder will not recognize  any taxable  income by reason of such  delivery.  The
holder's  basis and  holding  period for the  number of shares of Dencor  Common
Stock received  equal to the number of shares  delivered will be the same as the
shares delivered.  The holder's basis for shares of Dencor Common Stock received
in excess of the number of shares  delivered will equal the fair market value of
such  shares of Dencor  Common  Stock  used to  determine  the amount of taxable
compensation  arising from the exercise of such option.  The holding  period for
such excess  shares of Dencor  Common Stock will commence on the date the shares
of Dencor Common Stock are transferred to the holder.                           

     Amounts  described above as being treated as  compensation  income upon the
exercise  of an  assumed  PAI  Stock  Option  will be  subject  to tax at  rates
applicable  to  ordinary  income and will be  subject  to tax under the  Federal
Insurance  Contribution Act (i.e., FICA tax), (subject to certain limitations in
the case of the old-age,  survivors and disability insurance portion of the FICA
tax). The number of shares of Dencor Common Stock otherwise issuable to a holder
of an assumed PAI Stock Option which is exercised  may be reduced by a number of
shares of Dencor  Common  Stock  having a total fair  market  value equal to the
foregoing taxes and any other amounts required by law to be withheld.           

     A holder of PAI Stock Option who is a non-resident alien individual and who
has such PAI Stock  Option  assumed  and then  exercises  the  assumed PAI Stock
Option  generally  will not be subject to U.S.  federal income tax to the extent

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the option is attributable to services performed outside the United States. Such
a holder will  generally  be subject to the rules under FIRPTA  discussed  above
with  respect to the  subsequent  sale,  exchange or other  disposition  of such
shares. See "--Exchange of PAI Common Stock Pursuant to the Merger."            

Employee Benefits Matters                                                       

     All  employee  benefit  plans of PAI will  remain in effect  following  the
Merger.                                                                         

Interests of Certain Persons in the Merger                                      

     The  Merger  Agreement  provides  that from and after the  Effective  Time,
Dencor  will  indemnify  and hold  harmless  all past and present  officers  and
directors of PAI and of its  subsidiaries to the full extent such persons may be
indemnified by PAI pursuant to PAI's  Certificate of  Incorporation  and By-laws
for acts or  omissions  occurring  at or prior  to the  Effective  Time and will
advance reasonable  litigation  expenses incurred by such officers and directors
in connection  with  defending any action arising out of such acts or omissions.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification."              

     Pursuant  to the  Merger  Agreement,  shares of PAI  Common  Stock  held by
executive  officers  and  directors  of PAI  will be  converted  into  the  same
consideration as shares of PAI Common Stock held by other  stockholders.  At the
Effective Time,  outstanding PAI Stock Options will become and represent options
to  acquire a number of shares of Dencor  Common  Stock  equal to the  number of
shares of PAI Common Stock  subject to such PAI Stock Options times the Exchange
Ratio at an  exercise  price  per  share of  Dencor  Common  Stock  equal to the
exercise price per share of PAI Common Stock  immediately prior to the Effective
Time  divided by the  Exchange  Ratio.  See  "CERTAIN  PROVISIONS  OF THE MERGER
AGREEMENT - PAI STOCK OPTIONS."                                                 

     In  addition,  the  Merger  Agreement  provides  that PAI will  enter  into
employment  agreements with each of Maynard L. Moe,  President and a Director of
Dencor,  and Theodore A. Hedman,  Vice  President and a Director of Dencor.  The
Merger  Agreement also states that PAI will provide Dencor with sufficient funds
to pay outstanding loans,  including loans made to Dencor by Dr. Moe, Mr. Hedman
and their  relatives.  See  "CERTAIN  DENCOR  RELATIONSHIPS  AND  RELATED  PARTY
TRANSACTIONS".                                                                  

     At the  Effective  Time,  Dencor's  Board of  Directors  will be Charles T.
Condy, Christopher T. Condy, George F. Pilloton and Maynard L. Moe.             

Resale of Dencor Common Stock                                                   

     The Dencor Common Stock to be issued  pursuant to the Merger will be freely
transferable, except that shares issued to any PAI stockholder who may be deemed
to be an  "affiliate"  (as  defined  under  the  Securities  Act  and  generally
including,  without  limitation,   directors,  certain  executive  officers  and
beneficial  owners  of 10% or more  of a  class  of  capital  stock)  of PAI for
purposes of Rule 145 under the Securities Act will not be transferable except in
compliance with the Securities Act. This Joint Proxy  Statement/Prospectus  does
not cover  resales  of Dencor  Common  Stock  received  by any person who may be

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deemed to be an affiliate of PAI. As described above under "THE  MERGER--Certain
Federal Income Tax Consequences,"  sales of a significant  portion of the shares
of  Dencor  Common  Stock  issued  in  the  Merger  may  adversely   affect  the
qualification  of the Merger as a  tax-free  "reorganization"  for U.S.  federal
income tax purposes.                                                            

     Pursuant to the Merger Agreement, PAI has agreed to use its reasonable best
efforts to cause each  person who is an  affiliate  of PAI within the meaning of
Rule 145  under  the  Securities  Act to  deliver  to  Dencor on or prior to the
Effective  Time a written  agreement to the effect that such  affiliate will not
sell, pledge, transfer or otherwise dispose of any shares of Dencor Common Stock
issued to such person  pursuant to the Merger,  except  pursuant to an effective
registration  statement or in compliance  with Rule 145 or an exemption from the
registration  requirements  of the Securities  Act, and that such affiliate will
not sell or in any other way reduce such affiliate's risk relative to any shares
of Dencor  Common  Stock  received  in the Merger  until such time as  financial
results  (including  combined sales and net income) covering at least 30 days of
post-Merger  operations  have been  published,  except as permitted by published
guidance from the Commission.                                                   

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 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

     The  following   unaudited  pro  forma  consolidated   condensed  financial
statements reflect adjustments to the historical consolidated balance sheets and
statements  of income of Dencor and PAI to give effect to the Merger,  using the
Pooling of Interest Method of accounting.  The unaudited pro forma  consolidated
condensed  balance sheet at March 31, 1997 assumes the Merger was consummated as
of March 31, 1997 and the unaudited pro forma consolidated  condensed statements
of income for the years ended  December  31, 1996 and 1995 assume the Merger was
consummated  as of January 1, 1996 and 1995,  respectively.  The  unaudited  pro
forma  consolidated  statements  of income for the three  months ended March 31,
1997 and 1996 assume the Merger was  consummated as of January 1, 1997 and 1996,
respectively.                                                                   

     The  following  pro  forma  consolidated  financial  statements  have  been
prepared  based on,  and  should be read in  conjunction  with,  the  historical
consolidated  financial  statements and notes thereto of Dencor and PAI that are
included  in this Joint  Proxy  Statement/Prospectus.  The  unaudited  pro forma
consolidated  condensed financial  statements are not necessarily  indicative of
the results of operations that might have occurred had the Merger actually taken
place on the above dates, nor are they indicative of future operating results of
the combined companies.                                                         

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                               PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS                                       
                                                 Unaudited                                                           

                                               MARCH 31, 1997                                                        
                                    (In thousands, except per share amounts)                                         

                                                                                                           Dencor    
                                                                       Historical                         and PAI    
                                                                -----------------------   Pro Forma      Pro Forma   
                                                                    PAI        Dencor    Adjustments      Combined   
                                                                -----------  ----------  -----------      --------   
Assets                                                                                                               
                                                                                                                     
  Cash and cash equivalents .................................   $     122.6  $      7.5       --         $     130.1 
  Project and other accounts receivable .....................       2,445.7        55.4       --             2,501.1 
  Current portion of energy savings and finance receivables .       3,249.5         --        --             3,249.5 
  Work in progress and inventories, net .....................       1,685.5       132.2       --             1,817.7 
  Other current assets ......................................          54.7        17.3       --                72.0 
                                                                -----------  ----------  -----------     ----------- 
     Total current assets ...................................       7,558.0       212.4       --             7,770.4 
  Long-term portion of energy savings and finance receivables      18,300.5         --        --            18,300.5 
  Property and equipment, net ...............................         104.8         1.0       --               105.8 
  Deferred charges and other assets .........................          72.9         3.3       --                76.2 
  Intangible assets, net ....................................         148.4         --        --               148.4 
                                                                -----------  ----------  -----------     ----------- 
      Total assets ..........................................   $  26,184.6  $    216.7       --         $  26,401.3 
                                                                ===========  ==========  ===========     =========== 

Liabilities                                                                                                          
  Accounts payable and accrued expenses .....................       5,641.9        67.7       --             5,709.6 
  Notes payable - shareholders ..............................          --          93.4       --                93.4 
  Current portion of long-term debt .........................         507.2         --        --               507.2 
  Current portion of non recourse debt ......................       3,464.9         --        --             3,464.9 
  Reserve for monitoring and maintenance ....................         254.5         6.3       --               260.8 
  Other current liabilities .................................          --          62.1       --                62.1 
                                                                -----------  ----------  -----------     ----------- 
      Total current liabilities .............................       9,868.5       229.5       --            10,098.0 
  Long-term debt ............................................       4,408.7        --         --             4,408.7 
   Long-term portion of non recourse debt ...................      21,099.8        --         --            21,099.8 
   Reserve for monitoring and maintenance ...................       1,143.3        --         --             1,143.3 
                                                                -----------  ----------  ------------    ----------- 
      Total long-term liabilities ...........................      26,651.8        --         --            26,651.8 

Shareholders' equity (3)(4)                                                                                          
  Common Stock ..............................................         280.8     1,147.6     14,809.1 (2)    16,237.5 
  Note receivable for common stock ..........................         (11.4)       --         --               (11.4)
  Additional paid in capital ................................      14,809.1        --      (14,809.1)(2)        --   
  Stock option equity .......................................       1,158.1        --         --             1,158.1 
  Accumulated deficit .......................................     (26,572.3)   (1,160.4)      --           (27,732.7)
                                                                -----------  ----------   -----------     ---------- 
     Total shareholders' equity (deficit) ...................     (10,335.7)      (12.8)      --           (10,348.5)

     Total liabilities and shareholders' equity .............   $  26,184.5  $    216.7  $    --         $  26,401.3 
                                                                ===========  ==========  ============    =========== 

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                                     PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS                                   

                                          FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995                                         
                                                              Unaudited                                                          

                                                (In thousands, except per share amounts)                                         

                                                                                                             Dencor and PAI      
                                           PAI                  Dencor          Pro Forma Adjustments      Pro Forma Combined    
                                 -----------------------  --------------------  ---------------------   ------------------------ 
                                    1996        1995        1996        1995      1996        1995         1996          1995    
                                 ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------ 
                                                                                                                                 
Net Sales .....................  $  9,763.3  $  21,397.4  $   388.7  $   567.9  $    --     $    --     $ 10,152.0  $   21,965.3 
Cost of Sales .................     3,659.0     17,176.7      208.6      306.3       --          --        3,867.6      17,483.0 
                                 ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------ 
Gross profit ..................     6,104.3      4,220.7      180.1      261.6       --          --        6,284.4       4,482.3 
Selling, general and                                                                                                             
  administrative expense ......     5,625.0      5,534.1      243.4      244.1       --          --        5,868.4       5,778.2 
Non-operating charges  (income)                                                                                                  
  Interest Expense ............     4,007.9      2,421.2       19.4       17.7       --          --        4,027.3       2,438.9 
  Depreciation and Amortization       410.5        440.6     --         --           --          --          410.5         440.6 
  Other, net ..................       (34.9)       (57.8)      (8.3)     (11.5)      --          --          (43.2)        (69.3)
                                 ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------ 
Income (loss) from continuing                                                                                                    
  operations before                                                                                                              
  income taxes ................    (3,904.2)    (4,117.4)     (74.4)      11.3       --          --       (3,978.6)     (4,106.1)
Income taxes ..................        11.0         10.2     --         --           --          --           11.0          10.2 
                                 ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------ 

Income (loss) before                                                                                                             
  extraordinary items .........    (3,915.2)    (4,127.6)     (74.4)      11.3       --          --       (3,989.6)     (4,116.3)
Extraordinary items ...........       634.6       --         --         --           --          --          634.6        --     
                                 ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------ 
Net income (loss) .............    (4,549.8)    (4,127.6)     (74.4)      11.3       --          --       (4,624.2)     (4,116.3)

Weighted average                                                                                                                 
  shares outstanding (1)(3) ...    27,024.4     26,987.5    3,671.3    3,671.3     13,512.2    13,493.8   44,207.9      44,152.6 
Income (loss) from                                                                                                               
  continuing operations                                                                                                          
  per common share (1)(3) .....  $     (0.14)  $   (0.15)  $  (0.02)   $  0.00 $    --     $    --     $     (0.09)$       (0.09)

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                                  PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS                                      

                                     For the Three Months Ended March 31, 1997 and 1996                                          
                                                        Unaudited                                                                

                                          (In thousands, except per share amounts)                                               

                                                                                                            Dencor and PAI       
                                          PAI                  Dencor          Pro Forma Adjustments      Pro Forma Combined     
                                -----------------------  --------------------  ---------------------   ------------------------  
                                   1997        1996         1997       1996      1997        1996         1997         1996      
                                ----------  -----------  ---------  ---------  ---------   ---------   ----------  ------------  

                                                                                                                                 
Net Sales ....................  $  1,705.4  $  1,233.7   $  113.1  $   103.7  $    --     $    --     $    1,818.5  $    1,337.4 
Cost of Sales ................       647.3       158.1       54.6       58.8       --          --            701.9         216.9 
                                ----------  ----------   --------  ---------  ---------   ---------   ------------  ------------ 
Gross profit .................     1,058.1     1,075.6       58.5       44.9       --          --          1,116.6       1,120.5 
Selling, general and                                                                                                             
  administrative expense .....     1,083.2     1,148.4       57.1       54.1       --          --         1, 140.3       1,202.5 
Non-operating charges (income)                                                                                                   
  Interest Expense ...........     1,001.9       774.5        4.7        4.4       --          --          1,006.6         778.9 
  Depreciation and                                                                                                               
   Amortization ..............        41.7        80.9     --         --           --          --             41.7          80.9 
  Other, net .................        (3.7)       (5.2)      (1.8)      (1.9)      --          --             (5.5)         (7.1)
                                ----------  ----------   --------  ---------  ---------  ----------   ------------  ------------ 
Income (loss) from                                                                                                               
  continuing operations                                                                                                          
  before income taxes ........    (1,065.0)     (923.0)     (1.5)     (11.7)      --          --         (1,066.5)       (934.7) 
Income taxes .................      --          --         --         --          --          --           --            --      
                                ----------  ----------  --------  ---------   ---------  ----------   ------------  ------------ 
Income (loss) before                                                                                                             
  extraordinary items ........    (1,065.0)     (923.0)     (1.5)     (11.7)      --          --         (1,066.5)       (934.7) 
Extraordinary items ..........      --          --         --         --          --          --           --            --      
                                ----------  ----------  --------  ---------   ---------  ----------   -----------   -----------  
Net income (loss) ............    (1,065.0)     (923.0)     (1.5)     (11.7)      --          --         (1,066.5)       (934.7) 

Weighted average                                                                                                                 
  shares outstanding (1)(3) ..    28,084.8    26,977.3   3,671.3    3,671.3     14,042.4    13,488.7     45,798.5      44,137.3  
Income (loss) from                                                                                                               
  continuing operations                                                                                                          
  per common share (1)(3) ....  $    (0.04)  $   (0.03) $  (0.00)   $ (0.00)  $   --      $   --       $    (0.02)  $     (0.02) 


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NOTES TO UNAUDITED PRO FORMA
 CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. The pro forma combined per share data for income from  continuing  operations
has been calculated using pro forma combined average shares outstanding. PAI and
Dencor pro forma combined average shares  outstanding have been calculated using
the number of Dencor average shares  outstanding  during the periods  presented,
increased  by the  anticipated  number of shares  of Dencor  common  stock to be
issued to PAI shareholders  using an Exchange Ratio of 1.5 for each share of PAI
Common Stock deemed outstanding during each of the periods presented as if these
shares were  outstanding for the entire period  presented.  The weighted average
shares deemed  outstanding  calculation for PAI does not include shares issuable
upon exercise of fully paid,  fully vested stock options as such shares would be
anti-dilutive.  Such options would increase weighted average shares  outstanding
by approximately  1,592,000 shares for the three months ended March 31, 1997 and
1996 and the years ended  December 31, 1996 and 1995,  1,629,000  shares for the
year ended  December 31, 1994,  and  1,346,000  shares for the nine months ended
December 31, 1993.                                                              

2. Pro forma  pooling of  interests  adjustment  to reflect  the merged  capital
structure of Dencor.                                                            

3. Pro forma  financial  statements  do not reflect the proposed 50 to 1 reverse
stock split subject to shareholder approval.                                    

4. Pro forma  financial  statements  do not reflect the effects of the potential
preferred stock issuance.                                                       

5. Pro forma  financial  statements  do not  include  merger  related  expenses,
estimated to be $.........based on information  available as of the date of this
Joint Proxy Statement/Prospectus.                                               

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 DENCOR EXECUTIVE COMPENSATION

Summary Compensation Table                                                      

     The following  table sets forth in summary form the  compensation  received
during each of Dencor's last three completed fiscal years by the Chief Executive
Officer and President of Dencor. No executive  officer of Dencor,  including the
Chief Executive Officer and President, received total salary and bonus exceeding
$100,000 during any of the last three fiscal years.                             

                                                        [Enlarge/Download Table]

                                                                         Long Term Compensation              
                                                                         ----------------------              

                                Annual Compensation                    Awards              Payouts           
                                -------------------                    ------              -------           
                                                     Other                                                   
                                                     Annual                                         All Other
Name and                                             Compen-   Restricted                    LTIP    Compen- 
Principal            Fiscal  Salary        Bonus     sation    Stock         Options       Payouts   sation  
Position             Year    ($)(1)        ($)(2)    ($)(3)    Awards (4)     (#)(5)        ($)(6)   ($)(7)  
--------             ----    ------        ------    ------   ---------      ------        ------   ---------

                                                                                                             
Maynard L. Moe       1996    54,672        -0-       -0-       -0-            -0-           -0-        -0-   
Chief Executive                                                                                              
Officer, President,  1995    67,000        -0-       -0-       -0-            -0-           -0-        -0-   
and a director (8)                                                                                           
                     1994    60,300        -0-       -0-       -0-            -0-           -0-        -0-   


(1)  The dollar value of base salary (cash and non-cash) received.              

(2)  The dollar value of bonus (cash and non-cash) received.                    

(3)  During the periods covered by the Summary  Compensation  Table,  Dencor did
     not pay any other annual compensation not properly categorized as salary or
     bonus,  including  perquisites and other personal  benefits,  securities or
property.                                                             

(4)  During the periods covered by the Summary  Compensation  Table,  Dencor did
not make any award of restricted stock.                               

(5)  Dencor has had no stock option plans.                                      

(6)  Dencor  has a  Restricted  Stock  Bonus  Plan,  the  purpose of which is to
     attract and retain qualified  personnel for responsible  positions.  Dencor
     has remaining  196,000 shares of Dencor's  authorized  but unissued  common
     stock as of December 31, 1996, to be awarded as stock bonuses to employees,
     not  including Dr. Moe.  Stock  bonuses may be awarded,  as an incentive to
     contribute  to the success of Dencor,  at the  discretion  of a stock bonus
     committee,  consisting  of not  less  than  two  directors,  from a list of
     recommendations  submitted  periodically by the President.  The plan may be
     amended,  modified,  suspended  or  withdrawn  at any time by the  Board of
     Directors.  There were no shares awarded during the periods  covered by the
Summary Compensation Table.                                           

(7)  No other compensation.                                                     

(8)  Compensation Pursuant to Plans.                                            

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     Dr.  Moe,  for the year  1997,  will  receive  an annual  salary of $69,700
payable in substantially equal monthly  installments.  Dr. Moe will also receive
additional  compensation equal to two percent of Dencor's first $100,000 pre-tax
net profits, plus four percent of pre-tax profits from $100,000 to $200,000 plus
six  percent  of the  pre-tax  profits in excess of  $200,000.  If the Merger is
completed,  this  arrangement will be terminated and Dr. Moe will be compensated
pursuant to a new employment  agreement.  See, "THE  MERGER-Interests of Certain
Persons in the Merger".                                                         

Compensation of Dencor Directors                                                

     Dencor pays its non-employee director $100 per Directors' Meeting attended.
It is anticipated that no more than twelve meetings will occur each year.       

Employment  Contracts  and  Termination  of  Employment  and  Change-In  Control
Arrangements                                                                    

     Dencor does not have any written  employment  contracts with respect to any
of its executive  officers.  Dencor has no compensatory plan or arrangement that
results  or  will  result  from  the  resignation,   retirement,  or  any  other
termination  of  an  executive  officer's  employment  with  Dencor  or  from  a
change-in-control   of   Dencor   or  a  change   in  an   executive   officer's
responsibilities  following a change-in-control.  In connection with the Merger,
employment  agreements will be entered into with each of Dr. Moe and Mr. Hedman.
See "THE MERGER-Interests of Certain Persons in the Merger".                    

PAI EXECUTIVE COMPENSATION

Summary Compensation Table                                                      

     The following  table sets forth in summary form the  compensation  received
during each of PAI's last three  completed  fiscal years by the Chief  Executive
Officer, President and Chief Financial Officer of PAI.                          

                                                                [Download Table]


                                                COMPENSATION                       
                                                ------------                       
                                 Year                                              
Name and Principal               Ending                                            
Position                         12/31   Paid              Bonus  Stock Options    
------------------               -----   ----              -----  -------------    

                                                                                   
Charles T. Condy, CEO            1994    $150,000          None   190,000 shares(1)
                                 1995    $165,000          None   400,000 shares(1)
                                 1996    $172,500          None   None(4)          

Christopher T. Condy, President  1994    $150,000          None   130,000 shares(2)
and COO                          1995    $165,000          None   200,000 shares(3)
                                 1996    $172,500          None   None(4)          

George F. Pilloton, CFO          1994    $150,000          None   130,000 shares(2)
                                 1995    $165,000          None   200,000 shares(3)
                                 1996    $172,500          None   None(4)          

----------------------                                                          

(1)  The options  granted in 1994 and 1995 are  exercisable  at $0.935 per share
until 2004 and 2005, respectively.                                    

(2)  The options granted in 1994 are exercisable at $0.72 per share until 2004. 

(3)  The options granted in 1995 are exercisable at $0.72 per share until 2005. 

(4)  No stock options were granted in 1996.                                     

PAI Stock Option Plan                                                           

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     PAI has an Employee Stock Option Plan under the terms of which the Board of
Directors  may in its  discretion  grant  stock  options  from  time  to time to
employees upon such terms as it deems appropriate provided that the option price
may not be less than 85% of the fair  market  value of PAI  Common  Stock on the
date of grant and for those owning 5% or more of PAI Common Stock the price must
be 110% of the fair market value of PAI Common Stock on the date of grant.      

PAI Director Compensation                                                       

     PAI has not  authorized the payment of any  compensation  to members of the
Board of Directors for their services as directors.                             

SECURITY OWNERSHIP OF MANAGEMENT
 AND CERTAIN BENEFICIAL OWNERS

Dencor Energy Cost Controls, Inc.                                               

     The following table sets forth certain information regarding the beneficial
ownership of Dencor  Common Stock as of ________,  1997 by (i) each  director of
Dencor, each executive officer of Dencor named under "Executive Compensation" in
Dencor's Proxy  Statement  dated May 1, 1997 relating to Dencor's Annual Meeting
of Shareholders  held on June 12, 1997, all directors and executive  officers of
Dencor as a group and each person known by Dencor to be the beneficial  owner of
more than 5% of the Dencor  Common  Stock and (ii) the  beneficial  ownership of
Dencor Common Stock as of ________,  1997, after giving effect to the conversion
of the 28,084,848 shares of PAI Common Stock issued and outstanding on that date
into  42,127,272  shares of Dencor  Common Stock in the Merger but before giving
effect to the Reverse  Stock Split and  conversion  of an aggregate of 4,591,284
PAI Stock Options outstanding on that date into stock options of Dencor pursuant
to the Merger Agreement (the "Transactions"), by each of the persons referred to
in clause (i) above.                                                            

                                                        [Enlarge/Download Table]


                                                       Beneficial Ownership                       
                                                      of Dencor Common Stock                      
                                      ------------------------------------------------------------

                                                                           Percent After Giving   
Name and Address of Beneficial Owner   Shares              Percent      Effect to the Transactions
------------------------------------   ------              -------      --------------------------

                                                                                                  
Maynard L. Moe                        703,650(2)            19.2                 1.5              
2309 South Jackson                                                                                
Denver, Colorado 80210                                                                            

Theodore A. Hedman                    148,300(3)             4.0                  *               
5445 South Camargo Road                                                                           
Littleton, Colorado 80123                                                                         
1861 North Rock Road                                                                              
Wichita, Kansas  67206                                                                            

Edmund Barbour                        40,000                 1.1                  *               
2765 South Golden Way                                                                             
Denver, Colorado 80227                                                                            

Executive Officers And                891,950               24.3                 1.9              
Directors As A Group (3 Persons)                                                                  


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---------------                                                                 

*    Less than 1% of the outstanding shares of Dencor Common Stock.             

(1)  On February 28, 1997,  there were  3,671,304  shares of Dencor Common Stock
issued and outstanding.                                               

(2)  Includes  159,650 shares of Dencor Common Stock owned of record by Carol M.
Moe, wife of Maynard L. Moe.                                          

(3)  Includes  35,800 shares of Dencor Common Stock owned of record by Charlotte
Hedman, wife of Theodore A. Hedman.                                   

Proven Alternatives, Inc.                                                       

     The following table sets forth certain information regarding the beneficial
ownership of PAI Common Stock as of ________,  1997 by (i) each director of PAI,
each executive officer of PAI, all directors and executive  officers of PAI as a
group and each person known by PAI to be the beneficial owner of more than 5% of
the PAI Common Stock and (ii) the beneficial ownership of Dencor Common Stock as
of ________,  1997,  after  giving  effect to the  Transactions,  by each of the
persons referred to in clause (i) above.                                        

                                                        [Enlarge/Download Table]


                                                                                    Beneficial Ownership         
                                                Beneficial Ownership            of Dencor Common Stock After     
                                                of PAI Common Stock            Giving Effect to the Transactions 
                                      ------------------------------------  -------------------------------------

Name and Address of Beneficial Owner    Shares (1)               Percent        Shares (1)            Percent    
------------------------------------    ----------               -------        ----------            -------    

                                                                                                                 
Charles T. Condy                      21,307,843(2)               73.0           31,961,765             67.3     
1740 Army Street                                                                                                 
San Francisco, California 94124                                                                                  

Christopher T. Condy                   1,820,409                   6.4           2,730,614               5.9     
1740 Army Street                                                                                                 
San Francisco, California 94124                                                                                  

George F. Pilloton                       374,195                   1.3             561,293               1.2     
1740 Army Street                                                                                                 
San Francisco, California  94124                                                                                 

                                       2,033,784                   7.2           3,050,676               6.7     
Steven Mayer                                                                                                     
600 California Street, Suite 1300                                                                                
San Francisco, California 94108                                                                                  

Executive Officers And Directors                                                                                 
   As A Group (3 Persons)             23,502,447                  78.7          35,253,672              72.7     


---------------                                                                 

*    Less than 1% of the outstanding shares of Dencor Common Stock.             

(1)  For purposes of determining the numbers of shares beneficially owned by the
     named  individuals and by all executive  officers and directors as a group,
     with  respect to any  director or  executive  officer  who held  options to
     purchase  shares  of  PAI  Common  Stock  exercisable  within  60  days  of
     ................, 1997, it was assumed that such options had been exercised
     and the shares  issued were  outstanding.  The  following  number of shares
     representing such unexercised options were added to the holdings of each of
     the  following  directors and officers:  Charles  Condy  1,142,384  shares;
     Christopher  Condy 367,037  shares;  Mr. Pilloton  281,795 shares;  and all

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     executive   officers  and  directors  as  a  group  1,791,216  shares.  The
     respective directors and executive officers have sole voting power and sole
     investment  power over all shares  reflected in the table and in this note,
except as described in the notes to this table.                       

(2)  Includes 1,081,739 shares owned by Mary L. Condy, Charles Condy's wife.    

CERTAIN DENCOR RELATIONSHIPS AND DENCOR RELATED TRANSACTIONS

     Dencor has been  involved  in the  following  transaction  with its current
Directors,  Officers  and  relatives of such  persons.  Dencor did not obtain an
independent  determination of the fairness and  reasonableness  of the terms and
conditions of any of these transactions.  Nevertheless, Dencor believes that the
terms of each of these  transactions  are fair and reasonable based on the terms
prevalent in the industry for transactions of similar nature.                   

