SEC File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GENERAL PUBLIC UTILITIES CORPORATION ("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
ENERGY INITIATIVES, INC. ("EI")
One Upper Pond Road
Parsippany, New Jersey 07054
(Names of companies filing this statement and addresses
of principal executive offices)
GENERAL PUBLIC UTILITIES CORPORATION
(Name of top registered holding company parent of applicants)
T. G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service Corporation New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054
B. L. Levy, President
K. A. Tomblin, Esq., Secretary
Energy Initiatives, Inc.
One Upper Pond Road
Parsippany, New Jersey 07054
(Names and addresses of agents for service)<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
A. By Orders dated September 12, 1994 (HCAR No. 35-
26123), December 18, 1992 (HCAR No. 35-25715) and June 16, 1990
(HCAR No. 35-25108), the Commission, among other things,
authorized EI, a non-utility subsidiary of GPU, to engage in
preliminary project development and administrative activities
("Project Activities") in connection with its investments in
certain qualifying cogeneration facilities and small power
production facilities each as defined in the Public Utility
Regulatory Policies Act of 1978, exempt wholesale generators, as
defined in Section 32 of the Act and foreign utility companies,
as defined in Section 33 of the Act. Project Activities include
engineering, consulting, management and other project development
and operating services for a fee and engineering and other
similar activities associated with project development activities
and the management of EI's investments in projects and load
management and energy storage system projects.
EI now proposes from time to time through January 31,
2002 to acquire limited partner interests in the EnviroTech
Investment Fund I Limited Partnership, a Delaware partnership,
and any successor or affiliated limited partnership having
substantially similar investment objectives and terms (the
EnviroTech Investment Fund I Limited Partnership and all such
successor or affiliated limited partnerships are herein
collectively referred to as the "EnviroTech Partnership"). The
amount of all such acquisitions by EI will, in the aggregate, not
exceed $10,000,000. In addition, GPU proposes from time to time
1<PAGE>
through such date to make capital contributions of up to $10
million to EI for purposes of making such acquisitions.
B. The organization of the EnviroTech Partnership is
being sponsored by the Edison Electric Institute ("EEI"), a non-
profit industry-wide membership organization comprised of
electric utility companies throughout the United States. The
limited partners thereof ("Limited Partners") will be EEI member
companies and their affiliates, subsidiaries, parent holding
companies or qualified pension or profit-sharing plans sponsored
by such companies. The targeted size of the EnviroTech
Partnership's investment pool is $75 million to $100 million per
limited partnership, with a minimum commitment of $25 million
necessary for an initial closing. The interests to be acquired
by EI will in the aggregate represent not more than 9.9% of the
Limited Partner interests in any EnviroTech Partnership.
C. The sole general partner of the EnviroTech
Partnership ("General Partner") will be Advent International
Limited Partnership, a Delaware limited partnership of which
Advent International Corporation ("AIC") is the general partner.
AIC is a leading venture capital investment firm with extensive
experience managing other technology oriented investments in the
energy and environmental sectors. As of August 11, 1994, AIC had
over $1 billion in capital under management.
1. Investment Objectives
The EnviroTech Partnership is being formed to invest in
companies (each a "Portfolio Company") engaged in commercializing
electrotechnologies and renewable energy technologies that
promote environmental and economic responsibility. These
2<PAGE>
investments will support the electric utility industry's response
to the "Climate Challenge," which is an important element of the
Administration's Climate Change Action Plan. The "Climate
Challenge" is intended to demonstrate that voluntary efforts can
cost effectively achieve both economic and environmental gains.
A key objective of the EnviroTech Partnership is to
make investments that will contribute to the reduction, avoidance
or sequestering of greenhouse gas emissions; help utilities and
their customers handle waste by-products more effectively or
produce or manufacture goods or services more cost effectively;
improve the efficiency of the production, storage, transmission,
and delivery of energy; and provide investors with attractive
opportunities relating to the evolving utility business climate
which meet such objectives.
In selecting suitable investments, the EnviroTech
Partnership will focus on the following technology sectors, among
others: alternate and renewable energy technologies, including
photovoltaic, biomass and wind power technologies; environmental
and waste treatment technologies and services, including
electrotechnologies used in waste and water treatment and waste
management, waste reduction and recycling/recovery; energy
efficiency technologies, processes and services, including
heating, ventilation and air conditioning equipment, induction
heating technologies, high efficiency lighting technologies,
energy storage and motor efficiency technologies;
electrotechnologies used in the reduction of medical waste,
including plasma, pyrolysis and microwave processing;
technologies and processes promoting alternative energy for
3<PAGE>
transportation, including electric-powered vehicles and related
components, such as fuel cells; and other technologies related to
improving the generation, transmission and delivery of
electricity, including automated meter reading, distribution
transformers, thyristor technologies, active noise cancellation,
energy storage systems and interactive energy management systems.
The EnviroTech Partnership will invest in companies at
all stages of development to diversify the portfolio while
achieving the best match of environmental and economic results.
There will be a minimum of investment in start-up companies, with
most investments being in early and late expansion-stage
development opportunities.
The EnviroTech Partnership is intended to provide its
utility investors with non-financial benefits in addition to a
return on investment. Among other non-financial benefits, the
Limited Partners will be provided an estimate of the potential
energy savings and potential reduction of CO2 emissions
associated with each portfolio investment in a format that would
allow them to report these items in accordance with Section
1605(b) of the Energy Policy Act of 1992. Further, whenever
appropriate, AIC will facilitate interactions between Limited
Partners and the Portfolio Companies. Finally, through their
involvement in the EnviroTech Partnership, Limited Partners will
have the opportunity to gain experience and participate in
emerging markets and business sectors relevant to the electric
utility industry.
2. Partnership Agreement.
4<PAGE>
The term of the EnviroTech Partnership is 10 years
from the date of the Partnership Agreement, subject to extension
for up to two years upon agreement of the General Partner and
Limited Partners holding 66-2/3% of the combined capital
contributions of all Limited Partners. (Partnership Agreement,
Sec. 6.1). The Partnership Agreement provides that, not later
than the date of becoming a Limited Partner, each Limited Partner
must contribute to the capital of the EnviroTech Partnership up
to 10% of the capital commitment of such Limited Partner. The
balance of each Limited Partner's capital commitment will be due
from time to time through the seventh anniversary of the final
closing (i.e., not later than January 31, 2002, as such date may
be extended) in installments of not less than 5% nor more than
25% thereof, as determined by the General Partner. (Partnership
Agreement, Sec. 3.1).
Subject to certain limitations set forth in the
Partnership Agreement, the management, operation and
implementation of policy of the EnviroTech Partnership will be
vested exclusively in the General Partner. (Partnership
Agreement, Sec. 2.1(a)). Among other powers, the General Partner
will have discretion to invest the Partnership's funds in
accordance with investment guidelines set forth in the charter
(Appendix B to the Partnership Agreement). The investment
guidelines provide criteria on approved types of technologies,
size of investment and portfolio diversification. In addition,
the investment guidelines require the General Partner to consider
certain non-financial public policy criteria, including
assessments of the likelihood of reducing greenhouse gas and
5<PAGE>
other emissions, of reducing costs and increasing efficiencies to
customers of products incorporating selected technologies, and of
enabling electric utilities to remain competitive in existing
markets. The investment guidelines may be amended or modified
only upon the affirmative vote of Limited Partners representing
at least 75% of the commitments of all Limited Partners.
(Partnership Agreement, Sec. 1.5(b)).
Among other limitations or investment activities, the
General Partner, without the prior approval of the EnviroTech
Partnership's Advisory Board ("Advisory Board"), may not cause or
permit the EnviroTech Partnership to invest more than 7.5% of the
EnviroTech Partnership total capital commitments in any single
Portfolio Company; invest more than 5% of the total capital
commitments in securities of Portfolio Companies that are readily
tradeable on established securities markets; or invest in hostile
takeover transactions or in highly leveraged buy-outs.
(Partnership Agreement, Sec. 2.1(c)). In addition, certain
limitations on the investment authority of the General Partner
would apply following a "substantial change in management" of the
General Partner. (Partnership Agreement, Sec. 2.1(b)).
The Advisory Board will be comprised of the Limited
Partners and EEI and will meet semi-annually with the General
Partner to review general matters of investment policy, but will
have no authority to bind the EnviroTech Partnership or take part
in its management. (Partnership Agreement, Sec. 1.7).
Under the terms of the Partnership Agreement, in
consideration of its services to the EnviroTech Partnership, the
General Partner will be paid an annual management fee equal to 2-
6<PAGE>
1/2% of the total amount of the capital commitments of the
partners through the first 6 years, thereafter declining by 1/4
of 1% on each anniversary to 1.5% commencing on the 9th
anniversary date. (Partnership Agreement, Sec. 2.3(a)). In
addition, the General Partner will be entitled to reimbursement
for all reasonable expenses incurred in the organization of the
EnviroTech Partnership up to $195,000 and for other third party
expenses incurred on behalf of the EnviroTech Partnership.
(Partnership Agreement, Sec.2.3(b)).
The Limited Partners will have no authority to remove
the General Partner. However, the General Partner will be deemed
removed (unless waived by the affirmative vote of Limited
Partners representing at least 75% of the total capital
contributions of all Limited Partners) following the occurrence
of certain specified events, including a final determination by a
court of competent jurisdiction that the General Partner is
guilty of any gross negligence, willful malfeasance, fraud,
material breach of its fiduciary duty to the EnviroTech
Partnership or the Limited Partners or bad faith, or any
"substantial change in the management" of the General Partner.
(Partnership Agreement, Sec. 6.3(e)). Following any resignation
or removal of the General Partner, the Limited Partners may agree
to continue the Partnership by selecting a substitute General
Partner. (Partnership Agreement, Sec. 6.3(c)).
All EnviroTech Partnership income and losses (including
income and losses deemed to have been realized when securities
are distributed in kind) will generally be allocated 80% to and
among the Limited Partners and 20% to the General Partner
7<PAGE>
(Partnership Agreement, Sec. 3.3). All cash distributions to the
partners will be made first to the Limited Partners until they
have received aggregate distributions equal to the aggregate of
their respective capital contributions, and thereafter 20% to the
General Partner and 80% to the Limited Partners. (Partnership
Agreement, Sec. 3.4).
Distributions in kind of the securities of Portfolio
Companies that are listed on or otherwise traded in a recognized
over-the-counter or unlisted securities market may be made at the
option of the General Partner. (Partnership Agreement, Sec.
3.5). To the extent required, EI requests authority to sell any
such Portfolio Company securities received as a distribution in
kind. Unless EI obtains approval from this Commission to retain
such Portfolio Company securities, EI undertakes that it will in
good faith attempt to sell such Portfolio Company securities as
soon as practicable, but in no event later than one year from the
date of its receipt.
The Partnership Agreement also provides that in the
event it is likely that an investment by the EnviroTech
Partnership would cause a Limited Partner ("Conflicted Partner")
to violate, among other things, any law or regulation, under
certain circumstances other Limited Partners (each, a "Purchasing
Partner") may purchase from the Conflicted Partner a
proportionate interest in such an investment by delivering to the
Conflicted Partner a note in the principal amount of the
Conflicted Partner's capital contributions that are attributable
to the portion of such interest in the investment being
purchased. Such note will be non-recourse to the Purchasing
8<PAGE>
Partner and will bear interest at a rate equal to 200 basis
points over comparable U.S. Treasury obligations having a five
year maturity, such interest and principal being payable only to
the extent that the Purchasing Partner receives distributions or
payments attributable to the interest purchased. (Partnership
Agreement, Sec. 4.1(a)(iv)). Accordingly, EI further requests
authority to purchase such notes, if and to the extent they have
become Conflicted Partners.
D. EI will, on or by May 1 of each year, report to
the Commission any distributions received from the EnviroTech
Partnership during the previous calendar year. Such report will
be included as an appendix to the Annual Report on Form U-5-S
filed pursuant to the Act. The foregoing reports shall be in
lieu of any Certificates of Completion or Partial Completion
otherwise required by Rule 24 under the Act.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The estimated fees, commissions and expenses expected
to be incurred in connection with the proposed transactions will
be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
GPU and EI believe that Sections 9(a)(1), 10 and 12(b)
of the Act and Rule 45 thereunder may be applicable to the
proposed transactions. GPU and EI believe that the authorization
sought herein is consistent with the requirements of Sections 10
and 11(b) of the Act which permit public utility holding company
subsidiaries to engage in other businesses "as are reasonably
9<PAGE>
incidental, or economically necessary or appropriate to the
operations" of an integrated public utility system.
ITEM 4. REGULATORY APPROVALS.
No state commission has jurisdiction with respect to
any aspect of the proposed transactions and, assuming your
Commission authorizes and approves all aspects of the
transactions (including the accounting therefor), no Federal
commission, other than your Commission, has jurisdiction with
respect to any aspect thereof.
ITEM 5. PROCEDURE.
GPU and EI request that the Commission issue an order
with respect to the transactions proposed herein at the earliest
practicable date, but in any event not later than February 10,
1995. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public
Utility Regulation be permitted to assist in the preparation of
the Commission's decision and (iii) there be no waiting period
between the issuance of the Commission's order and the date on
which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
A - EnviroTech Investment Fund I Limited
Partnership Agreement
B - Not applicable
10<PAGE>
C - Not applicable
D - Not applicable
E - Not applicable
F - Opinion of Berlack, Israels & Liberman
-- to be filed by amendment
G - Financial Data Schedules
H - Form of public notice
(b) Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at September 30, 1994,
and Consolidated Statement of Operations
and Accumulated Deficit, actual and pro
forma, for the twelve months ended
September 30, 1994; pro forma journal
entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at September 30, 1994
and Consolidated Statements of Income
and Retained Earnings, actual and pro
forma, for the twelve months ended
September 30, 1994; pro forma journal
entries.
2 - GPU Consolidated Financial Statements
have been omitted since they are not
materially affected by the proposed
transactions.
3 - Not applicable
11<PAGE>
4 - Statement of material changes since the
date of the balance sheets which are not
reflected in the Notes to the Financial
Statements - None.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
(a) The proposed transactions contemplate the
acquisition by EI of interests in limited partnerships that will
invest in companies engaged in the development of
electrotechnologies and renewable energy technology. As such,
the issuance of an order by your Commission with respect thereto
is not a major Federal action significantly affecting the quality
of the human environment.
(b) No federal agency has prepared or is preparing an
environmental impact statement with respect to the various
proposed transactions which are the subject hereof.
12<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY
CAUSED THIS STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GENERAL PUBLIC UTILITIES
CORPORATION
By:_____________________________
T. G. Howson,
Vice President and Treasurer
ENERGY INITIATIVES, INC.
By:_____________________________
B. L. Levy,
President
Date: December 23, 1994<PAGE>
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibits:
A - EnviroTech Investment Fund I Limited
Partnership Agreement
G - Financial Data Schedules
H - Form of public notice
Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at September 30, 1994,
and Consolidated Statement of Operations
and Accumulated Deficit, actual and pro
forma, for the twelve months ended
September 30, 1994; pro forma journal
entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at September 30, 1994
and Consolidated Statements of Income
and Retained Earnings, actual and pro
forma, for the twelve months ended
September 30, 1994; pro forma journal
entries.<PAGE>
EXHIBIT A
DRAFT
ENVIROTECH INVESTMENT FUND I LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
Agreement Dated as of August 1, 1994<PAGE>
TABLE OF CONTENTS
Page Number
ARTICLE I - GENERAL PROVISIONS . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Partnership Name . . . . . . . . . . . . . . . 5
SECTION 1.3 Fiscal Year . . . . . . . . . . . . . . . . . 5
SECTION 1.4 Nature and Liability of Partners . . . . . . . 5
SECTION 1.5 Purposes of Partnership: Investment of
Funds . . . . . . . . . . . . . . . . . . . . 6
SECTION 1.6 Powers of Partnership . . . . . . . . . . . . 6
SECTION 1.7 Advisory Board . . . . . . . . . . . . . . . . 7
ARTICLE II - MANAGEMENT OF PARTNERSHIP . . . . . . . . . . . 8
SECTION 2.1 General . . . . . . . . . . . . . . . . . . . 8
SECTION 2.2 Services of General Partner . . . . . . . . . 9
SECTION 2.3 Compensation of General Partner . . . . . . 10
SECTION 2.4 Restrictions . . . . . . . . . . . . . . . . 12
SECTION 2.5 Conflict of Interest Transactions . . . . . 14
SECTION 2.6 Reliance by Third Parties . . . . . . . . . 15
SECTION 2.7 Dedication of Resources . . . . . . . . . . 15
SECTION 2.8 Partner's Transactions . . . . . . . . . . . 15
SECTION 2.9 Exculpation of Liability . . . . . . . . . . 15
SECTION 2.10 Indemnification . . . . . . . . . . . . . . 16
SECTION 2.11 Coordination with other Managed Funds . . . 17
ARTICLE III - CAPITAL ACCOUNTS; DISTRIBUTIONS
PROFITS AND LOSSES . . . . . . . . . . . . . 18
SECTION 3.1 Capital Contributions . . . . . . . . . . . 18
SECTION 3.2 Capital Account . . . . . . . . . . . . . . 21
SECTION 3.3 Allocation of Net Income, Net Losses and
Other Partnership Items . . . . . . . . . . 21
SECTION 3.4 Distributions to Partners . . . . . . . . . 23
SECTION 3.5 Distributions In Kind . . . . . . . . . . . 25
SECTION 3.6 Re-allocation of Carried Interest . . . . . 26
ARTICLE IV - WITHDRAWAL OF PROFITS, GAINS OR CAPITAL . . . 28
SECTION 4.1 Withdrawal by Limited Partner . . . . . . . 28
SECTION 4.2 Legal Representatives . . . . . . . . . . . 30
SECTION 4.3 Liquidating Share . . . . . . . . . . . . . 30
SECTION 4.4 Cessation of Participation . . . . . . . . . 31
ARTICLE V - TRANSFER OF PARTNERSHIP INTERESTS . . . . . . . 31
SECTION 5.1 Assignability of Interests . . . . . . . . . 31
SECTION 5.2 Substituted Limited Partners . . . . . . . . 32
SECTION 5.3 Obligation of Assignee . . . . . . . . . . . 33
SECTION 5.4 Prohibition Against Public Trading . . . . . 33
ARTICLE VI - DURATION AND LIQUIDATION OF PARTNERSHIP . . . 33
SECTION 6.1 Duration . . . . . . . . . . . . . . . . . . 33
SECTION 6.2 Withdrawal of Limited Partner . . . . . . . 34
SECTION 6.3 Termination of the Partnership; Withdrawal
and Removal of General Partner . . . . . . . 34
SECTION 6.4 Liquidation . . . . . . . . . . . . . . . . 36
SECTION 6.5 Distribution Upon Liquidation . . . . . . . 37<PAGE>
SECTION 6.6 Deficit Restoration by General Partner . . . 38
ARTICLE VII - REPORTS TO PARTNERS . . . . . . . . . . . . . 38
SECTION 7.1. Independent Auditors . . . . . . . . . . . . 38
SECTION 7.2 Reports . . . . . . . . . . . . . . . . . . 38
SECTION 7.3 Inspection . . . . . . . . . . . . . . . . . 39
SECTION 7.4 Tax Returns . . . . . . . . . . . . . . . . 39
ARTICLE VIII - VALUATION . . . . . . . . . . . . . . . . . 40
SECTION 8.1 Valuation of Partnership Net Worth . . . . . 40
SECTION 8.2 Valuation Date . . . . . . . . . . . . . . . 40
SECTION 8.3 Valuing Securities and Other Assets . . . . 40
SECTION 8.4 Disputes . . . . . . . . . . . . . . . . . . 41
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . 42
SECTION 9.1 Admission of Partners . . . . . . . . . . . 42
SECTION 9.2 Disputed Matters . . . . . . . . . . . . . . 42
SECTION 9.3 General . . . . . . . . . . . . . . . . . . 43
SECTION 9.4 Notices . . . . . . . . . . . . . . . . . . 43
SECTION 9.5 Execution of Certificate of Limited
Partnership and Other Documents . . . . . . 43
SECTION 9.6 Force Majeure . . . . . . . . . . . . . . . 44
SECTION 9.7 Amendments . . . . . . . . . . . . . . . . . 44
SECTION 9.8 Headings . . . . . . . . . . . . . . . . . . 45
SECTION 9.9 Power of Attorney . . . . . . . . . . . . . 45
SECTION 9.10 Effect of Securities Laws . . . . . . . . . 45
-ii-<PAGE>
ENVIROTECH INVESTMENT FUND I LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
BY THIS LIMITED PARTNERSHIP AGREEMENT made and entered into
as of August 1, 1994, among Advent International Limited
Partnership, a Delaware limited partnership, as general partner,
and the persons listed as limited partners in Appendix A hereto,
as limited partners, each having the respective address set forth
in Appendix A hereto, hereby form a limited partnership pursuant
to the laws of the State of Delaware.
