File No. 70-8523
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
THE ISSUANCE OF COMMON SHARES IN CONNECTION WITH
THE ACQUISITION OF AN ENERGY SERVICES BUSINESS
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, P.C.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTION.
Paragraph III of Item 1 of the Application-Declaration is hereby
amended and restated in its entirety as follows:
III. The Highland Energy Acquisition Plan. The Highland Energy acquisition
will be a tax-free reorganization under Section 368(a)(2)(D) of the
Internal Revenue Code structured as a statutory merger of Highland Energy
into Newco. At the time of merger, Newco will be a wholly-owned subsidiary
of EUA in order to preserve the tax-free nature of the transaction.
Immediately following the merger, EUA will transfer its ownership of Newco
to Cogenex. By virtue of the merger, Newco shall change its name to EUA
Highland Corporation. In the merger, common shares of EUA will be issued
in exchange for the transfer to EUA of the outstanding common stock of
Highland Energy, which will be cancelled by operation of law. The common
shares to be issued by EUA have been registered under the Securities Act of
1933 (the "'33 Act") by a registration statement on Form S-4 (File No. 33-
50099) filed with the Commission on August 27, 1993 and made effective by
order of the Commission dated November 22, 1993.
Payment will be made to the stockholders of Highland Energy in common
shares, taken at their average closing sale price over the 5 trading days
before the relevant payment date. The Highland Energy stockholders will
receive $4,200,000 at Closing plus a deferred earn-out amount ranging from
zero up to $3,800,000 depending on the level of performance of the
purchased business for a three year period from the Closing (the "Earn-Out
Period"). The definitive agreement to be entered into by the parties shall
provide for a calculation of net income during the Earn-Out Period which
will determine the earn-out amount, if any. A credit shall be awarded
toward the earn-out amount for the "income" impact of the net operating
loss of the Highland Energy business as determined on an annual basis by a
firm of independent auditors. Assuming an EUA common share price of $22.00
per share, up to 363,636 common shares of EUA could be issued in the
acquisition. The actual number of shares to be issued will be determined
in accordance with the formula to be included in the definitive agreement.
Cogenex will pay cash in lieu of common shares for any fractional shares
which otherwise would be issued by EUA. By operation of the merger,
Cogenex will acquire all of the liabilities of Highland Energy.
EUA's obligation to issue common shares under the earn-out is capped
at the number of common shares issued at the initial Closing, regardless of
whether the value of those shares equals the dollar earn-out amount. In
the event that the dollar earn-out amount exceeds the value of the number
of common shares EUA is able to issue, EUA shall pay the difference in
cash.
The acquisition of Highland Energy is beneficial to Cogenex in
numerous respects. The acquisition will enable Cogenex to increase its
market share, provide energy related services in a more efficient, cost
effective manner, enhance its competitive position within the industry, and
increase Cogenex's profitability.
The acquisition price was arrived at through extensive negotiations
between representatives of Cogenex and Highland Energy. During the
negotiation process, and subsequently during the due diligence period,
Cogenex considered a number of analyses, both formal and informal, which
confirmed management's decision that the aggregate price was a reasonable,
fair value to pay for Highland Energy. Moreover, the structure of the
acquisition price, of which nearly 50% is contingent on future performance,
further mitigates Cogenex's risk of overpayment for Highland Energy. The
contingent payment is especially critical to the transaction's structure
because much of Cogenex's valuation of Highland Energy lies in its future
earnings potential as opposed to current earnings or book value. At
Closing, Cogenex expects to record goodwill in the amount of approximately
$1,700,000.
A portion of the aggregate purchase price is directly attributable to
quantitative considerations which include valuation of existing assets and
projections of earnings contributions anticipated to be realized by Cogenex
post acquisition.
Highland Energy is directly a party to two recent demand-side
management contracts with Texas Utilities and Duke Power which will be
implemented over the 1995-1997 time frame. In addition, as a partner in
the EUA/Highland Energy Partners, L.P., Highland Energy is indirectly a
participant in a demand-side management contract with Public Service of
Colorado (10 MW) and numerous energy management and cogeneration contracts
with host customers. These contracts form the basis for the economic
evaluation of Highland Energy. Cogenex's projections reveal that the
earnings potential from Highland Energy exceeds its historical and marginal
cost of capital. In addition, Highland Energy has substantial net
operating loss carry forwards which can be utilized to reduce Cogenex's
income tax obligations.
The Highland Energy acquisition affords substantial qualitative
factors to Cogenex, which in the aggregate are of equal importance to
Cogenex's acquisition decisions. These factors expect to yield substantial
benefit enabling Cogenex to increase market share and improve
profitability. Accordingly, the purchase price also reflects Cogenex's
qualitative valuation of the benefits. The Highland Energy acquisition
brings with it its incremental market share. As noted earlier, Highland
Energy has several demand-side management contracts. These contracts,
along with existing host relationships, customer prospects, and
supplier/vendor relationships will enable Cogenex to expand its market
share quickly and cost effectively. Highland Energy's principal market is
in the mid-west where Cogenex has limited presence, but it intends to
aggressively expand its business activity in this region following the
Commission's recent decision to lift the so-called 50% revenue restriction
previously imposed on Cogenex. The Highland Energy acquisition allows
Cogenex to penetrate this market by acquiring an existing infrastructure of
people, customers, and suppliers. The acquisition price reflects, in part,
the purchase of this market-entry strategy as opposed to a riskier, longer-
term outlet for EUA Day and EUA Nova products, and existing energy
efficiency services offered by Cogenex.