Loans To The Company.                                                           
---------------------                                                           

     Since December 1991,  Maynard Moe has advanced to Dencor a total of $53,250
for operating expenses. These loans accrue interest at 18.25% per annum and must
be repaid, with interest,  on demand. As of June 30, 1997, the $53,250 principal
amount of these  loans  were  outstanding  and the loans had  accrued  an unpaid
interest of $24,005.                                                            

     Since December 1991, Carol Moe, the wife of Dr. Moe, has advanced to Dencor
a total of $15,000 for operating expenses. These loans accrue interest at 18.25%
per annum and must be repaid, with interest, on demand. As of June 30, 1997, the
$15,000  principal  amount of these  loans  were  outstanding  and the loans had
accrued an unpaid interest of $9,608.                                           

     In August  1991,  Helen Moe,  the  mother of Dr.  Moe,  advanced  to Dencor
$12,000 for operating expenses. The loan accrues interest at 18.0% per annum and
must be repaid,  with  interest,  on demand.  As of June 30,  1997,  the $12,000
principal  amount of the loan was outstanding and the loan had accrued an unpaid
interest of $9,720. As of June 30, 1997, Dencor also owed Helen Moe acquired and
unpaid interest of $21,869 related to a total of $20,000  advanced by Ms. Moe to
Dencor for  operating  expenses.  Those  loans  accrued  interest of 12% and the
principal of those loans was previously repaid by Dencor.                       

     In January 1993, Charlotte Hedman, the wife of Theodore Hedman, advanced to
Dencor $5,000 for operating  expenses.  The loan accrues  interest at 18.25% per
annum and must be repaid,  with  interest,  on demand.  As of June 30, 1997, the
$5,000  principal amount of the loan was outstanding and the loan had accrued an
unpaid interest of $3,985.                                                      

CERTAIN PAI RELATIONSHIPS AND PAI RELATED TRANSACTIONS

     Bank Lines.  PAI had a $3,000,000  working  capital line with U.S.  Bank of
Washington  that expired  March 28, 1997.  The interest  rate was the U.S.  Bank
prime  rate  plus one  half of one  percent.  Draws  were in the form of cash or
letters of credit.  As of  February  28,  1997 the  utilization  of the line was
$2,434,878 in cash and letters of credit  totaling  $348,351.  On March 14, 1997
PAI executed a letter  accepting a proposal by the Silicon Valley Bank,  N.A. of
Santa  Clara,  California,  for a new line in the  amount of  $4,000,000,  which
replaced the U.S. Bank line  effective  March 31, 1997.  The Silicon Valley Bank
line  allows cash draws as well as the  issuance of letters of credit.  The U.S.
Bank line was,  and the Silicon  Valley  Bank line is,  secured by the pledge by
Charles T. Condy of 160,000 shares of the common stock of Cal Energy Company and
his personal guarantee. Mr. Condy receives an annual guarantee fee equal to nine
percent of the average  market price of the stock pledged by Mr. Condy to secure
the credit line.                                                                

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 CERTAIN TRANSACTIONS BETWEEN DENCOR AND PAI

     On June 12,  1997,  PAI  advanced  to Dencor a total of $13,000 for working
capital to  purchase  raw  materials  to be used for the  completion  of a large
order.  That loan  accrues  interest  at 10% per annum and must be repaid,  with
interest, on or before July 31, 1997. As of June 30, 1997, the $13,000 principal
amount of the loan was  outstanding and the loan had accrued and unpaid interest
of $55.                                                                         

     Pursuant to the terms of the Merger Agreement,  PAI has agreed to reimburse
Dencor for Dencor's costs in connection  with the Merger in the event the Merger
is  not  consummated.  These  include  Dencor's  reasonable  costs  of  Dencor's
employees' time as well as reasonable  out-pocket  expenses  associated with the
Merger.  PAI has  advanced  to Dencor  $10,000 to be applied to defray the costs
incurred by Dencor.  Dencor shall  provide PAI with written  accountings  of the
costs  and  expenses  incurred  by  Dencor  pursuant  to a  budget  prepared  in
consultation  with PAI. If it appears to Dencor  that it will incur  expenses in
excess of such budget, it shall immediately advise PAI and the parties will work
to agree to an increase in the budget.                                          

DESCRIPTION OF CAPITAL STOCK OF DENCOR

     The following statements are brief summaries of certain provisions relating
to Dencor's  capital stock and are  qualified in their  entirety by reference to
the provisions of Dencor's  Articles of  Incorporation,  as amended (the "Dencor
Charter"),  and  By-Laws  (the  "Dencor  By-laws"),  which are  incorporated  by
reference as an exhibit to the Registration  Statement of which this Joint Proxy
Statement/Prospectus is a part.                                                 

     Dencor's  authorized  capital consists of 5,000,000 shares of Dencor Common
Stock, no par value. At the Dencor Special Meeting,  holders of shares of Dencor
Common  Stock will  consider  and vote upon,  among  other  things,  the Charter
Amendments,  pursuant to which Dencor shall be  authorized to issue an aggregate
of 1,000,000 shares of preferred stock (the "Dencor Preferred Stock").          

     Dividends  may be  declared  and paid on the  Dencor  Common  Stock  out of
legally  available  surplus.  Such  dividends  may be paid in cash,  property or
shares of Dencor Common Stock. The Board of Directors may set aside reserves out
of funds  available  for  dividends  for any  purpose  the  Board  of  Directors
determines to be in Dencor's best interest.                                     

     Each share of Dencor Common Stock is entitled to share equally in dividends
from sources legally available  therefor when, as, and if declared by the Dencor
Board of Directors and, upon  liquidation or dissolution of the Dencor,  whether
voluntary or involuntary, to share equally in the assets of Dencor available for
distribution to the holders of the Dencor Common Stock.                         

     Each  holder of Dencor  Common  Stock is entitled to one vote per share for
all purposes. The holders of Common Stock have no preemptive rights and there is
no cumulative  voting,  redemption  right or right of conversion with respect to
the Dencor Common Stock.                                                        

     All  outstanding  shares of Dencor Common Stock and all shares to be issued
by Dencor pursuant to the Merger  Agreement will be validly  issued,  fully paid
and  nonassessable.  The Board of Directors is  authorized  to issue  additional
shares  of  Dencor  Common  Stock  within  the  limits  authorized  by  Dencor's
Certificate of Incorporation, without stockholder action.                       

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     Pursuant to the Charter  Amendments,  the Board of  Directors of Dencor has
the right to fix the rights,  privileges and preferences,  including  preference
upon liquidation, of any class of Preferred Stock to be issued in the future out
of authorized but unissued shares of Preferred Stock. The Board of Directors may
issue these shares after adopting and filing a certificate of designations  with
the Secretary of State of the State of Colorado.                                

 DESCRIPTION OF CAPITAL STOCK OF PAI

     The following statements are brief summaries of certain provisions relating
to PAI capital  stock and are  qualified  in their  entirety by reference to the
provisions  of  PAI's  Certificate  of  Incorporation,   as  amended  (the  "PAI
Charter"), and By-Laws (the "PAI By-laws"),  which are incorporated by reference
as  an  exhibit  to  the  Registration  Statement  of  which  this  Joint  Proxy
Statement/Prospectus is a part.                                                 

     PAI's authorized  capital  consists of 60,000,000  shares PAI Common Stock,
par value $0.01 per share and 15,000,000  shares of Preferred  Stock,  par value
$0.01 per share.  As of _________,  1997,  there were  28,084,848  shares of PAI
Common  Stock  issued  and  outstanding.  As of the  date  of this  Joint  Proxy
Statement/Prospectus, no shares of Preferred Stock are issued and outstanding.  

     Holders of shares of PAI  Common  Stock are  entitled  to one vote for each
share on all matters to be voted on by the  stockholders.  Holders of the shares
are entitled to cumulate  their votes in the election of  directors.  Holders of
shares of PAI Common Stock are entitled to share ratably in  dividends,  if any,
as may be  declared,  from  time  to  time  by the  Board  of  Directors  in its
discretion,   from  funds  legally  available  therefor.   In  the  event  of  a
liquidation,  dissolution or winding up of PAI, the holders of shares of the PAI
Common Stock are entitled to share pro rata all assets  remaining  after payment
in full of all  liabilities.  Holders of PAI Common Stock have no  preemptive or
other  subscription  rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares.                            

     Holders of shares of PAI Preferred  Stock are entitled to one vote for each
share on all matters to be voted on by the  stockholders.  Holders of the shares
are entitled to cumulate  their votes in the election of  directors.  Holders of
shares of PAI Preferred Stock are entitled to share ratably in dividends up to a
total cash dividend,  payable  semi-annually of 8% of the Liquidation  Value, as
may be declared by the Board of Directors in its discretion,  from funds legally
available therefor. In the event of a liquidation,  dissolution or winding up of
PAI, the holders of shares of the PAI Preferred  Stock are entitled to share pro
rata up to the Liquidation  Value of all assets  remaining after payment in full
of all  liabilities.  Upon completion of a public offering raising more than $10
million,  holders of PAI Preferred Stock have the right to receive a dividend of
Common Stock,  which is subject to certain lock-up  agreements to be determined,
for a  period  of up to one  year.  There  are no  other  conversion  rights  or
redemption or sinking fund provisions with respect to such shares.              

COMPARISON OF RIGHTS OF HOLDERS OF
PAI COMMON STOCK AND DENCOR COMMON STOCK

General                                                                         

     The rights of the  holders of PAI Common  Stock are  currently  governed by
PAI's  Certificate  of  Incorporation  (the "PAI Charter") and By-laws (the "PAI
By-laws")  and the laws of  Delaware,  including  the  DGCL.  If the  Merger  is
consummated, holders of PAI Common Stock will become shareholders of Dencor, and
the rights of such former PAI  stockholders  will  thereafter be governed by the
Dencor  Articles of  Incorporation  (the  "Dencor  Charter")  and the By-laws of
Dencor (the "Dencor By-laws") and the laws of Colorado,  including the CBCA. The
following  summary,  which does not  purport to be a complete  statement  of the
differences   between  the  rights  of  the   shareholders  of  Dencor  and  the
stockholders of PAI, sets forth certain  differences  between the Dencor Charter

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and the PAI Charter and the Dencor By-laws and the PAI By-laws.  This summary is
qualified  in its  entirety  by  reference  to the  full  text  of  each of such
documents and the applicable Delaware and Colorado statutes.                    

Voting Rights                                                                   

     Section  212 of the DGCL  provides  that unless  otherwise  provided in the
certificate of incorporation,  each stockholder is entitled to one vote for each
share of capital stock held by such  stockholder.  Section 7-107-202 of the CBCA
provides that unless otherwise  provided in the Articles of Incorporation,  each
outstanding  share  is  entitled  to one  vote  or  each  matter  voted  on at a
shareholders' meeting.                                                          

     The PAI Charter and By-laws provide that each holder of PAI Common Stock is
entitled  to one vote for each share  held by such  holder on all  matters  upon
which holders of PAI Common Stock are entitled to vote.  Corporate  action taken
by vote of PAI  stockholders  must be authorized by the vote of the holders of a
majority  of the  outstanding  shares of all  classes of stock  entitled to vote
thereon  present  in person or by proxy at the  meeting.  Holders  of PAI Common
Stock are  entitled to cumulate  their votes in the election of  directors.  The
Dencor  Charter and By-laws  provide that each  shareholder  of record of Dencor
Common  Stock is entitled to one vote for every share of such stock held by such
stockholder.  Whenever  any  corporate  action  is to be  taken  by  vote of the
shareholders of Dencor, it must be authorized by a majority of the votes cast at
a meeting of shareholders by the holders of shares entitled to vote thereon. The
holders of Dencor  Common Stock are not entitled to cumulate  their votes in the
election of directors.                                                          

Classified Board of Directors                                                   

     Section  141(d)  of  the  DGCL  provides  that  a  corporation  may  have a
classified  board of directors  providing  for up to three  classes of directors
each having a term of up to three years, and newly elected directors selected by
the board of directors  may serve to the  expiration of the term of the class to
which  they  are  named.  Section  7-108-  106  of  the  CBCA  provides  that  a
corporation's  articles of incorporation may provide for staggering the terms of
directors by dividing the total number of directors into up to three groups with
each group having a term of up to three years,  and newly elected  directors may
serve to the expiration of the term of the group to which they are named.       

     Neither the PAI Charter nor the PAI By-laws provide for separate classes of
board of directors.  Neither the Dencor Charter nor the Dencor  By-laws  provide
for staggering the terms of the directors.                                      

Number of Directors                                                             

     The number of  directors of a Delaware or a Colorado  corporation  shall be
fixed by, or in the  manner  provided  in, the  by-laws  unless  such  number is
changed by action of the majority of the directors. Under each of Section 141(b)
of the DGCL, and Section  7-108-102 of the CBCA, a director need not be a holder
of the corporation's  stock to be qualified unless so required by the charter or
by-laws.                                                                        

     The PAI By-laws  provide that the number of directors  shall not consist of
less than three nor more than  twenty.  The  Dencor  Charter  provides  that the
number of  directors  shall not  consist  of less than three nor more than five.
Dencor  Directors  are elected at each annual  meeting of  shareholders  or at a
special meeting of the shareholders.                                            

Filling Vacancies on the Board of Directors                                     

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     Each of Section 223 of the DGCL and Section  7-108-110  of the CBCA provide
that,  unless  otherwise  provided  in the  corporation's  charter  or  by-laws,
vacancies,  including  those due to removal  without  cause,  and newly  created
directorships  may be filled by majority vote of the  directors  then in office,
even if the number of directors then in office is less than a quorum.           

     The PAI Bylaws provide that newly created  directorships  resulting from an
increase in the number of directors and vacancies  occurring in the Board may be
filled by vote of a majority of the directors then in office,  even if less than
a quorum exists. A PAI director  elected to fill a vacancy,  including a vacancy
created by a newly created  directorship,  shall serve until the next succeeding
annual meeting of stockholders and until his successor is elected and qualified.
The  Dencor  By-laws  provide  that  any  vacancies   (including  newly  created
directorships) may be filled by a majority vote of the directors then in office,
though less than a quorum, or by a sole remaining director.  Any Dencor director
elected  to fill a  vacancy  shall be  elected  for the  unexpired  term of such
director's predecessor in office. Any Dencor directorship to be filled by reason
of an  increase  in the number of  directors,  shall be filled by election at an
annual meeting or at a special meeting of shareholders called for that purpose. 

Removal of Directors                                                            

     Each of  Section  141(k)  of the DGCL  and  Section  7-108-108  of the CBCA
provide that any director may be removed,  with or without cause,  by a majority
of the shares  then  entitled  to vote at an  election  of  directors.  However,
Section 141(k)(1) of the DGCL provides that, in the case of a corporation with a
classified  board of directors,  such as PAI, a director may be removed only for
cause unless the certificate of incorporation provides otherwise.               

     The PAI Charter and By-laws  provide that any of the PAI  directors  may be
removed for cause by vote of a majority of the entire Board of Directors. Any or
all of the PAI  directors  may be removed for cause or without  cause by vote of
the  holders of a  majority  of the  outstanding  shares of each class of voting
stock of PAI  voting as a class.  Neither  the  Dencor  Charter  nor the  Dencor
By-laws contain a provision regarding the removal of directors.                 

Quorum of Stockholders/Shareholders                                             

     Each of the PAI By-laws and the Dencor By-laws  provide that the holders of
a majority of the shares of the outstanding stock entitled to vote, in person or
by proxy, constitute a quorum at any meeting of the holders of the corporation's
stock for the transaction of business.                                          

Call of Special Shareholder/Stockholder Meetings                                

     Under each of Section 211(d) of the DGCL and Section 7-107-102 of the CBCA,
special  meetings of stockholders  may be called by the board of directors or by
such other person or persons authorized to do so by the corporation's charter or
by-laws.                                                                        

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     The PAI By-laws provide that special meetings of stockholders may be called
at any time for any purpose by the Board of Directors or by the  president,  and
shall be called by the  president or the secretary  upon the written  request of
the majority or the  directors or upon the written  request of the holders of at
least 10% of all  outstanding  shares entitled to vote on the action proposed to
be taken.  The Dencor By-laws provide that special  meetings of the shareholders
may be called by the President or by the Board of Directors, and shall be called
by the  President  at the  request  of the  holders  of not less than 25% of all
outstanding shares of Dencor entitled to vote at the meeting.                   

Stockholders'/Shareholders' Action without a Meeting                            

     Section  228  of  the  DGCL  provides  that,   unless  the  certificate  of
incorporation  provides  otherwise,  stockholders  may take any action without a
meeting by written consent signed by the holders of outstanding stock having not
less than the minimum  number of votes that would be  necessary  to authorize or
take such action at a meeting at which all shares  entitled to vote thereon were
present  and  voted.  Prompt  notice of the  taking  of any  action by less than
unanimous  consent  must be given to  stockholders  who did not  consent to such
action.  Section  7-107-104 of the CBCA  provides  that,  unless the Articles of
Incorporation require that such action be taken at a shareholders'  meeting, any
action  required to be taken at a  shareholders'  meeting may be taken without a
meeting if all of the  shareholders  entitled  to vote  thereon  consent to such
action in writing.                                                              

     The PAI By-laws  contain a provision  similar to the  provision of the DGCL
above.  The Dencor By-laws  contain a provision  similar to the provision of the
CBCA above.                                                                     

Amendments to Charter                                                           

     Under each of Section 242 of the DGCL and Section  7-110-101 of the CBCA, a
corporation  can amend its charter in any respect;  provided  that the amendment
contains only  provisions  which would have been lawful in the original  charter
document.  Each of the DGCL and CBCA provide that an amendment may be authorized
by the  adoption of a  resolution  setting  forth the  amendment by the board of
directors  followed by a majority vote of shares entitled to vote thereon.  Each
of the DGCL and CBCA also  provide  for  approval  by vote of the  holders  of a
majority  of  outstanding  shares  of a  particular  class of  stock in  certain
circumstances,  including an amendment which would increase the aggregate number
of authorized shares of such class.                                             

Approval of Certain Transactions                                                

     Generally,  pursuant  to  each  of  Section  251 of the  DGCL  and  Section
7-111-103  of the CBCA,  an  affirmative  vote of a majority of the  outstanding
stock  entitled to vote thereon for the approval of any merger or  consolidation
is required.  Each of Section 251(f) of the DGCL and Section 7-111-103(7) of the
CBCA provide that unless required by the corporation's  charter,  no vote of the
holders of common stock of a  constituent  corporation  surviving  the merger is
required  for  certain  mergers  in  which  (i)  there  is no  amendment  to the
corporation's  charter, (ii) each share of stock of such corporation is to be an
identical  outstanding or treasury share of the surviving  corporation after the
effective date of the merger and (iii) either no stock or shares,  securities or
obligations  convertible  into  such  stock,  will be  issued  or  delivered  in
connection with the merger or the unissued shares or treasury shares of stock to
be issued or  delivered  in  connection  with the merger  plus  those  initially
issuable upon any  conversion of any other shares,  securities or obligations to
be issued or delivered under such plan are less than 20% of the shares of common
stock of such corporation outstanding immediately prior to the effective date of
the merger.                                                                     

Preemptive Rights                                                               

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     Neither  Delaware  law nor Colorado  law provide  preemptive  rights to the
holders of capital  stock.  Neither the PAI  Charter  nor PAI By-laws  contain a
provision  regarding  preemptive  rights.  Neither the Dencor Charter nor Dencor
By-laws contain a provision regarding preemptive rights.                        

Derivative Actions                                                              

     Derivative  actions  may be brought in Delaware  by a  stockholder,  and in
Colorado  by  a  shareholder,  on  behalf  of,  and  for  the  benefit  of,  the
corporation.  Section 327 of the DGCL provides  that a stockholder  must aver in
the complaint  that he was a stockholder  of the  corporation at the time of the
transaction of which he complains.  Section  7-107-402 of the CBCA provides that
no action  shall be  commenced by a  shareholder  in the right of a  corporation
unless the  plaintiff was a shareholder  of the  corporation  at the time of the
transaction  of which the plaintiff  complains or the plaintiff is a person upon
whom shares or voting trust certificates thereafter devolved by operation of law
from a person who was a shareholder at such time.                               

Dividends                                                                       

     Subject   to  any   restrictions   in  a   corporation's   certificate   of
incorporation,  Section 170 of the DGCL generally provides that the directors of
a  corporation  may declare  and pay  dividends  out of surplus  (defined as the
excess if any,  of the net  assets  over  stated  capital)  or,  when no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
and/or the preceding  fiscal year.  Dividends may not be paid out of net profits
if the stated capital of the  corporation  is less than the aggregate  amount of
stated capital  represented by the issued and  outstanding  stock of all classes
having a preference upon the  distribution of assets.  Section  7-106-401 of the
CBCA provides that the Board of Directors of a corporation  may  authorize,  and
the  corporation  may make,  distributions  to its  shareholders  subject to any
restriction  in the  articles  of  incorporation;  provided,  however,  that  no
distribution may be made if, after giving it effect:  (a) the corporation  would
not be able to pay its debts as they become due in the usual course of business;
or (b) the  corporation's  total  assets would be less than the sum of its total
liabilities  plus (unless the articles of  incorporation  permit  otherwise) the
amount that would be needed, if the corporation were to be dissolved at the time
of the  distribution,  to satisfy the  preferential  rights upon  dissolution of
shareholders  whose  preferential  rights are  superior to those  receiving  the
distribution.                                                                   

Issuance  of Rights or Options to Purchase  Shares to  Directors,  Officers  and
Employees                                                                       

     Under each of Section 157 of the DGCL and Section  7-106-205 of the CBCA, a
corporation is permitted, either in its charter or by resolution of the board of
directors, to create rights or options entitling the holders thereof to purchase
from the corporation any shares of its capital stock of any class or classes. In
the absence of actual fraud in the transaction, the judgment of the directors as
to the  consideration  for  the  issuance  of such  rights  or  options  and the
sufficiency thereof shall be conclusive.                                        

Limitations on Directors' Liability                                             

     Each of Section  102(b)(7)  of the DGCL and Section  7-108-402  of the CBCA
permit a  corporation  to include a  provision  in its  charter  eliminating  or
limiting  the  personal  liability  of a  director  to  the  corporation  or its
stockholders for damages for breach of the director's  fiduciary duty subject to
certain limitations.                                                            

     The PAI Charter  provides that a director will not be personally  liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director,  except (i) for any breach of the director's duty of loyalty
to the corporation or its  stockholders,  (ii) for acts or omissions not in good
faith or which involve  intentional  misconduct  or a knowing  violation of law,
(iii) for the unlawful payment of dividends or unlawful stock  repurchases under
Section 174 of the DGCL,  or (iv) for any  transaction  from which the  director
derived an improper personal benefit.                                           

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     The Dencor Charter does not contain a provision  regarding the  elimination
or limitation of the personal liability of a director.                          

     While these provisions provide directors with protection from liability for
monetary  damages for breaches of their duty of care, they do not eliminate such
duty.  Accordingly,  these provisions will have no effect on the availability of
equitable  remedies such as an  injunction  or rescission  based on a director's
breach of his or her duty of care.  The provisions  described  above apply to an
officer of the  corporation  only if he or she is a director of the  corporation
and is acting in his or her capacity as  director,  and do not apply to officers
of the corporation who are not directors.                                       

Business Combination Statutes                                                   

     In  1988,   Delaware   enacted  a  statute  designed  to  provide  Delaware
corporations with limited  protection  against hostile  takeovers.  The takeover
statute,  which is  codified  in Section  203 of the DGCL  ("Section  203"),  is
intended to discourage  certain takeover  practices by impeding the ability of a
hostile acquiror to engage in certain transactions with the target company.     

     In general,  Section 203 provides  that a person or entity that owns 15% or
more of the outstanding  voting stock of a Delaware  corporation (an "Interested
Stockholder")  may  not  consummate  a  merger  or  other  business  combination
transaction  with such  corporation  at any time  during the  three-year  period
following  the date  such  person or entity  became an  Interested  Stockholder,
unless  (i) prior to the date a person  became an  Interested  Stockholder,  the
board of directors  approved either the business  combination or the transaction
which resulted in the stockholder becoming an Interested Stockholder,  (ii) upon
consummation  of the transaction  that resulted in the  shareholder  becoming an
interested  shareholder,  the interested  shareholder  owned at least 85% of the
corporation's  outstanding  voting stock, with the number of shares  outstanding
calculated  without regard to those shares owned by the corporation's  directors
who are also officers or by certain employee stock plans, and (iii) any business
combination  with an  Interested  Stockholder  that is  approved by the board of
directors and by a two-thirds vote of the outstanding  voting stock not owned by
the Interested Stockholder.                                                     

     Colorado   has  not  enacted  a  statute   designed  to  provide   Colorado
corporations with limited protection against hostile takeovers.                 

Indemnification of Directors and Officers                                       

     Section  145 of the DGCL  permits  a  corporation  to  indemnify  officers,
directors,  employees and agents for actions taken in good faith and in a manner
they reasonably  believed to be in, or not opposed to, the best interests of the
corporation,  and  with  respect  to any  criminal  action,  which  they  had no
reasonable  cause to  believe  was  unlawful.  The  DGCL  also  provides  that a
corporation  may  advance  expenses  of  defense  (upon  receipt  of  a  written
undertaking to reimburse the corporation if  indemnification is not appropriate)
and must  reimburse a successful  defendant for expenses,  including  attorney's
fees, actually and reasonably incurred, and permit a corporation to purchase and
maintain  liability  insurance for its directors and officers.  The DGCL further
provides that  indemnification may not be made for any claim, issue or matter as
to which a person has been adjudged by a court of competent jurisdiction,  after
exhaustion of all appeals  therefrom,  to be liable to the  corporation,  except
only to the extent a court  determines  that the person is entitled to indemnity
for such expenses that such court deems proper.                                 

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     Sections  7-109-102  and  7-109-107  of the CBCA  permit a  corporation  to
indemnify  officers,  directors,  employees and agents for actions taken in good
faith and in a manner they  reasonably  believe to be in, or not opposed to, the
best interest of the  corporation,  and with respect to criminal  action,  which
they had no  reasonable  cause to believe was  unlawful.  The CBCA also provides
that a  corporation  may advance  expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if  indemnification is not appropriate,
and in the case of a director, a written affirmation of the directors good faith
belief  that  he  or  she  has  met  the   standard  of  conduct   required  for
indemnification)  and must  reimburse  the  successful  defendant  for expenses,
including  attorney's  fees,  actually  and  reasonably  incurred  and  permit a
corporation to purchase and maintain  liability  insurance for its directors and
officers.  The CBCA further  provides a corporation may not indemnify a director
in connection  with a proceeding by or in the right of the  corporation in which
the director was a judge liable to the  corporation,  or in connection  with any
other  proceeding  charging  that the  director  derived  in  improper  personal
benefit,  whether or not  involving  action in an  official  capacity,  in which
proceeding  the  director was a judge liable on the basis that he or she derived
an improper personal benefit.                                                   

     The PAI  By-laws  provide  that  any  person  who  was or is a party  or is
threatened to be made a party to any  threatened,  pending or completed  action,
suit or proceeding,  whether civil,  criminal,  administrative  or investigative
(other  than an action by or in the right of the  corporation)  by reason of the
fact  that  he  is or  was  a  director,  officer,  employee  or  agent  of  the
corporation,  or is or was  serving  at the  request  of  the  corporation  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture,  trust or other  enterprise,  shall be indemnified  by the  corporation
against expenses (including attorneys' fees), judgments,  fines and amounts paid
in settlement  actually and reasonably  incurred by him in connection  with such
action, suit or proceeding if the person acted in good faith and in a manner the
person reasonably  believed to be in or not opposed to the best interests of the
corporation,  and,  with respect to any criminal  action or  proceeding,  had no
reasonable cause to believe the person's  conduct was unlawful.  The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption  that the person did not act in good faith and in a manner which the
person reasonably  believed to be in or not opposed to the best interests of the
corporation,  and,  with  respect  to any  criminal  action or  proceeding,  had
reasonable  cause to believe  that his  conduct  was  unlawful.  The PAI By-laws
provide further that the corporation  shall indemnify any person who was or is a
party  or is  threatened  to be  made a  party  to any  threatened,  pending  or
completed  action or suit by or in the  right of the  corporation  to  procure a
judgment  in its  favor  by  reason  of the fact  that he is or was a  director,
officer,  employee  or agent of the  corporation,  or is or was  serving  at the
request of the corporation as a director,  officer, employee or agent of another
corporation,  partnership,  joint  venture,  trust or other  enterprise  against
expenses  (including  attorneys'  fees) actually and reasonably  incurred by the
person and in  connection  with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation  except that no
indemnification  shall be made in respect  of any  claim,  issue or matter as to
which such  person  shall have been  adjudged  to be liable to the  corporation,
unless and only to the extent  that the Court of  Chancery  of  Delaware  or the
court in which such action or suit was brought shall determine upon  application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expense  which the Court of  Chancery of Delaware or such other court shall deem
proper. The rights to indemnification  and the advancement of expenses conferred
by the PAI  By-laws  are not  exclusive  of any  other  right  to which a person
seeking  indemnification  may be entitled under any by-law,  agreement,  vote of
stockholders  or  disinterested  directors or  otherwise.  PAI is  authorized to
purchase and maintain, insurance on behalf of its directors, officers, employees
and agents.                                                                     

     Neither the Dencor Charter nor By-laws contain any provisions regarding the
indemnification of directors and officers.                                      

Dissenters' Rights of Appraisal                                                 

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     The DGCL generally entitles a stockholder to exercise appraisal rights upon
a merger or  consolidation of the corporation  effected  pursuant to the DGCL if
the stockholder  complies with the  requirements of Section 262 of the DGCL. The
CBCA generally entitles a shareholder to exercise appraisal rights upon a merger
or consolidation of the corporation  effected pursuant to the CBCA if the holder
complies with the requirements of Section 7-113-102 of the CBCA.  Because of the
structure of the Merger,  the  appraisal  rights  provisions of the DGCL and the
CBCA are not available to the holders of Dencor Common Stock in connection  with
the Merger.                                                                     

CERTAIN PROVISIONS OF THE MERGER AGREEMENT

     The following is a summary of certain  provisions of the Merger  Agreement.
The following  summary  includes the material terms of such agreement but is not
necessarily complete and is qualified in its entirety by reference to the Merger
Agreement.                                                                      

The Merger                                                                      

     The Merger Agreement provides that,  following the approval and adoption of
the Merger  Agreement by the holders of PAI Common Stock and the approval of the
Charter  Amendments by the holders of Dencor Common Stock,  as described in this
Joint Proxy Statement/Prospectus,  Sub will be merged with and into PAI, and PAI
will continue as the Surviving Corporation.                                     