ARTICLE I - GENERAL PROVISIONS
SECTION 1.1 Definitions. For all purposes of this
Agreement, except as otherwise expressly provided or unless the
context otherwise requires:
(a) Agreement. "Agreement" means this Limited Partnership
Agreement as may be amended from time to time.
(b) AIC Affiliate. "AIC Affiliate" means:
(i) AIC, and all officers and employee-directors of
AIC;
(ii) any spouse or minor child of an AIC Affiliate
described in subparagraph (i) above; and
(iii) any partnership of which any AIC Affiliate
described in subparagraph (i) above is itself a general
partner (or directly or indirectly exercises the duties of
the general partner, whether pursuant to a management
agreement or otherwise) and any corporation of which an AIC
Affiliate described in subparagraph (i) and/or (ii), the
Partnership or any AIC Affiliates in the aggregate own,
directly or indirectly, more than twenty percent (20%) of
the voting securities or would own more than twenty percent
(20%) of the voting securities if all options, warrants and
other rights to acquire voting securities (including
convertible securities) issued by such corporation were
exercised by the Partnership and all AIC Affiliates having
such options, warrants and rights.
(c) Capital Account. "Capital Account" means, as to any
Partner, the capital account maintained on the books of the
Partnership for such Partner, as required by Section 3.2.
(d) Capital Commitment. "Capital Commitment" means, as to
any Partner, the total amount of money paid or agreed to be paid
to the Partnership by such Partner as set forth in Appendix A.
1<PAGE>
(e) Capital Contribution. "Capital Contribution" means, as
to any Partner, the amount of money actually contributed to the
Partnership by such Partner.
(f) Certificate of Limited Partnership. "Certificate of
Limited Partnership" means the certificate of limited partnership
for the Partnership and all amendments thereto required under the
laws of the State of Delaware to be filed in the appropriate
public offices within the State of Delaware to perfect or
maintain the Partnership as a limited partnership under the laws
of the State of Delaware and/or to effect the admission,
withdrawal or substitution of any Partner of the Partnership.
(g) Code. "Code" means the U.S. Internal Revenue Code of
1986, as amended.
(h) ERISA. "ERISA" means the U.S. Employee Retirement
Income Securities Act of 1974, as amended.
(i) Final Closing Date. "Final Closing Date" means such
date before January 31, 1995 as the General Partner decides or
such later date as the Advisory Board shall select by a vote of a
majority of its members after which no further subscriptions for
interests in the Partnership will be accepted.
(j) General Partner. "General Partner" means Advent
International Limited Partnership, a Delaware limited partnership
of which Advent International Corporation ("AIC") is the general
partner, or any person substituted for or who succeeds Advent
International Limited Partnership as such General Partner
pursuant to this Agreement.
(k) Industrial Investment Team. "Industrial Investment
Team" means that body of persons designated by the General
Partner to make recommendations with respect to prospective
Investments to the Partnership in accordance with the provisions
of Section 2.7.
(l) Investment. "Investment" in any Person means the
acquisition of any Security issued by such Person, whether from
such Person or from another Person, the guaranty of, or otherwise
becoming liable for, any obligation of any Person, the providing
of financing of any other nature to any Person, or any
combination of the foregoing.
(m) Limited Partner. "Limited Partner" means any person
who is or becomes Limited Partner of the Partnership as provided
herein.
(n) Net Income, Net Gain, Net Losses and Net Loss.
(i) "Net Income" means, with respect to any fiscal
year of the Partnership, or portion thereof, the net income
of the Partnership determined in accordance with same
2<PAGE>
principles employed in determining the Partnership's taxable
income for U.S. Federal income tax purposes.
(ii) "Net Gain" means, with respect to any fiscal
year of the Partnership, or portion thereof, the net income
of the Partnership determined in accordance with same
principles employed in determining the Partnership's taxable
income for U.S. Federal income tax purposes, taking into
account the full amount of any gains or losses and all items
of expense attributable to the sale or exchange of
Securities or other assets, but not taking into account (x)
any income, loss or deduction attributable to Non-Portfolio
Investments; (y) the Management Fee described in Section
2.3(a) hereof; and (z) any deduction (whether by way of
amortization or otherwise) to which the Partnership may be
entitled by reason of the expenses and costs described in
Section 2.3(b) that are not directly related to particular
Portfolio Investments or proposed Portfolio Investments.
(iii) "Net Losses" means with respect to any fiscal
year of the Partnership, or portion thereof, the net loss of
the Partnership determined in accordance with same
principles employed in determining the Partnership's taxable
income for U.S. Federal income tax purposes.
(iv) "Net Loss" means with respect to any fiscal year
of the Partnership, or portion thereof, the net loss of the
Partnership determined in accordance with same principles
employed in determining the Partnership's taxable income for
U.S. Federal income tax purposes, taking into account the
full amount of any gains or losses and all items of expense
attributable to the sale or exchange of Securities or other
assets, but not taking into account (x) any income, loss or
deduction attributable to Non-Portfolio Investments; (y) the
Management Fee described in Section 2.3(a) hereof; and (z)
any deduction (whether by way of amortization or otherwise)
to which the Partnership may be entitled by reason of the
expenses and costs described in Section 2.3(b) that are not
directly related to particular Portfolio Investments or
proposed Portfolio Investments.
(v) The following rules shall apply in determining Net
Income, Net Gain, Net Losses and Net Loss:
(A) Gain or loss on the sale or exchange of
Partnership property shall be included in the
determination of Net Income, Net Gain, Net Losses and
Net Loss when recognized in accordance with the U.S.
Internal Revenue Code of 1986, as amended from time to
time (the "Code") and when deemed recognized pursuant
to the provisions of Sections 3.5(b)(iii) and 6.5(e)
hereof.
3<PAGE>
(B) For purposes of computing Net Income, Net
Gain, Net Losses and Net Loss, taxable income shall
include every item requiring separate computation under
Section 702(a) of the Code, plus income that is exempt
from U.S. Federal income tax and less expenses and
losses that are not deductible for U.S. Federal income
tax purposes.
(o) Non-Portfolio Investments. "Non-Portfolio Investments"
means investments in high-quality, short-term, low investment
risk Securities (e.g., bank certificates of deposit, United
States Government Securities with maturities of less than one
year, and other cash equivalent Securities with the highest
investment grade rating of Standard & Poor's Ratings Group or
Moody's Investors Service), by the Partnership of funds prior to
such funds being invested in Securities or other investments in
businesses as contemplated in Section 1.5.
(p) Opinion of Counsel. "Opinion of Counsel" means an
opinion in writing signed by legal counsel either chosen by the
General Partner or, if chosen by a Limited Partner, reasonably
satisfactory to the General Partner.
(q) Original Closing Date. "Original Closing Date" means
the first date on which an investor becomes a Limited Partner of
the Partnership provided that the aggregate Capital Commitment on
such date shall be at least ten million dollars ($10,000,000).
(r) Partner. "Partner" means the General Partner or a
Limited Partner.
(s) Partnership. "Partnership" means EnviroTech Investment
Fund I Limited Partnership, a Delaware limited partnership.
(t) Partnership Distributions. "Partnership Distributions"
means any payment to the Partners pursuant to Section 3.4.
(u) Person. "Person" shall include a corporation,
association, joint venture, partnership, trust or individual.
(v) Portfolio Company. "Portfolio Company" means any Person
in which the Partnership is permitted to make an Investment
pursuant to Section 1.5 hereof and in which the Partnership has
an outstanding Investment.
(w) Portfolio Investments. "Portfolio Investments" means any
Securities or other Investments acquired or made by the
Partnership other than Non-Portfolio Investments.
(x) Related Party Transaction. "Related Party Transaction"
means (i) any transfer by the Partnership to, or any acquisition
by the Partnership from, any AIC Affiliate of any or all
4<PAGE>
Investments, or any portion thereof, held by the transferor, or
(ii) any payments by the Partnership to an AIC Affiliate in
connection with any of the foregoing transactions.
(y) Securities. "Securities" means securities of every
kind or description.
(z) Short-Term Investments. "Short-Term Investments" means
short-term equity and equity related positions, underwritings,
bridge financing, acquisitions of Securities through the exercise
of warrants or options, Investments that result from
restructurings or refinancings and which are syndicated to third
parties, and other Investments which at the time of investment
are intended to be, and are, outstanding for less than eighteen
(18) months from the date of investment.
(aa) Voting Control. "Voting Control" means the right to
elect a majority of the directors of a corporation, the right to
designate a majority of the general partners of partnership, or
the right to receive fifty percent (50%) or more of the profits
of a partnership.
SECTION 1.2 Partnership Name. The Partnership shall do
business under the name and style of "EnviroTech Investment Fund
I Limited Partnership."
SECTION 1.3 Fiscal Year. Except as otherwise provided by
the Code, the fiscal year of the Partnership shall be the
calendar year, or such other fiscal year as the General Partner
shall designate; provided that once a fiscal year is chosen,
unless required by a change in applicable law or regulations, the
General Partner shall not change the Partnership's fiscal year
without the prior approval of a majority of the members of the
Advisory Board.
SECTION 1.4 Nature and Liability of Partners.
(a) The General Partner shall have such liability for the
repayment, satisfaction and discharge of the debts, liabilities
and obligations of the Partnership as is provided by applicable
law for a general partner of a limited partnership. The Limited
Partners shall be liable to the Partnership for the repayment,
satisfaction and discharge of its debts, liabilities and
obligations only (i) to the extent of the unpaid amount, if any,
of their Capital Commitments and (ii) as provided in the Delaware
Revised Uniform Limited Partnership Act
(b) The Partners hereby agree among themselves to share in
accordance with the terms of this Agreement all losses,
liabilities or expenses suffered or incurred by virtue of the
operation of the Partnership, provided that the Limited Partners
shall share such losses, liabilities and expenses only to the
extent provided in Section 1.4(a) hereof with respect to their
liability for Partnership losses, liabilities and expenses. The
General Partner agrees to assume and be liable for all such
5<PAGE>
losses, liabilities and expenses not covered by the Limited
Partners' share of such losses, liabilities and expenses.
SECTION 1.5 Purposes of Partnership: Investment of Funds.
(a) The purposes of the Partnership are to provide risk
capital for, and to make or enter into arrangements to acquire
Investments in the Securities of, privately held and publicly
listed companies, including businesses in the development stage,
with a primary emphasis on investments in energy, renewable
resources and related technologies as outlined in the charter set
forth in Appendix B attached hereto (the "Charter").
(b) Investments shall only be made if, in the good faith
judgment of the General Partner, they comply with the investment
objectives set forth in the Charter and shall be made or acquired
for the account of the Partnership on the basis of and pursuant
to the terms of this Agreement; provided, however, that the
Charter may be amended or modified, and any provision relating to
the types of Investments may be waived either generally or with
respect to a particular transaction, from time to time with the
prior affirmative vote of Limited Partners representing at least
seventy-five percent (75%) of the combined Capital Contributions
of all of the Limited Partners. Pending Investments in Portfolio
Investments or Short Term Investments or cash distributions to
Partners, all of the Partnership's cash shall be invested in
Non-Portfolio Investments.
SECTION 1.6 Powers of Partnership. In furtherance of the
purposes of the Partnership set forth in Section 1.5, the
Partnership shall have the following powers:
(a) Subject to the limitations set forth in Section 2.1(c),
to purchase or otherwise acquire, hold, and sell or otherwise
dispose of Securities, without regard to whether such Securities
are publicly traded, readily marketable or otherwise restricted
as to transfer or resale;
(b) Subject to the limitations set forth in Section 2.4(c),
to possess, transfer, mortgage, pledge or otherwise deal in, and
to exercise all rights, powers, privileges and other incidents of
ownership or possession with respect to, Securities held or owned
by the Partnership, and to carry Securities in the name of a
nominee or nominees;
(c) Subject to the limitations set forth in Section 2.4(c),
to guarantee the obligations of others and to sell, pledge or
otherwise dispose of bonds or other obligations of the
Partnership for its purposes;
(d) To have and maintain an office within the Commonwealth
of Massachusetts and, in connection therewith, to rent or acquire
office space, engage personnel and do such other acts and things
as may be necessary or advisable in connection with the
maintenance of such office, and on behalf of and in the name of
6<PAGE>
the Partnership to pay and incur reasonable expenses and
obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable
expenses including, without limitation, taxes, travel, insurance,
rent, supplies, interest, salaries and wages of employees, and
all other reasonable costs and expenses incident to the operation
of the Partnership;
(e) To form and own one or more corporations, trusts or
limited partnerships controlled by the Partnership for purposes
of making Investments in accordance with the Charter, provided
that no entity, so formed may do directly or indirectly what the
Partnership is prohibited by this Agreement from doing; and
(f) To enter into, make and perform all such contracts,
agreements and other undertakings as may be necessary, advisable
or incidental to the carrying out of the foregoing objectives and
purposes.
SECTION 1.7 Advisory Board.
(a) There shall be an Advisory Board for the Limited
Partners which shall initially consist of the ten (10)
individuals listed on Appendix C attached hereto. Limited
Partners representing a majority of the combined Capital
Contributions of all Limited Partners may at any time vote to
increase the number of the Advisory Board members and may elect
persons to fill such new seats on the Advisory Board. A
representative of Edison Electric Institute shall serve as a
standing member of the Advisory Board. Each member of the
Advisory Board shall serve until he or she resigns (by giving the
General Partner and other members of the Advisory Board sixty
(60) days prior written notice) or (ii) he or she is removed
pursuant to this Section 1.7(a). Any member of the Advisory
Board may be removed, with or without cause, by Limited Partners
representing a majority of the combined Capital Contributions of
all Limited Partners. A successor to any member of the Advisory
Board who has resigned or been removed shall be appointed by the
Limited Partners representing a majority of the combined Capital
Contributions of all Limited Partners within sixty (60) days of
such resignation or removal. The failure of any Limited Partner
to disapprove a nominee within thirty (30) days after being given
the opportunity to approve such nominee shall be deemed to
constitute such Limited Partner's approval of such nominee.
Unless otherwise specified herein, the Advisory Board may act by
a majority vote of the members participating in the Advisory
Board meeting. Meetings of the Advisory Board may be held by
means of a conference telephone call. In addition to approving
actions at a meeting, the Advisory Board may act by the written
consent of the number of members required to approve the action
to be taken pursuant to this Agreement.
(b) The General Partner will meet with the Advisory Board
(i) on a semi-annual basis and (ii) upon reasonable notice, at
any other time when a majority of the Advisory Board deems such a
7<PAGE>
meeting necessary and will review with the Advisory Board general
matters of investment policy of the Partnership, matters
concerning transactions with the Partnership in which the General
Partner or an AIC Affiliate may have an interest and other
matters concerning the Partnership's affairs. No member of the
Advisory Board shall (x) take part in the management of the
Partnership, or (y) have any authority to bind the General
Partner or, except as specifically provided herein, to act for or
on behalf of the Partnership. With the prior consent of a
majority of the members of the Advisory Board, compliance by the
Partnership or the General Partner with the restrictions on
Related Party Transactions in Section 2.5 may be waived, either
generally or in any particular instance and either retroactively
or prospectively.
ARTICLE II - MANAGEMENT OF PARTNERSHIP
SECTION 2.1 General.
(a) The management, operation and implementation of policy
of the Partnership shall be, and hereby are, vested in the
General Partner who shall manage the Partnership's affairs.
Except as otherwise expressly provided herein, the General
Partner shall have the power to exercise the powers, rights and
authority granted to the General Partner hereunder on behalf and
in the name of the Partnership. The General Partner agrees that,
during the term of this Agreement, it shall devote such time to
the Partnership as is necessary for its proper operation.
(b) Notwithstanding the foregoing, in the event that there
is a "substantial change in the management of AIC" or a
"substantial change in the composition of the Industrial
Investment Team," the General Partner shall within seven (7) days
of the occurrence of such event notify the Advisory Board. After
a substantial change in the management of AIC or a substantial
change in the composition of the Industrial Investment Team, the
General Partner shall not have the authority to cause the
Partnership to make investments in Persons not already Portfolio
Companies, unless seventy-five percent (75%) of the members of
the Advisory Board approve the new management of AIC or the new
composition of the Industrial Investment Team, as the case may
be; provided, however, that the General Partner shall not be
prohibited from making any Investment in a new Portfolio Company
if the Partnership has committed to make such Investment prior to
such substantial change in management or the Industrial
Investment Team. There shall be deemed to be a substantial
change in the management of AIC if at any point in time both of
the following conditions shall exist: (i) Peter A. Brooke is no
longer participating actively in the management of AIC, and (ii)
at least two of the following members of AIC's management, Thomas
R. Armstrong, Douglas R. Brown, Henry H. Haight, Clinton P.
Harris and Thomas H. Lauer, are no longer actively involved in
the management of AIC. Individuals may be substituted for the
listed members of AIC's management with the consent of the
Advisory Board (and such substitution shall not constitute a
8<PAGE>
"substantial change in the management of AIC"), provided: (a)
that condition (i) does not exist and (b) they are appointed by
Peter A. Brooke. There shall be deemed a substantial change in
the composition of the Industrial Investment Team if at any point
in time at least three of the initial members of the Industrial
Investment Team are no longer actively participating as members
of the Industrial Investment Team and AIC has not replaced them
with qualified substitutes reasonably acceptable to the Advisory
Board.
