File No. 70-8255
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
THE ISSUANCE OF COMMON SHARES IN CONNECTION WITH
THE ACQUISITION OF TWO ENERGY SERVICES BUSINESSES
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
EUA COGENEX CORPORATION
P.O. Box 2333, BOSTON, MASSACHUSETTS 02107
(Name of companies filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent of
applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, BOSTON, MASSACHUSETTS 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, ESQ.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
EUA and Cogenex propose to amend and restate the information in the second
paragraph of Section IV of Item 1 of this Application-Declaration on Form U-1
relating to the proposed acquisition of Northeast Energy Management, Inc., a
Maine corporation (NEMI) as follows:
In connection with the merger, EUA will issue to the sole stockholder of
NEMI an amount of EUA common shares which equals an aggregate consideration for
NEMI of $19,800,000.00, plus an amount equal to the accounts receivable of NEMI
due under an agreement with Central Maine filed herewith as Exhibit K to be
received by NEWCO which relate to the period prior to the Closing, less the
liabilities of NEMI assumed by operation of law in connection with the merger
of NEMI into NEWCO (the "Purchase Price"). The valuation methodology utilized
by the parties in negotiating the purchase price involved a discounted cash
flow analysis based on the megawatt hour savings already achieved by NEMI under
the terms of the contract with Central Maine and for which NEMI is already
receiving monthly payments from Central Maine. The accounts receivable of NEMI
at the Closing are estimated to be $413,001 through January 30, 1994, and the
assumed liabilities as of the Closing Date are estimated to be approximately
$8,050,950. The Purchase Price, estimated to be approximately $12,162,051 as
calculated on Exhibit L hereto and more fully described on Exhibit I-1 hereto,
shall be paid at Closing which is anticipated to occur during the time in which
EUA's common shares are trading ex-dividend. Assuming an EUA common share
price of $25.75 per share, approximately 472,312 common shares of EUA would be
issued in the acquisition. The actual number of EUA Shares to be delivered at
Closing shall be determined by dividing the Purchase Price, calculated as
described above, by the arithmetic average of (x) the average of the high and
low selling price of EUA common shares on the first day prior to the Closing
Date that such shares are trading ex-dividend and (y) the average of the high
and low selling price of EUA common shares on the second day prior to the
Closing Date that such shares are trading ex-dividend. Each high and low
selling price shall be as reported in The Wall Street Journal. The common
shares of EUA will be registered under the '33 Act and applicable Blue Sky laws
for resale by the NEMI stockholder.
EUA and Cogenex also propose to amend the information in Section VI of
Item 1 by adding the following sentence at the end of the first paragraph in
Section VI:
The Commission in its order dated December 8, 1993 on this Application-
Declaration reserved jurisdiction over the NEMI acquisition. EUA and Cogenex
hereby request that the Commission release its jurisdiction over the NEMI
acquisition upon issuing an order on the NEMI acquisition.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (* Filed herewith).
Section (a) of Item 6 is amended as follows:
(a) Exhibits.
*Exhibit L Purchase Price Calculation.
Section (b) of Item 6 is amended as follows:
(b) Financial Statements.
*b-10 Audited Financial Statements of Northeast Energy
Management, Inc. for the period ended
December 31, 1993.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned Applicants have duly caused this statement to be signed
on their behalf by the undersigned duly authorized individuals.
EASTERN UTILITIES ASSOCIATES
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
EUA COGENEX CORPORATION
By: /s/ Basil G. Pallone
Basil G. Pallone
Vice President
Dated: January 27, 1994
EXHIBIT L
EUA COGENEX CORPORATION
PURCHASE PRICE FOR NORTHEAST ENERGY MANAGEMENT, INC.
Purchase Price $ 19,800,000
+ Accounts Receivable as of 12/31/93 186,801
+ Accounts Receivable est. through 1/31/94 226,200
- - General Liabilities as of 12/31/93 6,563,490
- - Other Assumed Liabilities 1,487,460 (a)
Adjusted Purchase Price $ 12,162,051 (b)
Est. EUA Share Price $ 25.75
Approximate Number of EUA Common Shares 472,312
(a) Pursuant to Section 3.1 of the Agreement of Merger, NEMI and
the Shareholder are required to discharge any contingent
amounts due to Jeffrey Jeter and Energy Investment, Inc.
$1,487,460 is an estimate of the amount that NEMI and the
Shareholder will have to pay to discharge these contingent
amounts and under the terms of the Agreement of Merger, they
are to be treated as "Assumed Liabilities". They have not
been booked as liabilities as of December 31, 1993 because
they only become payable in connection with the consummation
of the merger.
(b) Adjusted purchase price does not include the $500,000 cash
payment to the NEMI shareholder, Angus S. King, Jr., in
consideration for a five year non-competition agreement.