Highland Energy brings to Cogenex a staff of approximately twenty
individuals, about half of which are degreed engineers. The Highland
Energy staff has a solid reputation within the industry which Cogenex has
experienced first hand. The experience of these individuals will broaden
Cogenex's existing engineering and technical base, thereby enabling Cogenex
to better serve its existing and future customers. The engineering and
technical staff of the consolidated entity will help foster a competitive
advantage of Cogenex within the market.
The combination of Cogenex and Highland Energy should result in
synergy's in many areas including marketing, finance and administration,
engineering, and customer service. Immediately, Cogenex should realize
pre-tax savings annually through the closure of its Texas office.
Cogenex and Highland Energy have executed a letter agreement (Exhibit
B-1), the terms of which are more fully set forth in a Plan of
Reorganization and Agreement of Merger (Exhibit B-2), both of which are
Exhibits to this application-declaration. The obligation of EUA and
Cogenex to effect the acquisition will be subject to various closing
conditions, including the approval of the Commission under the Act.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The estimated fees, commissions and expenses to be paid or incurred
directly or indirectly in connection with the proposed transaction are as
follows:
Securities and Exchange Commission Fee $ 2,000*
EUA Service Corporation Expenses 2,000
Fees and Expenses of Company Counsel 130,000
TOTAL $ 134,000
(*actual)
ITEM 5. PROCEDURE.
Item 5 is hereby amended by adding the following:
(c) Because Newco will be a subsidiary of Cogenex, Cogenex proposes
to file reports with the Commission, pursuant to Rule 24 on a quarterly
basis, 45 days after the end of each calendar quarter, beginning the first
calendar quarter after this application-declaration is granted and
permitted to become effective. Such reports will consist of Newco's
balance sheets, statements of income and statements of cash flows.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (*filed herewith)
Item 6 is hereby amended and restated in its entirety as follows:
(a) Exhibits.
Exhibit A-1 Declaration of Trust of EUA, dated
April 2, 1928, as amended (Exhibit
A-3, File No. 70-3188; Exhibit 1 to
EUA's 8-K reports for April in each
of the years 1957, 1962, 1966,
1968, 1972, and 1973, File No.
1-5366; Exhibit A-1(a), Amendment
No. 2 to Form U-1, File No.
70-5997, Exhibit 4-3, Registration
No. 2-72589; Exhibit 1 to
Certificate of Notification, File
No. 70-6713; Exhibit 1 to
Certificate of Notification, File
No. 70-7084; Exhibit 3-2, Form 10-K
of EUA for 1987, File No. 1-5366).
Exhibit A-2 Form of Articles of Organization of Newco.
Exhibit A-3 Form of By-laws of Newco.
Exhibit B-1 Letter Agreement with Highland Energy, Inc.
dated September 20, 1994.
Exhibit B-2 Plan of Reorganization and Agreement of
Merger.
*Exhibit F Opinion of counsel.
Exhibit G Proposed Form of Notice.
Exhibit H Bank Lines of Credit.
(b) Financial Statements (confidential treatment requested).
Exhibit b-1 Pro forma Income Statements, Balance Sheets
and Statements of Capitalization for EUA
Cogenex Corporation and the EUA System, all
as of December 31, 1994.
Exhibit b-2 Analysis of Purchase Price.
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
Executive Vice President
Dated April 27, 1995
April 27, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Re:File No. 70-8523: Eastern Utilities
Associates and EUA Cogenex Corporation--
Issuance of Common Shares in Connection With
the Acquisition of an Energy Services
Business
Ladies and Gentlemen:
As counsel for Eastern Utilities Associates ("EUA") and its
wholly-owned subsidiary, EUA Cogenex Corporation ("Cogenex"), we
are furnishing this opinion to be used in connection with the
application-declaration on Form U-1 dated November 14, 1994 under
the Public Utility Holding Company Act of 1935 filed on behalf of
EUA and Cogenex with the Securities and Exchange Commission (the
"Commission"), File No. 70-8523, as amended (the "Application-
Declaration"), concerning the issuance by EUA of up to 363,636 of
its common shares to fund the acquisition of Highland Energy
Group, Inc. ("Highland") through the merger of Highland with and
into a to-be-acquired subsidiary of EUA, EUA Acquisition Corp.
("Newco"), the ownership of which shall be transferred post-
acquisition from EUA to Cogenex (the "Proposed Transaction"), all
as more fully described in the Application-Declaration. A
Registration Statement of Form S-4 relating to EUA's common
shares was filed with the Commission under the Securities Act of
1933 and such Registration Statement became effective on February
22, 1993.