(c) The General Partner shall not cause or permit the
Partnership to:
(i) invest more than seven and one-half percent
(7.5%) of the Partnership's total Capital Commitments in a
single Portfolio Company without the prior approval of a
majority of the members of the Advisory Board;
(ii) invest in the aggregate more than five percent
(5%) of the Partnership's total Capital Commitments in
Portfolio Investments that constitute Securities which, at
the time the Securities are acquired, are readily tradable
on an established securities market (but excluding (A) any
Security which, as part of the Partnership's plan of
investment, will cease to be so tradable promptly after the
Security is acquired or (B) any Securities in public
companies received upon exchange of Portfolio Investments
then held by the Partnership from initial public offerings);
(iii) invest in any company which is not already a
Portfolio Company, but is already a "portfolio company" with
respect to another "Managed Fund" (as defined in Section
2.11) without the prior approval of a majority of the
members of the Advisory Board; or
(iv) invest in hostile takeover transactions or in
"highly leveraged" buy outs.
SECTION 2.2 Services of General Partner. The General
Partner shall (i) provide investment advice to, and make
investment decisions for, the Partnership and shall bear the cost
of securing information and investment advice with respect to
prospective Investments (other than unreimbursed costs of outside
accountants and attorneys in connection therewith), (ii) maintain
the books and records of the Partnership, (iii) provide routine
and necessary bookkeeping and record keeping services and retain
custody of Partnership Securities, and (iv) provide office space,
office and executive staff and office supplies and equipment for
the use of the Partnership. The General Partner shall be
permitted to contract on behalf of the Partnership all or part of
the foregoing services, without the consent of the Advisory Board
or the Limited Partners, to any corporation or other entity (A)
which then owns, directly or indirectly, Voting Control of the
General Partner, or (B) of which the General Partner then owns
9<PAGE>
directly or indirectly Voting Control, or (C) of which a
corporation described in (A) then owns directly or indirectly
Voting Control, or (D) which is an entity, controlled by,
controlling or under common control with the General Partner, or,
with the consent of a majority of the members of the Advisory
Board, any corporation or other entity not specified in (A)-(D)
above; provided, however, that (x) any such cost shall be the
responsibility of the General Partner and not of the Partnership
and (y) in all cases, investment decisions shall be made by the
General Partner. No such assignment of services shall relieve
the General Partner of its obligations, duties and liabilities
under this Agreement.
SECTION 2.3 Compensation of General Partner.
(a) Management Fee. In consideration of the services to be
provided to the Partnership by the General Partner, the General
Partner shall be paid an annual management fee (the "Management
Fee") by the Partnership, payable in advance in equal quarterly
installments on the Original Closing Date and the first day of
each calendar quarter beginning thereafter. During the period
beginning on the Original Closing Date up to (but not including)
the sixth anniversary of the Original Closing Date, the
Management Fee for each calendar quarter shall equal one-fourth
(1/4) of two and one-half percent (2.5%) of the sum of all
Capital Commitments determined for each installment as of the
date on which such installment is payable. Commencing on the
sixth anniversary of the Final Closing Date, the Management Fee
for each calendar quarter shall be equal to one-quarter (1/4) of
the Applicable Percentage (as set forth below) of the sum of all
Capital Commitments determined for each installment as of the
date on which such installment is payable. The Applicable
Percentage shall be determined according to the following
schedule:
Applicable
Percentage Period in Effect
2.25% For the period commencing on the sixth
anniversary of the Original Closing
Date, up to but not including the
seventh anniversary of the Original
Closing Date.
2.00% For the period commencing on the seventh
anniversary of the Original Closing
Date, up to but not including the eighth
anniversary of the Original Closing
Date.
1.75% For the period commencing on the eighth
anniversary of the Original Closing Date
up to but not including the ninth
anniversary of the Original Closing
Date.
10<PAGE>
1.50% For the period commencing on the ninth
anniversary of the Original Closing Date
until dissolution of the Partnership.
The Management Fee shall be pro rated for any period less than a
calendar quarter and for adjustments in the Applicable Percentage
(if the anniversary date of the Original Closing Date occurs
other than on the first day of a calendar quarter) and any
additional Capital Commitments of Limited Partners admitted
pursuant to Section 9.1. The Management Fee also shall be
reduced by an amount equal to one-half (1/2) of any fee (net of
direct expenses) for assisting with the acquisition, disposition
or reorganization of a Portfolio Company which the General
Partner or an AIC Affiliate receives with respect to the
Partnership's Investment in such Portfolio Company; provided that
any underwriting fee or similar fee received by the General
Partner or AIC Affiliate on account of the provision of the
Partnership's capital shall reduce the Management Fee by the full
amount of such underwriting or similar fee. In addition, the
Management Fee shall be reduced by the full amount of any "break-
up" fee (net of direct expenses) relating to a Portfolio Company
(or proposed Portfolio Company) which the General Partner or an
AIC Affiliate receives with respect to a proposed Investment by
the Partnership in such Portfolio Company. Such fees received by
the General Partner or an AIC Affiliate shall be credited against
the payment of future Management Fees if such reduction exceeds
the Management Fees then payable.
(b) Expenses not Covered by the Management Fee.
(i) In addition to the payment of the Management Fee,
the General Partner shall be reimbursed by the Partnership
for all fair and reasonable expenditures made on behalf of
the Partnership, including:
(A) all reasonable travel, legal, accounting,
other third party professional and out-of-pocket
expenses incurred in the organization of the
Partnership up to a maximum amount of one hundred
ninety five thousand dollars ($195,000), all such
reasonable expenses made on behalf of the Partnership
in preparing any amendment to this Agreement, and
(B) all reasonable third party expenses incurred
for any other legal, audit or reporting services for
the Partnership.
(ii) To the extent not borne by a Portfolio Company,
the Partnership shall bear all third party costs and
expenses incurred in connection with the purchase, retention
and sale of Investments (whether or not consummated),
including, without limitation, loan fees, private placement
fees, sales commissions, finder's fees, personal property
taxes on Investments, brokerage fees, auditing fees,
underwriting commissions and discounts, investment banker
11<PAGE>
fees, insurance costs, and all other expenses that are
directly related to particular Investments or proposed
Investments, whether or not actually consummated. The
General Partner shall not be entitled to be reimbursed for
the following operating expenses relating to the
Partnership's investment activities: salaries and fringe
benefits of any personnel of the General Partner and any
professional, administrative, clerical, bookkeeping and
secretarial personnel employed by the Partnership (other
than outside attorneys and accountants); rent,
administrative and other overhead charges and costs of any
office maintained by the General Partner; travel and
entertainment expenses; cost of statistical services,
publications and periodicals; expenses of reports to Limited
Partners (other than legal, accounting and appraisal
expenses); the costs of fidelity bonds and other insurance
(to the extent not directly related to the purchase,
retention or sale of Investments by the Partnership); and
other ordinary and usual expenses incurred in connection
withthe makingand monitoringof thePartnership's Investments.
(iii) If there is a change in relevant statute,
regulation or other official pronouncement affecting the
reporting requirements set forth in Section 7.2(c) of the
Partnership Agreement, which change causes the General
Partner to incur extraordinary expense in order to comply
with such reporting requirements, the General Partner may
request approval of the Advisory Board for reimbursement
from Partnership funds for such extraordinary expense, which
approval shall not be unreasonably withheld.
SECTION 2.4 Restrictions. Subject to Section 2.5, the
Partners shall be restricted in their activities as follows:
(a) No Service by Limited Partners. The Limited Partners
shall not participate in the management or control of the
Partnership and shall not hold themselves out as general partners
or take any action on behalf of the Partnership or in any way
commit the Partnership to any agreement or contract and shall
have no right to do any of the foregoing.
(b) Partnership Credit. No Partner shall lend or use the
funds or credit of the Partnership or employ the Partnership's
name for any purpose whatsoever, except that the General Partner
may do so for the purposes of the Partnership to the extent
allowed under this Agreement.
(c) Limitation on Borrowing and Pledging.
(i) The General Partner shall manage the Partnership
so as to avoid the necessity for borrowing money and shall
in all events comply with Section 2.4(e).
(ii) The Partnership may guarantee the obligations of
Portfolio Companies, provided that the aggregate of the
12<PAGE>
amount guaranteed plus all Investments in such Portfolio
Company shall at no time exceed the limitation on Investment
with respect to such Portfolio Company as set forth in
Section 2.1(c).
(iii) Nothing in this Section 2.4(c) shall be construed
to prohibit any AIC Affiliate that is a corporation from
engaging in the conduct prohibited herein; provided that any
such conduct involving the Partnership does not directly or
indirectly violate the prohibitions on the Partnership's
borrowing money or guaranteeing obligations of Portfolio
Companies as set forth in this Section 2.4(c).
(d) Reinvestment of Capital. The General Partner shall
not, without Advisory Board consent, reinvest the proceeds from
the realization of Portfolio Investments, except to the extent
necessary for the aggregate amount invested in Portfolio
Investments to equal the aggregate amount of all Capital
Contributions. Income or gain from Short-Term Investments or
Non-Portfolio Investments will not be reinvested, but capital
from Short-Term Investments or Non-Portfolio Investments may be
reinvested by the General Partner in any Investment permitted by
this Agreement.
(e) Unrelated Business Taxable Income. The General Partner
shall use its best efforts to prevent the Partnership from having
unrelated business taxable income ("UBTI") within the meaning of
Code Section 512. The General Partner shall promptly notify each
tax-exempt Limited Partner whenever it appears likely that any
such Limited Partner will incur UBTI on account of any Investment
of the Partnership. If the activities of the Partnership do give
rise to UBTI with respect to any Limited Partner, the General
Partner shall cause the Partnership's accountants to determine
such Limited Partner's allocable share of such UBTI and the
amount of tax that would be paid by such Limited Partner if such
UBTI from the Partnership were the only UBTI of such Limited
Partner and shall notify such Limited Partner of such amount
within one hundred and twenty (120) days after the end of the
Partnership's taxable year.
(f) Other Managed Funds. Prior to the earlier of (i) the
fifth anniversary of the Original Closing Date or (ii) the date
on which two-thirds (2/3) of the aggregate Capital Commitment of
the Partnership has been committed for Portfolio Investments, the
General Partner will advise the Advisory Board of any pooled or
dedicated investment fund that AIC or any AIC Affiliate proposes
to manage if such fund has investment objectives substantially
similar to the objectives outlined in the Charter. In addition,
prior to the earlier of (i) the fifth anniversary of the Original
Closing Date, or (ii) the date on which two-thirds (2/3) of the
aggregate Capital Commitment of the Partnership has been
committed for Portfolio Investments, neither AIC nor any AIC
Affiliate will, without the consent (such consent not to be
unreasonably withheld) of the Advisory Board, manage any new
pooled or dedicated investment fund whose investment objectives
13<PAGE>
are substantially similar to the objectives outlined in the
Charter; provided, however, that the foregoing restriction shall
not apply to the management of any investment fund currently in
existence, the formation and management of the Energy Transition
Fund Limited Partnership, and the formation and management of one
new dedicated investment fund whose investment objectives are
substantially similar to the objectives outlined in the Charter;
provided further, that the total committed capital of the Energy
Transition Fund Limited Partnership and any such one new
dedicated investment fund shall not together exceed Fifty Million
Dollars ($50,000,000).
(g) Additional Restrictions. The Partnership shall not
make short sales of Securities not owned by the Partnership, nor
shall the Partnership at any time own the voting securities of an
investment company required to be registered under the United
States Investment Company Act of 1940.
SECTION 2.5 Conflict of Interest Transactions.
(a) The Partnership shall not engage in any Related Party
Transaction. Notwithstanding the foregoing provision of this
Section 2.5, the Partnership may purchase Securities from an AIC
Affiliate, if (i) such AIC Affiliate has acquired the Securities
within ninety (90) days prior to the sale to the Partnership with
the intent of transferring such Securities to the Partnership
(which intent has been expressed in writing to the Partnership
prior to the acquisition by the AIC Affiliate of such Securities)
and the price paid by the Partnership for such Securities is no
greater than the price paid by the AIC Affiliate, or (ii) such
AIC Affiliate is a Portfolio Company, the Securities of which are
being purchased by the Partnership.
(b) Nothing in this Section 2.5 shall be construed to
prohibit the General Partner or an AIC Affiliate from charging an
arm's-length fee to a Portfolio Company or to a Limited Partner
for specific services requested by such party including, but not
limited to, assistance with technology transfers or mergers and
acquisitions, providing full-time or part-time management or
operating personnel, providing investment banking services with
respect to specific transactions, and developing business plans
and other presentations. Nor shall this Section 2.5 be construed
to prohibit the General Partner or an AIC Affiliate from
receiving a fee from a Portfolio Company in connection with the
acquisition, disposition or reorganization of a Portfolio
Company. Subject to reductions in the Management Fee pursuant to
Section 2.3(a), for certain fees, if any, all such fees paid to
the General Partner or such services shall be the sole property
of the General Partner. The amount of any such fees paid to the
General Partner shall be reported to the Limited Partners
annually and any fees paid to the General Partner for assistance
with the acquisition, disposition or reorganization of a
Portfolio Company also shall be reported in writing to the
Advisory Board.
14<PAGE>
SECTION 2.6 Reliance by Third Parties. Notwithstanding
any other provision of this Article II, any third party dealing
with the Partnership may rely conclusively upon the authority,
power and right of the General Partner acting under this
Agreement. This Section shall not be deemed to limit the
liabilities and obligations of the General Partner as set forth
in this Agreement.
SECTION 2.7 Dedication of Resources. The General Partner
shall dedicate appropriate resources to the Partnership in
accordance with the General Partner's fiduciary duty to the Part-
nership, including, without limitation, causing members of AIC's
Industrial Investment Team designated by the General Partner from
time to time, to be actively engaged in the formulation of
investment recommendations with respect to prospective
Investments in businesses which are engaged in activities in the
product and market areas described in the Charter. The initial
members of the Industrial Investment Team designated by the
General Partner shall be Dennis R. Costello, Lawrence W. McKenna,
Steven M. Tadler, John B. Singer and George S. Reichenbach.
SECTION 2.8 Partner's Transactions. Nothing in this
Agreement shall be construed to prohibit any Partner from buying
or selling Securities for its own account, including Securities
of the same issuers as those held by the Partnership; provided,
however, that the General Partner will use all reasonable efforts
to ensure that partners or officers (including, where
appropriate, employee-directors) of itself or any AIC Affiliate
will not hold for their own account interests in any Portfolio
Company except as provided for, and under the terms of, the AIC
co-investment policy set forth in Appendix D, attached hereto, as
such policy may be amended from time to time, with the consent of
the Advisory Board.
SECTION 2.9 Exculpation of Liability. Neither the
General Partner, its agents (including agents of the General
Partner or agents of the Partnership who serve at the request of
the Partnership as either directors, officers or trustees of
another organization in which the Partnership has any interest as
a security holder, creditor or otherwise) nor officers, directors
or employees of the General Partner or the general partner of the
General Partner, or their respective heirs, executors,
administrators, successors or assigns (the "Relevant Party")
shall be liable to the Partnership or the Limited Partners by
reason of any act performed by the Relevant Party if such act was
performed by the Relevant Party: (i) in good faith; (ii) in the
reasonable belief that it was acting in the best interests of the
Partnership; and (iii) in a manner believed by the Relevant Party
to be within the scope of the rights, powers, authorities and
discretions conferred on the Relevant Party by or pursuant to
this Agreement, the consent of the Limited Partners or by law.
The Relevant Party shall not be exculpated under the preceding
sentence, however, if it was guilty of gross negligence, willful
malfeasance or fraud, including without limitation a material
breach of its fiduciary duty to the Partnership or the Limited
15<PAGE>
Partners with respect to such act or omission, or if such act or
omission caused any of the Limited Partners to be liable in
excess of its Capital Commitment for the liabilities of the
Partnership.
SECTION 2.10 Indemnification.
(a) The Partnership, out of Partnership assets and not out
of the separate assets of any Partner, shall indemnify any
Relevant Party to the extent described below, against all
liabilities, losses and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise
settlements (to the extent provided for in Section 2.10 (c)), and
fines, penalties and counsel fees, reasonably incurred in
connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which the Relevant Party
may be or may have been involved as party or otherwise or with
which it or they may be or may have been threatened, while in
office or thereafter by reason of (A) being or having been a
Relevant Party, or acting on behalf of the Partnership, or
serving or having served at the request of the Partnership as
such director, officer or trustee of another organization, and
(B) any acts performed (or allegedly performed) in such capacity
that were performed:
(i) in good faith;
(ii) in the reasonable belief that the Relevant Party
was acting in the best interests of the Partnership and the
Limited Partners;
(iii) in a manner that was believed by the Relevant
Party to be within the scope of the rights, powers,
authorities or discretions conferred on it by or pursuant to
this Agreement, by the consent of the Limited Partners or by
law; and
(iv) with respect to any criminal proceeding, in a
manner believed by the Relevant Party to be lawful.
The Relevant Party shall not be entitled to indemnification under
the preceding sentence, however, if such action is finally
adjudicated in any such action, suit or other proceeding, or
otherwise by a court of competent jurisdiction, to have been
grossly negligent, willfully malfeasant or fraudulent, including
without limitation a material breach by the Relevant Party of its
fiduciary duty to the Partnership or the Limited Partners, or to
have caused any of the Limited Partners to be liable in excess of
their Capital Commitments for the liabilities of the Partnership.
(b) Expenses, including counsel fees, so incurred by the
Relevant Party may be paid by the Partnership in advance of the
final disposition of any such action, suit or proceeding on the
condition that the amounts so paid shall be repaid to the
16<PAGE>
Partnership if it is ultimately determined that indemnification
of such expenses is not authorized under this Section 2.10. The
General Partner may, if it deems appropriate, require any person
for whom such expenses are paid in advance of final disposition
to deliver adequate security to the Partnership for his
obligation to repay such indemnification.
(c) As to any matter disposed of by a compromise payment,
pursuant to a consent decree or otherwise, no such
indemnification, either for said payment or for any other
expenses, shall be provided unless there has been obtained an
opinion in writing of independent legal counsel to the effect
that based on a recitation of relevant facts that have been
represented by the Relevant Party to be true and complete, the
Relevant Party would be entitled to indemnification under the
standards set forth in (a) above.