     If the  conditions to the Merger are satisfied or waived,  the parties will
file  with the  Secretary  of State of the  State of  Delaware  a duly  executed
Certificate  of Merger,  and the Merger will become  effective at the  Effective
Time,  which will occur upon the filing and  acceptance  thereof or at such date
thereafter as is provided in the Certificate of Merger.                         

     Pursuant to the Merger  Agreement,  as of the Effective  Time, by virtue of
the Merger and without  any action on the part of any  stockholder  of PAI,  all
shares of PAI Common  Stock,  and any shares of PAI Common Stock owned by Dencor
or Sub will be cancelled and no capital  stock of Dencor or other  consideration
will be delivered in exchange therefor.                                         

     Each share of PAI Common Stock issued and outstanding  immediately prior to
the Effective Time (other than shares to be cancelled)  will be converted at the
Exchange  Ratio into  validly  issued,  fully paid and  nonassessable  shares of
Dencor  Common Stock.  All such shares of PAI Common  Stock,  when so converted,
will no longer be outstanding  and will  automatically  be cancelled and retired
and each holder of a Certificate representing any such shares will cease to have
any rights with respect thereto,  except the right to receive certain  dividends
and other distributions upon the surrender of such Certificate.                 

     No certificates or scrip  representing  fractional  shares of Dencor Common
Stock will be issued upon the  surrender  for exchange of  Certificates,  and no
Dencor dividend or other  distribution or stock split or combination will relate
to any fractional  security,  and such fractional interests will not entitle the
owner thereof to vote or to any rights of a security  holder of Dencor.  In lieu
of any such fractional securities, each holder of shares of PAI Common Stock who
would  otherwise  have been  entitled to receive a fraction of a share of Dencor
Common Stock (after taking into account all shares of PAI Common Stock then held
of record by such  holder) will  receive  cash  (without  interest) in an amount
equal to the  product of such  fractional  part of a share of PAI  Common  Stock
multiplied by the Closing Price.                                                

Representations and Warranties                                                  

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     The Merger Agreement contains customary  representations  and warranties of
Dencor,  including,  among other things: (i) that the information to be included
herein and in the  Registration  Statement in connection with the Merger will be
free from  material  misstatements  and  omissions;  (ii) that there has been no
Material  Adverse  Change with  respect to Dencor,  except as  disclosed  in its
documents filed with the Commission; (iii) as to actions taken or not taken that
would jeopardize the  contemplated  tax and accounting  treatment of the Merger;
(iv) as to employment  agreements;  and (v) as to the Dencor Board of Directors'
actions with respect to the Merger Agreement, the Merger, the Charter Amendments
the Reverse Stock Split, and related matters. In addition,  the Merger Agreement
contains  representations  and  warranties  by  Dencor  as to its  organization,
capital structure,  authority to enter into the Merger Agreement and the binding
effect of the Merger Agreement on it.                                           

Conduct of Business Pending the Merger                                          

     Pursuant  to the Merger  Agreement,  Dencor and PAI have each  agreed  that
during the period from the date of the Merger  Agreement  through the  Effective
Time  (except  as  otherwise  specifically  required  by the terms of the Merger
Agreement),  it will, and it will cause its respective  subsidiaries  to, in all
material respects,  carry on their respective  businesses in the ordinary course
and consistent  with past practice and, to the extent  consistent  therewith and
with the terms of the Merger Agreement,  use all reasonable  efforts to preserve
intact their  current  business  organizations,  keep  available the services of
their  current  officers and  employees and preserve  their  relationships  with
customers,  suppliers and others having  business  dealings with them to the end
that their goodwill and ongoing  businesses  will be unimpaired at the Effective
Time.                                                                           

Access to Information                                                           

     The  Merger  Agreement  provides  that,  subject to  applicable  provisions
regarding  confidentiality,  each of Dencor and PAI will, and will cause each of
its  subsidiaries  to, afford to the other  parties,  and to their  accountants,
counsel,  financial  advisers and other  representatives,  reasonable access and
permit them to make such  inspections as they may reasonably  require during the
period from the date of the Merger  Agreement  through the Effective Time to all
their respective properties, books, contracts, commitments and records.         

Fees and Expenses                                                               

     Whether or not the Merger is  consummated,  except as described  below upon
certain terminations of the Merger Agreement, all costs and expenses incurred in
connection with the Merger Agreement and the transactions  contemplated  thereby
will be paid by PAI.                                                            

PAI Stock Options                                                               

     The Merger Agreement  provides that, no later than the Effective Time, each
PAI Stock Option which is  outstanding  immediately  prior to the Effective Time
pursuant to PAI's stock  option  plans will  become and  represent  an option to
purchase the number of shares of Dencor  Common Stock  (decreased to the nearest
full share)  determined  by  multiplying  (i) the number of shares of PAI Common
Stock subject to such PAI Stock Option  immediately  prior to the Effective Time
by (ii) the  Exchange  Ratio,  at an exercise  price per share of Dencor  Common
Stock  (rounded down to the nearest whole cent) equal to the exercise  price per
share of PAI Common Stock immediately prior to the Effective Time divided by the
Exchange  Ratio.  After the  Effective  Time,  except as  provided in the Merger
Agreement,  each new Dencor stock option issued in substitution  for a PAI Stock
Option will be exercisable upon the same terms and conditions as were applicable
under the related PAI Stock Option simultaneously with the Effective Time.      

Reasonable Efforts                                                              

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     Upon the terms  and  subject  to the  conditions  set  forth in the  Merger
Agreement,  each of the parties agrees to use all reasonable efforts to take, or
cause to be taken,  all actions,  and to do, or cause to be done,  and to assist
and cooperate with the other parties in doing, all things  necessary,  proper or
advisable to  consummate  and make  effective,  in the most  expeditious  manner
practicable,  the Merger and the other  transactions  contemplated by the Merger
Agreement and the prompt satisfaction of the conditions thereto.                

Employment Agreements                                                           

     The  Merger  Agreement   provides  that  PAI  will  enter  into  employment
agreements with each of Maynard L. Moe,  President and a Director of Dencor, and
Theodore  A.  Hedman,  Vice  President  and a Director  of Dencor,  prior to the
Closing.                                                                        

Conditions to the Merger                                                        

     The Merger Agreement provides that the respective obligations of each party
to effect the Merger is subject to the fulfillment or waiver (where permissible)
at or prior to the Effective Time of each of the following  conditions:  (i) the
Merger  shall have been  approved  by the  requisite  vote of the holders of PAI
Common Stock, and the Reverse Stock Split and Charter  Amendment shall have been
approved by the requisite  vote of the holders of Dencor Common Stock;  (ii) the
Registration  Statement  shall have become  effective  and shall be effective in
accordance  with the provisions of the  Securities  Act and all necessary  state
securities  or "Blue  Sky"  authorizations  shall have been  received;  (iii) no
governmental  entity or court of  competent  jurisdiction  shall  have  enacted,
issued,  promulgated,  enforced or entered any law, rule, regulation,  executive
order,  decree,  injunction or other order  (whether  temporary,  preliminary or
permanent)  which is then in effect and has the effect of prohibiting the Merger
or the transactions contemplated thereby; provided that, in the case of any such
decree,  injunction  or  other  order,  each  of the  parties  shall  have  used
reasonable  best  efforts to prevent the entry of any such  injunction  or other
order and to appeal as promptly as practicable  any decree,  injunction or other
order  that  may be  entered;  and (iv) all  authorizations,  consents,  orders,
declarations or approvals of, or filings with, or terminations or expirations of
waiting periods imposed by, any governmental entity, the failure to obtain which
would have a material  adverse  effect on Dencor  (assuming the Merger had taken
place) shall have been obtained, shall have occurred or shall have been filed.  

     The Merger Agreement also provides that the obligation of PAI to effect the
Merger is subject to the  fulfillment  at or prior to the Effective  Time of the
following additional conditions:  (i) Dencor and PAI shall have performed in all
material  respects each of their  agreements  contained in the Merger  Agreement
required  to be  performed  on or  prior to the  Effective  Time and each of the
representations  and  warranties  of  Dencor  and PAI  contained  in the  Merger
Agreement  shall be true and correct in all  material  respects on and as of the
Effective  Time as if made on and as of such  date;  and (ii)  receipt by PAI of
customary officers' certificates and opinions of counsel to Dencor.             

     The Merger  Agreement  further  provides that the obligations of Dencor and
Sub to effect  the  Merger are  subject  to the  fulfillment  at or prior to the
Effective  Time of the  following  additional  conditions:  (i) PAI  shall  have
performed  in all  material  respects  its  agreements  contained  in the Merger
Agreement required to be performed on or prior to the Effective Time and each of
the  representations  and  warranties of PAI  contained in the Merger  Agreement
shall be true and correct in all  material  respects on and as of the  Effective
Time as if made on and as of such  date;  (ii)  receipt  by Dencor of  customary
officers'  certificates  and opinions of counsel to PAI; (iii) receipt by Dencor
of required third party consents and approvals;  and (iv) PAI shall have entered
into employment agreements with each of Dr. Moe and Mr. Hedman.                 

Termination                                                                     

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     The Merger  Agreement  may be terminated at any time prior to the Effective
Time,  whether before or after any approval by the  stockholders  of PAI: (i) by
mutual  written  consent of Dencor and PAI; (ii) by Dencor if (a) PAI shall have
failed to comply in any material respect with any of its covenants or agreements
contained in the Merger  Agreement  required to be complied with by PAI prior to
the date of such termination,  which failure to comply has not been cured within
five business days following receipt by PAI of notice of such failure to comply,
(b) the  stockholders  of PAI shall  have  failed to  approve  the Merger at PAI
Stockholder  meeting,  or (c) the  stockholders  of Dencor  shall have failed to
approve the Reverse Stock Split and Charter Amendments at the Dencor Stockholder
Meeting;  (iii) by PAI if (a) Dencor or PAI shall  have  failed to comply in any
material respect with any of its covenants or agreements contained in the Merger
Agreement  required  to be  complied  with by Dencor or PAI prior to the date of
such  termination,  which  failure  to comply  has not been  cured  within  five
business days  following  receipt by Dencor of notice of such failure to comply,
(b) the  stockholders  of PAI shall  have  failed to  approve  the Merger at PAI
Stockholder  Meeting,  or (c) the  stockholders  of Dencor  shall have failed to
approve the Reverse Stock Split and Charter Amendments at the Dencor Stockholder
Meeting; (iv) by either Dencor or PAI if (a) the Merger has not been effected on
or prior to the close of business on December 31, 1997; provided,  however, that
the right to terminate the Merger Agreement pursuant to this clause shall not be
available  to any party whose  failure to fulfill any  obligation  of the Merger
Agreement  has been the cause of, or  resulted  in, the failure of the Merger to
have occurred on or prior to the  aforesaid  date, or (b) any court of competent
jurisdiction or any governmental, administrative or regulatory authority, agency
or body shall have issued an order,  decree or ruling or taken any other  action
permanently  enjoining,  restraining or otherwise  prohibiting the  transactions
contemplated  by the Merger  Agreement and such order,  decree,  ruling or other
action shall have become final and nonappealable; (v) by either Dencor or PAI if
there  has been (a) a  material  breach by the  other of any  representation  or
warranty that is not qualified as to materiality or (b) a breach by the other of
any representation or warranty that is qualified as to materiality, in each case
which breach has not been cured within five business days  following  receipt by
the breaching party of notice of the breach; (vi) by Dencor, (a) if the Board of
Directors  of PAI shall not have  recommended,  or shall  have  resolved  not to
recommend,  or shall have modified or withdrawn its recommendation of the Merger
or  declaration  that  the  Merger  is fair  to and  advisable  and in the  best
interests of PAI and its  stockholders,  or shall have resolved to do so, or (b)
if the Board of Directors of PAI shall have recommended,  or shall have resolved
to recommend, to the stockholders of PAI any takeover proposal or offer for PAI;
(vii) by PAI if the Board of Directors of Dencor shall not have recommended,  or
shall have  resolved not to  recommend,  or shall have modified or withdrawn its
recommendation  of the Merger  Agreement,  the  Reverse  Stock Split the Charter
Amendments or declaration  that such  transactions are fair to and advisable and
in the best interest of Dencor and its  stockholders,  or shall have resolved to
do so;  (viii)  by PAI if there is an offer to  acquire  all of the  outstanding
shares  of PAI  Common  Stock  or  substantially  all of the  assets  of PAI for
consideration that provides  stockholders of PAI a value per share of PAI Common
Stock  which,  in the good  faith  judgment  of the Board of  Directors  of PAI,
provides a higher value per share than the  consideration  per share pursuant to
the Merger; or (ix) by Dencor, if a Third Party Acquisition occurs.             

     In the event of  termination  of the Merger  Agreement by either  Dencor or
PAI,  the Merger  Agreement  shall  forthwith  become void and there shall be no
liability  hereunder  on the  part of PAI,  Dencor  or PAI or  their  respective
officers or directors, except as provided in the Merger Agreement.              

Amendment                                                                       

     The Merger Agreement may be amended by the parties thereto,  by or pursuant
to action taken by their respective  Boards of Directors,  at any time before or
after  approval  of the Merger by the  stockholders  of PAI but,  after any such
approval by  stockholders  of PAI, no amendment  will be made which  changes the
Exchange  Ratio or which in any way materially  adversely  affects the rights of
such stockholders, without the further approval of such stockholders.           

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Waiver                                                                          

     The Merger  Agreement  provides  that,  at any time prior to the  Effective
Time, the parties  thereto may (i) extend the time for the performance of any of
the  obligations  or other  acts of the other  parties  thereto,  (ii) waive any
inaccuracies in the  representations  and warranties  contained herein or in any
document  delivered  pursuant thereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived.          

 SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION

     Each of the DGCL and the CBCA provide for  indemnification by a corporation
of costs  incurred by directors,  employees,  and agents in  connection  with an
action,  suit, or proceeding  brought by reason of their position as a director,
employee,  or agent. The person being  indemnified must have acted in good faith
and in a manner  he  reasonably  believed  to be in or not  opposed  to the best
interests of the corporation.                                                   

     The Board of  Directors  of each of Dencor  and PAI are  empowered  to make
other  indemnification as authorized by each corporation's  respective  Charter,
By-laws or corporate  resolution  so long as the  indemnification  is consistent
with the DGCL or CBCA, as applicable.                                           

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Dencor or
PAI pursuant to the foregoing  provisions,  or  otherwise,  the Company has been
advised  that in the opinion of the  Securities  And  Exchange  Commission  such
indemnification  is against public policy as expressed in the Securities Act and
is therefore, unenforceable.                                                    

 EXPERTS

     The financial  statements  of Dencor for the years ended  December 31, 1996
and  1995  have  been  audited  by  Gelfond  Hochstadt  Pangburn  &  Co.  (GHP),
independent  auditors, as set forth in their report thereon included therein and
incorporated  herein by reference.  Such financial  statements are  incorporated
herein by  reference in reliance  upon such report  given upon the  authority of
such firm as experts in accounting and auditing.  GHP's report dated January 24,
1997 contains an  explanatory  paragraph  that states that Dencor has reported a
net loss for the year ended  December 31, 1996 and has a  shareholders'  deficit
and working  capital  deficiency  as of December 31, 1996,  these  factors raise
substantial  doubt about Dencor's  ability to continue as a going  concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of that uncertainty.                                                    

     Representatives  of Gelfond  Hochstadt  Pangburn & Co. are  expected  to be
present at the Dencor Special  Meeting,  where they will have the opportunity to
make a  statement  if they desire to do so and will be  available  to respond to
appropriate questions.                                                          

     The  consolidated  financial  statements of PAI as of December 31, 1995 and
December  31,  1996  have been  audited  by KPMG Peat  Marwick  LLP  independent
auditors,   as  set  forth  in  their  report  thereon  included  therein.  Such
consolidated  financial  statements  are  incorporated  herein by  reference  in
reliance  upon such report  given upon the  authority of such firm as experts in
accounting  and  auditing.  KPMG's  report  dated  June  27,  1997  contains  an
explanatory  paragraph that states that PAI has suffered  recurring  losses from
operations and has a net capital deficiency, which raise substantial doubt about
its  ability  to  continue  as  a  going  concern.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
that uncertainty.                                                               

     Representatives  of KPMG Peat Marwick LLP are expected to be present at the
PAI Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions. 

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LEGAL OPINIONS

     The  legality  of the Dencor  Common  Stock being  offered  hereby is being
passed upon for Dencor by Bearman Talesnick & Clowdus Professional  Corporation,
counsel to Dencor.                                                              

 OTHER INFORMATION AND STOCKHOLDER PROPOSALS

     Dencor  management  and PAI  management  know of no other  matters that may
properly  be, or which are  likely to be,  brought  before  the  Dencor  Special
Meeting or the PAI Special Meeting, respectively.  However, if any other matters
are properly  brought  before such Special  Meetings,  the persons  named in the
enclosed proxy or their substitutes will vote the proxies in accordance with the
recommendations of management.                                                  

     In order to be considered for inclusion in the proxy statement for the next
annual  meeting  of  stockholders  of Dencor to be held on  ______________,  any
stockholder  proposal  intended to be  presented  at the meeting  must have been
received by Dencor on or before _____________.                                  

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INDEPENDENT AUDITORS' REPORT
----------------------------

Board of Directors and Shareholders                                             
Dencor Energy Cost Controls, Inc.                                               
Denver, Colorado                                                                

We have audited the  accompanying  balance sheet of Dencor Energy Cost Controls,
Inc.  (the  Company) as of December  31,  1996,  and the related  statements  of
operations,  shareholders' equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 1996.  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 the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Dencor Energy Cost Controls,
Inc. as of December 31,  1996,  and the results of its  operations  and its cash
flows for each of the years in the two-year  period ended  December 31, 1996, 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 2 to the
financial statements, the Company reported a $74,400 net loss for the year ended
December 31, 1996, and a shareholders'  deficit and a working capital deficiency
of $11,300 and $16,700,  respectively,  as of December 31, 1996.  These  factors
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 2. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.                                    

GELFOND HOCHSTADT PANGBURN & CO.                                                

Denver, Colorado                                                                
January 24, 1997                                                                

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 DENCOR ENERGY COST CONTROLS, INC.

 BALANCE SHEET

 DECEMBER 31, 1996

ASSETS

Current assets:                                                                 
Cash                                                               $     1,600
Accounts receivable, net of allowance                                         
  for doubtful accounts of $8,500 (Note 9)                              58,500
Inventories (Note 4)                                                   143,600
Prepaids and other                                                       8,300
                                                                   -----------
    Total current assets                                               212,000
                                                                   -----------

Furniture and equipment                                                 213,300 
Less accumulated depreciation                                           211,300 
                                                                   -----------
                                                                         2,000
                                                                   -----------
Note receivable, net of allowance                                               
for doubtful receivable of $2,300 (Note 3)                               3,400
                                                                   -----------
                                                                   $   217,400
                                                                   ===========

 LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:                                                            
Notes payable - shareholders (Note 5)                              $    93,400
Accounts payable                                                        33,300
Accrued compensation and benefits                                       30,600
Accrued interest and other - shareholders (Note 5)                      53,600
Deposits                                                                 9,900
Warranty reserve                                                         6,300
Other                                                                    1,600
                                                                   -----------
    Total liabilities (all current)                                    228,700
                                                                   ===========

Commitments (Note 7)                                                            

Shareholders' deficit (Note 8):                                                 
Common stock, no par value; authorized,                                       
5,000,000 shares; issued and outstanding,                                 
  3,671,304 shares                                                   1,147,600
 Accumulated deficit                                                 (1,158,900)
                                                                   -----------
                                                                        (11,300)
                                                                   -----------
                                                                   $   217,400
                                                                   ===========

See notes to financial statements.

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STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995

                                          1996              1995
                                         ------------      -----------

Revenues:                                                                       
Net sales                                   $    388,700      $   567,900   
Interest and other                                 8,300           11,500   
                                         ------------      -----------

                                              397,000          579,400
                                         ------------      -----------

Costs and expenses:                                                             
Cost of products sold                            208,600          306,300   
Selling                                           22,100           19,800   
General and administrative                       146,500          145,400   
Research and development                          69,700           73,900   
Provision for doubtful                                                      
accounts receivable                               5,100            5,000  
Interest, substantially to                                                  
related parties (Note 5)                        19,400           17,700 
                                         ------------      -----------

                                              471,400          568,100
                                         ------------      -----------

Net income (loss)                             $   (74,400)      $    11,300     
                                         ============      ===========

Earnings (loss) per common share              $      (.02)      $         *     
                                         ============      ===========

Weighted average common shares                                                  
outstanding                                     3,671,304        3,671,304    
                                         ============      ===========

* Less than $.01 per share                                                      

See notes to financial statements.

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               DENCOR ENERGY COST CONTROLS, INC.

               STATEMENTS OF SHARHOLDERS' EQUITY (DEFICIT)

              YEARS ENDED DECEMBER 31, 1996 AND 1995

                                                        [Enlarge/Download Table]

                                   Common Stock                                         
                               --------------------                                     
                                                          Accumulated    Shareholders'  
                               Shares        Amount         deficit     equity (deficit)
                               ------        ------         -------     ----------------

                                                                                        
Balances, January, 1, 1995    3,671,304    $1,147,600     $(1,095,800)  $   51,800      

Net income                                                     11,300       11,300      
                              ----------   ----------      ----------   ----------      

Balances, December 31, 1995   3,671,304     1,147,600      (1,084,500)      63,100      

Net loss                                                      (74,400)     (74,400)     
                              ----------   ----------      ----------   ----------      

Balances, December 31, 1996   3,671,304    $1,147,600     $(1,158,900)  $  (11,300)     
                              ==========   ==========     ===========   ==========      

                             See notes to financial statements.                         


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 DENCOR ENERGY COST CONTROLS, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1996 AND 1995

                                                         1996         1995
                                                         --------     --------

Cash flows from operating activities:                                           
Net income (loss)                                        $(74,400)    $ 11,300
                                                         --------     --------
Adjustments to reconcile net income                                           
(loss) to net cash used in                                                
operating activities:                                                     
    Depreciation                                            3,900        5,400
Provision for doubtful accounts                                       
      receivable                                            5,100        5,000
Changes in operating assets and                                           
liabilities:                                                          
       Accounts and other receivables                       16,600      (26,400)
       Inventories                                          30,600      (20,600)
      Prepaids and other                                                   100
       Accounts payable                                    (17,600)        (900)
       Accrued compensation and benefits                     7,900       (2,800)
      Accrued interest and other - shareholders            18,100       16,000
Deposits                                              9,900       
      Warranty reserve                                                     600
      Other liabilities                                    (2,300)       2,600
                                                         --------     --------
 Total adjustments                                          72,200      (21,000)
                                                         --------     --------

Net cash used in                                                                
  operating activities                                      (2,200)      (9,700)
                                                         --------     --------

Cash flows from financing activities:                                           
Proceeds from notes payable - shareholders               $            $    300
                                                         --------     --------

Net cash provided by financing activities                                   300 
                                                         --------     --------

Net decrease in cash                                        (2,200)      (9,400)

Cash, beginning                                              3,800       13,200 
                                                         --------     --------

Cash, ending                                              $  1,600     $  3,800 
                                                         ========     ========

Supplemental disclosure of cash flow information:                               

  Cash paid during the year for interest                 $    200     $  1,700
                                                         ========     ========

See notes to financial statements.

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 DENCOR ENERGY COST CONTROLS, INC.

 NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996 AND 1995

1.  Organization and significant accounting policies:                           

Organization:                                                         

     Dencor Energy Cost Controls,  Inc. (the Company)  manufactures  and markets
     electrical  energy  cost  control  devices  and  equipment  which  are sold
     primarily  to  distributors  and  dealers in the United  States and Canada.
There is only one business segment.                                   

Inventories:                                                          

     Inventories are stated at the lower of cost (first-in,  first-out; FIFO) or
market.                                                               

Furniture, equipment, and depreciation:                               

     Furniture and equipment are stated at cost.  Depreciation is computed using
     the  straight-line  method over the  estimated  useful lives of the related
assets of three to five years.                                        

Research and development:                                             

Research and development costs are charged to operations as incurred. 

Product warranties:                                                   

     Estimated costs related to product  warranties are provided for at the time
of sale.                                                              

Earnings (loss) per share:                                            

     Earnings  (loss)  per common  share is  computed  based  upon the  weighted
average number of common shares outstanding during the period.        

Accounting for income taxes:                                          

     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases.  Deferred tax assets and  liabilities are measured using enacted
     tax rates  expected to apply to taxable  income in the years in which those
     temporary  differences are expected to reverse.  The effect on deferred tax
     assets and liabilities of a change in tax rates is recognized in the state-
ment of operations in the period that includes the enactment date.    

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     DENCOR ENERGY COST CONTROLS, INC.

     NOTES TO FINANCIAL STATEMENTS (CONTINUED)

    YEARS ENDED DECEMBER 31, 1996 AND 1995

1.  Organization and significant accounting policies (continued):               

Use of estimates in the preparation of financial statements:          

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during the  reporting  periods.  Actual  results  could  differ  from those
estimates.                                                            

Recently issued accounting standards:                                 

     Management does not believe that any recently issued  accounting  standards
     will have a material impact on the Company's  financial position or results
of operations.                                                        

2.  Going concern, results of operations, and management's plans:               

     The Company's  financial  statements  for the year ended  December 31, 1996
     have  been  prepared  on a going  concern  basis,  which  contemplates  the
     realization of assets and the settlement of liabilities  and commitments in
     the normal course of business.  For the year ended  December 31, 1996,  the
     Company  reported  a $74,400  net loss and a  shareholders'  deficit  and a
     working  capital  deficiency  of  $11,300  and  $16,700,  respectively,  at
     December  31,  1996.  The  Company  has  also  experienced  difficulty  and
     uncertainty in meeting its liquidity needs. These factors raise substantial
doubt about the Company's ability to continue as a going concern.     

     The Company's 1997 operating plan includes achieving  increased sales goals
     and maintaining  its cost reduction  program,  which  primarily  includes a
     reduction in labor costs.  Management believes that actions presently being
     taken  under its 1997  operating  plan will  enable the  Company to achieve
     profitability  during 1997.  The  financial  statements  do not include any
     adjustments that might be necessary if the Company is unable to continue as
a going concern.                                                      

3.  Note receivable:                                                            

     The note receivable is due on demand from a customer, bears interest at 18%
and is unsecured.                                                     

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     DENCOR ENERGY COST CONTROLS, INC.

     NOTES TO FINANCIAL STATEMENTS (CONTINUED)

      YEARS ENDED DECEMBER 31, 1996 AND 1995

4.    Inventories:                                                              

Inventories at December 31, 1996 consist of:                        

  Finished products                                          $   7,400
  Sub-assemblies and work-in-process                            38,900
  Component parts                                               97,300
                                                             ---------
                                                             $ 143,600
                                                             =========

    The elements of cost in inventories include materials, labor and overhead.