The adjusted purchase price is not impacted by the
Stockholder's equity deficit at December 31, 1993 of
($38,818). The deficit is the result of shareholder
distributions of taxable income that has been reflected as
deferred revenue for book purposes. As the deferred revenue
is recognized in the future, the $38,818 will be restored to
Stockholder's equity.
31579\028\10APPAVW.01
NORTHEAST ENERGY MANAGEMENT, INC.
_______
FINANCIAL STATEMENTS
for the year ended December 31, 1993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Northeast Energy Management, Inc.
We have audited the accompanying balance sheet of Northeast
Energy Management, Inc. (the "Company") as of December 31, 1993, and
the related statements of income, stockholder's equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the 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 audit provides 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
Northeast Energy Management, Inc. at December 31, 1993, and the
results of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.
As discussed in Note H to the financial statements, the
Company has restated its retained earnings at December 31, 1992.
Boston, Massachusetts
January 25, 1994
NORTHEAST ENERGY MANAGEMENT, INC.
BALANCE SHEET
December 31, 1993
_______
ASSETS
Current assets:
Cash $ 206,593
Accounts receivable 186,801
Prepaid expenses 1,401
Total current assets 394,795
Property and Equipment (Note B):
Furniture and equipment 37,770
Less: accumulated depreciation (18,389)
Net property and equipment 19,381
Other assets (Note B):
Project costs 8,487,580
Deferred charges 176,053
Other 1,724
Less: accumulated amortization (1,461,010)
Total other assets 7,204,347
Total assets $7,618,523
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable 121,064
Accrued interest payable 6,229
Notes payable, current portion (Note C) 1,000,000
Total current liabilities 1,127,293
Notes payable, net of current portion (Note C) 5,436,197
Contingencies (Note G)
Total liabilities 6,563,490
Deferred revenue (Note B) 1,093,851
Stockholder's equity:
Common stock - $.01 par value, 100,000 shares
authorized, issued and outstanding 1,000
Additional paid-in capital 48,883
Retained earnings (Note H) -
Distributions from net deferred revenue (Notes F and H) (88,701)
Total stockholder's equity (38,818)
Total liabilities, deferred revenue and
stockholder's equity $7,618,523
The accompanying notes are an integral
part of the financial statements
2
NORTHEAST ENERGY MANAGEMENT, INC.
STATEMENT OF INCOME
for the year ended December 31, 1993
_______
Revenue (Note B):
Fees from Central Maine Power Co. $2,556,735
Less: Engineering royalty fees (Note E) 37,147
Net revenue from energy savings projects 2,519,588
Operating expenses:
Depreciation and amortization 657,920
General and administrative expenses 600,004
Total operating expenses 1,257,924
Income from operations 1,261,664
Other income (expense):
Investment income 5,391
Gain on sale of investment 9,115
Interest expense (484,099)
Total other (expense) (469,593)
Net income $ 792,071
The accompanying notes are an integral
part of the financial statements
3
NORTHEAST ENERGY MANAGEMENT, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
for the year ended December 31, 1993
_______
Distributions
Additional from Net Total
Paid-In Retained Deferred Stockholder's
Common Stock Capital Earnings Revenues Equity
Beginning balance $1,000 $48,883$421,970 $471,853
Restatement (Note H) (421,970)$(50,363)(472,333)
Balances restated 1,000 48,883- (50,363) (480)
Net income 706,15785,914792,071
Distributions (706,157)(124,252)(830,409)
Ending balance $1,000 $48,883 - $(88,701)$(38,818)
The accompanying notes are an integral
part of the financial statements
4
NORTHEAST ENERGY MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1993
_______
Cash flows from operating activities:
Net income $ 792,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 657,920
Deferred revenue recognized currently (242,317)
Gain on sale of investment (9,115)
Changes in operating assets and liabilities:
Accounts receivable 201,772
Accounts payable (227,510)
Accrued interest payable (4,771)
Other, net (1,612)
Net cash provided by operating activities 1,166,438
Cash flows from investing activities:
Project costs (480,648)
Proceeds from sale of short-term investments
and marketable securities 378,386
Purchase of short-term investments and marketable
securities (121,333)
Net cash (used) by investing activities (223,595)
Cash flows from financing activities:
Proceeds from drawdown on long-term debt 775,902
Repayments of long-term debt (700,000)
Distributions to stockholder (830,409)
Net cash provided by financing activities (754,507)
Net increase in cash 188,336
Cash, beginning of year 18,257
Cash, end of year $ 206,593
Cash paid during the year for:
Interest 488,870
The accompanying notes are an integral part
of the financial statements.
5
NORTHEAST ENERGY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
_______
A. General:
Northeast Energy Management, Inc. (the "Company") was established
in January 1989, to develop, under contract with Central Maine
Power Co. (CMP) 9.5 megawatts of electrical conservation capacity.
Under the original contract, the Company is paid by CMP for the
actual electrical savings realized from its conservation projects
at facilities of its customers (host customers) for a fifteen-year
period. Under an amendment to the contract signed September 11,
1991, the company was given authority by CMP to develop an
additional 1.3 megawatts of electrical conservation capacity.