(d) The right of indemnification hereby provided shall not
be exclusive of or affect any other rights of indemnification to
which the Relevant Party may be entitled to from parties other
than the Partnership or the Limited Partners (in such Persons'
capacities as Limited Partners). In addition, the Relevant Party
shall use all reasonable efforts to obtain indemnification from
any source other than the Partnership from which it or they may
be entitled thereto, including without limitation, director and
officer indemnity insurance and corporate or other
indemnification provisions of entities in which the Partnership
shall have made Investments, before seeking indemnification from
the Partnership. The right of indemnification provided by this
Section 2.10 shall not be construed to increase the liability of
the Limited Partners as set forth in Section 1.4.
SECTION 2.11 Coordination with other Managed Funds.
(a) The General Partner shall ensure that no other
investment fund, whether in corporate or partnership form, that
is advised or managed by AIC or an AIC Affiliate (a "Managed
Fund") shall make an Investment in the Securities of any entity
(excluding any Investment in an entity in which such Managed Fund
has previously invested (a "Follow-on Investment")) if such
Investment is within the Partnership's Charter, unless the
Partnership has been offered the opportunity to make an
Investment or Follow-On Investment (if the Partnership has
already made an initial Investment), as the case may be, in the
same entity, on the same terms and conditions, equal to at least
its Proportionate Share (as defined below) of the total combined
Investment (based on investment cost) in such entity by the
Partnership and any other Managed Funds. For the purposes of
this Section 2.11, the term "Proportionate Share" with respect to
a proposed Investment in a potential or current Portfolio Company
means a fraction, the numerator of which is the total Capital
Commitments of the Partners and the denominator of which is the
total Capital Commitments of the Partners plus the total amount
of money paid or agreed to be paid to other Managed Funds making
any such Investment by all of their investors.
17<PAGE>
(b) Notwithstanding the provisions of Section 2.11(a), the
Partnership shall:
(i) not be entitled to make investments in an amount
which is equal to its Proportionate Share in the Securities
of (A) any entity, brought to the attention of AIC by any
investor in another Managed Fund to the extent that such
investor makes a disproportionate Investment in such entity,
(B) any entity that, acting on its own initiative, requests
that any Investment by the Partnership be limited or
prohibited, (C) any entity located outside the United
States, if majority of the Advisory Board believes that
additional investments in international businesses are not
appropriate or (D) any entity, in an international venture
capital market which in the opinion of the General Partner
is not consistent with the Charter or does not meet the
investment standards of the Partnership; and
(ii) have the right, prior to the right of other
Managed Funds, to make an Investment in the Securities of
any entity in such amount as is in the best interest of the
Partnership and the Limited Partners (subject only to the
limitations set forth in this Agreement), which Investment
may be more than its Proportionate Share of such Securities,
if such entity (i) was first brought to the attention of AIC
by any Limited Partner, or (ii) acting on its own
initiative, requests that all other Managed Funds be limited
or prohibited.
18<PAGE>
ARTICLE III - CAPITAL ACCOUNTS; DISTRIBUTIONS
PROFITS AND LOSSES
SECTION 3.1 Capital Contributions.
(a) Capital Contributions. On or prior to the date of
becoming a Limited Partner of the Partnership, each Limited
Partner will have contributed or will contribute to the capital
of the Partnership cash in the amount of ten percent (10%) of its
Capital Commitment or such lesser percentage as shall be
determined by the General Partner (which percentage shall be the
same for all Limited Partners). The balance of the Limited
Partners' Capital Commitments shall be due and payable in cash
installments at such times and in such amounts as the General
Partner shall determine in its reasonable discretion; provided,
however, that each such installment shall be in an amount
determined by the General Partner (which shall not be less than
five percent (5%) or greater than twenty-five percent (25%)
(which percentage shall be the same for each Limited Partner) of
each Limited Partner's Capital Commitment) and shall be payable
on not less than fifteen (15) days prior written notice from the
General Partner to the Limited Partners. No capital calls for new
Portfolio Investments will be made after the seventh anniversary
of the Final Closing Date. Notwithstanding any provision hereof
to the contrary, capital calls may be made after the seventh
anniversary of the Final Closing Date for the purpose of making
Follow-On Investments and as the General Partner may deem
necessary to satisfy existing or anticipated expenses of the
Partnership.
(b) If after written notification from the General Partner,
a Limited Partner does not make any payment required pursuant to
Section 3. (a) (a "Defaulting Limited Partner"), a second request
for payment shall be made to such Defaulting Limited Partner by
the means set forth in Section 9.4. Until fifteen (15) days after
the mailing of such second notice, the Defaulting Limited Partner
may make a transfer of its Partnership interest, subject,
however, to the applicable provisions of Article V below
(including the requirement that such transfer shall not be made
without the prior written consent of the General Partner) and
subject to the further condition that the transferee shall pay
all amounts then due to be paid by the transferor Limited Partner
and shall agree to pay any unpaid portion of the transferor
Limited Partner's Capital Commitment not yet due. If the full
amount of the payment then due is not received by the Partnership
within fifteen (15) days after the mailing of such second notice
by the Defaulting Limited Partner, the Partnership, by the
General Partner, may take any of the following actions, which are
in addition to and not in limitation of any other right or remedy
which the Partnership may have:
(i) The Partnership may commence legal proceedings
against the Defaulting Limited Partner to collect the due
and unpaid amount plus the expenses of collection, including
attorneys' fees.
19<PAGE>
(ii) Upon notice to the Defaulting Limited Partner, a
designee of the General Partner may assume the entire unpaid
balance of the Capital Commitments of the Defaulting Limited
Partner and succeed to a fraction of the interest of the
Defaulting Limited Partner of which the unpaid balance of
its Capital Commitment is the numerator and the total
Capital Commitment of the Defaulting Limited Partner is the
denominator, and become a substitute Limited Partner to the
extent of such interest, provided that such designee may not
be the General Partner or an AIC Affiliate without the
consent of the Limited Partners representing more than fifty
percent (50%) of the Capital Contributions of the Limited
Partners. Further, any designee who assumes the unpaid
balance of the Capital Commitment of the Defaulting Limited
Partner pursuant to this Section 3.1(b)(ii) may, with the
consent of the General Partner, deliver to the Partnership
an additional amount equal to the lesser of (i) the
Defaulting Limited Partners' Capital Contribution, or (ii)
the value of such Defaulting Limited Partner's interest in
the Partnership at the time of such notice, as determined in
good faith by the General Partner. The additional amount so
delivered (less such an amount, which shall not exceed five
percent (5%) of such additional amount, as the General
Partner may deem appropriate to cover the costs incurred in
connection with the default of the Limited Partner) shall be
tendered to the Defaulting Limited Partner in cash. On the
date of such tender such Defaulting Limited Partner shall
cease to be a Limited Partner or have any further right in
the Partnership, and the designee delivering such additional
amount shall become a Limited Partner pursuant to Section
5.2 to the extent of the whole interest of the Defaulting
Limited Partner.
(iii) Upon notice to the Defaulting Limited
Partner, the Partnership may elect to cancel the interest of
the Defaulting Limited Partner in the Partnership, at which
time the interest of such Defaulting Limited Partner shall
revert and inure to the benefit of the Partnership.
In the event a Defaulting Limited Partner's interest reverts to
the Partnership pursuant to (iii) above, for purposes of this
Agreement (including, without limitation, the calculation of the
Management Fee) the aggregate Capital Commitments of the Limited
Partners shall be reduced by the unpaid Capital Commitment of the
Defaulting Limited Partner effective upon the date such
Defaulting Limited Partner's interest reverts to the Partnership.
In addition, the General Partner shall inform the Advisory Board
regarding the default prior to the delivery of the second notice
to the Defaulting Limited Partner. The General Partner shall
consult with the Advisory Board prior to instituting the remedy
described in (iii) above. If so recommended by the Advisory
Board, the Limited Partners representing a majority, of the
combined Capital Contributions may modify the remedy described in
(iii) above.
20<PAGE>
(c) Notwithstanding (a) and (b) above, if (i) any Limited
Partner shall, on or before the date on which it would be
required to pay an installment pursuant to (a) above, deliver to
the General Partner an Opinion of Counsel pursuant to Section 4.1
regarding the Investment to be acquired using such Capital
Contribution, then such Limited Partner shall not be deemed to be
a Defaulting Limited Partner under this Section 3.1 as a result
of its failure to make such additional Capital Contribution to
the extent the amount not paid was to be used to acquire the
Conflicting Interest (as defined in Section 4.1 ) covered by such
Opinion of Counsel, and such Defaulting Limited Partner shall be
released from any further obligation under this Section 3.1 to
pay such amount of installment, and the provisions of Section 3.1
(b) shall be inapplicable to such Partner with respect to such
amount. Thereafter for purposes of this Agreement (including,
without limitation, the calculation of the Management Fee) such
Partner's Capital Commitment shall be deemed to be reduced by the
amount of the Capital Commitment such Partner is relieved from
paying pursuant to this Section 3.1 (c). After notice by a
Limited Partner that it desires to take advantage of the
foregoing provisions of this Section 3.1 (c), the General Partner
shall notify such Limited Partner regarding the extent to which
its Capital Contribution would be used to acquire the Conflicting
Interest.
(d) The aggregate of all Capital Contributions of the
Partners shall be, and are hereby agreed to be, available to the
Partnership to carry out the purposes and objectives of the
Partnership as set forth in Section 1.5.
SECTION 3.2 Capital Account. There shall be established
for each Partner as of the date of this Agreement a Capital
Account equal to the amount of such Partner's initial Capital
Contribution. Each Partner's Capital Account shall be adjusted
from time to time as of the date of any of the following events
by adding thereto (i) any additional Capital Contributions made
by such Partner and (ii) any Net Income allocated to such
Partner, and deducting therefrom (x) any Net Losses allocated to
such Partner, (y) any distributions made to such Partner and (z)
any Partnership expenses allocated to such Partner, including,
without limitation, any placement fees, finder's fees or similar
fees allocated to such Partner which may be payable to others in
connection with the investment by a Limited Partner in the
Partnership.
SECTION 3.3 Allocation of Net Income, Net Losses and
Other Partnership Items. As of the end of each fiscal year of
the Partnership (or more frequently as determined by the General
Partner) and upon dissolution of the Partnership pursuant to
Article VI, the Capital Account of each Partner shall be credited
or charged, as the case may be, with the Net Income or Net Losses
of the Partnership, and other Partnership items, as follows and
in the following order of priority (all allocations to the
Limited Partners as a class shall, to the extent possible, be
made to each Limited Partner in accordance with the ratio which
21<PAGE>
such Limited Partner's Capital Contributions bears to the
aggregate Capital Contributions of all Limited Partners):
(a) Allocation of Net Losses.
(i) First, in the event Net Income shall have been
allocated to the General Partner pursuant to Section
3.3(b)(iii)(A) hereof for prior fiscal years, Net Losses for
any fiscal year in an amount which when aggregated with Net
Losses allocated to the Partnership pursuant to this Section
3.3(a)(i) for all prior fiscal years does not exceed the
aggregate amount of Net Income allocated to the Partners
pursuant to Section 3.3(b)(iii) hereof for all fiscal years
shall be allocated as follows:
(A) to the General Partner in an amount that
causes the General Partner to have been allocated
aggregate Net Income pursuant to Section 3.4(b)(iii)(A)
when reduced by aggregate Net Losses allocated pursuant
to this Section 3.4(a)(i)(A) equal to twenty percent
(20%) of the excess of (A) the aggregate Net Gain
realized by the Partnership for each prior and current
fiscal year, over (B) the aggregate Net Loss realized
by the Partnership for each prior and current fiscal
year; and
(B) the remainder one-hundred percent (100%) to
the Limited Partners.
(ii) Second, Net Losses for any fiscal year shall be
allocated ninety-nine percent (99%) to the Limited Partners
and one percent (1%) to the General Partner until the
Capital Accounts of all Limited Partners shall be equal to
zero.
(iii) Third, any remaining Net Losses for any
fiscal year shall be allocated one hundred percent (100%) to
the General Partner.
(b) Allocation of Net Income.
(i) First, in the event and to the extent that, Net
Losses shall have been allocated one hundred percent (100%)
to the General Partner pursuant to Section 3.3 (a)(iii)
hereof for prior fiscal years, Net Income shall be allocated
one hundred percent (100%) to the General Partner until the
aggregate amount of Net Income allocated to the General
Partner pursuant to this Section 3.3(b)(i) for all fiscal
years shall equal the aggregate amount of Net Losses
allocated to the General Partner pursuant to Section
3.3(a)(iii) hereof for all fiscal years.
(ii) Second, in the event, and to the extent that, Net
Losses shall have been allocated ninety-nine percent (99%)
to the Limited Partners and one percent (1%) to the General
22<PAGE>
Partner pursuant to Section 3.3(a)(ii) hereof for prior
fiscal years, Net Income shall be allocated ninety-nine
percent (99%) to the Limited Partners and one percent (1%)
to the General Partner until the aggregate amount of Net
Income allocated to the Limited Partners pursuant to this
Section 3.3(b)(ii) for all fiscal years shall equal the
aggregate amount of Net Losses allocated to the Limited
Partners pursuant to Section 3.3(a)(ii) hereof for all
fiscal years.
(iii) Third, any remaining Net Income shall be
allocated as follows:
(A) to the General Partner in an amount equal to
twenty percent (20%) of the excess of (A) the aggregate
Net Gain realized by the Partnership for each prior and
current fiscal year, over (B) the aggregate Net Loss
realized by the Partnership for each prior and current
fiscal year; and
(B) the remainder one-hundred percent (100%) to
the Limited Partners.
SECTION 3.4 Distributions to Partners.
(a) Distributions of Non-Portfolio Income. The Partnership
will distribute cash proceeds attributable to Investments (other
than proceeds attributable to the realization of Portfolio
Investments or proceeds attributable to Short-Term Investments or
Non-Portfolio Investments which are to be reinvested in
accordance with Section 2.4(d)) after payment of all Partnership
expenses not directly attributable to the realization of
Portfolio Investments for each fiscal year to the Partners in
accordance with Section 3.4(c) annually within three (3) months
of the end of such fiscal year; provided that any amount which in
the opinion of the General Partner cannot conveniently or
equitably be distributed within such time may be carried forward
and distributed in the ensuing fiscal year.
(b) Other Distributions. Subject to the other provisions
of this Agreement, the General Partner shall distribute to the
Partners in accordance with Section 3.4(c) all amounts
attributable to the realization of a Portfolio Investment as
promptly as is practicable after such realization occurs.
(c) Priority of Distributions. Partnership Distributions
described in Section 3.4(b) shall be distributed 100% to the
Limited Partners. Partnership Distributions described in Section
3.4(b) shall be distributed to and among the Partners in the
following order of priority:
(i) First, one-hundred percent (100%) to the Limited
Partners until the aggregate amount of Partnership
Distributions described in Section 3.4(b) distributed to the
Limited Partners equals the aggregate Capital Contributions
23<PAGE>
made by them; provided, however, that for purposes of this
subsection (c), prior to the seventh anniversary of the
Final Closing Date, the Limited Partners shall be deemed to
have made Capital Contributions equal to the full amount of
their Capital Commitments;
(ii) Second, to the General Partner until the aggregate
amount of Partnership Distributions described in Section
3.4(b) distributed to the General Partner equals twenty
percent (20%) of the excess of (A) the aggregate Net Gain
realized by the Partnership for each prior and current
fiscal year, over (B) the aggregate Net Loss realized by the
Partnership for each prior and current fiscal year (which
Net Gain or Net Loss for the current fiscal year shall be
computed as if such year ended on the date of such
distribution); and
(iii) Thereafter, one-hundred percent (100%) to the
Limited Partners.
The General Partner, in its discretion, may make Partnership
Distributions to itself in any fiscal year (beginning with the
second fiscal year) prior to making Partnership Distributions in
accordance with the priorities set forth in (i) above in an
amount equal to (or less than) the excess of:
(A) the maximum combined U.S. federal and the
Commonwealth of Massachusetts income tax payable by the
General Partner (assuming for this purpose that the
General Partner is an individual resident in
Massachusetts) on account of the income that was
allocated to the General Partner for U.S. federal
income tax purposes in the immediately preceding fiscal
year of the Partnership, over
(B) any amounts distributed (after the
application of the following sentence) to the General
Partner pursuant to (ii) above in such immediately
preceding fiscal year.
Any amounts distributed to the General Partner pursuant to the
immediately preceding sentence shall be treated as an advance
from the Partnership to the General Partner and shall offset the
Partnership Distributions to be made to the General Partner
pursuant to (ii) above until such advance is repaid in full. Any
amounts not so repaid upon the liquidation of the Partnership
shall be contributed to the Partnership in cash by the General
Partner to be distributed in accordance with the provisions of
(i) and/or (ii) above.
(d) Return of Partnership Distributions by the General
Partner. If the Limited Partners make Capital Contributions
after the date on which one or more Partnership Distributions are
made in accordance with Section 3.4(c)(ii), future Partnership
Distributions shall be made by first applying the priority set
24<PAGE>
forth in Section 3.4(c)(i). If upon the liquidation of the
Partnership it is determined that the General Partner was
distributed in the aggregate more than twenty percent (20%) of
the amount by which (A) the aggregate Net Gain realized by the
Partnership exceeded (B) the aggregate Net Loss realized by the
Partnership, the General Partner shall be required to contribute
to the Partnership, in cash, an amount equal to the amount of
such excess, which cash shall then be distributed to the Partners
in accordance with the priorities set forth in Section 3.4(c)(i).
(e) Delinquent Capital Contributions. No part of any
distribution shall be paid pursuant to this Section 3.4 to any
Limited Partner from which there is due and owing to the
Partnership, at the time of such distribution, any amount
required to be paid to the Partnership pursuant to the provisions
of Section 3.1. Any such distribution shall be paid to such
Limited Partner or a designee or transferee when all such amounts
have been paid in full.
(f) Compliance with Code Section 704(b). The allocation
and distribution provisions contained in this Agreement are
intended to comply with Code Section 704(b) and the Treasury
Regulations promulgated thereunder (including satisfying the
"alternate test for economic effect") and should be interpreted
and applied in a manner consistent therewith.
SECTION 3.5 Distributions In Kind.
(a) Where any Portfolio Investments are listed, quoted or
dealt in on a recognized stock exchange or are otherwise capable
of being sold or purchased in a recognized over-the-counter or
unlisted securities market in a manner which, in the General
Partner's opinion, provides a suitable market for the sale by the
Partners of such Portfolio Investments, the General Partner may
(but is not obliged to) distribute the same in kind, provided
that in no event shall a distribution in kind be made to a
Limited Partner who is prohibited by applicable law or regulation
from directly holding or selling such security to be distributed.
Any such distribution shall be made among the Partners in
accordance with the provisions of Section 3.4 as if in amount of
cash equal to the fair market value of such Portfolio Investments
were being distributed, and the Capital Accounts of the Partners
shall be adjusted to reflect the disposition of such Portfolio
Investments at their fair market value on the date of
distribution. Any Portfolio Investments which are not listed,
quoted or dealt in on a recognized stock exchange or which are
not otherwise capable of being sold or purchased in a recognized
over-the-counter or unlisted securities market in the above
manner may (at the discretion of the General Partner) be
distributed among the Partners in accordance with the provisions
of Section 3.4 but only on the dissolution, liquidation or
termination of the Partnership.