5.  Notes payable - shareholders:                                               

     The notes payable to shareholders  are unsecured,  due on demand,  and bear
     interest at 12% to 18.25% per year.  The weighted  average  interest  rates
     during the years ended December 31, 1996 and 1995 were approximately  18.4%
     and 17.3%,  respectively.  Interest  expense of  approximately  $18,400 and
     $17,100  associated  with these notes payable was charged to operations for
the years ended December 31, 1996, and 1995, respectively.            

6.  Income taxes:                                                               

    The  components of the deferred tax assets as of December 31, 1996,  were as
follows:                                                                

Current deferred tax assets:                                      
Receivables, due to                                           
     allowance for doubtful accounts                          $  2,200
Inventories, due to obsolescence reserve                      
     and additional costs inventoried for tax purposes          17,300
    Compensated absences                                         4,100
    Warranty reserve                                             1,300
                                                              --------
  Total current gross deferred tax assets                       24,900
   Less valuation allowance                                     (24,900)
Net current deferred tax assets                             $    -
                                                              ========

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 DENCOR ENERGY COST CONTROLS, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996 AND 1995

6.     Income taxes (continued):                                                

Noncurrent deferred tax assets:                                   
   Net operating loss carryforwards                      $     170,400
   Other tax credits carryforwards                              21,800
                                                         -------------

  Total noncurrent gross deferred tax assets                   192,200
   Less valuation allowance                                    (192,200)
                                                         -------------
Net noncurrent deferred tax assets                     $        - 
                                                         =============

     The net  decrease  during  the year in the total  valuation  allowance  was
$4,300.                                                               

     The difference between taxes computed at the statutory federal tax rate and
the effective tax rate is reconciled below:                           

                                                    Years ended   December 31,
                                                   1996           1995
                                                    -----------   ------------

Income tax (expense) benefit computed at                        
          statutory federal tax rate                 $   13,600    $     (1,700)
Deferred tax benefit recognized                                 
         (not recognized)                              (13,600)          1,700
                                                    -----------    -----------
Income tax (expense) benefit computed at                        
     the effective tax rate                     $      -      $      -
                                                    ===========    ===========

     At  December  31,  1996,  the Company  had net  operating  loss and general
     business  credit  carryforwards  which may be used to reduce future taxable
     income and taxes  payable,  respectively,  and which expire through 2011 as
follows:                                                              

                                              Net          General
                                            operating       business
                                             loss           credit
                                             carryforwards   carryforwards
                                             -------------   -------------

          1997                             $   53,500       $    300
          1998                                192,500            300
1999                                 91,200     
2000                                            
2001                                            
           Thereafter                          514,800          21,200
                                            ----------       ---------
                                            $  852,000       $  21,800
                                            ==========       =========
7.   Commitments:                                                               

     The Company leases its facility and certain equipment under  non-cancelable
     operating  leases  that  expire  through  1999.  Future  rentals  on  these
     non-cancelable  operating  leases  are  approximately  $12,700,  $2,300 and
     $1,600 for the years ended December 31, 1997, 1998 and 1999,  respectively.
     Lease rental  expense of  approximately  $39,300 and $39,500 was charged to
  operations for the years ended December 31, 1996 and 1995, respectively.

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 DENCOR ENERGY COST CONTROLS, INC.

 NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996 AND 1995

8.   Common stock:                                                              

     At December 31, 1996,  the Company has  reserved  196,000  shares of common
     stock for issuance  under a restricted  stock bonus plan. All employees and
     directors of the Company, with the exception of the President, are eligible
     to receive stock bonuses under this plan.  There have been no shares issued
under this plan.                                                      

9.   Concentration of credit risk:                                              

     The  Company  extends  credit  based  on an  evaluation  of the  customer's
     financial condition,  generally without requiring  collateral.  Exposure to
     losses on receivables is principally dependent on each customer's financial
     condition.  The  Company  monitors  its  exposure  for  credit  losses  and
maintains allowances for anticipated losses.                          

     During 1996, two customers  accounted for approximately 23%, and 21% of net
     sales.  During 1995, four customers  accounted for approximately  12%, 13%,
     14% and 22% of net sales.  As of December  31, 1996,  60% of the  Company's
accounts receivable were due from three customers.                    

The Company's export and domestic sales consist of the following:     

                                Years ended December 31,
                               1996               1995
                               ---------         ---------

Net sales, Canada                 $     500         $  88,000   
Net sales, United States            388,200           479,900   
Total net sales                   $ 388,700         $ 567,900   

10.    Fair value of financial instruments:                                     

       The carrying  values of the Company's  financial  instruments,  including
        cash, receivables, accounts payable and accrued liabilities, approximate
        fair  values  primarily   because  of  the  short  maturities  of  these
        instruments.  The fair  values  of  notes  due to  shareholders  are not
        practicable  to estimate,  due to the  indefinite  payment  terms of the
        amounts,  and  due  to  the  related  party  nature  of  the  underlying
transactions.                                                   

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 DENCOR ENERGY COST CONTROLS, INC.
 CONDENSED BALANCE SHEET

                                                    March 31       Dec. 31
         Assets                                    1997           1996
           -------                                -----------    -----------
                                   (unaudited)
CURRENT ASSETS:                                                                 
Cash                                                $     7,500    $     1,600  
Accounts Receivable, net of allowance                                           
for doubtful accounts of $8,500                         55,400         58,500 
Inventories                                             132,200        143,600  
Prepaids and Other                                       17,300          8,300  
                                                  -----------    -----------

 TOTAL CURRENT ASSETS                                 212,400        212,000
                                                  -----------    -----------

Furniture & Equipment                                   213,300        213,300  
Less Accumulated Depreciation                          (212,300)      (211,300) 
                                                  -----------    -----------
                                                        1,000          2,000
                                                  -----------    -----------

Other Receivables, net of allowance                                             
for doubtful receivables of $2,300                       3,300          3,400 
                                                  -----------    -----------

                                                  $   216,700    $   217,400
                                                  ===========    ===========

LIABILITIES & SHAREHOLDERS' EQUITY                                              
----------------------------------                                              

CURRENT LIABILITIES:                                                            
Notes Payable - Shareholders                       $    93,400    $    93,400 
Accounts Payable                                        42,400         33,300 
Accrued Compensation and Benefits                       25,300         30,600 
Accrued Interest - Shareholders                         56,500         53,600 
Deposits                                                 4,200          9,900 
Warranty Reserve                                         6,300          6,300 
Other                                                    1,400          1,600 
                                                  -----------    -----------

 TOTAL CURRENT LIABILITIES                            229,500        228,700
                                                  -----------    -----------

STOCKHOLDERS' EQUITY                                                            
Common Stock, no par value,                                                   
authorized 5,000,000                                                        
shares; issued & outstanding,                                               
3,671,304 shares                                    1,147,600      1,147,600
Deficit                                             (1,160,400)    (1,158,900)
                                                  -----------    -----------
 Stockholders' Equity                                  (12,800)       (11,300)
                                                  -----------    -----------
                                                  $   216,700    $   217,400
                                                  ===========    ===========

 See notes to condensed financial statements

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 DENCOR ENERGY COST CONTROLS, INC.
UNAUDITED STATEMENTS OF OPERATIONS

                                              Three Months
                                              Ended March 31
                                               1997             1996
                                                ------------------------------

REVENUES:                                                                       
Net Sales                                       $   113,100        $   103,700
Interest and Other                                    1,800              1,900
                                                -----------        -----------
    TOTAL REVENUES                                  114,900            105,600
                                                -----------        -----------

COSTS AND EXPENSES;                                                             
Cost of Products Sold                                54,600             58,800
Selling                                               6,100              4,400
General and Administrative                           33,100             30,800
Research and Development                             17,900             18,900
Interest                                              4,700              4,400
                                                -----------        -----------
                                                    116,400            117,300
                                                -----------        -----------

NET (LOSS)                                       $    (1,500)       $   (11,700)
                                                ===========        ===========

NET (LOSS) PER                                                                  
COMMON SHARE:                                   $         *        $         *
                                                ===========        ===========

WEIGHTED AVERAGE COMMON                                                         
SHARES OUTSTANDING                                 3,671,304          3,671,304 
                                                ===========        ===========

*Less than ($.01) per share.                                                    

 See notes to condensed financial statements

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           DENCOR ENERGY COST CONTROLS, INC.
           STATEMENT OF CASH FLOWS

                                                                [Download Table]


                                                   Three Months Ended March 31
                                                   ---------------------------
                                                     1997              1996   
                                                   --------          -------- 

                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:                                         
  Net loss                                         $ (1,500)         $(11,700)
                                                   --------          -------- 
  Adjustments to reconcile net loss                                           
   to net cash provided by                                                    
   operating activities:                                                      
    Depreciation                                      1,000             1,000 
   Changes in operating assets and liabilities:                               
    Accounts and other receivables                    3,200            14,900 
    Inventories                                      11,400             2,600 
    Other assets                                     (9,000)           (6,200)
    Accounts payable                                  9,100               600 
    Accrued compensation and benefits                (5,300)           (5,000)
    Accrued interest - shareholders                   2,900             4,400 
    Deposits                                         (5,700)                  
    Other liabilities                                  (200)             (300)
                                                   --------          -------- 
      Total adjustments                               7,400            12,000 
                                                   --------          -------- 

     Net cash provided by (used in) operating                                 
      activities                                      5,900               300 
                                                   --------          -------- 

CASH, beginning of year                               1,600             3,800 
                                                   --------          -------- 

CASH, end of quarter                               $  7,500          $  4,100 
                                                   ========          ======== 

                                             F-13                             


                     See notes to condensed financial statements

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 DENCOR ENERGY COST CONTROLS, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS

A. The condensed Financial  Statements included herein have been prepared by the
Company,  without audit, pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain information and footnote disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company believes that the disclosures are adequate to
make the information presented not misleading.                                  

     In the  opinion  of  the  Company,  all  accompanying  unaudited  condensed
Financial  Statements  contain all adjustments,  which consist only of recurring
adjustments,  necessary to present fairly the financial position as of March 31,
1997,  and the results of  operations  and cash flows for the three months ended
March 31, 1997 and 1996.                                                        

     The results of operations for the three-month  periods ended March 31, 1997
and 1996, are not  necessarily  indicative of the results to be expected for the
full year. It is suggested that these Condensed Financial  Statements be read in
conjunction with the Financial  Statements and the notes therein included in the
Company's latest annual report on Form 10-KSB.                                  

B. Long-Term Debt:                                                              

  As of the end of First Quarter, 1997, the Company had no long-term debt.

C. Common Stock:                                                                

During the First Quarter, 1997, the Company sold no restricted stock. 

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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

 Consolidated Financial Statements

December 31, 1996 and 1995

 (With Independent Auditors' Report Thereon)

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Independent Auditors' Report

The Board of Directors and Shareholders                                         
Proven Alternatives, Inc.:                                                      

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Proven
Alternatives,  Inc. and  subsidiaries  as of December 31, 1996 and 1995, and the
related consolidated  statements of operations,  shareholders'  deficit and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.         

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Proven Alternatives,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.                                       

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations  and has current  liabilities in excess of current assets and a
shareholders'  deficit at December  31,  1996 and 1995 that  raises  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also described in note 1. The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.                                                               

June 27, 1997                                                                   

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                          PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                          Years ended December 31, 1996 and 1995

                                                        [Enlarge/Download Table]


                        Assets                                                  1996            1995     
                        ------                                                  ----            ----     
Current assets:                                                                                          
                                                                                                         
     Cash (note 9)                                                       $       616,876         612,170 
     Project and other receivables, net of allowance for doubtful                                        
        accounts of $6,895 and $25,481 as of December 31, 1996 and                                       
        1995, respectively                                                     2,423,981       1,937,518 
     Current portion of energy savings and finance receivables (notes 4,                                 
        8 and 9)                                                               3,896,018       3,482,984 
     Work in progress (notes 5 and 9)                                          1,591,051         776,067 
     Pre-contract costs, net (note 5)                                            340,851         195,136 
     Other current assets                                                         71,756         147,001 
                                                                           -------------   ------------- 

                    Total current assets                                       8,940,533       7,150,876 
                                                                           -------------   ------------- 
Non current assets:                                                                                      
     Long-term portion of energy savings and finance receivables                                         
       (notes 4,8 and 9)                                                      19,159,387      22,186,487 
     Debt service reserve                                                             --         599,787 
     Property and equipment, net (note 6)                                        127,280         200,996 
     Deferred financing costs, net (note 7)                                       47,372         811,645 
     Intangible assets, net                                                      167,629         469,911 
     Other assets                                                                 27,527          27,527 
                                                                           -------------   ------------- 
                    Total assets                                         $    28,469,728      31,447,229 
                                                                           =============   ============= 
         Liabilities and Shareholders' Deficit                                                           
         -------------------------------------                                                           
 Current liabilities:                                                                                    
     Accounts payable and accrued liabilities                                  5,865,049       7,042,265 
     Current portion of long-term debt (note 8)                                  493,244         481,861 
     Current portion of non recourse debt (note 9)                             3,041,493       4,182,385 
     Reserve for monitoring and maintenance                                      238,423         226,741 
     Deferred taxes (note 10)                                                         --              -- 
                                                                           -------------   ------------- 
                    Total current liabilities                                  9,638,209      11,933,252 
                                                                           -------------   ------------- 
Non current liabilities:                                                                                 
     Long-term debt (note 8)                                                   4,351,264       5,064,457 
     Long-term portion of non recourse debt (note 9)                          22,532,632      17,784,823 
     Reserve for monitoring and maintenance                                    1,229,185       1,422,027 
     Deferred taxes (note 10)                                                         --              -- 
                                                                           -------------   ------------- 
                    Total liabilities                                         37,751,290      36,204,559 
                                                                           -------------   ------------- 
Shareholders' deficit (note 13):                                                                         
     Preferred stock, 15,000,000 shares authorized, 0 issued and outstanding          --              -- 
     Common stock,  60,000,000  shares  authorized,  28,084,848  and                                     
        26,977,316 issued and outstanding at December 31, 1996                                           
        and 1995, respectively, $.01 par value                                   280,848         269,773 
     Note receivable for common stock                                            (22,297)         (4,986)
     Additional paid-in capital                                               14,809,165      14,777,367 
     Stock option equity (note 13)                                             1,158,109       1,158,109 
     Accumulated deficit                                                     (25,507,387)    (20,957,593)
                                                                           -------------   ------------- 

                    Total shareholders' deficit (note 1)                      (9,281,562)     (4,757,330)
                                                                           -------------   ------------- 
Commitments and contingencies (notes 11, 14, and 15)                                                     

                    Total liabilities and shareholders' deficit          $    28,469,728      31,447,229 
                                                                           =============   ============= 

See accompanying notes to consolidated financial statements.                    

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                          PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

                           Consolidated Statements of Operations

                          Years ended December 31, 1996 and 1995

                                                        [Enlarge/Download Table]


                                                                  1996            1995     
                                                                  ----            ----     
Revenues:                                                                                  
                                                                                           
     Project sales                                         $     3,886,213      17,740,061 
     Energy savings and finance revenues                         5,448,510       3,160,616 
     Professional service fees                                     428,555         496,742 
                                                             -------------   ------------- 

                                                                 9,763,278      21,397,419 

Cost of sales                                                    3,658,981      17,176,685 
                                                             -------------   ------------- 

                    Gross profit                                 6,104,297       4,220,734 
                                                             -------------   ------------- 

Operating expenses:                                                                        
     Selling, general and administrative                         5,624,998       5,534,096 
     Long-term debt interest expense                               526,722         669,955 
     Non recourse debt interest expense                          3,314,516       1,598,527 
     Deferred financing costs amortization                         166,653         152,735 
     Depreciation and amortization                                 410,490         440,607 
                                                             -------------   ------------- 

                                                                10,043,379       8,395,920 
                                                             -------------   ------------- 

                    Loss from operations                        (3,939,082)     (4,175,186)

Other income                                                        34,891          57,785 
                                                             -------------   ------------- 

                    Loss before income taxes and                                           
                       extraordinary item                       (3,904,191)     (4,117,401)

Income tax expense (note 10)                                        10,983          10,204 
                                                             -------------   ------------- 

                    Loss before extraordinary item              (3,915,174)     (4,127,605)
                                                             -------------   ------------- 

Extraordinary item - extinguishment of debt (note 7)               634,620              -- 
                                                             -------------   ------------- 

                    Net loss                               $    (4,549,794)     (4,127,605)
                                                           ===============   ============= 

See accompanying notes to consolidated financial statements.                               

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                                            PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES                                         

                                         Consolidated Statements of Shareholders' Deficit                                      

                                             Years ended December 31, 1996 and 1995                                            

                                                           Note                                                                
                                                        receivable      Additional       Stock                        Total    
                                           Common       for common       paid-in         option     Accumulated   shareholders'
                                            stock          stock         capital         equity       deficit        deficit   
                                            -----          -----         -------         ------     -----------   ------------ 

                                                                                                                               
Balances at December 31, 1994            $   269,923        (21,250)    14,789,967      1,158,109  (16,829,988)     (633,239)  

Adjustment to common stock issued                                                                                              
    for note receivable                         (150)        12,750        (12,600)          --           --            -      
Principal payments on note                                                                                                     
    receivable                                  --            3,514           --             --           --           3,514   

Net loss                                        --             --             --             --     (4,127,605)   (4,127,605)  
                                         -----------    -----------    -----------    -----------  -----------   -----------   

Balances at December 31, 1995                269,773         (4,986)    14,777,367      1,158,109  (20,957,593)   (4,757,330)  

Common stock issued for notes                                                                                                  
    receivable and services                   11,075        (20,000)        31,798           --           --          22,873   

Principal payments on notes                                                                                                    
    receivable                                  --            2,689           --             --           --           2,689   

Net loss                                        --             --             --             --     (4,549,794)   (4,549,794)  
                                         -----------    -----------    -----------    -----------  -----------   -----------   

Balances at December 31, 1996            $   280,848        (22,297)    14,809,165      1,158,109  (25,507,387)   (9,281,562)  
                                         ===========    ===========    ===========    ===========  ===========   ===========   

See accompanying notes to consolidated financial statements.                                                                   


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                                PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES                                    

                                   Consolidated Statements of Cash Flows                                      

                                  Years ended December 31, 1996 and 1995                                      

                                                                                      1996            1995    
                                                                                  ------------     ---------- 
Cash flows from operating activities:                                                                         
                                                                                                              
     Loss from operations before extraordinary item                               $ (3,915,174)    (4,127,605)
     Adjustments to reconcile loss from continuing operations to net cash                                     
        used in operating activities:                                                                         
           Deferred financing cost amortization                                        166,653        152,735 
           Depreciation and amortization                                               410,490        440,607 
           Loss on disposal of prepaid financing fees                                   83,333           --   
           Loss on receivable exchanged for debt forgiveness                              --           63,484 
           Increase in reserve for estimated costs of unapproved contracts             100,492        305,442 
           Issuance of stock for services (note 13)                                     22,873           --   
           Increase or decrease in cash attributable to changes in assets and                                 
               liabilities:                                                                                   
                  Increase in project sales receivables                               (486,463)      (246,481)
                  Acquisitions of energy savings and finance contracts                    --      (13,607,062)
                  Amortization of energy savings and finance contracts               2,614,066      1,297,761 
                  Decrease (increase) in work in progress and pre-contract costs    (1,061,191)       651,147 
                  Decrease (increase) in other assets                                   (8,088)       (24,452)
                  Increase (decrease) in accounts payable and accrued                                         
                    liabilities                                                     (1,108,283)     1,662,486 
                  Increase (decrease) in reserve for monitoring and                                           
                    maintenance                                                       (181,160)       689,153 
                  Decrease in reserve for loss on disposal of discontinued                                    
                     operations                                                        (68,933)       (55,067)
                                                                                  ------------   ------------ 
                    Net cash used in operating activities                           (3,431,385)   (12,797,852)
                                                                                  ------------   ------------ 
Cash flows from investing activities:                                                                         
     Purchases of property and equipment                                               (34,492)       (52,278)
                                                                                  ------------   ------------ 
                    Net cash used in investing activities                              (34,492)       (52,278)
                                                                                  ------------   ------------ 
Cash flows from financing activities:                                                                         
     Proceeds from long-term debt                                                      276,243      1,470,383 
     Proceeds from non recourse debt                                                12,500,159     14,205,136 
     Repayments of long-term debt                                                     (978,053)      (412,975)
     Repayments of non recourse debt                                                (8,893,242)    (2,521,986)
     Recovery (payment) of debt service reserve                                        599,787       (344,465)
     Deferred financing costs                                                          (37,000)        27,847 
     Payments received on note receivable for common stock                               2,689          3,514 
                                                                                  ------------   ------------ 
                    Net cash provided by financing activities                        3,470,583     12,427,454 
                                                                                  ------------   ------------ 
Increase (decrease) in cash                                                              4,706       (422,676)
Cash, beginning of period                                                              612,170      1,034,846 
                                                                                  ------------   ------------ 
Cash, end of period                                                               $    616,876        612,170 
                                                                                  ============   ============ 

Supplemental disclosure of cash flow information:                                                             
     Income taxes paid                                                            $      8,731          5,234 
                                                                                  ============   ============ 
     Interest paid                                                                $  4,004,255      1,588,214 
                                                                                  ============   ============ 

During  1995,  the  Company  disposed of two  account  receivables  with a total                              
carrying value of approximately $372,000 to the Company's creditor in return for                              
forgiveness of approximately $309,000 in related debt.                                                        

See accompanying notes to consolidated financial statements.                                                  

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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 1996 and 1995

(1) Business                                                                    

     Proven  Alternatives,  Inc. (the Company) was  incorporated in April,  1991
     under the laws of the state of California.  It was reincorporated under the
     laws of the  state  of  Delaware  in  November,  1991.  The  Company  is an
     integrated  energy  management  firm whose  goal is to  enhance  customers'
     shareholder  values through  long-term service  relationships.  It provides
     process  knowledge,  energy  management  capabilities,   energy  efficiency
     technologies,  and capital capabilities to solve business problems relating
     to energy usage and industrial  process  improvement.  The Company provides
     its  services in six service  areas:  total  energy  management,  strategic
     consulting, program management,  merchant banking capital services (through
     its  subsidiary,   Proven  Alternatives  Capital  Corp.  ("PACC")),  energy
     procurement,  and energy  information  services.  Typically,  services  are
     provided  by the  Company as a  long-term  partner  with the  customer on a
     performance  basis. The Company's  services include the  identification  of
     underperforming corporate assets, the recommendation for and application of
     processes,  equipment,  and techniques to improve the  performance of these
     assets and financing of these projects. The Company markets its services to
     companies  which could benefit  significantly  from  improvements in energy
     procurement  and use and to those whose  operations  are  energy-intensive.
     These clients are located in the United States with plans to expand abroad.

     In 1996,  management  decided to reengineer the marketing  direction of the
     Company  toward  large  programs and energy  management  rather than single
     projects.  Management  recognized that this  reengineering  would adversely
     affect results in the near-term, and believes the shift in marketing of the
     Company's  programs  and  processes  is now leading to the  development  of
     long-term strategic  relationships that are taking shape in 1997. While the
     fundamental  services and technologies offered by the Company have remained
     largely the same,  the emphasis on programs (as compared to sales of single
     projects),  on production  enhancements in the industrial  sector,  and the
     integration  of services into customer  solutions is now seen by management
as the most effective manner to develop the Company's core business.  

     As shown in the accompanying consolidated financial statements, the Company
     has incurred losses and negative cash flows from operations at December 31,
     1996.  The Company's  future  success and economic  viability will directly
     relate to achieving profitable  operations,  managing tight liquidity,  and
continuing to develop capital resources.                              

     The Company  anticipates meeting liquidity needs through growth in business
     and  non-recourse  financing  of  long-term  receivables  and  infusion  of
     additional  equity.  Based  on  methods  described  in Note  4,  management
     estimates the present value of the Company's long-term  receivables exceeds
     book  value  by  approximately  $6.9  million  as  of  December  31,  1996.
     Additionally,  the  Company  expects  to raise  capital  through  a private
     offering of preferred stock to be completed in the latter part of 1997. The
     Company has executed a Letter of Intent and is  finalizing  an agreement to
     complete a reverse merger with Dencor Energy Cost Controls,  Inc., a public
     company based in Denver. The shareholders of Proven  Alternatives will hold
     a substantial majority of the merged public company,  which will be renamed
     Proven Alternatives, Inc. Management anticipates completing the transaction
in the latter half of 1997.                                           

                                                                     (Continued)
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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2) Summary of Significant Accounting Policies                                  

(a) Principles of Consolidation                                       

     The  consolidated  financial  statements  include  the  accounts  of Proven
     Alternatives,  Inc. and its wholly  owned  subsidiaries.  All  intercompany
account balances, transactions and profits have been eliminated.      

(b) Reclassifications and Accounting Corrections                      

     Certain  reclassifications have been made to the 1995 amounts to conform to
the 1996 presentation.                                                

     Accumulated  deficit as of December  31, 1994 has been  restated to reflect
revisions of tax accruals.                                            

(c) Management Estimates                                              

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements,  and the  reported  amounts of revenue and  expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
estimates.                                                            

(d) Impairment                                                        

     If the Company  concludes  that the recovery of the  carrying  amount of an
     asset is  permanently  impaired,  it reduces  such  carrying  amount to the
estimated fair value of the asset.                                    

     As energy savings contracts  representing  individual  customers are pooled
     under a common  utility  program,  impairment of energy savings and finance
receivables is assessed on a program by program basis.                

(e) Revenue and Cost Recognition                                      

     The Company  earns  revenue  from  various  services.  These can be broadly
described as follows:                                                 

(i) Project Sales                                           

               Project  sales  represent  revenues  generated  from sales  under
               contracts to design,  supply and install process  improvement and
               energy  efficiency  projects.  Revenues  and  cost of  sales  are
               recognized  using the completed  contract  method.  A contract is
               accepted  as  completed  once  process,  energy,  and  collateral
               savings  have  been  measured,   verified  and  accepted  by  the
customer.                                         

               When project sales are financed,  the Company records the project
               sale and a  corresponding  energy savings and finance  receivable
               equal to the implicit or contractual  sales price of the project.
     The related project costs are charged to cost of sales.

                                                                     (Continued)
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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(ii) Energy Savings and Finance Revenues                    

               Payments  under  energy  savings  agreements  are based on actual
               energy  savings and are  structured to recover the energy savings
               and finance  receivable,  provide for monitoring and  maintenance
               costs and generate an equity return to the Company on the portion
               of the purchase  price not  financed by  non-recourse  debt.  The
               implicit  cost of capital  rate for the financed  transaction  is
               used  to  record   recovery   of  energy   savings   and  finance
               receivables.  Payments  received in excess of amounts  applied to
               the  recovery  of energy  savings  and  finance  receivables  are
           reflected as energy savings and finance revenues as received.

(iii) Professional Service Fees                             

               Professional   service   fees  earned   represent   payments  for
               consulting,  management, and design services. Fees are recognized
as the services are performed.                    

(iv) Monitoring and Maintenance                             

               As part of certain energy service  contracts,  the Company agrees
               to  monitor  and  maintain  the  equipment  for a period of time,
               usually  the  contract  term.  An  estimate  for  monitoring  and
               maintenance  cost  recovery  and profit  thereon is  included  in
               determining  project  pricing.  A portion  of the  project  sales
               revenue is deferred upon  recognition  of the sale to provide for
               monitoring  and  maintenance   obligations.   The  allowance  for
               monitoring and maintenance is established based on an estimate of
               actual  costs  to be  incurred  together  with  a  normal  profit
               thereon. The allowance is amortized to income over the respective
               terms  of  the  individual   contracts.   Actual  monitoring  and
maintenance costs are expensed as incurred.       

(v) Cost of Sales                                           

          Cost of sales includes all direct materials and labor costs related to
          contract  performance plus an allocation of indirect overhead costs in
          the project. The indirect overhead costs are allocated based on direct
          labor.  Costs incurred  during the performance of the contract and any
          amounts  billed or received are offset against each other and reported
          as  deferred  items  in the  balance  sheet  until  completion  of the
          contract. A provision for estimated losses on uncompleted contracts is
          made in the  period in which such  losses  become  determinable.  Upon
          completion of a contract, the deferred billings and costs are recorded
as revenues and cost of sales, respectively.                

(f) Property and Equipment                                            

          Property and equipment are carried at cost, or in the case of business
          combinations  accounted  for under the purchase  method,  at estimated
          fair market values. Depreciation is provided for over the useful lives
          (three to seven years) of the related  assets using the  straight-line
          method.  The cost of maintenance  and repairs is charged to expense as
   incurred; significant renewals and betterments are capitalized.

                                                                     (Continued)
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Notes to Consolidated Financial Statements

(g) Intangible Assets                                                 

          Intangible  assets  include  goodwill,  covenants  not to compete  and
          organizational  costs.  Goodwill  represents the cost in excess of the
          fair value of the net assets acquired in business  combinations and is
          amortized on a straight-line basis over seven to ten years.  Covenants
          not to compete are  recorded at cost and  amortized  over the lives of
          the agreements using the straight-line  method.  Organizational  costs
          represent costs incurred  relating to the establishment of the Company
     and are amortized over five years using the straight-line method.