These additional projects are referred to as Stage VI projects.
On August 16, 1993, the sole stockholder of the Company entered
into a letter of intent to sell all of the outstanding capital
stock of the Company to EUA Cogenex Corporation, a wholly-owned
subsidiary of Eastern Utilities Associates, effective January 31,
1994.
B. Summary of Significant Accounting Policies:
Revenue
Fees from CMP received under the original contract, are
recognized as billed to CMP on a monthly basis based on the
energy savings realized by the host customer.
Payments from CMP for Stage VI projects are received by the
Company when construction is completed and are initially
recorded as deferred revenue. The payments are recognized as
revenue over the six-year life of the contracts as energy
savings are realized.
Project Costs and Amortization
Projects costs are accumulated for each active project and are
amortized using the straight-line method over the life of the
related contract. Project costs include expenses relating to the
project, engineering costs identified for a particular project
and an allocable share of the Company's overhead expenses and
capitalized interest during the construction period. Certain
project costs which are reimbursed to the Company by the host
customers are recognized as a reduction in project costs when
received. If projects are discontinued, the unamortized portion
of the related project is included in the amortization expense
in the year of discontinuance.
Property and Equipment
Property and equipment is carried at cost. Depreciation of
property and equipment is provided using accelerated methods
over estimated useful lives of 5 to 7 years.
Deferred Charges
In October, 1992 the Company paid a fee of $176,053 to its
lender to set an interest rate ceiling of 8% on its variable
rate note (see Note C) for a period of four years. This amount
is being amortized over the four-year term of the agreement.
Income Taxes
The Company has elected to be treated as an S Corporation under
IRC Section 1362(a). Under this election, the Company's net
taxable income or loss is reportable by the stockholder;
consequently, there is no provision for corporate income taxes
in the accompanying financial statements.
There are certain permanent and temporary differences between
the Company's 1993 net income as presented in the statement of
income and taxable income. The following is a reconciliation
between the Company's net income and taxable income.
1993 net income $792,071
Net deferred revenue previously
recognized in taxable income (85,914)
Non-taxable gains (7,619)
Net taxable income $698,538
C. Notes Payable:
At December 31, 1993, the Company has variable rate (7% at
December 31, 1993) notes payable outstanding of $6,436,197. The
notes are collateralized by the income and assets of the Company
and are personally guaranteed by the Company's stockholder.
Maturities of notes payable in the five years following 1993 are
as follows:
1994 $1,000,000
1995 1,250,000
1996 1,700,000
1997 1,500,000
1998 986,197
$6,436,197
D. Rent:
The Company rents space under an operating lease which requires
monthly lease payments of $790 through May 31, 1994. At such
time, the lease may be renewed for an additional year.
E. Engineering Royalty Fees:
The Company received professional consulting services for
marketing, engineering analysis, design, construction management
and measurement of energy savings of various projects. For the
first seven years after completion of a project, the Company is
obligated to pay a royalty of 2.5% of the gross payments received
by the Company from CMP for each related project, less
amortization of total construction costs of the project. The
royalty rate is 3.5% of the gross receipts from CMP for each
project.
F. Stockholder Distributions:
The Company has routinely followed the practice of making cash
distributions to its stockholder of the taxable income. Because
certain income has been recognized for income tax purposes when
received, cumulative taxable income has exceed cumulative income
recorded under generally accepted accounting principles (GAAP).
As a result, distributions to the stockholder as of December 31,
1993 have included $88,701 in excess of the cumulative income
earned by the Company on a GAAP basis. Such excess distributions
have been reflected in stockholder equity section of the
accompanying balance sheet in the line entitled "Distributions
from net deferred revenues." To the extent that the net deferred
revenues are recognized in future periods they will reduce the
recorded amount of "Distributions from net deferred revenues"
until such amounts are eliminated.
G. Contingencies:
In connection with the so-called Stage VI projects, the Company is
liable to CMP for payments received for energy savings that are
not ultimately realized. Similarly, its Stage VI project host
customers are liable to the Company for certain unrecovered
project costs. At December 31, 1993 the amount of the foregoing
contingent liability to CMP was $1,231,451 while the contingent
receivable from its Stage VI host customers was $844,574.
H. Restatement of Retained Earnings:
The Company's previously reported retained earnings at
December 31, 1992 of $421,970 included $1,336,168 of revenues and
$863,835 of operating expenses related to the so-called Stage VI
projects. In years prior to 1993, the Company recognized all of
the revenue and expense related to Stage VI projects at the time
construction was completed. In 1993, it was determined that such
revenue and expenses should be deferred and recognized over the
performance period of the related energy savings contracts (See
Note B). Accordingly retained earnings at December 31, 1992 has
been restated to $0 to reflect this accounting for these projects.
To the extent that distributions in 1992 exceeded the current
adjusted retained earnings, such amounts are included as
"Distributions from Net Deferred Revenues."