(b) Whenever more than one type of Portfolio Investment is
being distributed in kind in a single distribution or whenever
25<PAGE>
more than one class of Portfolio Investment in Portfolio Company
(or a portion of a class of such Portfolio Investment having a
tax basis per share or unit different from other portions of such
class) are distributed in kind by the Partnership, each Partner
shall receive its ratable portion of each type, class or portion
of such class of Portfolio Investment distributed in kind,
provided that the General Partner shall have the power to make
such arrangements as it deems appropriate in the case of
Portfolio Investments becoming distributable in fractions,
whether by the distribution of balancing amounts in cash or
otherwise and to make arrangements to pay the Management Fee and
Partnership expenses from the proceeds of the realization of
Portfolio Investments. Further, in the event that any taxes,
duties or other expenses become payable by the Partnership
because of the distribution of Portfolio Investments in kind to a
particular Partner, the General Partner may, where it deems
appropriate, specifically charge such amounts to the Capital
Account of such Partner.
(c) In the event the Partnership distributes a Portfolio
Investment in kind, any Limited Partner may elect to have the
General Partner, or an affiliate, manage and dispose of the
distributed Portfolio Investment of such Limited Partner, so that
the Limited Partner will receive cash within a reasonable period
of time. The General Partner or its affiliate shall be entitled
to receive from each electing Limited Partner an annual
management fee equal to two and one-half percent (2.5%) of the
acquisition cost of such distributed Portfolio Investment or such
other fee as shall be agreed upon between them.
SECTION 3.6 Re-allocation of Carried Interest.
(a) If at any time:
(i) the General Partner is removed pursuant to Section
6.3(e)(iii); or
(ii) the General Partner resigns as general partner of
the Partnership, or withdraws or retires from the
Partnership, or voluntarily terminates its existence under
the circumstances pertained in this Agreement (other than in
connection with a transfer to a new General Partner as
pertained in Section 5.1(b) or a dissolution of the
Partnership other than pursuant to Section 6.3(d));
then the following provisions with respect to Section 3.4(c)
shall apply with regard to such former General Partner:
(i) The Partnership interest of the former General
Partner shall be transformed to that of a special limited
partner, which shall be entitled to receive Partnership
Distributions as described in this Section 3.6 but which
shall not otherwise participate in the management of the
Partnership or in the calculation of any approvals or
consents of the Limited Partners required by this Agreement.
26<PAGE>
(ii) The former General Partner's right to receive
allocations and Partnership Distributions with respect to
any Limited Partner interest it may hold shall not be
affected.
(iii) In addition, the former General Partner shall
be entitled to receive a portion of the "carried interest"
payable to the General Partner pursuant to Section
3.4(c)(ii) (which "carried interest" shall be equal to the
General Partner's right to receive Partnership Contributions
pursuant to Section 3.4(c)(ii)), which when added to the
amounts of the carried interest previously received by the
former General Partner equals:
(A) the aggregate amount of carried interest paid
to the former General Partner or any new General
Partner, times
(B) a fraction, the numerator of which is the
aggregate acquisition cost of all Portfolio Investments
acquired prior to the date on which the General Partner
became a special limited partner, and the denominator
of which is the aggregate acquisition cost of all
Portfolio Investments acquired prior to the date of the
Partnership Distribution with respect to which the
carried interest is being calculated, times
(C) a percentage, which on the first anniversary
of the Final Closing Date shall equal twenty-five
percent (25%) and which shall be increased by an
additional twenty-five percent (25%) on each succeeding
anniversary of the Final Closing Date (so that on and
after the fourth anniversary the percentage shall equal
one hundred percent (100%)).
(iv) The former General Partner's right to retain any
Partnership Distributions made to it prior to the date of
such removal or other event shall not be affected.
(b) If at any time:
(i) the General Partner is removed pursuant to Section
6.3(e)(i) or (ii), or
(ii) the General Partner resigns as general partner of
the Partnership or withdraws or retires from the Partnership
or voluntarily terminates its existence in each case in
breach of Agreement, or
(iii) the Partnership Interest of the General
Partner is disposed of in breach of this Agreement,
then the following provisions with respect to Section 3.4(c)
shall apply:
27<PAGE>
(i) The former General Partner shall not be entitled
to receive Partnership Distributions subsequent to the date
of such removal or other event.
(ii) The former General Partner's right to retain any
Partnership Distributions made to it prior to the date of
such removal or other event shall not be affected.
(iii) The former General Partner's rights to
receive allocations and Partnership Distributions with
respect to any Limited Partner's interest it may hold shall
not be affected.
ARTICLE IV - WITHDRAWAL OF PROFITS, GAINS OR CAPITAL
SECTION 4.1 Withdrawal by Limited Partner.
(a) Notwithstanding any provision contained herein to the
contrary, if a Limited Partner delivers to the General Partner an
Opinion of Counsel to the effect that it is more likely than not
that an Investment (a "Conflicting Interest") by the Partnership
would cause such Limited Partner (the "Conflicted Partner") to
violate any law, regulation, license, permit or decree or order
of a court of competent jurisdiction (including any provisions of
ERISA) or that, if such Partner is a tax-exempt organization, it
is more likely than not that such Limited Partner would lose its
tax-exempt status, then the following provisions shall apply:
(i) the General Partner shall use its best efforts,
consistent with standards of commercial reasonableness and
its fiduciary duty to the other Limited Partners, to cause
the Investment to cease to constitute a Conflicting Interest
with respect to such Conflicted Partner;
(ii) if the General Partner cannot pursuant to (i)
above cause the Investment to cease to constitute a
Conflicting Interest with respect to the Conflicted Partner,
the Conflicted Partner shall offer to assign all its
interest in the Conflicting Interest (including the relevant
portion of the Conflicting Partner's Capital Account and all
allocations and distributions attributable to the
Conflicting Interest) to the other Limited Partners (the
"Non-Conflicted Partners"), pro rata based on their relative
Capital Commitments, at a price and on such terms as are
specified by the Conflicted Partner in a written notice
given by the Conflicted Partner to the Non-Conflicted
Partners. Each Non-Conflicted Partner may accept all (but
not less than all) of the interest in the Conflicting
Interest so offered to it by notifying the General Partner
of such acceptance within five (5) days of receiving the
offer notice from the Conflicted Partner. If any
Non-Conflicted Partner does not exercise its rights to
purchase its proportionate share of the Conflicted Partner's
interest in the Conflicting Interest, the other
Non-Conflicted Partners shall have the right to purchase
28<PAGE>
such remaining portion in accordance with their relative
Capital Commitments or in such other portion as they may
mutually agree;
(iii) if the Non-Conflicted Partners fail to
purchase all of the Conflicted Partner's interest in the
Conflicting Interest, the Conflicted Partner may, subject to
the provisions of this Agreement, assign the portion of such
interest that is not purchased by the Non-Conflicted
Partners to any third party, at a price and on such terms no
more favorable than the price and terms offered to the
Non-Conflicted Partners, which terms shall attempt to
allocate to such third party the Conflicted Partner's
economic interest in the Conflicting Interest, taking into
account the fact that such economic interest is dependent
upon the performance of other Investments; and
(iv) if the Conflicting Interest is not eliminated or
the Conflicted Partner cannot dispose of its entire interest
pursuant to the terms of (i), (ii) and (iii) above, the Non-
Conflicted Partners shall each be entitled to purchase a
proportionate share, based on their relative Capital
Commitments, of the Conflicted Partner's remaining interest
in the Conflicting Interest by delivering to the Conflicted
Partner a note in the principal amount of the Conflicted
Partner's Capital Contributions that are attributable to the
portion of the Conflicting Interest being purchased;
provided, however, that the purchase price will be reduced
to the purchasing Partner's proportionate share of the book
value of the Conflicting Interest if the Investment in
question has been written down on the books of the Part-
nership in accordance with the terms of this Agreement and
the Partnership's normal accounting practices. Interest
shall accrue on such note at a rate equal to two hundred
(200) basis points over the rate then being paid on U.S.
Treasury obligations having a maturity date of five (5)
years and a principal amount approximately equal to that of
such note. Principal and accrued interest shall be payable
on the note only if and to the extent that the obligor
Partner receives distributions or payments attributable
(directly or indirectly) to the portion of the Conflicting
Interest it purchased. Further, such note shall be
nonrecourse to the purchase Non-Conflicted Partner and shall
be secured only by distributions or payments attributable
(directly or indirectly) to the portion of the Conflicting
Interest it purchased. If a Non-Conflicted Partner declines
to purchase its proportionate share of the Conflicting
Interest on the terms and conditions set forth in this
subparagraph (a), such portion may be acquired pro rata
(based on their relative Capital Commitments) by the other
Non-Conflicting Partners.
(b) Except as otherwise provided in this Section 4.1 and in
Section 9.10 hereof, no Limited Partner shall be permitted to
withdraw profits, gains or capital from the Partnership without
29<PAGE>
the approval of the General Partner, which approval may be
withheld if the General Partner does not believe that such
withdrawal is in the best interests of the other Limited Partners
(whether because of the cash position of the Partnership, the
undesirability of liquidating any of the Investments of the
Partnership, or otherwise). The following provisions shall
govern with respect to any withdrawals approved by the General
Partner pursuant to this Section 4.1 (b):
(i) No such withdrawal shall be made except as of the
last day of the fiscal year of the Partnership unless
another date is selected by the General Partner;
(ii) Partial withdrawals of profits, gains or capital
with respect to a Limited Partner's Capital Commitment shall
not be permitted and a Limited Partner desiring to withdraw
must withdraw its entire interest relating to its Capital
Commitment; and
(iii) The Limited Partner desiring to withdraw must
notify the General Partner in writing at least one hundred
twenty (120) days prior to the close of the fiscal year in
which it wishes to effect its withdrawal.
(c) The General Partner may, to accommodate a request or
election for withdrawal by a Limited Partner, attempt to obtain a
purchaser of the whole or a part of such Limited Partner's
interest.
SECTION 4.2 Legal Representatives. In the event any
Limited Partner shall die or shall be declared incompetent or
insane or shall be adjudicated a bankrupt, or in the event of the
winding up or liquidation of a Limited Partner, the legal
representative of such Limited Partner shall upon written notice
to the General Partner of the happening of any of such event(s)
become an assignee of such Limited Partner's interest, subject to
all of the terms of this Agreement as then in effect. Such legal
representative may not terminate any interest in the Partnership
and withdraw capital, profits or gains except in accordance with
Section 4.1. If the General Partner does not approve withdrawal
of the interest of such legal representative, the General Partner
will use its best efforts, without legal obligation, to find
another Person, suitable to the General Partner, willing to
assume the Partnership interest of such legal representative.
SECTION 4.3 Liquidating Share.
(a) In the event any Limited Partner shall withdraw or be
required to withdraw in accordance with the provisions of
Sections 4.1 or 9.10, there shall be distributed to such Limited
Partner or its legal representative within ninety (90) days after
the last day of the fiscal year of the Partnership in which such
withdrawal occurred, an amount equal to the balance of such Lim-
ited Partner's Capital Account as of the end of such fiscal year
of the Partnership or, if withdrawal occurs other than at the end
30<PAGE>
of a fiscal year, the date of such withdrawal; provided, however,
that except in the case of a dissolution of the Partnership, the
payment to be made pursuant to this Section 4.3 to such Limited
Partner shall be subject to reduction in such amount not in
excess of five percent (5%) of such payment as the General
Partner may determine to be necessary to cover the costs of
selling Securities or other property in order to effect such
payment.
(b) The Partnership may, in the discretion of the General
Partner, subject to the limitations set forth below, make any
distribution or payment pursuant to this Section 4.3 in cash, in
Securities or in the form of a promissory note of the Partnership
maturing upon the dissolution of the Partnership and bearing
interest at the minimum rate necessary to avoid the imputation of
interest under the Code. However, unless a Limited Partner
withdrawing pursuant to Section 4.1(a) otherwise elects, no
distribution of Securities, or of any interest therein, shall be
made to such Limited Partner if the effect of such distribution,
as set forth in an Opinion of Counsel, would be to continue the
situation or circumstance giving rise to the necessity for such
Limited Partner's withdrawal.
(c) If any payment pursuant to this Section 4.3 is made in
whole or in part by delivery of a promissory note of the
Partnership, such note shall be payable on the same terms as the
note described in Section 4.1(a)(iv).
SECTION 4.4 Cessation of Participation. Subject to
Section 4.3(b), from and after the date of withdrawal of a
Limited Partner from the Partnership under this Article IV, no
interest shall be payable on its interest in the Partnership to
the date of payout.
ARTICLE V - TRANSFER OF PARTNERSHIP INTERESTS
SECTION 5.1 Assignability of Interests.
(a) Subject to the provisions of Sections 4.2 and 5.1(c)
hereof, the interest of a Limited Partner shall not be assignable
without the prior written consent of the General Partner. No
assignment shall be binding upon the Partnership until the
General Partner receives an executed copy of such assignment in
form and substance satisfactory to the General Partner. The
assignee of such interest may become a substituted Limited
Partner only upon the terms and conditions of Section 5.2.
(b) The interest of the General Partner shall not be
assignable; provided, however, that such interest may be assigned
to a successor to all or substantially all of the business of the
General Partner or the general partner of the General Partner,
upon (i) the execution by the General Partner of a written
assignment, the execution by the successor of this Agreement and
the written assumption by the successor of the obligations of the
General Partner hereunder, and (ii) the receipt by the
31<PAGE>
Partnership of an Opinion of Counsel that such assignment and
assumption will not result in the Partnership being classified as
an association or otherwise taxable as a corporation for United
States Federal income tax purposes. In the event of such
assignment, the successor shall become the general partner
hereunder and the predecessor and successor General Partner shall
cause the execution of any necessary papers including, without
limitation, an amendment to the Certificate of Limited
Partnership to record the substitution of the successor as
general partner. The General Partner shall notify the Advisory
Board prior to any such proposed assignment of the General
Partner's interest and shall notify the Limited Partners within
seven (7) days of any such assignment.
(c) Sections 5.1(a) and 5.2 notwithstanding, a Limited
Partner may assign its interest to and substitute a Limited
Partner in its place and stead any corporation or other entity
(A) which then owns directly or indirectly Voting Control of the
Limited Partner, or (B) of which the Limited Partner then owns
directly or indirectly Voting Control, or (C) of which a
corporation described in (A) then owns directly or indirectly
Voting Control, or (D) which is an entity controlled by,
controlling or under common control with any assigning Limited
Partner or in the case of assignment by a trustee of an employee
benefit plan (as defined in ERISA) or trust relating thereto, to
a successor fiduciary thereof, or (E) subject to the consent of
the General Partner, which consent shall not be unreasonably
withheld, to a member of the Edison Electric Institute
(including, for this purpose any entity controlling, controlled
by or under common control with such member or any employee
benefit plan sponsored by such member or such affiliate of such
member); provided, however, that such assignment does not
increase the number of persons who beneficially own interests in
the Partnership for purposes of determining whether the
partnership is an "investment company" under the Investment
Company Act of 1940, as amended; and provided further, however,
that no such transfer may be made if the General Partner, based
upon an Opinion of Counsel, shall determine that it might result
in a violation of any law or result in the Partnership being
classified as an association or otherwise taxable as a
corporation for United States Federal income tax purposes.
SECTION 5.2 Substituted Limited Partners. Subject to the
provisions of Sections 5.1 (c), no Limited Partner shall have the
right to substitute an assignee as a Limited Partner in its
place. The General Partner shall have the power, in its
discretion, to admit as a substituted Limited Partner any Person
acquiring a partnership interest by assignment from a Limited
Partner. The admission of an assignee as a substituted Limited
Partner shall be conditioned upon the assignee's written
assumption of all obligations of the assigning Limited Partner
and execution of this Agreement as a Limited Partner. Upon
acceptance of a substituted Limited Partner, the General Partner
shall forthwith amend any necessary papers to show the
substitution of such assignee in place of the assigning Limited
32<PAGE>
Partner. The General Partner's failure or refusal to admit an
assignee as a substituted Limited Partner shall not affect the
right of such assignee to receive the share of profits or other
distribution or compensation to which its assignor would
otherwise be entitled.
SECTION 5.3 Obligation of Assignee. Any assignee,
irrespective of whether such assignee has accepted and adopted in
writing the terms and provisions of this Agreement, shall be
deemed by the acceptance of such assignment to have agreed to be
subject to the terms and provisions of this Agreement in the same
manner as its assignor.
SECTION 5.4 Prohibition Against Public Trading. Each
Limited Partner hereby covenants and agrees with the Partnership
for the benefit of the Partnership and all Partners that (a) the
Limited Partner is not currently making a market in the Limited
Partner's Partnership Interest, (b) the Limited Partner will not
transfer its Partnership interest on an established securities
market or a secondary market (or the substantial equivalent
thereof) within the meaning of Code Sections 469(k)(2) and
7704(b) (and any Treasury Regulations, revenue rulings, or other
official pronouncement of the Internal Revenue Service of the
Treasury Department that may be promulgated or published
thereunder), (c) the Limited Partner is not currently structured
as a pass-through entity (i.e., a partnership, S corporation or
grantor trust) and will not transfer its Partnership interest to
such an entity, and (d) the Limited Partner will not subdivide
its interest in the Partnership for resale into a Partnership
interest the initial offering price of which would have been less
than $20,000. The General Partner may (but is not required to)
waive any of the above restrictions if, in its reasonable
judgment, such waiver will not cause any adverse consequences to
the Partnership or the Partners.
ARTICLE VI - DURATION AND LIQUIDATION OF PARTNERSHIP
SECTION 6.1 Duration.
(a) Subject to Section 6.3, the Partnership shall continue
until ten (10) years from the date of this Agreement; provided,
however, that with the written consent of the General Partner and
Limited Partners representing at least sixty-six and two-thirds
percent (66 2/3%) of the combined Capital Contributions of all
the Limited Partners;
(i) the Partnership may be extended for such period or
periods not in excess of two (2) years as may be necessary
to facilitate the realization of Investments; or
(ii) the Partnership may be dissolved at any time after
its first full fiscal year.
SECTION 6.2 Withdrawal of Limited Partner. If any
Limited Partner shall withdraw, die, be declared incompetent or
33<PAGE>
insane, or be adjudicated as bankrupt, or in the event of the
winding up or liquidation of a Limited Partner, such event shall
not cause the dissolution or liquidation of the Partnership, and
the Partnership shall continue until dissolved pursuant to
Section 6.1 or Section 6.3.
SECTION 6.3 Termination of the Partnership; Withdrawal
and Removal of General Partner.
(a) Without prior consent by Limited Partners representing
seventy-five percent (75%) of the combined Capital Contributions
of all Limited Partners and subject to appointing a new Person to
act as General Partner of the Partnership who shall be willing to
serve as such and who shall have complied with the provisions of
Section 5.1, the General Partner may not resign as General
Partner of the Partnership or withdraw or retire from the
Partnership or voluntarily terminate its existence; provided,
however, that the General Partner may assign its interest in the
Partnership and withdraw as the general partner pursuant to
Section 5.1 (b).