          Amortization  expense of the intangible assets,  including a writedown
          of  $129,016   associated   with  the   acquisition   of  one  of  the
          subsidiaries,  amounted to $302,282  and  $325,637 for the years ended
December 31, 1996 and 1995, respectively.                   

(h) Income Taxes                                                      

          Income taxes are  computed  under  Statement  of Financial  Accounting
          Standards  (SFAS) 109.  Under the asset and  liability  method of SFAS
          109,   deferred  income  taxes  are  recognized  for  the  future  tax
          consequences   attributable  to  differences   between  the  financial
          statement  carrying  amounts of existing  assets and  liabilities  and
          their  respective tax bases.  Deferred tax assets and  liabilities are
          measured  using enacted tax rates  expected to apply to taxable income
          in the years in which those  temporary  differences are expected to be
          recovered or settled.  Under SFAS 109, the effect on deferred taxes of
          a change in tax rates is  recognized  in  income  in the  period  that
          includes the enactment  date.  The provision for income taxes includes
          deferred taxes which result from  temporary  differences in accounting
          for financial  statement and tax purposes using the liability  method,
          and from  differences  between  the fair value of assets  acquired  in
         business combinations accounted for as purchases and their tax bases.

          Deferred  tax  assets  are   recognized   for   deductible   temporary
          differences  and operating  loss and tax credit  carryforwards,  after
          which a valuation allowance is established to reduce that deferred tax
          asset if it is "more  likely than not" that the  related tax  benefits
will not be realized.                                       

          Management has evaluated the deferred tax asset  recognized under SFAS
          109 and has  established a valuation  allowance for the portion of the
          deferred  tax  asset  that does not meet the  "more  likely  than not"
          recognition  criteria,  since all deductible temporary differences may
          not be offset  against  taxable  temporary  differences  and  expected
          future  taxable  income.  Accordingly,  management  has  established a
          valuation  allowance of $5,983,566  and  $4,278,905 as of December 31,
          1996 and 1995 to reduce the  deferred  tax asset to the amount that is
more likely than not to be realized.                        

                                                                     (Continued)
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Notes to Consolidated Financial Statements

(i) Concentration of Credit Risk                                      

          The Company has entered into certain long-term  performance  contracts
          with  various  utilities  located  in the  eastern  United  States and
          California.  Under these long-term performance contracts,  the Company
          delivers  energy  savings for which the utilities are required to pay,
          on a  kilowatt  saved  basis.  Each of the  utilities  have met  their
          obligations to the Company under these long-term performance contracts
          to date.  Management  does not currently  foresee any of the utilities
          being unable to meet their future obligations.  Under these contracts,
          if the total actual  energy  savings are less than a minimum  delivery
          level established within the contract,  the Company may be required to
          compensate  the  utility  for the short  fall.  At current  production
levels management does not foresee any such obligations.    

          Financial   instruments  which  potentially  subject  the  Company  to
          concentrations  of  credit  risk  consist  principally  of the  energy
          savings and finance  receivables.  During 1996 and 1995, the Company's
          finance  receivables were  concentrated in the pulp and paper industry
          located  on the east  coast of the  United  States.  The  Company  had
          approximately  $15,200,000  and  $17,100,000  of  energy  savings  and
          finance  receivables  from pulp and paper customers and  approximately
          $18,067,000  and  $15,300,000  of  associated  non  recourse  debt  at
          December 31, 1996 and 1995,  respectively.  In addition,  one customer
          accounted  for  approximately   $12,600,000  and  $14,261,000  of  the
          Company's energy savings and finance  receivables at December 31, 1996
          and 1995,  respectively.  The  Company  performs  ongoing  credit  and
business evaluations of its customers.                      

(3) Certain Subsidiaries                                                        

Proven Alternatives Capital Corporation                     

          Proven  Alternatives  Capital Corporation (PACC) was incorporated as a
          wholly  owned  subsidiary  of the  Company.  PACC was  organized  as a
          merchant  banking  operation  to obtain  financing  for the  Company's
          energy savings programs, and to develop investment vehicles for and to
      provide related services to sophisticated institutional investors.

Luminae Souter Lighting Design                              

          Luminae,   Inc.,   d.b.a.   Luminae  Souter  Lighting  Design,   is  a
          wholly-owned  subsidiary of the Company  specializing in architectural
          lighting. Luminae's staff includes lighting engineers,  architects and
          interior  designers whose work includes a wide range of project types,
          including  industrial  facilities,   hotels,   resorts,   restaurants,
          airports,  sports arenas,  offices,  research facilities,  schools and
others.                                                     

(4) Energy Savings and Finance Receivables                                      

          Energy savings and finance  receivables  consist of amounts receivable
          pursuant to long-term energy savings  contracts.  Customer and utility
          payments  are  based on a  percentage  of the  actual  energy  savings
achieved.                                                   

                                                                     (Continued)
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Notes to Consolidated Financial Statements

          Cash  receipts  from  energy  savings  and  finance   receivables  are
          exceeding  original  projections  for  certain  projects.   Management
          estimates the present value of these  receivables to be  approximately
          $29.9  million as of December  31, 1996,  which  exceeds book value of
          these  receivables  by  approximately  $6.9 million.  This estimate is
          based on  average  billings  in 1996,  assumes  that  such  levels  of
          performance  will be sustained for the remaining  term of the project,
and uses a 16% discount factor.                             

          Customer  payments  are  based  on  a  percentage  of  energy  savings
          realized.  Anticipated principal payments for the years ended December
31 are as follows:                                          

        1997                                 $     3,896,018
        1998                                       3,187,909
        1999                                       3,334,218
        2000                                       3,852,264
        2001                                       4,166,889
        Thereafter                                 4,618,107
                                               -------------
                                                  23,055,405
    Less current portion                           3,896,018
                                               -------------
    Non current portion                      $    19,159,387
                                               =============

          The Company  has pledged  energy  savings and finance  receivables  as
collateral to secure non recourse debt.                     

(5) Work in Progress and Pre-contract Cost                                      

          Work in  progress  includes  direct  labor and  materials  related  to
          projects,  plus  an  allocation  of  indirect  overhead  costs.  These
indirect overhead costs are allocated based on direct labor.

          Costs associated with proposal  preparation,  net of a reserve for the
          estimated   costs  of   non-recoverable   costs,   are   reflected  in
          pre-contract costs. This reserve is based on the Company's  historical
          percentage of pre-contract activity resulting in successful contracts.
    Pre-contract costs consisted of the following as of December 31:

                                             1996             1995
                                             ----             ----
          Pre-contract costs               $   1,099,962         853,754
Reserve for estimated                               
            non-recoverable costs              (759,111)         (658,618)
                                            -----------      -----------

          Pre-contract costs, net          $     340,851         195,136
                                            ===========      ===========

                                                                     (Continued)
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Notes to Consolidated Financial Statements

(6) Property and Equipment                                                      

Property and equipment consisted of the following as of December 31:  

                                                  1996            1995
                                                  ----            ----
        Office equipment and machines            $   471,903         455,413
        Vehicles                                      32,407          32,407
        Furniture and fixtures                       244,933         226,933
                                                  ----------      ----------
                                                     749,243         714,753
         Less accumulated depreciation               (621,963)       (513,757)
                                                  ----------      ----------
        Property and equipment, net              $   127,280         200,996
                                                  ==========      ==========

(7) Deferred Financing Costs                                                    

     Deferred  financing  costs consist  mainly of bank fees and legal  expenses
     related to the  Company's  non recourse  debt (note 9). The costs are being
amortized over the term of the related financing.                     

Deferred financing costs consisted of the following as of December 31:

                                               1996               1995
                                               ----               ----
Bank fees, legal expenses and                               
          other deferred costs                  $    59,100          1,140,954
          Accumulated amortization                   (11,728)          (329,309)
                                                 ----------         ----------

         Deferred financing costs, net          $    47,372            811,645
                                                 ==========         ==========

     In conjunction with the June 1996 replacement of nonrecourse debt (note 9),
     the Company expensed $634,620 to eliminate deferred financing costs related
to the replaced debt.                                                 

                                                                     (Continued)
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Notes to Consolidated Financial Statements

(8) Long-Term Debt                                                              

Long-term debt consisted of the following as of December 31:          

                                                        [Enlarge/Download Table]

                                                                   1996         1995   
                                                                   ----         ----   
                                                                                       
Note payable to Puget Western, Inc., due in quarterly                                  
    installments as described below                          $   1,752,892    2,264,406

Bank line of credit, due January 2, 1997, monthly interest                             
    payments as described below                                  2,434,878    2,336,289

Notes payable, due in monthly installments of $5,500 to                                
    $13,500 including principal and interest, with interest a                          
    rate of 12.9% to 14.0% due March 1, 1997 through July 2000      16,163       76,013

Term loan, due in monthly installments of $8,378 including                             
    principal and interest at 12.75%, due April 1, 2001.           328,575      379,059

Non-interest-bearing obligation payable to third party             312,000      453,000

Other                                                                   --       37,551
                                                               -----------  -----------
               Subtotal                                          4,844,508    5,546,318
Less current portion                                               493,244      481,861
                                                               -----------  -----------
Non current portion                                          $   4,351,264    5,064,457
                                                               ===========  ===========

     Maturities  of  long-term  debt  for the  years  ended  December  31 are as
follows:                                                              

1997                          $    493,244  
1998                             4,161,796  
1999                                81,010  
2000                                92,024  
2001                                    --  
Thereafter                          16,434  
                            ------------
                            $  4,844,508
                            ============

                                                                     (Continued)
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Notes to Consolidated Financial Statements

     The  Company,  in  conjunction  with the 1992  acquisition  of Puget Energy
     Services,  Inc.,  issued  a  promissory  note  with a  principal  value  of
     $2,000,000 to Puget  Western,  Inc. In 1993 the note payable  agreement was
     amended  to  include  accrued  interest,  increasing  the loan  balance  to
     $2,192,819.  In  1996,  the note  was  again  amended  to  include  accrued
     interest, increasing the loan balance to $2,224,324. Quarterly payments for
     the years 1996 and 1995, varied from $50,000 to approximately $90,000, with
     a final payment of $1,389,035 due on December 31, 1998. The note carries an
     interest  rate of 8.5% per annum.  Forty-nine  percent  of the PACC  common
stock has been pledged as a security interest to Puget Western, Inc.  

     At December 31, 1996 and 1995, the Company had a $3,000,000  line of credit
     with U.S.  Bank of  Washington  at an interest  rate of prime plus 0.5% per
     annum  (8.75% and 9% as of December  31, 1996 and 1995,  respectively).  In
     March  1997  this  line was  replaced  by a line of  credit  of  $4,000,000
     provided by Silicon  Valley  Bank of Santa  Clara,  California,  to provide
     working capital and letters of credit.  The initial use of the facility was
     to repay the  outstanding  indebtedness  owed to U.S.  Bank.  Both  banking
     arrangements  were  secured by the pledge of  160,000  shares of  CalEnergy
     Company,  Inc. by a significant  shareholder  as well as the  shareholder's
personal guarantee.                                                   

     The long-term  borrowing  arrangements  include  covenants and  performance
     requirements which must be met or must be waived by the lender. The Company
     has complied with or obtained  waivers where  appropriate for all instances
of non compliance.                                                    

(9) Non Recourse Debt                                                           

(a) Senior Debt                                                       

     In June 1996,  PACC  replaced  its $15  million  non  recourse  Senior Debt
     Facility  with  another  institution  (Senior  Lender).  The  new  facility
     includes  a non  recourse  Senior  Term  Debt  Loan  and two  non  recourse
     Subordinated  Term Debt Loans. As of December 31, 1996, PACC had $5,316,703
     outstanding  under the Senior  Debt Loan  maturing  on  September  1, 2002.
     Interest  on the  Senior  Debt Loan is fixed at 12.3%,  with  monthly  loan
payments which vary from $51,000 to $172,000.                         

     Project  receipts  are  collected  in a lockbox  controlled  by the  Senior
     Lender.  Debt service is paid  monthly  from the lockbox,  with excess cash
     being  remitted to the  Company.  At  December  31,  1996,  the Company had
approximately $426,000 cash in the lockbox.                           

     In 1996,  PACC negotiated an additional  Senior Debt Facility  (Senior Debt
     II) to finance the long term receivables due under another of the Company's
     utility  demand  side  management  programs.  The  Company  had  $2,394,104
     outstanding  under the Senior Debt II Facility  as of  December  31,  1996,
     maturing on December 15,  2003.  Interest on the Senior Debt II Facility is
fixed at 11.5%, with monthly loan payments of $41,583.                

                                                                     (Continued)
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Notes to Consolidated Financial Statements

     Prior to June  1996,  PACC had a  facility  with a bank in the form of term
     advances  to be made  from  time to time as new  projects  were  completed,
     subject to bank approval. PACC had $6,477,418 outstanding under this Senior
     Debt facility as of December 31, 1995.  Interest on the outstanding portion
     of the first  $3,610,000  of the facility was fixed under an interest  rate
     swap agreement. Interest on the remaining principal was at a variable rate,
     to be  either  (a) the base  rate  plus the  applicable  margin  or (b) the
     Eurodollar  rate plus the applicable  margin,  at the option of the Company
     (8.22% as of December  31,  1995).  PACC  recorded a net benefit  from this
     arrangement  of  approximately  $24,000 as a reduction in interest  expense
     during 1995.  The facility  provided for monthly term loan  payments  which
     varied  from  approximately  $79,000  to  $130,000  over  the  life  of the
     facility.  PACC was  required to maintain a debt  service  reserve  against
     potential  shortfalls  of future cash flows from the projects  securing the
     Senior Debt borrowings from the bank.  Payments into the reserve were based
     on a formula  defined in the agreement and varied monthly  depending on the
     amount of projects funded. In addition,  the bank required a commitment fee
     of 0.625% per annum on the average  daily unused  commitment  as well as an
     agency fee of  $125,000  per  annum.  During  1996 and 1995,  approximately
$22,000 and $59,000 in commitment fees were paid to the bank.         

     Assets  financed under Senior Debt  facilities are held by special  purpose
     entities.  Security  interests  have been  granted to the  lenders in these
entities' assets.                                                     

(b) Subordinated Debt                                                 

     The new Senior Debt  Facility,  organized in June 1996,  also  includes two
     Subordinated  Term Debt Loans (I and II). As of December 31, 1996, PACC had
     $1,065,463  and $2,450,000  outstanding  under the  Subordinated  Term Debt
     Loans I and II,  respectively.  Subordinated  Term Debt  Loan I matures  on
     September 1, 2002 and bears an interest  rate of 16.8%.  Subordinated  Term
     Debt Loan II matures on December  31,  1999 and bears an  interest  rate of
     16.15%.  Payments  on the  Subordinated  Term Debt Loans are made  monthly,
varying from $1,000 to $120,000.                                      

     During 1994,  PACC  negotiated an additional  non recourse  facility with a
     non-regulated  subsidiary  of a utility  (Subordinated  Lender) of up to $5
     million  (Subordinated  Debt), in the form of term advances to be made from
     time to time as new  projects  are  completed,  subject to  approval by the
     lender of the Senior Debt.  PACC had $3,332,701 and $3,460,642  outstanding
     under this  Subordinated  Debt  facility as of December  31, 1996 and 1995,
     respectively.  The facility  provides for monthly term loan payments  which
     will vary from approximately $16,000 to $150,000. The amount outstanding at
     December 31, 1996 is due on August 31, 2002. The interest rate on the first
     $2,000,000  is 25%,  declining in stages to 21% for amounts in excess of $4
million.                                                              

(c) Other Non Recourse Debt                                           

     Additionally,  PACC has another non recourse facility for 100% financing of
     qualified  projects  providing  for monthly  payments  which will vary from
     approximately $197,000 to $223,000 over the life of the facility.  PACC had
     $10,356,891 and $10,103,164  outstanding under this facility as of December
     31,  1996 and  1995,  respectively.  The  facility  is due June 1, 2003 and
     carries  interest  at a rate  between  13% and 15% per  annum,  varying  by
project.                                                              

                                                                     (Continued)
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PROVEN ALTERNATIVES, INC. AND SUBSIDIAIRES

Notes to Consolidated Financial Statements

     PACC also has a non recourse  installation loans facility under this credit
     facility on a project by project  basis.  PACC had $658,262 and  $1,099,230
     outstanding under the installation  loan facility,  which bears interest at
     15% per annum, as of December 31, 1996 and 1995, respectively.  The Company
     has granted a security  interest in certain of its host customer  contracts
and all equipment and materials to be installed under the contracts.  

     Maturities of the non recourse debt for the years ended  December 31 are as
follows:                                                              

1997                                    $  3,041,493
1998                                       6,051,097
1999                                       3,002,682
2000                                       3,905,445
2001                                       4,245,157
Thereafter                                 5,328,251
                                        ------------

                                          25,574,125

Less current portion                       3,041,493
                                        ------------

Non current portion                     $ 22,532,632
                                        ============

(10) Income Taxes                                                               

     Income taxes for the years ended December 31, 1996 and 1995 are as follows:

                                         1996             1995
                                         ----             ----
Current:                                            
          Federal                     $     --                --
            State                            10,983           10,204
Deferred:                                           
          Federal                            --               --
          State                              --               --
                                          ---------        ---------
                                        $    10,983           10,204
                                          =========        =========

                                                                     (Continued)

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Notes to Consolidated Financial Statements

     The tax  effect of  temporary  differences  that  give rise to  significant
     portions  of the  deferred  tax assets and  deferred  tax  liabilities  are
presented below:                                                      

                                                    December 31,
                                                     -----------------------
                                                      1996          1995
                                                      ----          ----
Deferred tax assets:                                          
Reserves and accruals for financial                       
reporting purposes not taken for                        
          tax purposes                               $  175,443      169,853
         Deferred   compensation                        464,865      464,865
         Accrual for discontinued operations                 --       27,670
         Property and equipment, net                    596,739      829,926
         Intangible assets, net                         114,862      152,998
         Net operating loss carryforwards            14,081,914   13,327,159
          Valuation  allowance                        (5,983,566)  (4,278,905)
                                                     ----------   ----------
           Deferred  tax  assets                      9,450,257   10,693,566
                                                      ---------   ----------
Deferred tax liabilities:                                     
Energy savings contracts, net                             
          of contract costs                           8,674,792   10,303,726
Contract cost on uncompleted                              
          projects                                      775,465      389,840
                                                      ---------   ----------

           Deferred tax liabilities                   9,450,257   10,693,566
                                                      ---------   ----------
           Net deferred tax liabilities              $       --           --
                                                     ==========   ==========

     The increase in the valuation  allowance from December 31, 1995 to December
     31, 1996 is due primarily to  assessment of the recovery of the  receivable
in accordance with SFAS 109.                                          

     Income tax expense was $10,983 and $10,204 for the years ended December 31,
     1996 and 1995  respectively,  and  differed  from the  amounts  computed by
     applying the U.S. federal income tax rate of 34 percent to pretax loss as a
result of the following at December 31:                               

                                              1996              1995
                                              ----              ----

    Expected income tax benefit              $ 1,543,196         1,399,916
State income tax benefit, net                                     
      of federal income tax effect               171,706           156,939
     Change in valuation allowance             (1,704,661)       (1,766,905)
    Other                                        (21,224)          199,846
                                             -----------        ----------

     Income tax expense                       $   (10,983)          (10,204)
                                             ===========        ==========

     As of December 31, 1996, for federal  income tax purposes,  the Company has
     net operating loss carryforwards of approximately $35,000,000 expiring from
2006 through 2011.                                                    

                                                                     (Continued)
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Notes to Consolidated Financial Statements

     For  California  income tax purposes,  as of December 31, 1996, the Company
     has net operating loss carryforwards of approximately  $14,000,000 expiring
     from 1997 through  2001.  The  difference  between the net  operating  loss
     carryforward for federal income tax purposes and for California  income tax
     purposes  results  generally from a 50%  limitation on the California  loss
     carryforwards  and the  suspension  of loss  utilization.  In  addition,  a
     portion of the federal loss is apportioned to states other than California.

(11) Lease Commitments                                                          

     The Company  leases office  facilities,  equipment,  machines and furniture
     under operating leases expiring through June 1998. Rent expense, recognized
     over the terms of the leases, was $379,114 and $622,582 for the years ended
     December 31, 1996 and 1995,  respectively.  Future  minimum  payments under
     non-cancelable  operating  leases for the years  ending  December 31 are as
follows:                                                              

 1997                                        $   286,035
 1998                                             28,847
 1999                                              5,747
 2000 and thereafter                                  --
                                              ----------

                                             $   320,629
                                             ===========

(12) Related Party Transactions                                                 

     An officer and  significant  shareholder  accepted  notes  payable from the
Company which had $37,551 outstanding as of December 31, 1995.        

     At December 31, 1996 and 1995,  certain borrowings of the Company amounting
     to  approximately  $2,434,878  and  $2,336,289,  respectively,  and certain
     facilities leases were guaranteed by a significant  shareholder who pledged
     personal  assets  as  security.   In  addition,   the  Company  had  issued
     approximately $264,000 of standby letters of credit as of December 31, 1996
     and 1995, which, as part of the Line of Credit, were personally  guaranteed
     by the significant  shareholder.  For the years ended December 31, 1996 and
     1995,   the  Company   incurred   approximately   $159,331  and   $106,008,
     respectively,  of guarantor fee expenses to the significant  shareholder as
     compensation  for the guarantees.  During 1995 the significant  shareholder
     forgave approximately $114,000 of guarantor fees and interest for the years
1991 through 1994.                                                    

     At December  31,  1996,  the Company had a  receivable  of $42,707 due from
companies in which the significant shareholder has an interest.       

     During 1996 and 1995, payments totaling approximately $198,000 and $54,000,
     respectively,  were  made to  Proven  Alternatives  Europe,  in  which  the
     significant shareholder has a 50% interest, for software development costs.

                                                                     (Continued)
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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(13) Capital Stock                                                              

(a) Preferred Stock                                                   

          At incorporation the Board of Directors  authorized  15,000,000 shares
          of preferred  stock.  The terms and conditions of these shares will be
established at the time of issuance.                        

(b) Stock Option Plans                                                

(i) Compensation Related Options                  

               When the Company  grants fully paid and vested  stock  options to
               employees as a form of compensation,  the Company  recognizes the
               value of the  options  as  compensation  expense  and  records an
               increase in stockholders'  equity in the year of grant. When such
               options are exercised, stock option equity will be eliminated and
               common stock and paid in capital will increase. Forfeited options
               are  accounted  for by a reduction  in  compensation  expense and
stockholders' equity.                             

Stock Option Plan                                 
-----------------                                 

               In 1993,  the Company  approved  the Stock Option Plan (the Plan)
               and granted 1,525,839 fully paid and vested options for shares of
               the Company with an option price of $0.72 per share to employees,
               including senior  management,  who elected to receive part or all
               of their  compensation  through January 1993 in the form of stock
               options.  Options granted under the plan shall remain exercisable
for 10 years after the date of grant.             

               As of December 31, 1996, none of these options had been exercised
               and options for 335,394 shares had been terminated as a result of
               employee turnover.  During 1996 and 1995, no options  terminated.
               At  December  31,  1996,  fully  paid  and  vested  options  were
               outstanding  which when  exercised will result in the issuance of
1,190,445 shares of common stock.                 

Other Options Issued                              
--------------------                              

               In 1993,  the Company  granted  fully paid and vested  options to
               acquire  500,000 shares of the Company's  stock to several of the
               employees,  including  senior  management,   relating  to  a  new
performance-based compensation plan.              

               As of December 31, 1996, none of these options had been exercised
               and options for 98,955  shares had  terminated.  At December  31,
               1996, fully paid and vested options were outstanding,  which when
               exercised will result in the issuance of 401,045 shares of common
stock.                                            

                                                                     (Continued)
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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

               During May 1994,  the  agreements  with employees for both option
               plans described above were amended  retroactive to December 1993.
               For options  outstanding  as of May 1994,  the options  would not
               lapse until after the options  became  exercisable.  The exercise
               period was  amended to the earlier of March 29, 2000 or the later
               of (i) the  date the  Company  goes  public  or (ii) the date six
              months after the underwriter imposed "lock-up," if any, expires.

(ii) 1993 Stock Option Plan                       

               During October 1993,  the Company  approved the 1993 Stock Option
               Plan (the 1993 Plan). Under the 1993 Plan, options to purchase an
               aggregate of 4,640,000 shares of common stock, $.01 par value, of
               the Company may be granted to  directors,  officers and full-time
               salaried  employees of the  Company,  as selected by the Board of
Directors.                                        

               The  purchase  price of each option shall not be less than 85% of
               the fair  market  value of the shares at the time such  option is
               granted. If, however, an optionee owns more than 10% of the total
               combined voting power of all classes of stock of the Company, the
               option price of any option  granted to that optionee shall not be
               less than 110% of such fair market  value at the time such option
is granted.                                       

               Options granted hereunder may be exercised, subject to applicable
               vesting requirements,  during the ten years after the grant. Each
               option  shall vest at 20% per year and become  fully vested after
five years, from the date of grant.               

               During 1996 and 1995, 0 and  1,717,882  options for shares of the
               Company were granted under this plan to officers and employees of
the Company, respectively.                        

(iii) Other Options                               

               During October 1995, the Board of Directors authorized and issued
               129,412  options  to  purchase  shares of $0.01 par value  common
               stock at the  exercise  price of $0.85 per share to a vendor  for
               services  rendered.  This issue was not part of any stock  option
               plan  mentioned  above nor was it issued to officers or employees
               of the Company.  These  options shall remain  exercisable  for 10
               years after the date of grant.  As of December 31, 1996,  none of
these options have been exercised.                

(c) Issuance of Common Stock                                                    

In  December  1996,  the  Company  issued  1,095,767  shares of common  stock in
exchange  for $10,000  and  services  to be  provided  in  conjunction  with the
Company's  efforts to acquire a publicly  traded  entity in a related  business.
Such shares are subject to a call provision which allows the Company to call the
shares upon  termination of the agreement as long as the Company is not a public
Company or in the process of becoming public.                                   

                                                                     (Continued)

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PROVEN ALTERNATIVES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

     In 1996,  the  Company  also  issued  11,765  shares of common  stock to an
employee in exchange for a promissory note in the amount of $10,000.  

(14) Employee Benefit Plan                                                      

     The Company adopted,  amended and restated the Luminae Inc. 401(k) Plan and
     related Trust. It changed the name of the Plan to Proven Alternatives, Inc.
     401(k) Plan and Trust (Plan) and expanded the Plan to all  employees of the
     Company as of April 1, 1993.  The Company's  contributions  to the Plan are
     discretionary.  The  Company  did not  make any  contributions  to the Plan
during the years ended December 31, 1996 and 1995.                    

(15) Commitments and Contingencies                                              

     Under the terms of its employee medical insurance program, the Company pays
     a portion of medical benefits,  administration fees and stop-loss premiums.
     Costs exceeding the $35,000 stop-loss level per covered  individual,  up to
     $1  million,  are  covered  by  a  third  party  insurer.  The  Company  is
responsible for any costs in excess of $1 million.                    

     In 1996, the Company  settled a lawsuit  involving  several of the minority
     shareholders  of a  subsidiary.  Under  the  terms of the  settlement,  the
     Company   acquired  the  remaining   minority  shares  and  agreed  to  pay
     approximately   $400,000   to  such   minority   shareholders   in  monthly
installments over two years.                                          

     In late  1996,  in an  arbitration  filed  by the  owner of  certain  micro
     cogeneration  patents  then  licensed to the  Company,  the Company  became
     subject  to an award in favor of that  owner  in an  amount  in  excess  of
     $1,100,000.  The Company has executed an Agreement To Satisfy Judgement And
     Refrain From Execution On Judgement with the owner under the terms of which
     the  Company  will pay the  judgement  over a period of three years and the
     owner will refrain from any collection  efforts so long as the payments are
     made when due. In connection  with this matter,  the owner has appealed the
     San  Francisco  Superior  Court  confirmed  decision of the  arbitrator  to
     receive legal fees. The Company and its legal  representatives  believe the
     outcome  of this  appeal  will be  favorable  to the  Company.  An  adverse
    decision could require additional payments to the owner of up to $500,000.

     Settlement costs of approximately  $100,000 and $1.4 million related to the
     above  litigation  were included in selling,  general,  and  administrative
expenses in 1996 and 1995, respectively.                              

     In May, 1997, the Company was contacted regarding a potential claim related
     to the sale and  installation  of one of its  subsidiary's  early  projects
     which  had been  completed  prior to the  subsidiary's  acquisition  by the
     Company,  and which was abandoned  last year. The Company is in the process
     of evaluating  the claim and estimates  that the potential loss could be in
the range of $50,000 to $100,000.                                     