In the Application-Declaration, Cogenex has further
requested authorization for the period ending December 31, 1997
to make investments in Newco in an aggregate amount not to exceed
$10,000,000 for working capital, repayment of short-term loans,
capital expenditures and other corporate purposes. Such
investments in Newco by Cogenex would take the form of any
combination of capital contributions and short-term loans which
loans would be effected upon the same terms as Cogenex borrows
funds under the EUA system credit lines. If it becomes necessary
in order to obtain more favorable terms, Cogenex has also
requested authorization to guaranty performance obligations of
Newco in connection with ongoing operations in an aggregate
amount not to exceed $10,000,000.
It is our opinion, subject to the additional assumptions,
exceptions and qualifications hereinafter stated, that in the
event that the Proposed Transaction is consummated in accordance
with the Application-Declaration:
all State laws applicable to the Proposed Transaction
will have been complied with by EUA, Cogenex and Newco;
EUA, the issuer of the common shares, is a validly
organized and duly existing voluntary association under the laws
of The Commonwealth of Massachusetts and the common shares in
connection with the Proposed Transaction will be validly issued,
fully paid and non-assessable, and the holders thereof will be
entitled to the rights and privileges appertaining thereto set
forth in the Declaration of Trust of EUA, as amended, which is
the document defining such rights and privileges;
Newco will legally acquire the assets of Highland
through a statutory merger;
Cogenex will legally acquire from EUA all of the issued
and outstanding capital stock of Newco;
(e) Newco, the issuer of notes to evidence borrowings from
Cogenex, in accordance with the Application-Declaration, is a
validly organized and duly existing corporation organized under
the laws of The Commonwealth of Massachusetts and any notes
issued by Newco will be valid and binding obligations of Newco in
accordance with their terms;
(g) Cogenex will legally acquire any notes issued to it by
Newco in accordance with the Application-Declaration; and
(h) The consummation of the Proposed Transactions will not
violate the legal rights of the holders of any of the securities
issued by EUA, Cogenex or Newco or by Eastern Edison Company
("Eastern Edison"), Blackstone Valley Electric Company
("Blackstone"), Newport Electric Corporation ("Newport"), Montaup
Electric Company ("Montaup"), EUA Service Corporation ("EUA
Service"), EUA Energy Investment Corporation ("EUA Energy"), EUA
Ocean State Corporation ("EUA Ocean State"), Ocean State Power
("OSP I"), Ocean State Power II ("OSP II"), OSP Finance Company
("OSP Finance"), EUA Transcapacity, Inc. ("EUA Transcapacity"),
Northeast Energy Management, Inc. ("NEM"), EUA Cogenex-Canada
Inc. ("Cogenex-Canada") and EUA Citizens Conservation Services,
Inc. ("CCS"), all associate companies of EUA, Cogenex and Newco.
This opinion in addition to being subject to the
consummation of the Proposed Transaction in accordance with the
Application-Declaration is also subject to the following
additional assumptions, exceptions and qualifications:
compliance with such order or orders as the Commission
may issue from time to time upon the Application-Declaration and
the continued effectiveness of the Registration Statement on Form
S-4 relating to the EUA common shares;
the accuracy of information furnished to us (a) as to
the outstanding securities of EUA, Cogenex, Newco, Eastern
Edison, Blackstone, Newport, Montaup, EUA Service, EUA Energy,
EUA Ocean State, OSP I, OSP II, OSP Finance, EUA TransCapacity,
NEM, Cogenex-Canada and CCS and (b) that there is no provision or
condition in any note or other document in connection with
outstanding short-term borrowings of any of those companies
limiting the transactions which are the subject of the
Application-Declaration;
that requirements of applicable state securities or
"blue sky" laws will have been complied with;
that the common shares are properly listed on the New
York Stock Exchange and the Pacific Stock Exchange;
that the enforceability of the Proposed Transaction may
be subject to and affected by applicable bankruptcy,
receivership, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws affecting the enforcement of the rights
and remedies of creditors generally (including, without
limitation, such as may deny giving effect to waivers of rights
to debtors or guarantors); and such duties and standards as are
or may be imposed on creditors, including, without limitation,
good faith, reasonableness and fair dealing under any applicable
statute, rule, regulation or judicial decision; and
that the enforceability of the Proposed Transaction may
be subject to and affected by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and the exercise of equitable
powers by a court of competent jurisdiction (and no opinion is
given herein as to specific performance or as to the availability
of other equitable remedies or equitable relief of any kind).
This opinion relates only to federal law and the laws of The
Commonwealth of Massachusetts and we express no opinion with
respect to any other jurisdiction. To the extent that certain
matters addressed may involve the laws of other states, we have
assumed that such laws are not materially different from the laws
of The Commonwealth of Massachusetts.
We consent to the use of this opinion in connection with the
Application-Declaration filed with the Commission.
Very truly yours,
McDERMOTT, WILL & EMERY
EXHIBIT B-1 Financial Statements filed with confidential treatment requested
EXHIBIT B-2 Analysis of Purchase Price filed with confidential treatment
requested