(b) If the General Partner determines in its reasonable
discretion that, due to a change in applicable laws, rules or
regulations, it is illegal or no longer in the best interests of
the Limited Partners to continue the Partnership, then the
Partnership shall dissolve upon one hundred and eighty (180) days
prior written notice from the General Partner to the Limited
Partners, subject to the right of the Limited Partners to
continue the Partnership and elect a new General Partner pursuant
to Section 6.3(c) below.
(c) Unless the Limited Partners shall have determined to
continue the Partnership as provided in the second sentence of
this Section 6.3(c), the Partnership shall dissolve on the 180th
day after any of the following events:
(i) the giving of the notice provided for in Section
6.3(b);
(ii) the filing by the General Partner or the
Partnership of a petition under the United States Bankruptcy
Code; or
(iii) the running of sixty (60) days after the
filing by another person against the General Partner of a
petition under the United States Bankruptcy Code which
petition is not dismissed within such sixty (60) day period.
If, following the occurrence of any of the events specified in
(i)-(iii) above, Limited Partners representing in excess of fifty
percent (50%) of the combined Capital Contributions of all
Limited Partners determine in a writing executed within such one
hundred and eighty (180) day period to continue the Partnership
and elect a new General Partner, the Partnership shall not
dissolve as provided in the first sentence of this Section 6.3(c)
34<PAGE>
but shall continue in existence as though no such decision to
dissolve or filing had occurred, except that the new General
Partner shall be substituted for the former General Partner. Any
Limited Partner who does not consent to such continuation shall
have the right to withdraw by giving notice within ninety (90)
days after having been notified of the continuation of the
Partnership, and shall be paid in the manner set forth in Section
4.3 within ninety (90) days after giving such notice.
(d) The Partnership shall dissolve on the 90th day after
the General Partner resigns as general partner of the Partnership
other than pursuant to Section 5.1(b), or withdraws or retires
from the Partnership, or voluntarily terminates its existence.
Provided, however, that if one hundred percent (100%) of the
Limited Partners determine in writing executed within such ninety
(90) day period to continue the Partnership and elect a new
General Partner, the Partnership shall not dissolve as provided
in the first sentence hereof but shall continue in existence as
though no decision to dissolve or filing had occurred, except
that the new General Partner shall be substituted for the former
General Partner. Provided further, that the new General Partner
shall be willing to serve as such and that the appointment of
such General Partner shall otherwise comply with the provisions
of this Agreement.
(e) The General Partner shall be deemed removed (unless
waived by the affirmative vote of Limited Partners representing
at least seventy-five percent (75%) of the combined Capital
Contributions of all the Limited Partners) upon thirty (30) days
prior written notice:
(i) when a court of competent jurisdiction makes a
final determination, as to which all rights to appeal have
been exercised or exhausted, that the General Partner is
guilty of any gross negligence, willful malfeasance, fraud,
material breach of its fiduciary duty to the Partnership or
the Limited Partners or bad faith in connection with the
performance of its duties hereunder or has committed any
material breach of its obligations hereunder which cannot be
remedied or which if it can be remedied is not remedied by
General Partner within thirty (30) days after such
determination or has caused any of the Limited Partners to
be liable in excess of their Capital Commitment for the
liabilities of the Partnership;
(ii) upon the criminal conviction entered by a court of
competent jurisdiction against the General Partner, AIC or
its officers, by reason of their activities on behalf of the
Partnership; or
(iii) upon a "substantial change in management of
AIC" or a "substantial change in the composition of the
Industrial Investment Team" as described in Section 2.1(b)
at any time prior to the sixth anniversary of the Final
Closing Date, if, for a period of one hundred twenty (120)
35<PAGE>
days after such change, there has not been an approval by a
majority of the members of the Advisory Board to continue to
allow the newly managed General Partner to make new
Portfolio Investments on behalf of the Partnership.
provided that a new General Partner shall have been appointed to
act as a general partner (who shall be willing to serve as such
and whose appointment shall otherwise comply with the provisions
of this Agreement) prior to such removal. Notwithstanding the
foregoing, the General Partner shall not be deemed removed under
the foregoing provisions of this Section 6.4(c) unless and until
it has had at least thirty (30) days' notice of the intent by any
Limited Partner to remove the General Partner pursuant to its
Section 6.4(c).
SECTION 6.4 Liquidation.
(a) Upon dissolution of the Partnership, the Partnership
shall be liquidated subject to the provisions of this Section
6.4. The General Partner, or if there be no general partner or
if the Partnership is dissolved by the Limited Partners, then a
person selected by Limited Partners representing in excess of
fifty percent (50%) of the combined Capital Contributions of all
Limited Partners, shall act as the liquidator with full power and
authority to:
(i) sell, at such prices and upon such terms as the
liquidator in its sole discretion may deem appropriate, any
or all of the Securities, properties and assets of the Part-
nership, provided that such sales shall only be made for
cash and shall be consummated as soon as reasonably
practicable (consistent with the best interests of all the
Partners) after the date of dissolution; and provided
further that the liquidator shall not deal directly or
indirectly with the Partnership for its own account without
the approval in writing of all of the Limited Partners;
(ii) as soon as reasonably practicable after the date
of dissolution, effect distribution of the properties and
assets of the Partnership in the manner set forth in Section
6.5; and
(iii) control and pay out the reserves established
pursuant to Sections 6.5(b) and (d) and distribute the
balance to the Partners pursuant to Section 6.5(e) as
additional assets.
(b) In the event that at the time of the dissolution of the
Partnership, the General Partner has filed a petition under the
United States Bankruptcy Code, or sixty (60) days after the
filing by another person against the General Partner of a
petition under the United States Bankruptcy Code which petition
is not dismissed, or if the General Partner has ceased to carry
on a business because of a voluntary liquidation, then
notwithstanding Section 6.4(a), there shall be a liquidator
36<PAGE>
appointed by Limited Partners representing in excess of fifty
percent (50%) of the combined Capital Contributions of all the
Limited Partners, which liquidator shall be solely responsible
for the liquidation of the Partnership. The fees (exclusive of
expenses) of any liquidator appointed pursuant to (a) above or
this Section 6.4(b) shall be deducted from any amounts otherwise
payable to the General Partner by the Partnership, and the
General Partner shall be liable to the Partnership for any
excess.
(c) In the event that Limited Partners representing in
excess of fifty percent (50%) of the combined Capital
Contributions of all the Limited Partners so agree in writing,
the liquidator will make all or a specified portion of the
liquidating distribution in kind; absent any such agreement,
distributions shall be in cash.
SECTION 6.5 Distribution Upon Liquidation. On liquidation
of the Partnership, the General Partner or liquidator, as the
case may be, shall make distributions out of the properties and
assets of the Partnership in the following order of priority:
(a) To the payment and discharge of the claims of all
creditors of the Partnership who are not Partners;
(b) To the establishment of such reserves as they may deem
necessary or advisable in order to provide for contingent
liabilities of the Partnership to all Persons who are not
Partners;
(c) To the payment and discharge pro rata of the claims of
all creditors of the Partnership who are Partners;
(d) To the establishment of such reserves as they may deem
necessary or advisable in order to provide for contingent
liabilities to Partners; and
(e) The balance, if any, to the Partners in accordance with
and in proportion to their positive Capital Account balances
(after treating all Securities or other property other than cash
that the Partnership holds on the date of liquidation as having
been distributed on such date, and after allocating the profit
and loss on such Securities and other property determined in
accordance with Section 3.3).
SECTION 6.6 Deficit Restoration by General Partner.
Notwithstanding any other provision of this Agreement to the
contrary, if upon liquidation of the General Partner's interest
in the Partnership (whether or not in connection with the
liquidation of the Partnership), the General Partner has a
negative balance in its Capital Account, the General Partner
shall pay to the Partnership on or before the end of the taxable
year in which such liquidation occurs (or, if later, within
ninety (90) days after the date of such liquidation) an amount in
cash equal to the difference between the General Partner's
37<PAGE>
negative Capital Account and zero. In determining the amount to
be paid by the General Partner, the Capital Account of the
General Partner shall first be adjusted (i) to account for all
Capital Account adjustments for the fiscal year during which such
liquidation occurs, and (ii) to reflect all allocations that
would be required as prerequisite for any distribution pursuant
to Section 6.5(e). All amounts received by the Partnership
pursuant to this Section 6.6 shall, upon liquidation of the
Partnership, be distributed in accordance with Section 6.5.
ARTICLE VII - REPORTS TO PARTNERS
SECTION 7.1. Independent Auditors. At all times the
General Partner shall keep books of account in which shall be
entered fully and accurately the transactions of the Partnership.
The books of account and records of the Partnership shall be
suited as of the end of each fiscal year by independent certified
public accountants of recognized national standing selected by
the General Partner and shall be kept by the General Partner on
an accrual basis.
SECTION 7.2 Reports.
(a) Annual Financial Statements. Within one hundred twenty
(120) days after the end of each fiscal year and on liquidation
of the Partnership, the General Partner shall prepare, on the
basis of the report of the independent certified public
accountants, and mail to each Partner (and to each former Partner
who withdrew during such fiscal year), together with the report
of the independent certified public accountants, a report stating
in sufficient detail such transactions effected by the
Partnership during such fiscal year as shall enable such Partner
to prepare its respective income tax returns and including:
(i) such Partner's Capital Accounts as of the close of
such fiscal year;
(ii) the sum of all Capital Accounts as of such date;
(iii) statement of assets and liabilities of the
Partnership;
(iv) profit and loss statement;
(v) statement of holdings of Securities of the
Partnership;
(vi) a description of the nature of each of the
Partnership's Investments, the cost thereof and the
valuation thereof established pursuant to Section 8.3; and
(vii) such other financial information and
documents as the General Partner deems appropriate, as a
Limited Partner may reasonably request, or as required by
this Agreement and any amendments hereto.
38<PAGE>
(b) Quarterly Financial Statements. Within sixty (60) days
after the end of each quarter of each fiscal year of the
Partnership, the General Partner shall mail to each Limited
Partner unaudited financial statements of the Partnership for
such fiscal quarter.
(c) Non-Financial Information. Beginning ninety (90) days
after the Final Closing Date and continuing through the
investment phase of the Partnership (which shall be a period of
time between four (4) and six (6) years as is determined by the
Advisory Board), the General Partner shall send, on a bi-monthly
basis, a written information statement, the form and content of
which shall be the same as the first such statement, which first
statement shall be subject to the approval of a majority of the
members of the Advisory Board, to each Limited Partner describing
generally the activities of the Partnership and, to the extent
they relate to the Partnership, the activities of the General
Partner. In particular, to the extent such information is not
confidential, such statement should describe generally the types
of technologies which are being advanced by those Persons whom
the General Partner has considered as potential Portfolio
Companies (whether or not such Person ultimately becomes a
Portfolio Company). Also, such statement should disclose
information regarding the potential energy savings and potential
reduction of CO2 emissions related to the Partnership's
investments in a format that would allow the Limited Partners to
report such items in accordance with Section 1605(b) of the
Energy Policy Act of 1992. The frequency and format of such
reports may be changed (either permanently or on a temporary
basis) with the consent of a majority of the members of the
Advisory Board.
SECTION 7.3 Inspection. A Limited Partner or its duly
authorized representative shall have the right at reasonable
times to inspect and copy the books and records of the
Partnership and to discuss its affairs with the agents (including
any independent auditors) of the General Partner.
SECTION 7.4 Tax Returns. The General Partner will serve
as the "tax matters partner" of the Partnership and will file all
United States Federal, state or other income tax returns required
of the Partnership. The General Partner will use all reasonable
efforts to cause to be delivered, within ninety (90) days after
the end of each such fiscal year, to each Person who was a
Partner at any time during such fiscal year (a) a Form K-1 and
such other information, if any, with respect to the Partnership
as may be necessary for the preparation of such Partner's United
States Federal income tax return, and (b) such similar returns as
are required to be filed by the Partnership for United States
Federal, State and Local income tax purposes. If requested to do
so by any Limited Partner, the General Partner will file an
election pursuant to Section 754 of the Code.
39<PAGE>
ARTICLE VIII - VALUATION
SECTION 8.1 Valuation of Partnership Net Worth. In
determining the net worth of the Partnership, the value of any
Partnership asset, the Capital Accounts of the Partners, the
value of any distribution, or in determining value for any other
purpose under this Agreement, the provisions of this Article VIII
shall apply.
SECTION 8.2 Valuation Date. Valuation shall be taken by
the General Partner as of the close of business on (i) the last
day of each fiscal year of the Partnership, (ii) the date the
Partnership dissolves or (iii) the date with respect to which
valuation is to be taken. If such day is not a "Market Day", then
valuation shall be taken on the "Market Day" next preceding such
date, as the case may be. A "Market Day" shall be a day on which
the New York Stock Exchange is open for regular trading. If a
valuation is taken other than in connection with the annual
report described in Section 7.2, the General Partner shall give
notice of such valuation to the Limited Partners promptly after
it is determined.
SECTION 8.3 Valuing Securities and Other Assets. The
following provisions shall apply in valuing interests in the
Partnership:
(a) Listed Securities which are not restricted as to
salability or transferability shall be valued at the closing
price as of the valuation date. If any listed Security was not
traded on such date, then the mean of the closing high bid and
low asked prices as of the close of business on such date shall
be used.
(b) Unlisted securities which are readily marketable shall
be valued at the mean of the closing bid and asked prices as of
the valuation date.
(c) Securities, whether listed or unlisted, for which
market quotations are available, but which are restricted as to
saleability or transferability, shall be valued as provided in
(a) and (b) above, less a discount of from ten percent (10%) to
twenty-five percent (25%) of the value thereof as determined in
good faith by the General Partner. In determining the amount of
such discount the General Partner shall give consideration to the
nature and length of such restriction and the relative volatility
of the market price of such Security.
(d) Securities for which market quotations are not readily
available and all other assets of the Partnership shall be valued
at a fair value as reasonably determined in good faith by the
General Partner.
(e) Liabilities shall include, in addition to those
recorded on the books of the Partnership, such other accrued or
40<PAGE>
contingent liabilities as shall be determined in accordance with
generally accepted accounting principles consistently applied.
(f) In determining the value of the interest of any Partner
in the Partnership, neither the goodwill nor the right to use the
firm name or trade name of the Partnership shall be considered
an asset of the Partnership. Neither shall any valuation be
placed thereon for the purpose of distribution, nor shall any
value be placed thereon as between the Partners, or between a
continuing Partner and a withdrawing Partner, or between a
surviving Partner and the estate of any deceased Partner.
SECTION 8.4 Disputes.
(a) If Limited Partners representing in excess of fifty
percent (50%) of the combined Capital Contributions of all of the
Limited Partners dispute the values determined by the General
Partner, they shall give notice thereof to the General Partner in
writing by certified mail within sixty (60) days following the
mailing of the annual report described in Section 7.2, or the
date on which notice is otherwise given of the General Partner's
determination of the fair value. Such dispute shall be referred
to an independent financial analyst of recognized standing,
selected by the General Partner and approved by all disputing
Partners. If the parties are unable to agree on an independent
financial analyst, the General Partner shall select one financial
analyst of recognized national standing and the disputed Partners
shall select another such analyst. If the two analysts so
selected are unable to agree on a fair value, they shall select a
third analyst, who shall determine the fair value. The General
Partner shall upon request supply to any independent financial
analyst selected as provided above all information in its
possession with respect to the asset whose value is disputed.
The Partnership shall pay the cost of the analyst selected by the
General Partner and the disputing Limited Partners shall pay the
cost of the analyst selected by them. The cost of any third
analyst shall be divided equally between the Partnership on the
one hand and the disputing Limited Partners on the other.
(b) If Limited Partners representing in excess of fifty
percent (50%) of the combined Capital Contributions of all of the
Limited Partners shall have given notice to the General Partner
in writing by certified mail disputing the values determined by
the General Partner within sixty (60) days following the mailing
of the annual report described in Section 7.2, or the date on
which notice is otherwise given of the General Partner's
determination of fair value, then no distributions shall be made
to the Partners until such dispute shall have been resolved in
accordance with the provisions of this Section 8.4.
ARTICLE IX - MISCELLANEOUS
SECTION 9.1 Admission of Partners. No new Partner shall
be admitted to the Partnership except by assignment of the
interest of a Partner in accordance with Article V, by replace-
41<PAGE>
ment of the General Partner in accordance with Section 6.3(c) or
(d) or in accordance with this Section 9.1. Additional Limited
Partners may be admitted to the Partnership on or before the
180th day following the initial Capital Contribution by any
Limited Partner, upon the approval of the General Partner.
Admission of any such additional Limited Partner shall be
accomplished when each Limited Partner so admitted shall (i) sign
an amendment to this Agreement, which shall be accepted by the
General Partner, in which such Limited Partner agrees to become a
Limited Partner upon the terms and conditions of this Agreement,
as well as any other documents required by the General Partner,
(ii) make the initial payment of his Capital Commitment required
by Section 3.1, and (iii) pay to the Partnership an amount of
interest on its initial Capital Contribution equal to the
weighted average of interest earned by the Partnership on its
uninvested funds from the date of commencement of this
Partnership to the date of admission of such additional Limited
Partner pursuant to this Section 9.1 as determined by the General
Partner. With respect to any Limited Partner admitted pursuant
to this Section 9.1, no such Limited Partner shall be allocated
any income, gain or loss realized during the period prior to such
Limited Partner's admission to the Partnership. Upon admission
of an additional Limited Partner, the Partnership shall notify
each Limited Partner of the interests of all Partners in the
Partnership. Each said additional Limited Partner shall
thereafter be entitled to and subject to all rights and
liabilities of Limited Partners hereunder.
SECTION 9.2 Disputed Matters. Except as provided in
Section 8.4, any controversy or dispute arising out of this
Agreement, interpretation of any of the provisions hereof, or the
actions of the Partners hereunder shall be submitted to
arbitration before the American Arbitration Association under the
rules then obtaining of said Association, such arbitration to be
held in Boston, Massachusetts, and judgment upon any award thus
obtained may be entered in any court having jurisdiction thereof.
In any such arbitration, each party to the arbitration shall bear
its own expenses, including expenses of attorneys, financial
experts and other witnesses; any arbitration fees and expenses of
the arbitrators shall be divided equally between the disputing
parties.
SECTION 9.3 General. Agreement: (a) shall be binding on
the legal successors of the Partners permitted by this Agreement;
(b) shall be governed by and construed in accordance with the
Delaware Revised Uniform Limited Partnership Act and otherwise in
accordance with the laws of the Commonwealth of Massachusetts;
(c) may be executed in more than one counterpart as of the day
and year first above written; and (d) contains the entire
Agreement among the Partners relating to the subject matter
hereof. The waiver of any of the provisions, terms or conditions
contained in this Agreement shall not be considered as a waiver
of any of the other provisions, terms or conditions hereof.