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PROVEN ALTERNATIVES, INC. 
UNAUDITED CONDENSED BALANCE SHEET 
MARCH 31, 1997
(In thousands)

Assets                                                                          
Cash and cash equivalents .....................   $     122.6 
Project and other accounts receivable .........       2,445.7 
Current portion of energy savings and                         
finance receivables ..........................       3,249.5
Work in progress and inventories, net .........       1,685.5 
Other current assets ..........................          54.7 
                                                    --------
 Total current assets ........................       7,558.0

Long-term portion of energy savings and                       
finance receivables ..........................      18,300.5
Property and equipment, net ...................         104.8 
Deferred charges and other assets .............          72.9 
Intangible assets, net ........................         148.4 
                                                    --------
 Total assets ................................      26,184.6
                                                    ========

Liabilities                                                                     
Accounts payable and accrued expenses .........       5,641.9 
Notes payable - shareholders ..................          --   
Current portion of long-term debt .............         507.2 
Current portion on non recourse debt ..........       3,464.9 
Reserve for monitoring and maintenance ........         254.5 
Other current liabilities .....................          --   
                                                    --------
 Total current liabilities ...................       9,868.5

Long-term debt ................................       4,408.7 
Long-term portion on non recourse debt ........      21,099.8 
Reserve for monitoring and maintenance ........       1,143.3 
                                                    --------
 Total long-term liabilities                        26,651.8

Shareholders' equity (deficit)                                                  
Common Stock ..................................         280.8 
Note receivable for common stock ..............         (11.4)
Additional paid in capital ....................      14,809.1 
Stock option equity ...........................       1,158.1 
Accumulated deficit ...........................     (26,572.3)
                                                    --------
  Total shareholders'equity (deficit) .........     (10,335.7)

Total liabilities and shareholders'                       
     equity (deficit).........................      26,184.6
                                                    ========

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                                                                [Download Table]


                           PROVEN ALTERNATIVES, INC.                              
                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS                    
                   THREE MONTHS ENDED MARCH 31,1997 AND 1996                      
                    (In thousands, except per share amount)                       

                                                        3/31/97        3/31/96    
                                                     ------------    -----------  

                                                                                  
Net Sales ......................................     $    1,705.4   $    1,233.7  
Cost of Sales ..................................            647.3          158.1  
                                                     ------------   ------------  
Gross profit ...................................          1,058.1        1,075.6  
Selling, general and administrative                                               
  expense ......................................          1,083.2        1,148.4  
Non-operating charges (income)                                                    
  Interest Expense .............................          1,001.9          774.5  
  Depreciation and Amortization ................             41.7           80.9  
  Other, net ...................................             (3.7)          (5.2) 
                                                     ------------   ------------  
Loss before income taxes .......................         (1,065.0)        (923.0) 
Income taxes ...................................           --              --     
                                                     ------------   ------------  
Net loss .......................................         (1,065.0)        (923.0) 

Weighted average shares outstanding ............         28,084.8        26,977.3 
Net loss per common share ......................     $      (0.04)    $     (0.03)


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                               PROVEN ALTERNATIVES, INC.                                    
                      UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS                          
                       THREE MONTHS ENDED MARCH 31, 1997 AND 1996                           
                                     (In thousands)                                         

                                                                      3/31/97     3/31/96   
                                                                    ----------   ---------- 

                                                                                            
Cash flows from operating activities                                                        
         Net loss ................................................. $ (1,065.0)  $   (923.0)
         Adjustments for reconcile net loss                                                 
           to net cash used in operating                                                    
           activities:                                                                      
         Deferred financing cost amortization .....................        2.0         40.8 
         Depreciation and amortization ............................       41.7         80.9 
         Increase or decrease in cash attributable to                                       
           changes in  assets and liabilities:                                              
                  Increase in project sales receivable ............      (21.7)    (1,722.4)
                  Amortization of energy savings and                                        
                   finance contracts ..............................    1,505.4      2,140.2 
                  Decrease (increase) in work in progress                                   
                   and pre-contract costs .........................      246.4     (1,199.7)
                  Decrease in other assets ........................       17.0          0.3 
                  Decrease in accounts payable and                                          
                   accrued liabilities                                  (223.1)      (371.6)
                  Decrease in reserve for monitoring                                        
                   and maintenance                                                          
                                                                         (69.8)       (62.0)
                                                                    ----------   ---------- 
                    Net cash provided by operating activities .....      432.9     (2,016.5)

Cash flows from financing activities:                                                       
         Proceeds from long-term debt .............................      208.0         98.6 
         Proceeds from non recourse debt ..........................       --        2,807.6 
         Repayments of long-term debt .............................     (136.6)       (73.1)
         Repayments of non recourse debt ..........................   (1,009.4)      (393.6)
         Deferred financing costs .................................       --          (37.0)
         Recovery of debt service reserve .........................       --           47.8 
         Payments received on note receivable                                               
          for common stock ........................................       10.8          0.4 
                                                                    ----------   ---------- 
                  Net cash provided by (used in)                                            
                    financing activities ..........................     (927.2)     2,450.7 

Increase (decrease) in cash .......................................     (494.3)       434.2 

Cash, beginning of period .........................................      616.9        612.2 
                                                                    ----------   ---------- 
Cash, end of period ...............................................      122.6      1,046.4 
                                                                    ==========   ========== 


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 PROVEN ALTERNATIVES, INC.
 NOTES TO CONDENSED FINANCIAL STATEMENTS

The Condensed  Financial  Statements  included  herein have been prepared by the
Company,  without audit, pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain information and footnote disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company believes that the disclosures are adequate to
make the information presented not misleading.                                  

In the opinion of the Company,  the accompanying  unaudited  condensed Financial
Statements contain all adjustments, which consist only of recurring adjustments,
necessary to present fairly the financial position as of March 31, 1997, and the
results of operations and cash flows for the three months ended March 31, 1997. 

The results of  operations  for the three month  period ended March 31, 1997 are
not  necessarily  indicative of the results to be expected for the full year. It
is suggested that these  Condensed  Financial  Statements be read in conjunction
with the most recent Consolidated  Financial Statements and the notes therein of
the Company.                                                                    

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ANNEX I 

AGREEMENT AND PLAN OF MERGER

     THIS  AGREEMENT  AND PLAN OF MERGER is entered  into as of the _____ day of
August,  1997,  between  and  among  PROVEN   ALTERNATIVES,   INC.,  a  Delaware
corporation ("PAI"),  DENCOR ENERGY COST CONTROLS,  INC., a Colorado corporation
("Dencor")  and DENCOR  ACQUISTION  CORPORATION,  a Delaware  corporation  and a
wholly owned subsidiary of Dencor ("Sub").  Sub and PAI being hereafter referred
to as the "Constituent Corporations."                                           

W I T N E S S E T H 

     WHEREAS,  the  respective  Boards of Directors of PAI,  Dencor and Sub have
approved  and declared  fair and  advisable  and in the best  interests of their
respective stockholders the merger of Sub with and into PAI (the "Merger"), upon
and subject to the terms and  conditions  set forth herein,  whereby each issued
and  outstanding  share of Common Stock,  par value $.01 per share, of PAI ("PAI
Common Stock") will be converted into 1.5 shares of Common Stock,  no par value,
of Dencor ("Dencor Common Stock");                                              

     WHEREAS,  the  parties  hereto  desire  to  make  certain  representations,
warranties  and  agreements in connection  with the Merger and also to prescribe
various conditions to the Merger.                                               

     NOW, THEREFORE,  in consideration of the premises and the  representations,
warranties and agreements herein contained, the parties agree as follows:       

ARTICLE 1 

The Merger

     1.1 The Merger. Upon the terms and subject to the conditions hereof, and in
accordance  with the  General  Corporation  Law of the  State of  Delaware  (the
"DGCL"),  Sub  shall be  merged  with and  into  PAI at the  Effective  Time (as
hereinafter defined).  Following the Merger, the separate corporate existence of
Sub  shall  cease and PAI  shall  continue  as the  surviving  corporation  (the
"Surviving  Corporation")  and shall  succeed  to and  assume as the  rights and
obligations  of PAI in  accordance  with the DGCL.  Effective  with the  Merger,
Dencors name shall be changed to Proven Alternatives, Inc.                      

     1.2 Effective Time. The Merger shall become  effective when the Certificate
of Merger (the  "Certificate  of Merger"),  executed in accordance with relevant
provisions  of the DGCL,  is filed with the  Secretary of State of Delaware.  As
used herein Effective Time shall mean the date and time at which the Certificate
of Merger is accepted  for record by the  Secretary  of State of  Delaware.  The
filing of the  Certificate of Merger shall be made as soon as practicable  after
the satisfaction or waiver of the conditions to the Merger set forth herein.    

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     1.3 Effects of the Merger.  The Merger  shall have the effects set forth in
Section 259 of the DGCL.                                                        

     1.4 Certificate of Incorporation, By-laws and Directors. The Certificate of
Incorporation and By-laws of PAI as in effect immediately prior to the Effective
Time and shall be the Certificate of Incorporation  and By-laws of the Surviving
Corporation  until  thereafter  changed  or amended  as  provided  therein or by
applicable  law.  The  directors  of Sub  at the  Effective  Time  shall  be the
directors of the Surviving  Corporation  until their  successors  have been duly
elected or appointed in accordance  with the  Certificate of  Incorporation  and
By-laws of the Surviving Corporation or by applicable law.                      

     1.5  Conversion of Securities.  As of the Effective  Time, by virtue of the
Merger and without any action on the part of any stockholder of PAI:            

     (a)  All shares of PAI Common Stock that are held in the treasury of PAI or
          by any  wholly  owned  subsidiary  of PAI and any shares of PAI Common
          Stock owned by Dencor or Sub shall be canceled and no capital stock of
          Dencor or other consideration shall be delivered in exchange therefor.

     (b)  Each issued and outstanding share of the capital stock of Sub shall be
          converted  into and become one fully paid and  nonassessable  share of
         Common Stock, par value $.01 per share, of the Surviving Corporation.

     (c)  Each share of PAI Common  Stock  issued  and  outstanding  immediately
          prior to the  Effective  Time  (other  than  shares to be  canceled in
          accordance  with Section  1.5(a))  shall be converted  into 1.5 shares
          (the "Exchange Ratio") of validly issued, fully paid and nonassessable
          shares of Dencor  Common  Stock.  All such shares of PAI Common Stock,
          when  so  converted,   shall  no  longer  be  outstanding   and  shall
          automatically be canceled and retired and each holder of a Certificate
          (as defined in Section  1.6(a))  representing  any such  shares  shall
          cease to have any rights  with  respect  thereto,  except the right to
          receive  shares of Dencor  Common  Stock  upon the  surrender  of such
Certificate in accordance with Section 1.6.                 

1.6 Dencor to Make Certificates Available.                            

     (a)  Exchange  of  Certificates.  Dencor and PAI shall  authorize  American
          Securities Transfer and Trust Company,  Inc. (or such other persons as
          shall be  reasonably  acceptable to Dencor and PAI) to act as Exchange
          Agent hereunder (the Exchange Agent). As soon as practicable after the
          Effective  Time,  Dencor shall deposit with the Exchange Agent for the
          benefit of the holders of certificates  which immediately prior to the
          Effective   Time   represented   shares  of  PAI  Common   Stock  (the
          Certificates)  certificates  representing  the shares of Dencor Common
          Stock (such shares of Dencor Common Stock being  hereinafter  referred
          to as the  Exchange  Fund)  issuable  pursuant  to Section  1.5 (c) in
exchange  for  outstanding  shares  of  PAI  Common  Stock. 

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     (b)  Exchange Procedures.  As soon as practicable after the Effective Time,
          the  Exchange  Agent  shall  mail  to  each  holder  of  record  of  a
          Certificate  whose  shares  (and  associated  rights)  were  converted
          pursuant to Section 1.5 into shares of Dencor Common Stock a letter of
          transmittal (which shall specify that delivery shall be effected,  and
          risk of loss and  title to the  Certificates  shall  pass,  only  upon
          actual and proper  delivery of the  Certificates to the Exchange Agent
          and shall contain  instructions  for use in effecting the surrender of
          the Certificates in exchange for certificates  representing  shares of
          Dencor  Common  Stock and shall be in such form and contain such other
          provisions as Dencor and PAI may reasonably  specify).  Upon surrender
          of a Certificate for cancellation to the Exchange Agent, together with
          such  letter  of  transmittal,  duly  executed,  the  holder  of  such
          Certificate  shall be  entitled  to  receive  in  exchange  therefor a
          certificate  representing  the number of whole shares of Dencor Common
          Stock  which such  holder has the right to  receive  pursuant  to this
          Article 1, and the  Certificate  so  surrendered  shall  forthwith  be
          canceled.  Until surrendered as contemplated by this Section 1.6, each
          Certificate  shall,  at and after  the  Effective  Time,  be deemed to
          represent   only  the  right  to  receive,   upon  surrender  of  such
          Certificate,  the certificate  representing the appropriate  number of
shares of Dencor Common Stock.                              

     1.7 No Fractional Shares. No certificates or scrip representing  fractional
shares of Dencor Common Stock shall be issued upon the surrender for exchange of
Certificates  pursuant  to this  Article  1,  and no  Decor  dividend  or  other
distribution  or stock  split or  combination  shall  relate  to any  fractional
security,  and such fractional  interests shall not entitle the owner thereof to
vote or to any rights of a security  holder of Dencor.  Each  stockholder of PAI
who is  entitled  to  receive  0.5 or more of a share  of  Dencor  Common  Stock
pursuant to Section 1.5(c)shall receive the total number of whole share to which
that holder is entitled and a single whole share of Dencor Common Stock in place
of that  fractional  share.  Each  stockholder of PAI who but for this provision
would be entitled  to receive  less than 0.5 of a share of Dencor  Common  Stock
pursuant to Section  1.5(c) shall  receive only the total number of whole shares
to which the  stockholder is entitled,  and any such  fractional  share shall be
eliminated for all purposes without compensation therefor.                      

     1.8 Closing. The closing of the transactions contemplated by this Agreement
(the  Closing)  shall take place at the offices of PAI,  1740 Army  Street,  San
Francisco, California at 10:00 a.m. local time, on the second business day after
the day on which  the last of the  conditions  set  forth in  Articles  V and VI
hereof  shall have been  fulfilled  or waived or at such other time and place as
PAI and Dencor shall agree.                                                     

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PAI 

PAI represents and warrants to Dencor and Sub as follows:             

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     2.1 Corporate Status. PAI is a corporation duly organized, validly existing
and in good  standing  under  the  laws of the  State  of  Delaware  and has all
requisite  corporate  power  and  authority  to  carry  on its  business  as now
conducted.  PAI is duly qualified to do business as a foreign corporation in all
jurisdictions  in which the  failure  to qualify  would have a material  adverse
effect on its business and  properties.  PAI has furnished  Dencor with true and
complete  copies  of  the  certificate  of  incorporation,   together  with  any
amendments thereto,  and the by-laws,  together with any amendments thereto, all
as presently in effect, of PAI.                                                 

     2.2  Capitalization.  The  authorized  capital  stock  of PAI  consists  of
60,000,000 shares of Common Stock, par value $.01 per share, of which 28,084,848
shares are issued and outstanding and 15,000,000  shares of Preferred Stock, par
value  $.01 per  share,  of which no shares  are  issued  and  outstanding.  The
foregoing  shares  constitute 100% of the  outstanding  capital stock of PAI and
each of these shares has been duly  authorized  and validly  issued and is fully
paid and non-assessable.  There are no options, warrants,  conversion privileges
or other rights of any nature  which are  presently  outstanding  to purchase or
granting  the right to purchase any shares of the PAI's  capital  stock or other
securities  of PAI except  that there are  outstanding  employee  stock  options
issued under the 1993 Proven Alternatives Stock Option Plan and otherwise in the
aggregate amount of 4,591,284 shares of PAI Common Stock.                       

     2.3 Subsidiaries.  PAI owns 100% of the outstanding capital stock of Proven
Alternatives  Capital  Corporation,  Luminae,  Inc. dba Luminae Souter  Lighting
Design,  GoldenBear  Cogen, Inc. and PAC 96, Inc., each of which is a California
corporation.   Proven   Alternatives   Capital  Corporation  owns  100%  of  the
outstanding  capital  stock of PAC GP, Inc.  and Pac Beta  Corporation,  each of
which is a California  corporation,  which  constitute  the general  partners of
Proven Alternatives Capital II, a California general  partnership.  PAI does not
own or control,  directly or  indirectly,  any other  corporation,  partnership,
business trust, association or other business entity.                           

     2.4  Authorization.  This Agreement has been duly authorized,  executed and
delivered by PAI, and,  assuming due execution by Dencor,  this  Agreement  will
when  approved by the  respective  shareholders  of PAI and Dencor  constitute a
legal,  valid and binding  obligation of PAI  enforceable in accordance with its
terms, except that (a) the enforcement of certain rights and remedies created by
this Agreement is subject to bankruptcy, insolvency,  reorganization and similar
laws of general  application  affecting  the rights and remedies of the parties,
(b) the  enforceability  of any  particular  provision of this  Agreement  under
principles of equity or the availability of equitable remedies, such as specific
performance,  injunctive relief,  waiver or other equitable remedies, is subject
to the  discretion  of courts of  competent  jurisdiction,  and (c) any court or
administrative  body may refuse to enforce  the  indemnification  provisions  of
Article VI of this Agreement.                                                   

     2.5 Governmental  and Other Consents.  Except as set forth on Schedule 2.5,
no  permits,   consents,   approvals  and  authorizations   of,   registrations,
qualifications,  designations,  declarations or filings with, or notices to, any
federal or state  governmental  authority  or  consents  from  other  persons or
entities  are required to be  obtained,  made or submitted by PAI in  connection
with  the  execution,   delivery  or  performance  of  this  Agreement,  or  the
consummation of the transactions contemplated hereby.                           

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     2.6 No Violation.  The execution and delivery of this  Agreement  and, upon
satisfaction  of the  conditions  set  forth  in  paragraphs  4.3 and  5.3,  the
completion of the transactions  contemplated hereby will not violate any license
or permit identified on Schedule 2.20, any license  identified on Schedule 2.15,
any  agreement or  instrument to which PAI is a party or by which it is bound or
any  provision  of  any  judgment,   writ,  decree,   order,  statute,  rule  or
governmental   regulation   applicable  to  it,  where  such  violations  either
individually  or in the aggregate,  would have a material  adverse affect on the
PAI's business,  condition,  affairs, operations or assets. Without limiting the
generality of the foregoing, no consent,  approval or waiver will be required in
order to assure the  continued  validity  and  enforceability  of the  contracts
listed on Schedule 2.15, except as identified on Schedule 2.5 and paragraph 7.6.

     2.7  Litigation.  Except as set forth on  Schedule  2.7 there is no action,
proceeding or investigation  pending or, to PAI's knowledge,  threatened against
PAI before  any court or  administrative  agency  that is  reasonably  likely to
result, either individually or in the aggregate,  in any material adverse change
in the business, condition, affairs, operations,  properties or assets of PAI or
in any  material  liability  to  PAI.  There  are  no  actions,  proceedings  or
investigations  pending  or, to PAI's  knowledge,  threatened  against PAI which
question the validity of this Agreement or seek to prevent or enjoin the Merger.

     2.8  Information  Statements.  The  information  statements  set  forth  in
Schedule 2.8 (collectively, the "Information Statements"),  copies of which have
been  delivered  to  Dencor,  each  contained  as of  their  respective  dates a
materially accurate  description of the matters to which they relate and did not
contain an untrue  statement  of a  material  fact  regarding  the nature of the
business,  or historical  results of operations,  of or omit to state a material
fact necessary to make the statements  regarding the nature of the business,  or
historical results of operations, of PAI made, in the light of the circumstances
under  which  they  were  made,  not  misleading.  Except as  disclosed  in this
Agreement  (including the Schedules  referred to in this  Agreement),  since the
time  when the  Information  Statements  were  prepared,  there has not been any
material  adverse  change in the  business of PAI or any event which  caused any
material statement made in the Information Statement regarding the nature of the
business, or historical results of operations, of PAI no longer to be correct.  

     2.9  Financial  Statements.  The  audited  financial  statements  of PAI at
December 31,  1994,  1995 and 1996 and for the three years ended on those dates,
copies of which are attached as Schedule 2.9A,  were prepared in accordance with
generally  accepted  accounting  principles  applied on a  consistent  basis and
present  fairly the  financial  position and results of operations of PAI at the
dates,  and for the  periods  to which  they  relate.  The  unaudited  financial
statements of PAI at March 31, 1997 and for the three months ended on that date,
copies of which are attached as Schedule 2.9B,  were prepared in accordance with
the books and  records of PAI and  present  fairly the  financial  position  and
results of  operations  of PAI at the dates,  and for the  periods to which they
relate. PAI has no material  liabilities that are not reflected in the March 31,
1997 financial statements, except as may result from the agreements or contracts
listed on Schedule  2.15.  No material  liability  under any such  agreements or
contracts has been asserted against PAI.                                        

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     2.10 Changes.  Since March 31, 1997,  PAI has conducted its business in the
ordinary course in all respects and there has not been:                         

     a)   any  change  in  the  assets,  liabilities,   financial  condition  or
          operations of PAI, which  individually or in the aggregate have had or
          may  have  a  material  adverse  effect  on its  assets,  liabilities,
          financial  condition  or  operations,   other  than  operating  losses
incurred in the ordinary course of PAI's business.          

     b)   Any contractual  obligation incurred in excess of $25,000,  including,
          without  limitation,  financing leases or purchase money  obligations,
   other than contractual obligations identified on Schedule 2.15;

     c)   any material  change in the  contingent  obligations of PAI, by way of
guaranty, endorsement, indemnity, warranty or otherwise;    

     d)   any damage,  destruction or loss, whether or not covered by insurance,
          that has had or may have a material  adverse  affect on the properties
or business of PAI;                                         

e)   any waiver by PAI of a valuable  right or of a debt owed to it;  

f)   any loans made by PAI to its employees, officers or directors;   

     g)   any  increases  in  the  annual  rate  of  compensation  of any of the
officers or directors of PAI;                               

     h)   any  declaration or payment of any dividend or other  distribution  of
the assets of PAI; or                                       

     i)   any other  material  adverse  change in,  the  business  or  financial
condition of PAI.                                           

     2.11 Taxes.  PAI has duly prepared and timely filed all federal,  state and
local income, franchise, sales, use and other tax returns which were required to
be filed with respect to the business, operations, sales or income of PAI, where
the  failure  to do so may have a material  adverse  effect on the  business  or
financial  condition of PAI, and has paid all taxes shown on such returns and on
all assessments received by it to the extent that such taxes have become due and
payable.  The United  States  income tax returns of PAI have not been audited by
the Internal Revenue Service. No deficiency assessment or proposed adjustment of
PAIs United  States income tax or state or municipal  taxes is pending,  and PAI
has no knowledge of any  proposed  liability  for any tax to be imposed upon the
properties or assets of PAI for which there is not an adequate reserve reflected
in the balance sheet of PAI at March 31, 1997.                                  

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2.12 Patents and Proprietary Technology.                              

          (a)  The  business  of PAI does  not,  to the best of PAIs  knowledge,
               infringe  upon or violate  any  patent  rights or  copyrights  of
others.                                           

          (b)  Except for a  trademark  registration  for a logo as set forth in
               the attached Schedule 2.12(b),  PAI has not registered,  or filed
               any application to register, any other trademark. To the PAI's or
               the  Company's  knowledge,  the  business of the Company does not
               infringe upon or violate any trademarks or trade names of others.

          (c)  To PAI's knowledge, PAI has not misappropriated any trade secrets
of others.                                        

          (d)  To the best of PAIs knowledge,  PAI is not obligated or under any
               liability  whatsoever  to make  royalty or other  payments to any
               owner, licensor of, or other claimant to, any patent,  copyright,
               trademark,  trade name or trade  secret,  with respect to the use
               thereof or in connection  with the conduct of the business of PAI
or otherwise.                                     

          (e)  PAI has not  granted any  licenses or rights with  respect to its
business.                                         

     2.13 Title to Assets.  Except for the assets of Proven Alternatives Capital
II and PAC 96,  Inc.  which are  pledged to various  lenders,  PAI holds all its
assets free and clear of any mortgages,  liens or security interests, other than
(a) the  lien  of  taxes  not  yet due or  other  statutory  liens  relating  to
governmental  obligations which are not yet due, (b) security interests securing
indebtedness  which is reflected on the balance sheet at March 31, 1997 included
in Schedule 2.9, or (c) statutory liens (e.g., labor,  materialmen and mechanics
liens)  for  goods,  services  and other  items  provided  under  agreements  or
contracts listed in Schedule 2.15.                                              

     2.14 Real Property. PAI does not own any real property.  Schedule 2.14 is a
list of all  real  property,  including  office  space,  leased  by the  Company
(collectively,  the "PAI Properties"),  showing as to each property the identity
of the  lessor  and the  date of the  lease.  To  PAI's  knowledge,  all the PAI
Properties  are being used in  conformance  in all  material  respects  with all
zoning,  environmental  and  other  laws  and  regulations,  deed  restrictions,
covenants and lease provisions applicable to the PAI Properties.  PAI has, as to
each lease, fulfilled in all material respects all its obligations under, and is
in compliance in all other material  respects with the terms of, the lease,  PAI
has not been  informed that the lessor under any of the leases has taken action,
or threatened,  to terminate the lease before the  expiration  date specified in
the lease,  and, the  transactions  contemplated by this Agreement will not be a
basis for the lessor to terminate the leases before that expiration date.       

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     2.15 Material Agreements. Except as identified on Schedule 2.15 hereto, PAI
is not a party to any agreement or contract,  written or oral, requiring payment
by or to it or  involving  an  obligation  of or to it of an amount in excess of
$25,000, or to any agreement or contract to which PAI or any affiliate of PAI is
a party or beneficiary.                                                         

     2.16  Insurance.  Schedule  2.16  is a  complete  list of all  policies  of
insurance  maintained at the date of this  Agreement by PAI. All the policies of
insurance  listed on Schedule  2.16 are in full force and effect.  The insurance
listed on  Schedule  2.16 is all the  insurance  which is  required by law to be
maintained with regard to PAI, its business and assets.                         

     2.17 Employees. PAI has no employment agreements with any of its employees.
All of its employees are employees at will.                                     

2.18 Environmental Matters - Hazardous Materials.                     

     (a)  There is no pending claim, lawsuit, agency proceeding, or other legal,
          quasi-legal  or  administrative   challenge   concerning  any  of  the
          operations of PAI in which relief is sought  against PAI in connection
          with the handling,  processing,  storage and/or  disposal of Hazardous
          Materials  and  to  the  best  of  PAI's   knowledge  no  such  claim,
          litigation,  proceeding  or challenge is proposed or threatened by any
person or entity, or otherwise anticipated;                 

     (b)  For purposes of this Section 2.18,  "Hazardous  Materials"  shall mean
          any substance  which as of the date of this Agreement  shall be listed
          as  "hazardous"  or "toxic"  or in the  regulations  implementing  the
          Comprehensive Environmental Response,  Compensation and Liability Act,
          42 U.S.C.  6901 et seq.  ("CERCLA") or the Resource  Conservation  and
          Recovery Act  ("RCRA"),  42 U.S.C.  Section 6901 et seaq, or which has
          been or shall be determined at any time by any agency or court to be a
          hazardous or toxic  substance  regulated  under CERCLA,  RCRA or other
          similar  laws.  The term  "Hazardous  Material"  shall  also  include,
          without limitation,  raw materials,  building components, the products
          of any  manufacturing or other  activities on the Properties,  wastes,
          petroleum  and  source,  special  nuclear or  by-product  material  as
          defined by the Atomic Energy Act of 1954, as amended (42 U.S.C.  3011,
et seq., as amended).                                       

     (c)  To the  best  of  PAIs  knowledge  there  are no  Hazardous  Materials
     utilized by PAI in PAIs business or stored on the PAI properties.