SECTION 9.4 Notices.
42<PAGE>
(a) To the Partners. Any notice to be given hereunder by
the Partnership to any Partner shall be in writing and signed by
the General Partner. Any such notice shall be conclusively
deemed to have been given if either (i) delivered in person to
such Partner or (ii) if the address to which said notice is to be
sent is outside of the United States, mailed by air mail, postage
prepaid, addressed to such Partner at its address set forth in
Appendix A, or (iii) if the address to which said notice is to be
sent is within the United States, mailed by registered or
certified mail, and addressed as set forth in (ii) above. Any
Partner may change its address for notice by written notice to
the Partnership at the Partnership address given by the means set
forth in Section 9.4(b), and upon receipt by the Partnership of
such notice of change of address for notice, the new address
shall be that Partner's address for notice hereunder.
(b) To the Partnership. Any notice to be given hereunder
to the Partnership shall be in writing and signed by the Partner
giving notice. Any such notice shall be conclusively deemed to
have been given if either (i) delivered in person to the General
Partner, or (ii) mailed by United States registered or certified
mail, postage prepaid, addressed to the Partnership at its
principal office, which shall be 101 Federal Street, Boston,
Massachusetts 02110, or such other address as the General Partner
may from time to time designate by notice to all Limited
Partners. Any notice to the Partnership may be mailed by air
mail to such address if mailed from outside of the United States,
but shall be deemed given only upon receipt.
SECTION 9.5 Execution of Certificate of Limited
Partnership and Other Documents. The General Partner agrees to
prepare, execute and file a certificate of limited partnership
and any amendments thereto, and all Partners agree to execute
such other instruments, documents and papers as the General
Partner deems necessary or appropriate to carry out the
provisions of this Agreement, and to take such other action as
the General Partner deems appropriate to maintain the
Partnership's status as a Limited Partnership under the laws of
the Commonwealth of Massachusetts. The General Partner shall
send copies of such documents to each Partner.
SECTION 9.6 Force Majeure. Whenever any act or thing is
required of the Partnership hereunder within any specified period
of time, the Partnership shall be entitled to such additional
period of time to do such acts or things as shall equal any
period of delay resulting from causes beyond the reasonable
control of the Partnership, including, without limitation, bank
holidays, actions of governmental agencies, the closing of the
New York Stock Exchange at times other than normal closing dates,
and financial crises of a nature materially affecting the
purchase and sale of Securities.
SECTION 9.7 Amendments.
43<PAGE>
(a) Except as otherwise specifically provided herein, the
terms and provisions of this Agreement may be modified or amended
at any time and from time to time or compliance with any
provision hereof may be waived with the written consent of (1)
the General Partner and (2) Limited Partners representing in
excess if sixty-six and two-thirds percent (66 2/3%) of the
combined Capital Contributions of all Limited Partners insofar as
is consistent with the laws governing this Agreement; provided,
however, that without the specific written consent of each
Partner adversely affected thereby, no such modification or
amendment shall (i) increase or decrease the obligation of a
Limited Partner beyond that set forth in Section 1.4, (ii)
increase or reduce the Capital Account or Capital Commitment of
any Partner or its rights to allocation, distribution and
withdrawal with respect thereto, (iii) amend Section 1.5 to
permit Partnership activities which would subject a Limited
Partner to United States Federal or state taxation which such
Partner would not be subject to in the absence of such activity
or (iv) amend Sections 3.1(c) or 4.1 to limit or diminish the
rights of withdrawing Partners thereunder or (v) amend this
Section 9.7. The immediately preceding provision may not be
amended without the unanimous consent of all the Partners.
(b) In addition to any amendments otherwise authorized
hereby, this Agreement may be amended from time to time by the
General Partner without the consent of any of the Limited
Partners (i) to cure any ambiguity or correct any printing,
stenographic or clerical errors or omissions; (ii) to admit one
or more additional Limited Partners, or withdraw one or more
Limited Partners, in accordance with the terms of this Agreement;
(iii) to amend Appendix A hereto to provide any necessary
information regarding any Partner, any additional or successor
General Partner or any additional Limited Partner; (iv) to
reflect any change in the amount of the Capital Contributions of
any Partner in accordance with the terms of this Agreement; and
(v) to the extent necessary to cause the provisions of this
Agreement to conform to the requirements of the United States
Investment Advisers Act of 1940 applicable to contracts between
investment advisers registered under such Act and their clients,
provided that such amendment does not adversely affect any of the
Limited Partners. The General Partner shall send each Limited
Partner a copy of any amendment adopted pursuant to this Section
9.7(b).
SECTION 9.8 Headings. Article, Section, Paragraph and
Subparagraph headings are for convenience of reference only, are
not part of this Agreement, and shall not be considered in
interpreting this Agreement.
SECTION 9.9 Power of Attorney. Each Limited Partner does
hereby constitute and appoint the General Partner, Peter A.
Brooke, and each Vice President of the general partner of the
General Partner, and each of them, its true and lawful
representative, in its name, place and stead, to make, execute,
sign, acknowledge, deliver and file all such instruments,
44<PAGE>
documents and certificates which may from time to time be
required by the laws of the United States of America, the State
of Delaware, the Commonwealth of Massachusetts, or any other
state or jurisdiction in which the Partnership shall determine to
do business, or any political subdivision or agency thereof, to
effect, implement and continue the valid and subsisting existence
of the Partnership, including, without limitation, a certificate
of limited partnership and amendments thereto (not inconsistent
with this Agreement) and any other certificates or amendments
filed for the purpose of admitting any of the undersigned as a
limited partner of the Partnership.
SECTION 9.10 Effect of Securities Laws. In the event
that, due to acts of the Limited Partners or the Partnership, or
otherwise the General Partner determines, after consultation with
legal counsel for the Partnership, that the Partnership is or may
be required by the securities laws of the United States to
register either the Partnership or interests in the Partnership
with the United States Securities and Exchange Commission or
other similar agency, or that the General Partner shall be
required to so register in connection with the distribution of
limited partnership interests, then the General Partner shall
have the right, in its discretion and without the necessity of
obtaining the consent of the Limited Partners, to take any of the
following actions:
(a) Dissolve and liquidate the Partnership; or
(b) Require the withdrawal of any Limited Partner whose
acts have caused or may cause the Partnership or interests
therein to be required to be so registered, such withdrawal to be
on the terms set forth in Article IV hereof except that such
withdrawal may be required to be made immediately rather than as
of the fiscal year-end and the determination of the withdrawing
Partner's liquidating share shall be made as of such time.
45<PAGE>
IN WITNESS WHEREOF, the General Partner and the Limited
Partners have hereunto set their hands and seals as of the date
first set forth above.
GENERAL PARTNER
ADVENT INTERNATIONAL LIMITED PARTNERSHIP
By: ADVENT INTERNATIONAL CORPORATION
By: ______________________________
LIMITED PARTNERS
SEE SIGNATURE PAGES ATTACHED HERETO
46<PAGE>
APPENDIX A
Capital Commitments
General Partner:
Limited Partners:
47<PAGE>
APPENDIX B
CHARTER
The EnviroTech Investment Fund I will invest in companies
commercializing electrotechnologies and renewable technologies
that promote environmental and economic responsibility. The
investments will support the electric utility industry's efforts
under the "Climate Challenge," demonstrating that voluntary
efforts can, cost effectively, achieve both economic and
environmental gains.
Investments by the Fund should:
- Reduce, avoid or sequester greenhouse gas emissions.
(Every effort will be made to allow the Limited
Partners to submit the results under section 1605(b) of
the Energy Policy Act of 1992)
- Help utilities and their customers handle more
effectively waste by-products or more cost-effectively
produce or manufacture goods or service
- Improve the efficiency of the production, storage,
transmission, and delivery of energy
- Provide investors with attractive opportunities
relating to the evolving utility business climate which
meet the above objectives
Areas of Focus:
The primary sectors of focus are:
- Alternate and renewable energy supplies, including
photovoltaic, biomass technologies, and wind power.
- Environmental and waste treatment technologies and
services, including electrotechnologies used in waste
and water treatment and waste management, waste
reduction and recycling/recovery.
- Energy efficiency technologies, processes and services,
including heating, ventilation and air conditioning
equipment, induction heating technologies, high
efficiency lighting technologies, and motor efficiency
technologies, and energy storage technologies.
- Electrotechnologies used in the reduction of medical
waste, including plasma, pyrolysis and microwave
possessing.
48<PAGE>
- Alternative energy for transportation, including
vehicles, components infrastructure, and fuel cells.
In addition, investments may include new approaches to
transportation sectors where electrotechnologies have
not been prevalent.
- Other technologies related to improving the generation,
transmission and delivery of electricity, including
automated meter reading, distribution transformers,
thyristor technologies, active noise cancellation,
energy storage systems and interactive energy
management systems.
Geographic Coverage
The Fund's investments can be both domestic and international,
but investments will be primarily in the United States. The
Limited Partners will have an opportunity to bring local
technology developments to the Fund, and also will have the
opportunity to have technologies demonstrated in their service
territory.
Stage of Development.
The Fund will invest in companies at all stages of development to
diversify the portfolio while achieving the best match of
environmental and economic results. There will be a minimum of
investment in start-up companies, with most investments being in
early and late expansion stage development opportunities. The
Fund will not participate in hostile takeovers.
Size of Investment
The Fund will not invest more than 7.5% of its total committed
capital in a single portfolio company, including all follow-on
investments and all forms of investment (e.g., equity, debt, loan
guarantees, etc.)
Diversification
The Fund will diversify the investment portfolio to maximize
coverage among potential technologies. A technology is defined
as the component or part of a process or service that is unique
in its characteristics from other components or parts of a
process or service. Examples include lead acid batteries,
induction charging, plasma processing for medical waste, and
controllers for electric vehicle drive trains.
49<PAGE>
APPENDIX C
MEMBERS OF ADVISORY BOARD
50<PAGE>
APPENDIX D
CO-INVESTMENT POLICY
OUTLINE OF POLICY FOR EMPLOYEE INVESTMENT IN AI/NETWORK DEALS
1. Principally due to risks of legal action, but also due to
possible 144 and 16b restrictions placed on AI investment
actions as a result of "related party transactions", no
investment will be permitted in public portfolio company
securities subsequent to the IPO. In addition, employees
may not purchase the securities of public portfolio
companies within 6 months after AI managed funds and Network
affiliate managed funds have disposed of their last shares
in a company.
2. All restrictions apply to the employee and his household.
3. Employees are not to advise any other parties concerning
investment in private or publicly listed portfolio companies
of AI or of the Network.
4. An employee may invest in private portfolio company
securities only if all of the following conditions are met
for each such investment:
- the employee is considered (under the law) to be a
"Sophisticated Investor" and the employee is at or
above the level of a Vice President AIC (or its
equivalent);
- there is no restriction placed by the portfolio
company, other investors in that company, or by legal
authorities having jurisdiction over the transaction on
such investments by AI employees;
- the employee agrees to follow on (or not) in future
financings just as AI managed funds decide to follow
(or not);
- the employee obtains prior approval of the AI
Investment Committee for each such investment;
- there is an excess of a deal available beyond the
aggregate total appetite of:
all applicable AI funds
and applicable/interested Network funds
and $10,000 for AIILP, if AIILP in investing
- there is no prohibition against such employee
investment arising from the legal agreements governing
each AI fund participating in the deal (e.g., INF has
such a restriction);
51<PAGE>
- there is no advice from AI counsel which causes concern
about such employee investment;
- securities purchased by employees will be held by AI as
custodian. The employee will give AI full power of
attorney concerning disposition, voting, conversion,
and other matters, in a manner similar to shares held
on behalf of AI managed funds;
- the employee acknowledges that neither AI nor any of
its funds, subsidiaries, affiliates, officers, director
or employees is obligated or expected to indemnify or
assist in the defense of any employee named in a legal
action as a result of the employee's ownership of the
securities.
[This time period is designed to avoid any difficulties with so
called "short swing" transactions in the U.S. Other time periods
may apply in other markets, depending on similar rules currently
in effect.]
52<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> OCT-01-1993 OCT-01-1993
<PERIOD-END> SEP-30-1994 SEP-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 106,586 292,586
<TOTAL-CURRENT-ASSETS> 6,809 36,809
<TOTAL-DEFERRED-CHARGES> 1,113 1,113
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 114,508 330,508
<COMMON> 100 100
<CAPITAL-SURPLUS-PAID-IN> 112,634 298,634
<RETAINED-EARNINGS> (6,729) (8,728)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 106,005 290,006
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,503 40,502
<TOT-CAPITALIZATION-AND-LIAB> 114,508 330,508
<GROSS-OPERATING-REVENUE> 4,016 4,016
<INCOME-TAX-EXPENSE> (789) (1,865)
<OTHER-OPERATING-EXPENSES> 6,885 6,885
<TOTAL-OPERATING-EXPENSES> 6,096 5,020
<OPERATING-INCOME-LOSS> (2,080) (1,004)
<OTHER-INCOME-NET> (1,702) (1,702)
<INCOME-BEFORE-INTEREST-EXPEN> 0 0
<TOTAL-INTEREST-EXPENSE> 50 3,125
<NET-INCOME> (3,832) (5,831)
0 0
<EARNINGS-AVAILABLE-FOR-COMM> (3,832) (5,831)
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S>
<C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> OCT-01-1993 OCT-01-1993
<PERIOD-END> SEP-30-1994 SEP-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 2,726,618 2,902,915
<TOTAL-CURRENT-ASSETS> 22,365 (33,060)
<TOTAL-DEFERRED-CHARGES> 38 38
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,749,021 2,869,893
<COMMON> 314,458 326,958
<CAPITAL-SURPLUS-PAID-IN> 670,329 788,454
<RETAINED-EARNINGS> 1,819,959 1,815,458
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,622,678 <F1> 2,748,802 <F1>
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 120,900 120,900
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,457 (795)
<TOT-CAPITALIZATION-AND-LIAB> 2,749,021 2,869,893
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 0 (5,252)
<OTHER-OPERATING-EXPENSES> 3,670 3,670
<TOTAL-OPERATING-EXPENSES> 3,670 (1,582)
<OPERATING-INCOME-LOSS> (3,670) 1,582
<OTHER-INCOME-NET> 147,366 137,613
<INCOME-BEFORE-INTEREST-EXPEN> 143,696 139,195
<TOTAL-INTEREST-EXPENSE> 3,543 3,543
<NET-INCOME> 140,153 135,652
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 140,153 135,652
<COMMON-STOCK-DIVIDENDS> 201,256 201,256
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (3,435) (3,435)
<EPS-PRIMARY> 1.22 1.22
<EPS-DILUTED> 1.22 1.22
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $182,068.
</FN>
<PAGE>
</TABLE>
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35- ; 70- )
GENERAL PUBLIC UTILITIES CORPORATION
ENERGY INITIATIVES, INC.
NOTICE OF PROPOSAL TO ACQUIRE INTERESTS IN INVESTMENT LIMITED
PARTNERSHIP AND TO MAKE CAPITAL CONTRIBUTIONS
General Public Utilities Corporation ("GPU"), 100
Interpace Parkway, Parsippany, New Jersey 07054, a registered
holding company, and Energy Initiatives, Inc., a non-utility
subsidiary of GPU have filed an application with the Commission
pursuant to Sections 9(a)(1), 10 and 12(b) of the Public Utility
Holding Company Act of 1935 (the "Act") and Rule 45 thereunder.
EI proposes from time to time through January 31, 2002
to acquire limited partner interests in EnviroTech Investment
Fund I Limited Partnership, a Delaware partnership, and any
successor or affiliated limited partnership having substantially
similar investment objectives and terms (the EnviroTech
Investment Fund I Limited Partnership and all such successor or
affiliated limited partnership's are herein collectively referred
to as the "EnviroTech Partnership"). The amount of all such
purchases by EI will, in the aggregate, not exceed $10 million.
In addition, GPU proposes from time to time through such date to
make capital contributions of up to $10 million to EI for
purposes of making such acquisitions.
1<PAGE>
The organization of the EnviroTech Partnership is being
sponsored by the Edison Electric Institute ("EEI"), a non-profit
industry-wide membership organization comprised of electric
utility companies throughout the United States. Its Limited
Partners will be EEI member companies and their affiliates
sponsored by such companies. The targeted size of the EnviroTech
Partnership's investment pool is $75 million to $100 million,
with a minimum commitment of $25 million necessary for the
initial closing. The interests to be acquired by EI will in the
aggregate represent not more than 9.9% of the Limited Partner
interests in any EnviroTech Partnership.
The sole general partner of the EnviroTech Partnership
("General Partner") will be Advent International Limited
Partnership, a Delaware limited partnership of which Advent
International Corporation ("AIC") is the general partner. AIC is
a venture capital investment firm with extensive experience
managing other technology oriented investments in the energy and
environmental sectors.
The EnviroTech Partnership will invest in companies
(each a "Portfolio Company") engaged in commercializing
electrotechnologies and renewable energy technologies that
promote environmental and economic responsibility. These
investments will support the electric utility industry's response
to the Administration's "Climate Challenge," which is intended to
demonstrate that voluntary efforts can cost effectively achieve
both economic and environmental gains.
2<PAGE>
A key objective of the EnviroTech Partnership is to
make investments that will contribute to the reduction, avoidance
or sequestering of greenhouse gas emissions; help utilities and
their customers handle waste by-products more effectively or
produce or manufacture goods or services more cost effectively;
improve the efficiency of the production, storage, transmission,
and delivery of energy; and provide investors with attractive
opportunities relating to the evolving utility business climate
which meet such objectives.
The EnviroTech Partnership will focus on the following
technology sectors, among others: alternate and renewable energy
technologies, including photovoltaic, biomass and wind power
technologies; environmental and waste treatment technologies and
services, including electrotechnologies used in waste and water
treatment and waste management, waste reduction and
recycling/recovery; energy efficiency technologies, processes and
services, including heating, ventilation and air conditioning
equipment, induction heating technologies, high efficiency
lighting technologies, energy storage and motor efficiency
technologies; electrotechnologies used in the reduction of
medical waste, including plasma, pyrolysis and microwave
processing; technologies and processes promoting alternative
energy for transportation, including electric-powered vehicles
and related components, such as fuel cells; and other
technologies related to improving the generation, transmission
and delivery of electricity, including automated meter reading,
distribution transformers, thyristor technologies, active noise
3<PAGE>
cancellation, energy storage systems and interactive energy
management systems.
The EnviroTech Partnership is intended to provide its
utility investors with non-financial benefits in addition to a
return on investment. Among other non-financial benefits, the
Limited Partners will be provided an estimate of the potential
energy savings and potential reduction of CO2 emissions
associated with each portfolio investment in a format that would
allow them to report these items in accordance with Section
1605(b) of the Energy Policy Act of 1992. Further, whenever
appropriate, AIC will facilitate interactions between Limited
Partners and the Portfolio Companies. Finally, through their
involvement in the EnviroTech Partnership, Limited Partners will
have the opportunity to gain experience and participate in
emerging markets and business sectors relevant to the electric
utility industry.