     2.19 Employee  Benefit Plans.  Except for a 401K Plan and an Employee Stock
Option Plan, PAI does not maintain or make contributions to any employee benefit
plan  (within the meaning of Sections  3(3) of the  Employee  Retirement  Income
Security Act of 1974, as amended  ("ERISA")),  bonus plan and any other deferred
compensation agreement.  PAI neither contributes nor has ever contributed to any
"defined  benefit  plan" (as such term is  defined  in  Section  3(35) of ERISA)
including any "multi-employer plan" within the meaning of Section 40001(a)(3) of
ERISA.                                                                          

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     2.20  Licenses  and  Permits.  PAI has all  licenses  and permits  from all
governmental  authorities  which  are  necessary  to permit  it to  conduct  its
business in all material  respects as it is being  conducted at the date of this
Agreement.  PAI has operated its business in accordance  with  applicable law in
all material respects.                                                          

     2.21 Reorganization.  To the knowledge of PAI, PAI has not taken any action
or failed to take any  action  which  action or  failure  to take  action  would
jeopardize  the  qualification  of the  Merger as a  reorganization  within  the
meaning of Section 368(a) of the Code.  Without  limiting the foregoing:  (I) to
the knowledge of the executive officers of PAI, there is no plan or intention on
the part of the  holders  of PAI Common  Stock to sell,  exchange  or  otherwise
dispose of a number of shares of Dencor Common Stock that would cause  paragraph
2 of Section 7.03 of Rev.  Proc.  77-37 (as amplified) not to be true as applied
to the Merger, and the only PAI stockholders beneficially owning more than 5% of
the  outstanding  PAI Common Stock are as set forth in Schedule 2.21 attached to
and made a part of this Agreement, (ii) as of the Effective Time and immediately
following the Merger,  the Surviving  Corporation will hold substantially all of
PAIs properties within the meaning of Section  368(a)(2)(E) of the Code and Rev.
Proc.  77-37  (as  amplified),  (iii)  there is no  intercorporate  indebtedness
between  PAI and  Dencor  except for the  indebtedness  shown in  Schedule  2.21
attached  to and  made  a  part  of  this  Agreement,  (iv)  and  the  Surviving
Corporation will not have  outstanding any type of right or obligation  pursuant
to which any person could acquire  capital  stock of the Surviving  Corporation,
and (v) PAI has no plan or  intention  for the  Surviving  Corporation  to issue
additional shares of its capital stock following the Merger.                    

ARTICLE III 

REPRESENTATIONS AND WARRANTIES OF DENCOR

Dencor represents and warrants to PAI as follows:                               

     3.1 Corporate Status. Dencor is a corporation  organized,  validly existing
and in good  standing  under  the  laws of the  State  of  Colorado  and has all
requisite  corporate  power  and  authority  necessary  for  the  authorization,
execution,  delivery and  performance of this Agreement and the  consummation of
the transactions contemplated hereby.                                           

     3.2 Authorization.  When approved by the shareholders of Dencor as provided
for in paragraph 4.5, all corporate  action on the part of Dencor  necessary for
the  authorization,  execution,  delivery and  performance  of this Agreement by
Dencor and the  consummation by Dencor of the transactions  contemplated  hereby
will have been taken,  and this  Agreement,  assuming due execution by PAI, will
constitute  a legal,  valid and  binding  obligation  of Dencor  enforceable  in
accordance with its terms, except that (a) the enforcement of certain rights and
remedies  created  by this  Agreement  is  subject  to  bankruptcy,  insolvency,
reorganization and similar laws of general application  affecting the rights and
remedies of the parties,  (b) the enforceability of any particular  provision of
this  Agreement  under  principles  of equity or the  availability  of equitable
remedies,  such as  specific  performance,  injunctive  relief,  waiver or other
equitable  remedies,  is  subject  to the  discretion  of  courts  of  competent
jurisdiction, and (c) any court or administrative body may refuse to enforce the
indemnification provisions of Article VI of this Agreement.                     

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     3.3 Governmental Consents. Except as set forth on Schedule 3.3, no permits,
consents, approvals and other authorizations of, registrations,  qualifications,
designations,  declarations or filings with, or notices to, any federal or state
governmental authority are required to be obtained,  made or submitted by Dencor
in connection with execution,  delivery or performance of this Agreement, or the
consummation of the transactions contemplated hereby.                           

     3.4 No  Violation.  The  execution  and delivery of this  Agreement and the
completion  of the  transactions  contemplated  thereby  will  not  violate  any
license,  permit, agreement or instrument to which Dencor is a party or by which
it is bound or any provision of any judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Dencor.                            

     3.5  Capitalization.  The  authorized  capital stock of Dencor  consists of
5,000,000  shares of Common Stock, no par value,  of which 3,671,304  shares are
issued and outstanding.  The foregoing shares constitute 100% of the outstanding
capital  stock of Dencor and each of these shares has been duly  authorized  and
validly  issued  and is fully  paid and  non-assessable.  There are no  options,
warrants,  conversion  privileges  or  other  rights  of any  nature  which  are
presently  outstanding  to purchase or granting the right to purchase any shares
of Dencor's capital stock or other securities of Dencor.                        

     3.6 Subsidiaries.  Except for Sub, which is wholly owned by Dencor,  Dencor
does  not  own or  control,  directly  or  indirectly,  any  other  corporation,
partnership, business trust, association or other business entity.              

     3.7  Litigation.  Except as set forth on  Schedule  3.8 there is no action,
proceeding  or  investigation  pending  or, to  Dencor's  knowledge,  threatened
against  Dencor  before any court or  administrative  agency that is  reasonably
likely to result,  either  individually  or in the  aggregate,  in any  material
adverse change in the business,  condition,  affairs, operations,  properties or
assets of Dencor or in any material  liability of Dencor.  There are no actions,
proceedings  or  investigations  pending or, to Dencor's  knowledge,  threatened
against  Dencor which question the validity of this Agreement or seek to prevent
or enjoin the Merger.                                                           

     3.8  Information  Statements.  The  information  statements  set  forth  in
Schedule 3.9 (collectively, the "Information Statements"),  copies of which have
been delivered to PAI, each contained as of their  respective dates a materially
accurate  description of the matters to which they relate and did not contain an
untrue  statement of a material fact  regarding  the nature of the business,  or
historical results of operations,  of or omit to state a material fact necessary
to make the  statements  regarding  the nature of the  business,  or  historical
results of operations,  of Dencor made, in the light of the circumstances  under
which they were made,  not  misleading.  Except as disclosed  in this  Agreement
(including the Schedules referred to in this Agreement), since the time when the
Information  Statements were prepared,  there has not been any material  adverse
change  in the  business  of  Dencor  or any event  which  caused  any  material
statement  made  in  the  Information  Statement  regarding  the  nature  of the
business,  or  historical  results  of  operations,  of  Dencor  no longer to be
correct.                                                                        

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     3.9 Financial  Statements.  The audited  financial  statements of Dencor at
December 31,  1994,  1995 and 1996 and for the three years ended on those dates,
copies of which are attached as Schedule 3.10A, were prepared in accordance with
generally  accepted  accounting  principles  applied on a  consistent  basis and
present fairly the financial position and results of operations of Dencor at the
dates,  and for the  periods  to which  they  relate.  The  unaudited  financial
statements  of Dencor at March 31, 1997 and for the three  months  ended on that
date,  copies  of which  are  attached  as  Schedule  3.10B,  were  prepared  in
accordance with the books and records of Dencor and present fairly the financial
position and results of operations  of Dencor at the dates,  and for the periods
to which they relate.  Dencor has no material liabilities that are not reflected
in the March 31,  1997  financial  statements,  except  as may  result  from the
agreements or contracts listed on Schedule 3.16. No material liability under any
such agreements or contracts has been asserted against Dencor.                  

     3.10  Changes.  Since March 31, 1997,  Dencor has conducted its business in
the ordinary course in all respects and there has not been:                     

     a) any change in the assets, liabilities, financial condition or operations
     of Dencor,  which  individually  or in the aggregate have had or may have a
     material adverse effect on its assets, liabilities,  financial condition or
     operations,  other than operating losses incurred in the ordinary course of
Dencor's business.                                                    

     b) Any  contractual  obligation  incurred in excess of $25,000,  including,
     without limitation,  financing leases or purchase money obligations,  other
than contractual obligations identified on Schedule 3.16;             

     c) any material change in the contingent  obligations of Dencor,  by way of
guaranty, endorsement, indemnity, warranty or otherwise;              

     d) any damage,  destruction  or loss,  whether or not covered by insurance,
     that has had or may have a material  adverse  affect on the  properties  or
business of Dencor;                                                   

e) any waiver by Dencor of a valuable right or of a debt owed to it;  

f) any loans made by Dencor to its employees, officers or directors;  

     g) any increases in the annual rate of  compensation of any of the officers
or directors of Dencor;                                               

     h) any declaration or payment of any dividend or other  distribution of the
assets of Dencor; or                                                  

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     i) any  other  material  adverse  change  in,  the  business  or  financial
condition of Dencor.                                                  

     3.11 Taxes.  Dencor has duly  prepared and timely filed all federal,  state
and  local  income,  franchise,  sales,  use and other tax  returns  which  were
required to be filed with respect to the business,  operations,  sales or income
of Dencor,  where the failure to do so may have a material adverse effect on the
business or financial  condition of Dencor, and has paid all taxes shown on such
returns and on all assessments received by it to the extent that such taxes have
become due and payable.  The United States income tax returns of Dencor have not
been  audited by the Internal  Revenue  Service.  No  deficiency  assessment  or
proposed  adjustment  of Dencors  United States income tax or state or municipal
taxes is pending,  and Dencor has no knowledge of any proposed liability for any
tax to be imposed upon the properties or assets of Dencor for which there is not
an adequate reserve reflected in the balance sheet of Dencor at March 31, 1997. 

3.12 Patents and Proprietary Technology.                              

          (a)  Dencor is the holder of U.S.  Patent Number  4,819,180  issued on
               April 4, 1989 for a Variable-Limit Demand Controller for Metering
               Energy (the Dencor  Patent).  In  addition,  Dencor filed a U. S.
               Patent  application in April 1994 for an Adaptive Load Cycler for
               Controlled  Reduction of Energy  Use.The  business of Dencor does
               not, to the best of Dencors  knowledge,  infringe upon or violate
any patent rights or copyrights of others.        

          (b)  Except for a  trademark  registration  for a logo as set forth in
               the attached  Schedule 3.12 Dencor has not  registered,  or filed
               any  application  to register,  any other  trademark.  To Dencors
               knowledge,  the  business  of Dencor  does not  infringe  upon or
violate any trademarks or trade names of others.  

          (c)  To  Dencor's  knowledge,  it has not  misappropriated  any  trade
secrets of others.                                

          (d)  To the best of its knowledge Dencor is not obligated or under any
               liability  whatsoever  to make  royalty or other  payments to any
               owner, licensor of, or other claimant to, any patent,  copyright,
               trademark,  trade name or trade  secret,  with respect to the use
               thereof or in  connection  with the  conduct of the  business  of
Dencor or otherwise.                              

          (e)  Dencor has not  granted  any  material  licenses  or rights  with
respect to its business.                          

     3.13 Title to  Assets.  Dencor  holds all its assets  free and clear of any
mortgages,  liens or security interest, other than (a) the lien of taxes not yet
due or other statutory liens relating to governmental  obligations which are not
yet due, (b) security interests securing  indebtedness which is reflected on the
balance sheet at March 31, 1997 included in Schedule 3.9, or (c) statutory liens
(e.g.,  labor,  materialmen and mechanics  liens) for goods,  services and other
items provided under agreements or contracts listed in Schedule 3.13.           

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     3.14 Real Property. Dencor does not own any real property. Schedule 3.14 is
a  list  of  all  real  property,  including  office  space,  leased  by  Dencor
(collectively,  the "Dencor  Properties"),  showing  as to each  property  the  
identity of the lessor and the date of the lease. To Dencor's knowledge, all the
Dencor  Properties are being used in  conformance in all material  respects with
all zoning,  environmental  and other laws and regulations,  deed  restrictions,
covenants and lease provisions  applicable to the respective Dencor  Properties.
Dencor  has,  as to each  lease,  fulfilled  in all  material  respects  all its
obligations  under, and is in compliance in all other material respects with the
terms of, the lease, the company has not been informed that the lessor under any
of the leases has taken action, or threatened, to terminate the lease before the
expiration date specified in the lease,  and, the  transactions  contemplated by
this  Agreement will not be a basis for the lessor to terminate the lease before
that expiration date.                                                           

     3.15  Material  Agreements.  Except as  identified on Schedule 3.15 hereto,
Dencor is not a party to any agreement or contract,  written or oral,  requiring
payment  by or to it or  involving  an  obligation  of or to it of an  amount in
excess of  $25,000,  or to any  agreement  or  contract  to which  Dencor or any
affiliate of Dencor is a party or beneficiary.                                  

     3.16  Insurance.  Schedule  3.16  is a  complete  list of all  policies  of
insurance  maintained at the date of this Agreement by Dencor.  All the policies
of insurance listed on Schedule 3.16 are in full force and effect. The insurance
listed on  Schedule  3.16 is all the  insurance  which is  required by law to be
maintained with regard to Dencor, its business and assets.                      

     3.17  Employees.  Except for an agreement to pay Maynard L. Moe a salary of
$68,700 for 1997 plus two percent of Dencors  first  $100,000  pre-tax  profits,
plus four percent of pre-tax profits from $100,000 to $200,000, plus six percent
of pre-tax  profits in excess of $200,000,  Dencor has no employment  agreements
with any of its employees,  and all of its remaining  employees are employees at
will.                                                                           

3.18 Environmental Matters - Hazardous Materials.                     

     (a) There is no pending claim, lawsuit, agency proceeding,  or other legal,
quasi-legal  or  administrative  challenge  concerning  any of the operations of
Dencor in which relief is sought against Dencor in connection with the handling,
processing,  storage and/or  disposal of Hazardous  Materials and to the best of
Dencor's  knowledge  no such  claim,  litigation,  proceeding  or  challenge  is
proposed or threatened by any person or entity, or otherwise anticipated;       

     (b) For purposes of this Section 3.18, "Hazardous Materials" shall mean any
substance  which as of the date of this Agreement shall be listed as "hazardous"
or "toxic" or in the regulations  implementing the  Comprehensive  Environmental
Response,  Compensation and Liability Act, 42 U.S.C. 6901 et seq.  ("CERCLA") or
the Resource  Conservation and Recovery Act ("RCRA"),  42 U.S.C. Section 6901 et
seaq,  or which  has been or shall be  determined  at any time by any  agency or

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court to be a hazardous or toxic substance regulated under CERCLA, RCRA or other
similar  laws.  The  term  "Hazardous  Material"  shall  also  include,  without
limitation,   raw   materials,   building   components,   the  products  of  any
manufacturing  or other  activities  on the  Properties,  wastes,  petroleum and
source,  special nuclear or by-product  material as defined by the Atomic Energy
Act of 1954, as amended (42 U.S.C. 3011, et seq., as amended).                  

     (c) To the best of  Dencors  knowledge,  there are no  Hazardous  Materials
utilized in Dencors business or stored on the Dencor Properties.                

     3.19 Employee Benefit Plans. Dencor does not maintain or make contributions
to any  employee  benefit  plan  (within  the  meaning of  Sections  3(3) of the
Employee  Retirement Income Security Act of 1974, as amended  ("ERISA")),  bonus
plan and any other deferred compensation  agreement.  Dencor neither contributes
nor has ever  contributed to any "defined benefit plan" (as such term is defined
in  Section  3(35) of ERISA)  including  any  "multi-employer  plan"  within the
meaning of Section 40001(a)(3) of ERISA.                                        

     3.20  Licenses  and  Permits.  Dencor has all licenses and permits from all
governmental  authorities  which  are  necessary  to permit  it to  conduct  its
business in all material  respects as it is being  conducted at the date of this
Agreement. Dencor has operated its business in accordance with applicable law in
all material respects.                                                          

     3.21 Reorganization.  To the knowledge of Dencor,  Dencor has not taken any
action or failed to take any action which action or failure to take action would
jeopardize  the  qualification  of the  Merger as a  reorganization  within  the
meaning of Section 368(a) of the Code.  Without limiting the foregoing:  (i) Sub
is wholly owned  directly by Dencor,  and Sub has never owned or held any assets
and has never incurred any liabilities,  except for assets transferred to Sub in
connection  with  its  incorporation,  all of which  assets  will be held by the
Surviving Corporation  immediately following the Merger, (ii) Dencor has no plan
or intention  to cause the  Surviving  Corporation  to issue any shares of stock
following the Merger,  to reacquire any of the Dencor Common Stock issued in the
Merger,  to  liquidate  the  Surviving  Corporation,   to  merge  the  Surviving
Corporation with or into another  corporation,  to sell or otherwise  dispose of
any stock of the Surviving Corporation, or to cause the Surviving Corporation to
sell or otherwise  dispose of (except in the ordinary course of business) any of
its assets, (iii) following the Merger, the Surviving  Corporation will continue
at  least  one  significant  historic  business  line of PAI,  or use at least a
significant portion of PAIs historic business assets in a business, in each case
within the meaning of Treas.  Reg. (S)  1.368-1(d),  and (iv) neither Dencor nor
any of its Subsidiaries own, nor have any them owned during the past five years,
any capital stock of PAI.                                                       

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ARTICLE 4 

REPRESENTATIONS AND WARRANTIES OF SUB 
Sub represents and warrants to PAI as follows:                                  

     4.1 Corporate Status. Sub is a corporation organized,  validly existing and
in good  standing  under the laws of the State of Delaware and has all requisite
corporate  power  and  authority  necessary  for the  authorization,  execution,
delivery  and  performance  of  this  Agreement  and  the  consummation  of  the
transactions contemplated hereby.                                               

     4.2 Authorization.  When approved by the shareholders of Sub, all corporate
action on the part of Sub necessary for the authorization,  execution,  delivery
and  performance  of this  Agreement by Sub and the  consummation  by Sub of the
transactions  contemplated  hereby  will have been  taken,  and this  Agreement,
assuming due  execution by PAI and Dencor,  will  constitute a legal,  valid and
binding obligation of Sub enforceable in accordance with its terms,  except that
(a) the enforcement of certain rights and remedies  created by this Agreement is
subject to bankruptcy,  insolvency,  reorganization  and similar laws of general
application   affecting  the  rights  and  remedies  of  the  parties,  (b)  the
enforceability of any particular provision of this Agreement under principles of
equity or the availability of equitable remedies,  such as specific performance,
injunctive  relief,  waiver  or other  equitable  remedies,  is  subject  to the
discretion  of  courts  of  competent   jurisdiction,   and  (c)  any  court  or
administrative  body may refuse to enforce  the  indemnification  provisions  of
Article VI of this Agreement.                                                   

     4.3  Capitalization.  The authorized capital stock of Sub consists of 1,000
shares of Common  Stock,  $.001 par  value,  of which 100  shares are issued and
outstanding.  The foregoing  shares  constitute 100% of the outstanding  capital
stock of Sub and each of these shares has been d authorized  and validly  issued
and is fully paid and non-assessable. There are no options, warrants, conversion
privileges  or other rights of any nature  which are  presently  outstanding  to
purchase or granting the right to purchase any shares of Sub's  capital stock or
other securities of Sub.                                                        

ARTICLE V 

CONDITIONS OF DENCORS AND SUBS OBLIGATIONS AT CLOSING 

The obligation of each of Dencor and Sub to effect the Merger is subject to the 
fulfillment prior to or at the Closing of each of the following conditions:     

     5.1  Representations  and  Warranties  Correct.   The  representations  and
warranties contained in Article II hereof shall in all material respects be true
and correct on and as of the  Closing  with the same force and effect as if they
had been made at the Closing.                                                   

     5.2 Performance.  PAI shall have performed and complied with all agreements
contained in this  Agreement to be performed or complied with by it at or before
the Closing.                                                                    

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     5.3 Consents.  PAI shall have obtained all consents,  approvals and waivers
identified on Schedule 2.5. All permits, consents,  authorizations and approvals
of, registrations,  qualifications,  designations, declarations or filings with,
or notices to, any federal or state governmental  authority that are required to
be  obtained,  made or submitted  by PAI in  connection  with the Merger and the
other transactions  contemplated  hereby shall have been duly obtained,  made or
submitted and, if required, shall be effective on and as of the Closing.        

     5.4 Corporate  Proceedings.  The shareholders of Dencor shall have approved
the 1-for-50 reverse stock split of outstanding Dencor Common Stock so that each
50 shares of outstanding  Dencor Common Stock shall be deemed to be one share of
Dencor Common Stock and the amendment to Dencor's  Articles of  Incorporation to
authorize  1,000,000  shares of preferred  stock and to change  Dencor's name to
"Proven Alternatives, Inc." following the Merger.                               

     5.5 Opinion of Counsel.  Dencor will have  received an opinion from counsel
to PAI dated as of the Closing  substantially  in the form  attached as Schedule
4.6.                                                                            

     5.6 Legal Investment. At the Closing, the Merger shall be legally permitted
by all laws and regulations to which Dencor is subject.                         

     5.7  Compliance   Certificate.   PAI  shall  have  delivered  to  Dencor  a
certificate,  dated the Closing,  signed by the President of PAI and  certifying
that the  conditions  specified in  paragraphs  4.1,  4.2, 4.3 and 5.4 have been
fulfilled.                                                                      

     5.8  Employment  Agreements  Executed.  PAI shall have  delivered  executed
employment  agreements  between  PAI and  Maynard L. Moe (Moe) and  Theodore  A.
Hedman  (Hedman)  containing  mutually  acceptable  terms  and  conditions.  The
employment  agreement  for Moe  shall  be for a term  of at  least  three  years
following the Effective Time and shall provide for a salary of at least $100,000
per year.  The  employment  agreement for Hedman shall be for a term of at least
three years  following the  Effective  Time and shall provide for a salary of at
least $90,000 per year.                                                         

     5.9 Due Diligence  Review.  Dencor shall have completed and been reasonably
satisfied with its due diligence review of PAI.                                 

     5.10 Dissenters  Rights.  PAI shall have complied with all  requirements of
the DGCL  concerning  dissenters  rights of appraisal and no  stockholder of PAI
shall have exercised any dissenters rights of appraisal pursuant to the DGCL.   

     5.11 Completion of PAI Private Offering.  Before,  or simultaneously  with,
the Closing, PAI shall have completed an offering of securities of PAI, pursuant
to exemptions from federal and state securities registration requirements,  with
net proceeds of at least  $200,000 to be used as working  capital for the Dencor
Division,  as  defined is Section  8.11  below.  PAI shall  confer  with  Dencor
concerning  the terms of the offering  described  in the  previous  sentence and
terms of that  offering  shall be  subject  to the  approval  of  Dencor,  which
approval shall not be unreasonably withheld.                                    

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     5.12  Registration  Statement.  The registration  statement  required to be
filed  pursuant to Section 8.5 of this Agreement  (the  Registration  Statement)
shall have become  effective in accordance with the provisions of the Securities
Act. No stop order suspending the  effectiveness  of the Registration  Statement
shall  have been  issued by the SEC and remain in effect.  All  necessary  state
securities or Blue Sky authorizations shall have been received.                 

ARTICLE VI

CONDITIONS OF PAIs OBLIGATIONS AT THE CLOSING 

The obligation of PAI to effectuate the Merger is subject to the fulfillment    
prior to or at the Closing of each of the following conditions:                 

     6.1  Representations  and  Warranties  Correct.   The  representations  and
warranties  of Dencor and Sub  contained  in Articles III and IV hereof shall in
all material respects be true and correct on and as of the Closing with the same
force and effect as if they had been made at the Closing.                       

     6.2  Performance.  Each of Dencor and Sub shall have performed and complied
with all agreements contained in this Agreement to be performed or complied with
by each of them on or before the Closing.                                       

     6.3  Consents.  Dencor shall have  obtained  all  consents,  approvals  and
waivers  identified on Schedule 2.5. All permits,  consents,  authorizations and
approvals  of,  registrations,  qualifications,  designations,  declarations  or
filings with, or notices to, any federal or state  governmental  authority  that
are required to be obtained,  made or submitted by Dencor in connection with the
Merger  and the other  transactions  contemplated  hereby  shall  have been duly
obtained,  made or submitted  and, if required,  shall be effective on and as of
the Closing.                                                                    

     6.4 Corporate Proceedings. The shareholders of Dencor shall have approved a
1-for-50 reverse stock split of the outstanding shares of Dencor Common Stock so
that each 50 shares of outstanding  Common Stock,  no par value, of Dencor shall
be  deemed  to be one  share of  Dencor  Common  Stock,  no par  value,  and the
amendment to Dencor's Articles of Incorporation to authorize 1,000,000 shares of
preferred  stock  and to  change  Dencors  name  to  Proven  Alternatives,  Inc.
following the Merger.                                                           

     6.5 Legal Opinion. PAI will have received an opinion from counsel to Dencor
dated as of the Closing substantially in the form attached as Schedule 5.5.     

     6.7 Legal  Investment.  At the Closing,  the Merger by PAI shall be legally
permitted by all laws and regulations to which PAI is subject.                  

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     6.8  Compliance   Certificate.   Dencor  shall  have  delivered  to  PAI  a
certificate dated the Closing, signed by the President of each of Dencor and Sub
and certifying that the conditions specified in paragraphs 6.1, 6.2, 6.3 and 5.4
have been fulfilled.                                                            

ARTICLE VII 

INDEMNITIES 

     7.1 Indemnity by PAI. PAI agrees to indemnify Dencor on demand against, and
hold it harmless  from,  all losses,  judgments,  amounts paid in  settlement of
actions or claims, liabilities,  costs, damages and expenses (including, but not
limited to,  reasonable  attorneys'  fees and  disbursements),  accruing from or
resulting  by reason of any  breach of any of the  representations,  warranties,
covenants  or  agreements  made  or to be  performed  by PAI  pursuant  to  this
Agreement or any alleged breach thereof arising from a claim asserted by a third
party.                                                                          

     7.2 Indemnity by Dencor.  Dencor agrees to indemnify PAI on demand against,
and hold it harmless from, all losses, judgments,  amounts paid in settlement of
actions or claims, liabilities,  costs, damages and expenses (including, but not
limited to,  reasonable  attorneys'  fees and  disbursements),  accruing from or
resulting  by reason of any  breach of any of the  representations,  warranties,
covenants  or  agreements  made or to be  performed  by Dencor  pursuant to this
Agreement or any alleged breach thereof arising from a claim asserted by a third
party.                                                                          

     7.3 Third-Party  Claims.  As to any third-party  claim or action within the
purview of paragraph 7.1 or 7.2, the party  seeking to enforce  paragraph 7.1 or
7.2  shall:  (a) give the  other  party  prompt  written  notice of the claim or
action;  (b) cooperate  with the other party in connection  with the defense and
settlement  of the  claim or  action;  and (c) not  settle  the  claim or action
without the prior written consent of the other party, which consent shall not be
unreasonably withheld.                                                          

     7.4 Employee Plans  Indemnity.  PAI shall defend and indemnify  Dencor from
and against any and all claims  made by any  employee of PAI under any  employee
benefit  plan (within the meaning of Section  3(3) of the ERISA)  maintained  by
PAI;  provided  that Dencor  shall:  (a) give the prompt  written  notice of the
claim;  (b) cooperate with PAI in connection  with the defense and settlement of
the claim;  (c) permit PAI to control the defense and  settlement  of the claim;
and (d) not settle the claim  without the prior  written  consent of PAI,  which
consent shall not be unreasonable withheld.                                     

ARTICLE VIII

OTHER AGREEMENTS

     8.1  Confidentiality.  Prior to the Closing except as may be required under
the rules and  regulations  of any  securities  regulation  which applies to the
transaction  or as  required  by  the  rules  of any  exchange  upon  which  the
securities  of Dencor are  traded,  Dencor and PAI will hold in  confidence  all

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terms and  conditions of this  Agreement;  provided,  however,  either party may
provide  information  about  this  Agreement  in  connection  with any  reports,
statements  or the like  required to be given or made under  applicable  law and
except as may be necessary or appropriate in the performance of this Agreement. 

     8.2 Due Diligence Investigation. Each party agrees to make available to the
other party or its agents and  representatives at a reasonable time prior to the
Closing all  information  concerning  the  operation,  business,  contracts  and
properties  of each as the other may  reasonably  request.  Each party agrees to
cooperate  with the  other and to permit  the  other to visit  and  inspect  the
premises and physical assets of each and to discuss its business with the others
representatives.                                                                

     8.3 Best Efforts.  Dencor and PAI each agree to use reasonable best efforts
to cause the Closing to occur on or before December 31, 1997.                   

     8.4  Projections  and Other  Estimates.  Any projections or other estimates
included  in the  Information  Statements  or  otherwise  provided  to Dencor in
connection  with this  Agreement are good faith  estimates only and shall not be
interpreted  or construed as any  representation,  warranty,  guarantee or other
assurance by PAI that such projections or other estimates will be realize.      

     8.5  Registration  Statement  and  Proxy  Statement.  Dencor  and PAI shall
prepare and file with the SEC as soon as  practicable a proxy  statement for use
at the Stockholder  Meetings (the "Proxy  Statement"),  and Dencor shall prepare
and  file  with  the SEC as  soon  as  practicable  the  Registration  Statement
(including  the  Proxy  Statement  as a  prospectus  therein)  and shall use all
reasonable efforts to have the Registration  Statement declared effective by the
SEC as soon as  practicable.  Dencor  shall also take any action  required to be
taken under state  securities or "Blue Sky" laws in connection with the issuance
of the Dencor Common Stock  pursuant to the Merger and the exercise of PAI Stock
Options  after the Effective  Time.  PAI and Dencor shall furnish each other all
information concerning PAI and the holders of PAI Common Stock or Dencor and the
holders of Dencor  Common  Stock,  as the case may be,  required  for use in the
Registration  Statement and the Proxy  Statement,  and PAI and Dencor each shall
take such other actions as the other may reasonably  request in connection  with
the preparation of such  Registration  Statement and the Proxy Statement and the
actions to be taken pursuant to this Section 8.5.                               

     8.6 Compliance  with the Securities  Act. Prior to the Effective  Time, PAI
shall  cause  to  be  prepared  and  delivered  to  Dencor  a  list  (reasonably
satisfactory  to counsel for Dencor)  identifying  all persons who,  immediately
prior to the Closing,  may be deemed to be  "affiliates"  of PAI as that term is
used in  paragraphs  (c) and (d) of Rule  145  under  the  Securities  Act  (the
"Affiliates").  PAI shall use its  reasonable  best efforts to cause each person
who is  identified as an Affiliate in such list to deliver to Dencor on or prior
to the Effective Time a written  agreement,  in the form previously  approved by
the parties  hereto,  that such  Affiliate  will not sell,  pledge,  transfer or
otherwise  dispose of any shares of Dencor  Common Stock issued to such possible
Affiliate pursuant to the Merger,  except pursuant to an effective  registration
statement or in compliance  with Rule 145 or an exemption from the  registration
requirements of the Securities Act.                                             

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     8.7 Fees and Expenses.  All costs and expenses  incurred in connection with
this  Agreement and the  transactions  contemplated  hereby shall be paid by the
party incurring such costs and expenses; provided however, that if the Merger is
not  consummated,  PAI immediately upon request by Dencor shall reimburse Dencor
for the costs and expenses  reasonably incurred by Dencor in connection with the
transactions  contemplated  by this  Agreement,  which costs and expenses  shall
include  internal  time  of  Dencor's  employees  and  reasonable  out-of-pocket
expenses associated with the transactions contemplated by this Agreement.       

     8.8 PAI Stock  Options.  No later than the Effective  Time,  each option to
purchase  shares of PAI Common Stock (a "PAI Stock Option") which is outstanding
immediately  prior to the  Effective  Time  pursuant to PAI's stock option plans
(the "Stock  Plans") shall become and represent an option to purchase the number
of shares of Dencor  Common Stock (a  "Substituted  Option")  (decreased  to the
nearest full share)  determined by  multiplying  (i) the number of shares of PAI
Common Stock subject to such PAI Stock Option immediately prior to the Effective
Time by (ii) the Exchange Ratio, at an exercise price per share of Dencor Common
Stock  (rounded down to the nearest whole cent) equal to the exercise  price per
share of PAI Common Stock immediately prior to the Effective Time divided by the
Exchange Ratio. Dencor shall pay cash to holders of PAI Stock Options in lieu of
issuing  fractional shares of Dencor Common Stock upon the exercise of PAI Stock
Options for shares of Dencor Common Stock.  After the Effective Time,  except as
provided above in this Section 8.8, each Substituted Option shall be exercisable
upon the same terms and  conditions  as were  applicable  under the  related PAI
Stock Option simultaneously with the Effective Time.                            

     8.9  Reasonable  Efforts.  Upon the terms and subject to the conditions set
forth  in this  Agreement,  each of the  parties  agrees  to use all  reasonable
efforts to take,  or cause to be taken,  all actions,  and to do, or cause to be
done,  and to assist and cooperate  with the other parties in doing,  all things
necessary,  proper or advisable to consummate  and make  effective,  in the most
expeditious   manner   practicable,   the  Merger  and  the  other  transactions
contemplated  by this  Agreement and the prompt  satisfaction  of the conditions
hereto,  including  (a) the obtaining of all  necessary  actions or  nonactions,
waivers, consents and approvals from governmental entities and the making of all
necessary  registrations  and filings and the taking of all reasonable  steps as
may be necessary to obtain an approval or waiver from,  or to avoid an action or
proceeding  by any  governmental  entity,  (b) the  obtaining  of all  necessary
consents,  approvals or waivers  from third  parties,  (c) the  defending of any
lawsuits  or  other  legal  proceedings,  whether  judicial  or  administrative,
challenging this Agreement or the consummation of the transactions  contemplated
hereby,  including  seeking  to have any  stay or  temporary  restraining  order
entered by any court or other Governmental  Entity vacated or reversed,  and (d)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement; provided, however, that neither
of the parties  shall be under any  obligation  to take any action to the extent
that the Board of Directors of such party shall conclude in good faith that such
action would cause a breach of that board of  directors'  fiduciary  obligations
under applicable law.                                                           

     8.10 Public  Announcements.  Before  issuing any press release or otherwise
making any public  statements with respect to the  transactions  contemplated by
this  Agreement,  Dencor and Sub,  on the one hand,  and PAI, on the other hand,
will consult with each other,  and will  undertake  reasonable  efforts to agree
upon the terms of such press release, and shall not issue any such press release
or make any such public statement prior to such  consultation,  except as may be
required by applicable law.                                                     

     8.11  Operations of Dencor.  After the Effective  Time,  the operations and
business of Dencor  immediately  prior to the Effective  Time shall be continued
under a  division  (the  "Dencor  Division")  of  Dencor  and/or  the  Surviving
Corporation  that will operate  under the name "Dencor" and for which Maynard L.
Moe ("Moe") and Theodore  Hedman  ("Hedman")  shall serve as President  and Vice

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President,  respectively,  and the  employees of which shall consist of at least
the  same  employees  as were  employees  of  Dencor  immediately  prior  to the
Effective  Time.  The Dencor  Division shall maintain its offices in the Denver,
Colorado  metropolitan area unless otherwise agreed by both Moe and Hedman.  The
terms and conditions of the Dencor Employee Policy Manual in effect  immediately
prior to the  Effective  Time shall  continue  in effect for at least five years
after the  Effective  Time.  The officers and  employees of the Dencor  Division
shall be provided with employee  benefits under plans and programs which, in the
aggregate,  are no less favorable than those provided  pursuant to the plans and
programs  of  Dencor  and PAI in effect on the date  hereof  (including  but not
limited to stock option, incentive compensation, deferred compensation, pension,
life insurance,  medical, profit sharing (including 401(k)),  severance,  salary
continuation  and fringe  benefits).  If Dencor,  PAI or any of their respective
subsidiaries  shall at any time provide benefits to their retirees,  retirees of
the Dencor Division shall be provided  benefits which, in the aggregate,  are no
less  favorable  than  those  provided  to  retirees  of  Dencor,  PAI and their
respective  subsidiaries.  For purposes of  eligibility  to  participate  in and
vesting  in  all  benefits   provided  to  retirees,   officers  and  employees,
individuals  who are  retirees,  officers  and  employees  of  Dencor  as of the
Effective  Time will be  credited  with their  years of service  with Dencor and
years of service with prior employers to the extent service with prior employers
is taken into account under  analogous plans of PAI. With respect to officers or
employees of Dencor at the Effective Time who become  eligible to participate in
the medical plan of PAI, (i) no condition  that was eligible for coverage  under
any medical plan of Dencor  shall be excluded  from  coverage  under the medical
plan  of PAI as a  preexisting  condition  and  (ii)  amounts  paid  before  the
Effective  Time by officers and  employees of Dencor under any medical  plans of
Dencor with respect to the plan year  containing  the Effective Time shall after
the  Effective  Time be taken into account in applying  deductibles  and maximum
outofpocket  limits  applicable under the medical plan of PAI provided as of the
Effective  Time with respect to the balance of such plan year to the same extent
as if such  amounts  had been paid  under  such  medical  plan of PAI;  provided
however  that,  notwithstanding  the  foregoing,  for a  period  of  five  years
following the Effective  Time  employees of the Dencor  Division  shall have the
right to continue their medical coverage under Dencor's medical health insurance
plan with Kaiser  Permanente as in existence at the Effective Time. With respect
to employees of Dencor or the Dencor who are or will be terminated, Dencor shall
maintain Dencor's  severance policy as in effect at the Effective Time, or shall
replace  such  policy  with  a  policy   providing   equal  or  more   favorable
compensation, for a period of at least five years from the Effective Time.      

     8.12 Designation of Director. For a period of at least five years following
the  Effective  Time,  Dencor shall  utilize its best efforts to cause Moe, or a
designee of Moe reasonably acceptable to the Dencor Board of Directors, to serve
as a  Director  of  Dencor,  which  Director  shall  be  entitled  to  the  same
compensation,  reimbursement  of expenses and perquisites as are provided to the
other directors of Dencor.                                                      

     8.13  Promissory  Notes.  Attached to this  Agreement as Schedule 8.13 is a
list of all  outstanding  loans to Dencor from  shareholders of Dencor and other
lenders,  which loans are  evidenced by  promissory  notes (the  "Notes") in the
aggregate  principal  amount of $108,250,  which bear  interest at rates ranging
from 10 percent per annum to 18.25 percent per annum.  The  aggregate  principal
amount and accrued  interest  owed pursuant to the Notes as of June 30, 1997 was
$177,570.90.  With the exception of the Note from Dencor to PAI, which is due on
or before July 31,  1997,  the Notes are due upon  demand.  Dencor and PAI agree
that after the Effective Time, PAI will cause sufficient funds to be distributed
or loaned to Dencor with which to satisfy the  repayment  of the Notes that have
not be repaid as of the Effective Time.                                         

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ARTICLE IX

TERMINATION 

     9.1 Termination.  This Agreement may be terminated at any time prior to the
Closing:                                                                        

a)   by mutual consent of Dencor and PAI;                   

          b)   by Dencor or PAI if, without fault of the terminating  party, the
               Closing shall not have  occurred on or before  December 31, 1997;
or                                                

          c)   by Dencor, if the representations and warranties of PAI contained
               herein  shall not be true,  complete and accurate in all material
respects as of the date when made; or             

          d)   by PAI, if the representations and warranties of Dencor contained
               herein  shall not be true,  complete and accurate in all material
respects as of the date when made.                

     9.2  Effect  of  Termination.  In the  event  of the  termination  of  this
Agreement pursuant to Section 9.1, this Agreement shall become null and void and
no party hereto (or any of their  respective  directors,  officers or employees)
shall have any liability or further obligation to any other party hereto, except
as provided in this Section 9.2 and in Section 10.7 of this  Agreement.  Nothing
contained in this Section shall relieve any party from  liability for any breach
of this Agreement occurring before the date of termination.                     

ARTICLE X 

MISCELLANEOUS 

     10.1 Entire Agreement. This Agreement, including the schedules and exhibits
hereto,  constitutes the entire  agreement  between the parties  hereto,  and no
party  shall be liable or bound to the  other in any  manner by any  warranties,
representations or covenants except as specifically set forth herein.           

     10.2 Assignment.  The terms and conditions of this Agreement shall inure to
the  benefit  of and be binding  upon the  parties  hereto and their  respective
successors and assigns.                                                         

     10.3 Third  Parties.  Nothing in this  Agreement,  express or  implied,  is
intended to confer  upon any party,  other than the  parties  hereto,  and their
respective  successors  and  assignees,  any rights,  remedies,  obligations  or
liabilities under or by reason of this Agreement,  except as expressly  provided
herein.                                                                         

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     10.4 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Colorado.                                              

     10.5  Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.                          

     10.6 Titles and Subtitles.  The titles and subtitles used in this Agreement
are for  convenience  only  and  are not to be  considered  in  construing  such
documents.                                                                      

     10.7 Notices and Other  Communications.  Any notice or other  communication
required or  permitted to be given under this  Agreement  must be in writing and
will be deemed effective on the first business day on which or after which it is
delivered in person or sent by facsimile,  if promptly confirmed in writing,  or
on the fourth  business  day after the day on which  mailed by first  class mail
from within the United States of America, to the following addresses:           

If to Dencor:                                                                   

Dencor Energy Cost Controls, Inc.                                               
1450 West Evans                                                                 
Denver, Colorado 80223                                                          
Attention:  Maynard L. Moe                                                      
Fax No: (303) 422-3903                                                          

If to PAI:                                                                      

Proven Alternatives, Inc.                                                       
1740 Army Street                                                                
San Francisco, California 94124                                                 
Attention:  Christopher T. Condy                                                
Fax No: (415) 285-5805                                                          

Dencor or PAI may at any time  change  the  address  to which  notices  or other
communications are to be sent by a notice to the other given as provided in this
Section 10.7.                                                                   

     10.8  Survival  of   Representations   and   Warranties.   The   respective
representations,  warranties,  covenants and agreements of the parties contained
in or made pursuant to this Agreement  shall survive the Closing for a period of
two years from the date  hereof,  whereupon,  the same shall expire and be of no
further force and effect. Neither party shall commence any action for any breach
of any such  representations,  warranties,  covenants  or  agreements  after the
expiration of such two-year period.                                             

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     10.9  Amendment and Waiver.  Any provision of this Agreement may be amended
and the  observance of any term hereof may be waived  (either  prospectively  or
retroactively  and  either  generally  or in a  particular  instance)  only by a
document in writing signed by Dencor and PAI.                                   

10.10 Broker's Fees.                                                  

          a) PAI  represents  and  warrants  that it has  retained  no finder or
     broker in connection with the transactions  contemplated by this Agreement.
     PAI  agrees  to  indemnify  and to hold  Dencor  harmless  of and  from any
     liability for any  commission or  compensation  in the nature of a finder's
     fee to any broker or other  person or firm (and the costs and  expenses  of
     defending  against such liability or asserted  liability) for which PAI, or
any of its employees or representatives, is responsible.              

          b) Dencor  represents  and warrants  that it has retained no finder or
     broker in connection with the  transactions  contemplated by this Agreement
     and agrees to indemnify  and to hold PAI harmless of and from any liability
     for any commission or  compensation  in the nature of a finder's fee to any
     broker or other  person or firm (and the costs and  expenses  of  defending
     against such  liability or asserted  liability)  for which  Dencor,  or any
employees or representatives of Dencor is responsible.                

     10.11  Delays or  Omissions.  It is  agreed  that no delay or  omission  to
exercise any right, power or remedy accruing to any party to this Agreement upon
any breach or default of the other party under this  Agreement  shall impair any
such  right,  power or remedy,  nor shall it be  construed  to be a waiver of or
acquiescence  in any such  breach or  default or any  similar  breach or default
thereafter  occurring;  nor shall any waiver of any single  breach or default be
deemed a waiver  of any  other  breach  or  default  theretofore  or  thereafter
occurring.                                                                      

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.                                           

DENCOR ENERGY COST CONTROLS, INC.                                               

By:                                                                             
-------------------------------                                             
Its: President                                                  

PROVEN ALTERNATIVES, INC.                                                       

By:                                                                             
-------------------------------                                             
Its: President                                                  

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Annex II

ss. 262.  Appraisal rights.                                                     

     (a) Any  stockholder  of a  corporation  of this State who holds  shares of
stock on the date of the making of a demand  pursuant to subsection  (d) of this
section with respect to such shares,  who continuously holds such shares through
the effective date of the merger or  consolidation,  who has otherwise  complied
with  subsection  (d) of this section and who has neither  voted in favor of the
merger or consolidation  nor consented thereto in writing pursuant to ss. 228 of
this title  shall be entitled  to an  appraisal  by the Court of Chancery of the
fair  value  of the  stockholder's  shares  of  stock  under  the  circumstances
described in subsections  (b) and (c) of this section.  As used in this section,
the word "stockholder"  means a holder of record of stock in a stock corporation
and also a member of record of a nonstock  corporation;  the words  "stock"  and
"share"  mean and  include  what is  ordinarily  meant by those  words  and also
membership or membership interest of a member of a nonstock corporation; and the
words  "depository  receipt"  mean a  receipt  or other  instrument  issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository. 

     (b)  Appraisal  rights  shall be  available  for the shares of any class or
series of stock of a constituent  corporation in a merger or consolidation to be
effected  pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263, or ss.264 of this title:

          (1)  Provided,  however,  that no appraisal  rights under this section
     shall be  available  for the shares of any class or series of stock,  which
     stock, or depository  receipts in respect thereof, at the record date fixed
     to determine the stockholders  entitled to receive notice of and to vote at
     the  meeting  of  stockholders  to act  upon the  agreement  of  merger  or
     consolidation,  were either (i) 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. or (ii) held
     of  record  by more  than  2,000  holders;  and  further  provided  that no
     appraisal  rights  shall  be  available  for any  shares  of  stock  of the
     constituent  corporation  surviving  a merger if the merger did not require
     for its approval the vote of the stockholders of the surviving  corporation
as provided in subsection (f) of ss.251 of this title.                

          (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
     under this section shall be available for the shares of any class or series
     of stock of a constituent  corporation if the holders  thereof are required
     by the terms of an agreement of merger or consolidation  pursuant to ss.ss.
     251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:                                                      

               a. Shares of stock of the corporation surviving or resulting from
          such  merger or  consolidation,  or  depository  receipts  in  respect
thereof;                                                    

               b.  Shares  of  stock of any  other  corporation,  or  depository
          receipts  in  respect  thereof,  which  shares of stock or  depository
          receipts at the effective date of the merger or consolidation  will be
          either  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. or held of record
by more than 2,000 holders;                                 

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               c. Cash in lieu of  fractional  shares or  fractional  depository
          receipts  described in the foregoing  subparagraphs  a. and b. of this
paragraph; or                                               

               d. Any  combination of the shares of stock,  depository  receipts
          and  cash  in lieu  of  fractional  shares  or  fractional  depository
          receipts  described in the  foregoing  subparagraphs  a., b. and c. of
this paragraph.                                             

          (3) In the event all of the stock of a subsidiary Delaware corporation
     party to a merger  effected  under ss.253 of this title is not owned by the
     parent corporation immediately prior to the merger,  appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.   

     (c) Any corporation may provide in its  certificate of  incorporation  that
appraisal  rights  under this section  shall be available  for the shares of any
class or series of its stock as a result of an amendment to its  certificate  of
incorporation,  any  merger  or  consolidation  in which  the  corporation  is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation.  If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.                    

(d) Appraisal rights shall be perfected as follows:                   

          (1) If a proposed merger or  consolidation  for which appraisal rights
     are  provided  under this  section is to be  submitted  for  approval  at a
     meeting of stockholders,  the  corporation,  not less than 20 days prior to
     the  meeting,  shall  notify each of its  stockholders  who was such on the
     record date for such  meeting  with  respect to shares for which  appraisal
     rights  are  available  pursuant  to  subsection  (b)  or (c)  hereof  that
     appraisal  rights  are  available  for  any or all  of  the  shares  of the
     constituent  corporations,  and shall include in such notice a copy of this
     section.  Each  stockholder  electing to demand the appraisal of his shares
     shall  deliver  to the  corporation,  before  the taking of the vote on the
     merger or consolidation, a written demand for appraisal of his shares. Such
     demand will be sufficient if it reasonably  informs the  corporation of the
     identity of the  stockholder  and that the  stockholder  intends thereby to
     demand the  appraisal of his shares.  A proxy or vote against the merger or
     consolidation shall not constitute such a demand. A stockholder electing to
     take  such  action  must  do so by a  separate  written  demand  as  herein
     provided.  Within  10 days  after  the  effective  date of such  merger  or
     consolidation,  the  surviving or resulting  corporation  shall notify each
     stockholder  of each  constituent  corporation  who has complied  with this
     subsection  and has not  voted in favor of or  consented  to the  merger or
     consolidation  of the date that the  merger  or  consolidation  has  become
effective; or                                                         

          (2) If the merger or consolidation was approved pursuant to ss. 228 or
     ss.253 of this  title,  each  constituent  corporation  either  before  the
     effective  date  of  the  merger  or   consolidation  or  within  ten  days
     thereafter,  shall  notify  each of the  holders  of any class or series of
     stock of such constituent  corporation who are entitled to appraisal rights
     of the approval of the merger or  consolidation  and that appraisal  rights
     are  available  for any or all  shares of such  class or series of stock of
     such  constituent  corporation,  and shall include in such notice a copy of
     this  section;  provided  that,  if the  notice  is given on or a after the
     effective date of the merger or  consolidation,  such notice shall be given
     by the surviving or resulting  corporation to all such holders of any class
     or  series  of stock of a  constituent  corporation  that are  entitled  to
     appraisal rights.  Such notice may, and, if given on or after the effective
   date of the merger or consolidation, shall, also notify such stockholders

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of the effective date of the merger or consolidation.  Any stockholder  entitled
to  appraisal  rights  may,  within 20 days  after the date of  mailing  of such
notice,  demand in writing  from the  surviving  or  resulting  corporation  the
appraisal  of  such  holder's  shares.  Such  demand  will be  sufficient  if it
reasonably  informs the  corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's shares.
If such notice did not notify  stockholders  of the effective date of the merger
or  consolidation,  either (i) each such  constituent  corporation  shall send a
second notice before the effective date of the merger or consolidation notifying
each of the  holders  of any  class  or  series  of  stock  of such  constituent
corporation  that are entitled to appraisal  rights of the effective date of the
merger or  consolidation  or (ii) the surviving or resulting  corporation  shall
send such a second  notice to all such  holders  on or within 10 days after such
effective date; provided,  however, that if such second notice is sent more than
20 days following the sending of the first notice,  such second notice need only
be sent to each  stockholder  who is  entitled to  appraisal  rights and who has
demanded  appraisal of such holder's shares in accordance with this  subsection.
An affidavit of the secretary of assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given  shall,  in the  absence of fraud,  be prima  facie  evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice,  each constituent  corporation may fix, in advance, a record date
that  shall be not more  than 10 days  prior to the date the  notice  is  given,
provided,  that if the  notice  is given on or after the  effective  date of the
merger or  consolidation,  the record date shall be such effective.  date. If no
record date is fixed and the notice is given prior to the  effective  date,  the
record date shall be the close of business on the day next  preceding the day on
which the notice is given.                                                      

     (e)  Within  120  days   after  the   effective   date  of  the  merger  or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with  subsections  (a) and (d) hereof and who is otherwise  entitled to
appraisal  rights,  may file a petition  in the Court of  Chancery  demanding  a
determination   of  the   value  of  the   stock   of  all  such   stockholders.
Notwithstanding  the  foregoing,  at any time within 60 days after the effective
date of the merger or  consolidation,  any  stockholder  shall have the right to
withdraw  his demand for  appraisal  and to accept  the terms  offered  upon the
merger or consolidation.  Within 120 days after the effective date of the merger
or  consolidation,  any  stockholder  who has complied with the  requirements of
subsections  (a) and (d)  hereof,  upon  written  request,  shall be entitled to
receive  from  the  corporation  surviving  the  merger  or  resulting  from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or  consolidation  and with respect to which  demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written  statement shall be mailed to the stockholder  within 10 days after
his  written  request  for such a statement  is  received  by the  surviving  or
resulting  corporation  or within 10 days  after  expiration  of the  period for
delivery of demands for  appraisal  under  subsection  (d) hereof,  whichever is
later.                                                                          

     (f) Upon the filing of any such  petition  by a  stockholder,  service of a
copy thereof  shall be made upon the surviving or resulting  corporation,  which
shall  within 20 days after such  service  file in the office of the Register in
Chancery in which the petition was filed a duly  verified  list  containing  the
names and  addresses of all  stockholders  who have  demanded  payment for their
shares and with whom  agreements  as to the value of their  shares have not been
reached by the  surviving or  resulting  corporation.  If the petition  shall be
filed  by  the  surviving  or  resulting  corporation,  the  petition  shall  be
accompanied  by such a duly  verified  list.  The  Register in  Chancery,  if so
ordered by the  Court,  shall  give  notice of the time and place  fixed for the
hearing of such petition  by registered of certified  mail  to  the surviving or

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resulting corporation and to the stockholders shown on the list at the addresses
therein  stated.  Such notice shall also be given by 1 or more  publications  at
least  1  week  before  the  day of  the  hearing,  in a  newspaper  of  general
circulation published by the City of Wilmington, Delaware of such publication as
the Court deems  advisable.  The forms of the notices by mail and by publication
shall be  approved  by the Court,  and the costs  thereof  shall be borne by the
surviving or resulting corporation.                                             

     (g) At the  hearing  on  such  petition,  the  Court  shall  determine  the
stockholders who have complied with this section and who have become entitled to
appraisal  rights.  The Court may require the  stockholders who have demanded an
appraisal for their shares and who hold stock  represented  by  certificates  to
submit  their  certificates  of stock to the  Register in Chancery  for notation
thereon of the pendency of the  appraisal  proceedings;  and if any  stockholder
fails to comply with such  direction,  the Court may dismiss the proceedings as 
to such stockholder.                                                            

     (h) After determining the stockholders entitled to an appraisal,  the Court
shall appraise the shares, determining their fair value exclusive of any element
of value  arising  from the  accomplishment  or  expectation  of the  merger  or
consolidation,  together  with a fair rate of interest,  if any, to be paid upon
the amount  determined  to be the fair value.  In  determining  the fair rate of
interest,  the Court may consider all relevant  factors,  including  the rate of
interest which the surviving or resulting  corporation  would have had to pay to
borrow money  during the pendency of the  proceeding.  Upon  application  by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceedings, the Court may, in its discretion, permit discovery
or other pretrial  proceedings and may proceed to trail upon the appraisal prior
to the final  determination  of the  stockholder  entitled to an appraisal.  Any
stockholder  whose name appears on the list filed by the  surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates  of stock to the  Register in Chancery,  if such is  required,  may
participate fully in all proceedings  until it is finally  determined that he is
not entitled to appraisal rights under this section.                            

     (i) The Court  shall  direct the  payment of the fair value of the  shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto.  Interest may be simple or compound, as the Court
may  direct.  Payment  shall be made to each  such  stockholder,  in the case of
holders of  uncertificated  stock  forthwith,  and the case of holders of shares
represented  by  certificates  upon  the  surrender  to the  corporation  of the
certificates  representing  such stock.  The  Court's  decree may be enforced as
other decrees in the Court of Chancery may be enforced,  whether such  surviving
or resulting corporation be a corporation of this State or of any state.        

     (j) The costs of the  proceeding  may be  determined by the Court and taxed
upon the  parties  as the  Court  deems  equitable  in the  circumstances.  Upon
application  of a  stockholder,  the Court  may  order  all or a portion  of the
expenses   incurred  by  any   stockholder  in  connection  with  the  appraisal
proceeding,  including,  without limitation,  reasonable attorney's fees and the
fees and  expenses of experts,  to be charged pro rata  against the value of all
the shares entitled to an appraisal.                                            

     (k) From and after the effective  date of the merger or  consolidation,  no
stockholder who has demanded his appraisal  rights as provided in subsection (d)
of this  section  shall be  entitled  to vote such  stock for any  purpose or to
receive  payment  of  dividends  or other  distributions  on the  stock  (except
dividends or other  distributions  payable to  stockholders  of record at a date
which is prior to the effective date of the merger or consolidation);  provided,
however,  that if no petition  for an  appraisal  shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver

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to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation,  either within 60
days after the  effective  date of the merger or  consolidation  as  provided in
subsection  (e) of this section or thereafter  with the written  approval of the
corporation,  then the right of such  stockholder  to an appraisal  shall cease.
Notwithstanding the foregoing,  no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder  without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.       

     (l) The  shares of the  surviving  or  resulting  corporation  to which the
shares  of such  objecting  stockholders  would  have  been  converted  had they
assented to the merger or consolidation  shall have the status of authorized and
Unicode shares of the surviving or resulting corporation.                       

5 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PREM14A’ Filing		Date		First		Last			Other Filings
		12/15/03		118
		6/1/03		119
		9/1/02		118		119
		8/31/02		119
		4/1/01		117
		3/29/00		124
		12/31/99		98		119			10KSB,  NT 10-K
		12/31/98		98		118			10KSB,  DEF 14A,  NTN 10K,  PRE 14A
		5/14/98		34
		12/31/97		18		151			10KSB,  8-K
Filed on:		8/11/97
		8/5/97		54
		7/31/97		29		150
		7/29/97		7		28
		6/30/97		24		150			10QSB,  8-K,  8-K/A
		6/27/97		88		105
		6/12/97		73		76
		6/3/97		25
		5/28/97		54
		5/1/97		73
		4/5/97		54
		3/31/97		20		141			10QSB,  10QSB/A
		3/28/97		75
		3/14/97		75
		3/1/97		117
		2/28/97		40		75
		1/24/97		88		90
		1/19/97		53
		1/2/97		117
		1/1/97		66
		12/31/96		20		140			10KSB,  DEF 14A
		12/13/96		25
		12/12/96		53
		12/4/96		53
		11/25/96		53
		11/13/96		29
		9/30/96		24					10QSB
		6/30/96		24					10QSB
		3/31/96		20		128
		1/1/96		66
		12/31/95		20		140			10KSB,  10KSB/A,  DEF 14A
		9/30/95		24					10QSB
		6/30/95		24
		3/31/95		24
		1/1/95		66
		12/31/94		20		140
		12/31/93		20		70
		4/1/93		125
		3/31/93		21		23
		12/31/92		20		23
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