The term of the EnviroTech Partnership is 10 years,
subject to extension for up to two years. Each Limited Partner,
not later than the date of becoming a Limited Partner, must
contribute to the capital of the EnviroTech Partnership up to 10%
of the capital commitment of such Limited Partner. The balance
of each Limited Partner's capital commitment will be due from
time to time through the seventh anniversary of the final closing
(i.e., not later than January 31, 2002, as such date may be
extended) in installments of not less than 5% nor more than 25%
thereof.
4<PAGE>
Subject to certain limitations, the management,
operation and implementation of policy of the EnviroTech
Partnership will be vested exclusively in the General Partner.
The General Partner will have discretion to invest the
Partnership's funds in accordance with investment guidelines set
forth in the charter. The investment guidelines provide criteria
on approved types of technologies, size of investment and
portfolio diversification and also require the General Partner to
consider certain non-financial public policy criteria, including
assessments of the likelihood of reducing greenhouse gas and
other emissions, of reducing costs and increasing efficiencies to
customers of products incorporating selected technologies, and of
enabling electric utilities to remain competitive in existing
markets.
Generally, the General Partner may not cause or permit
the EnviroTech Partnership to invest more than 7.5% of the
EnviroTech Partnership total capital commitments in any single
Portfolio Company; invest more than 5% of the total capital
commitments in securities of Portfolio Companies that are readily
tradeable on established securities markets; or invest in hostile
takeover transactions or in highly leveraged buy-outs. In
addition, certain limitations on the investment authority of the
General Partner would apply following a "substantial change in
management" of the General Partner.
5<PAGE>
The General Partner will be paid an annual management
fee equal to 2-1/2% of the total amount of the capital
commitments of the partners through the first 6 years, declining
thereafter.
The partnership's income and losses will generally be
allocated 80% to and among the Limited Partners and 20% to the
General Partner. All cash distributions to the partners will be
made first to the Limited Partners until they have received
aggregate distributions equal to the aggregate of their
respective capital contributions, and thereafter 20% to the
General Partner and 80% to the Limited Partners.
The Partnership may make distributions in kind of the
securities of Portfolio Companies that are listed on or otherwise
traded in a recognized over-the-counter or unlisted securities
market. To the extent required, the GPU Companies request
authority to sell any such Portfolio Company securities received
as a distribution in kind.
The Partnership Agreement also provides that in the
event it is likely that an investment by the EnviroTech
Partnership would cause a Limited Partner ("Conflicted Partner")
to violate, among other things, any law or regulation, under
certain circumstances other Limited Partners (each, a "Purchasing
Partner") may purchase from the Conflicted Partner a
proportionate interest in such an investment by delivering to the
Conflicted Partner a note in the principal amount of the
6<PAGE>
Conflicted Partner's capital contributions attributable to the
portion of such interest in the investment being purchased. Such
note will be non-recourse to the Purchasing Partner and will bear
interest at a rate equal to 200 basis points over comparable U.S.
Treasury obligations having a five year maturity, such interest
and principal being payable only to the extent that the
Purchasing Partner receives distributions or payments
attributable to the interest purchased. The GPU Companies also
request authority to purchase such notes, if and to the extent
they have become Conflicted Partners.
The Application and any amendments thereto are
available for public inspection through the Commission's Office
of Public Reference. Interested persons wishing to comment or
request a hearing should submit their views in writing by
February 9, 1995 to the Secretary, Securities and Exchange
Commission, Washington, D.C. 20549, and serve a copy on the
applicant at the address specified above. Proof of service (by
affidavit, or in case of an attorney at law, by certificate)
should be filed with the request. Any request for a hearing
shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any
hearing, if ordered, and will receive a copy of any notice or
order issues in this matter. After said date, the Application,
as it may be amended, may be granted.
7<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 1 of 23
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL
AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See Page 4) Forma
<S> <C> <C> <C>
ASSETS
Property and equipment $ 720 $ - $ 720
Less, accumulated depreciation (336) - (336)
Net 384 - 384
Investment in partnerships 56 499 - 56 499
Current Assets:
Cash & temporary investments 1 912 30 000 31 912
Accounts receivable 1 700 - 1 700
Deferred Income Taxes 35 - 35
Prepayments & deposits 162 - 162
Other Current Assets 3 000 - 3 000
Total 6 809 30 000 36 809
Non-current Assets:
Investment in Securities 15 305 - 15 305
Intangible Assets 13 733 - 13 733
Other Investments 18 225 186 000 204 225
Long Term Receivables 2 128 - 2 128
Notes receivable from partnerships 300 - 300
Cash Surrender Value of
Company Life Insurance 12 - 12
Deferred income taxes 1 113 - 1 113
Total 50 816 186 000 236 816
Total Assets $114 508 $ 216 000 $330 508
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 2 of 23
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL
AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See Page 4) Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Common Stock & Surplus:
Common stock $ 100 $ - $ 100
Paid in capital 112 634 186 000 298 634
Appropriated retained
earnings 7 492 7 492
Accumulated Deficit (14 221) (1 999) (16 220)
Total 106 005 184 001 290 006
Current Liabilities:
Accounts payable 1 340 - 1 340
Accrued vacation 233 - 233
Accrued bonuses 176 - 176
Interest payable 11 3 075 3 086
Notes payable - 30 000 30 000
Taxes accrued (888) (1 076) (1 964)
Deferred revenues 112 - 112
Total 984 31 999 32 983
Noncurrent Liabilities:
Deferred income taxes 5 009 - 5 009
Deferred compensation 54 - 54
Reserve for Equipment Disposal 246 - 246
Deferred revenue 2 210 - 2 210
Total 7 519 - 7 519
Total Liabilities and Capital $114 508 $ 216 000 $330 508
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 3 of 23
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
ACTUAL
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See Page 4) Forma
<S> <C> <C> <C>
Operating Revenues $ 4 016 $ - $ 4 016
Operating Expenses:
Operation and maintenance 6 302 - 6 302
Depreciation 272 - 272
Taxes other than income 311 - 311
Total 6 885 - 6 885
Net Operating Income (2 869) - (2 869)
Other Income and Deductions:
Equity in losses of partnerships (2 317) - (2 317)
Gain on retirement of fixed assets 36 - 36
Interest & dividend income 579 - 579
Interest Expense (50) (3 075) (3 125)
Total (1 752) (3 075) (4 827)
Income Before Income Taxes (4 621) (3 075) (7 696)
Income tax benefit (789) (1 076) (1 865)
Net Income (Loss) $ (3 832) $ (1 999) $ (5 831)
Accumulated Deficit:
Balance at Beginning of Period $ (10 389) $ - $(10 389)
Net Income (Loss) (3 832) (1 999) (5 831)
Balance at End of Period $ (14 221) $ (1 999) $(16 220)
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
<TABLE>
Financial Statements
Exhibit 6(b) 1-A
Page 4 of 23
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AS AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Other investments $ 10 000
Paid in capital $ 10 000
To reflect the proposed increase in GPU's
capital contributions to EI for the investment
in a limited partnership interest in Envirotech
Investment Fund I Limited Partnership.
<CAPTION>
(2)
<S> <C> <C>
Other investments $176 000
Paid in capital $176 000
To reflect the proposed increase in GPU's
capital contribution to EI for investment in QFs,
EWGs and FUCOs. ($24 million to $200 million)
(SEC File No. 70-7727)
<CAPTION>
(3)
<S> <C> <C>
Cash and temporary investments $ 30 000
Notes payable $ 30 000
To reflect the proposed borrowings from
commercial banks and financial institutions
which are to be guaranteed by GPU.
(SEC File No. 70-7727)
<CAPTION>
(4)
<S> <C> <C>
Interest expense $ 3 075
Interest payable $ 3 075
To reflect the incremental annual interest
expense resulting from the proposed $30 million
of borrowings at 250 basis points above prime rate.
(SEC File No. 70-7727)
<CAPTION>
(5)
<S> <C> <C>
Tax accrued $ 1 076
Income tax expense $ 1 076
To reflect the decrease in the provision for
federal income taxes at a rate of 35% attributable
to the increase in interest expense from the
proposed $30 million of borrowings which are
guaranteed by GPU
(SEC File No. 7727)<PAGE>
<FN>
Financial Statements
Exhibit 6(b) 1-A
Page 5 of 23
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ORGANIZATION AND BUSINESS
Energy Initiatives, Inc. (EII), which commenced operations on April 1, 1985,
is a wholly-owned subsidiary of General Public Utilities Corporation (GPU).
EII owns 100% of the common stock of the following active corporations:
Elmwood Energy Corporation (EEC), Hanover Energy Corporation, Camchino Energy
Corporation (Camchino), Geddes Cogeneration Corporation (Geddes) and NCP
Energy, Incorporated (NCP Energy) formerly North Canadian Power, Incorporated
(NCP). In addition, it also owns 100% of Armstrong Energy Corporation, an
inactive corporation. Each of these subsidiaries was formed to develop,
either directly, or indirectly through limited partnerships, cogeneration or
small power production facilities which are qualifying facilities (QF's) under
the Public Utility Regulatory Policies Act of 1978 (PURPA). Under PURPA
regulations, EII and its subsidiaries may not own more than a 50% interest in
such facilities after commencement of operation.
In June 1990, the Securities and Exchange Commission (SEC) authorized GPU,
through General Portfolios Corporation (GPC), to contribute additional amounts
of up to $60 million to EII through December 31, 1992. In December 1992, the
SEC extended GPU's authority, through GPC, to contribute additional amounts up
to $60 million to EII through December 31, 1994. EII intends to utilize such
contributions for investment in proposed QF projects and Exempt Wholesale
Generators (EWG), as defined in the Energy Policy Act of 1992, expenditures
for preliminary project development costs, the purchase of ownership interests
in existing QF's and EWG's, and other corporate purposes.
EII also owns 100% of the stock of the following Canadian corporations: EII
Canada Holding Limited, EII Services Canada Limited, and EII Brooklyn Power
Limited. These corporations were formed to purchase ownerships and to provide
operations and management services to EWG's in Canada.
1. ACQUISITIONS, MERGERS AND INVESTMENTS
General Portfolios Corporation
In April, 1994, GPC, formerly a wholly-owned subsidiary of GPU and 100%
parent of EII, was merged with the Company. The principal assets recorded by
the Company for the merger consisted of investments in securities. As of
September 30, 1994, the securities have a market value of approximately $15.3
million.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 6 of 23
North Canadian Power, Incorporated
In June, 1994, the Company acquired 100% of the stock of NCP (subsequently
renamed NCP Energy), a California company engaged in the business of
developing, owning and managing cogeneration and other independent power
plants in the United States and Canada. NCP Energy owns 100% of the following
corporations: NCP Lake Power, Incorporated (NCP Lake), NCP Gem, Incorporated
(NCP Gem), NCP Dade Power, Incorporated (NCP Dade), NCP Pasco, Incorporated
(NCP Pasco), NCP Ada Power, Incorporated (NCP Ada), and NCP Power Commerce,
Incorporated (NCP Commerce).
Through the stock purchase, the Company acquired partnership interests on
four of the five cogeneration facilities associated with the sale (see Note
2), along with the tangible and intangible assets of NCP, for approximately
$54 million. The ultimate acquisition of the fifth and remaining partnership
interest is contingent upon obtaining the appropriate consents of the parties
affiliated with that project.
Onondaga Cogeneration Limited Partnership
In April 1989, Geddes acquired all of the general and limited partnership
interests of Onondaga Cogeneration Limited Partnership (Onondaga), a New York
partnership engaged in the development of an approximately 79 MW cogeneration
facility in Geddes, New York (Geddes Project). Geddes accounted for its
acquisition using the purchase method (Note 2).
At the acquisition date, Geddes paid $1.3 million and assumed liabilities of
the sellers estimated to be $750,000. In June 1992, at project financing,
Geddes paid an additional $3 million to the sellers pursuant to the Restated
Acquisition Agreement. Geddes may be required to pay additional amounts to
the sellers contingent upon the consummation of certain transactions as
specified in the Restated Acquisition Agreement.
Selkirk Option
In October 1992, the Company amended its option agreement dated June 28,
1991 to purchase interests in two cogeneration facilities located in
Bethlehem, New York; a 79.9 MW facility currently in operation and a 270 MW
facility that commenced commercial operation on September 1, 1994. The
Company paid $180,440 and $3,695,210 for the option in 1992 and 1991,
respectively. The Company also paid $1,154,000 and $1,083,784 of development
contributions for the 270 MW project in accordance with the cost sharing
agreement in 1992 and 1991, respectively.
In October 1992, at project financing of the 270 MW Project, the Company was
reimbursed $2,447,368 for its development contributions. The Company also
made an equity contribution of $1,181,093 to the Project, together with a
letter of credit backed by a cash deposit in the principal amount of $7.6
million to guarantee future equity contributions to the Project. In October
1993, the Company replaced the $7.6 million deposit with a guarantee by GPU.
On September 23, 1994, the Company made its $7.6 million equity investment in
the Project.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 7 of 23
The option agreement provides that the option be exercised prior to January
2, 1995 with an additional payment of $5.5 million plus accrued interest
subject to adjustment specified in the agreement. In the event the option is
not exercised by the Company, the agreement provides that the Project shall
repay all contributions made by the Company together with interest at 12% per
annum from the first distributions received by the partnership.
Polsky Energy Corporation
In September 1993, the Company entered into a stock purchase agreement with
Polsky Energy Corporation (PEC), a Delaware corporation engaged in the
development of independent power production, whereby the Company would
purchase common stock representing 4.9% of the voting shares and, in
aggregate, not more than 29% of the total number of shares of all classes of
stock for a total purchase price not to exceed $8.5 million. The Company also
has the right to provide the operations and maintenance services for several
PEC projects under development.
At the acquisition date, the Company paid $2.5 million, which represents
approximately a 12% interest in PEC, for the initial installment of the stock
purchase. The obligation for the remaining $6 million of the aggregate
purchase price is $2.5 million on July 1, 1994, $2 million on July 1, 1995,
and $1.5 million on July 1, 1996. In addition, the Company deposited $2.5
million in an escrow account to guarantee its 1994 obligation, as required by
the stock purchase agreement. On July 1, 1994, the Company paid its $2.5
million installment and secured its July 1, 1995 $2 million investment with a
letter of credit supported by a GPU guarantee. The Company has accounted for
this acquisition using the purchase method and as a result recorded the
payment of $2.5 million as goodwill that will be amortized over a period of 40
years. The Company accounts for its investment using the equity method. The
Company recorded Goodwill amortization on this investment in the amount of
$23,082, and equity losses in the amount of $15,274.
2. PARTNERSHIP INTERESTS
Lake Cogen Ltd.
Through NCP Lake and NCP Gem, NCP Energy has a 1% general partner interest
and a 41.2% limited partner interest in Lake Cogen Ltd. (Lake), a Florida
limited partnership. The Lake project is a 112 MW cogeneration facility
located on the site of Golden Gem, Inc. fruit processing operations. The
project has a 20-year Power Purchase Agreement (PPA) with Florida Power
Corporation (FPC), and a 20-year Cogeneration Services Agreement with Golden
Gem. The project was placed into commercial operation on July 1, 1993, and was
financed through a sale-leaseback with the Owner Trustee for an initial term
of 11 years. At September 30, 1994, NCP Energy had an investment in Lake of
approximately $8.5 million.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 8 of 23
Pasco Cogen Ltd.
Through NCP Dade and NCP Pasco, NCP Energy has a 1% general partner interest
and a 45.85% limited partner interest in Pasco Cogen Ltd. (Pasco), a Florida
joint venture partnership. The Pasco project is a 112 MW cogeneration facility
located on the site of Lykes Pasco, Inc. fruit processing operations. The
project has a 20-year PPA with FPC and a 20-year Steam Production Contract
with Lykes Pasco. The project was placed into commercial operation on July 1,
1993, which was funded with long-term debt of approximately $93 million. At
September 30, 1994, NCP Energy had an investment in Pasco of approximately $23
million.
Ada Cogeneration Limited Partnership
Through NCP Ada, NCP Energy has a 1% general partner interest in Ada
Cogeneration Limited Partnership (ADA), a Michigan limited partnership. The
Ada project is a 29 MW cogeneration facility located on the site of Amway
Corporation world headquarters. The project has a 35-year PPA with Consumers
Power Company and a 35-year Thermal Sales Agreement with Amway. The project
was placed into commercial operation on January 5, 1991, which was funded with
long-term debt of approximately $26 million. At September 30, 1994, NCP
Energy had an investment in Ada of approximately $4 million.
FPB Cogeneration Partners, L.P.
Through NCP Commerce, NCP Energy has a 30% co-general partner interest in
FPB Cogeneration Partners, L.P. (FPB), a 26 MW cogeneration facility located
in Commerce, California. Due to the uncertainty of future distributions of
cash flows, no consideration was paid for the partnership interests in FPB.
Consequently, there is no investment carrying amount as of September 30, 1994.
Prime Energy Limited Partnership
EEC has a 1% interest as the sole general partner and a 49% interest as
limited partner in Prime Energy Limited Partnership (PELP). PELP was
organized to construct, own and operate a 65 MW cogeneration project in
Elmwood Park, New Jersey (Marcal Project). The Marcal Project was placed in
commercial operation in July 1989 at a total capitalized cost of approximately
$61 million, which was funded with nonrecourse debt collateralized by PELP's
assets. PELP has a Power Purchase Agreement with an affiliate of EII for the
sale of electricity and capacity from the Marcal Project.
O.L.S. Power Limited Partnership
Through Camchino, EII owns a 1% interest as general partner and a 49%
interest as limited partner in O.L.S. Power Limited Partnership (O.L.S.
Power), a Delaware limited partnership. The remaining limited partnership
interests are owned by The Prudential Insurance Company of America. At
December 31, 1993 and 1992, Camchino had a total investment in O.L.S. Power of
zero and approximately $2.2 million, respectively. <PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 9 of 23
On August 3, 1989, O.L.S. Power acquired, through O.L.S. Acquisition
Corporation, all of the outstanding capital stock of O.L.S. Energy - Berkeley
(Berkeley), O.L.S. Energy - Chino (Chino) and O.L.S. Energy - Camarillo
(Camarillo) for a total purchase price of approximately $13.4 million.
Berkeley, Chino and Camarillo are each lessees, pursuant to separate sale and
leaseback agreements, of operating cogeneration facilities at the University
of California - Berkeley (22.5 MW), the California State Correctional Facility
in Chino (27 MW) and the State Hospital in Camarillo, California (27 MW),
respectively.
Onondaga Cogeneration Limited Partnership
In April 1989, Geddes acquired all of the general and limited partnership
interests of Onondaga Cogeneration Limited Partnership, a New York
partnership. In June 1992, Onondaga obtained project financing for the
construction of the Geddes Project. On the project financing date, Geddes
became the sole general partners and a limited partner in Onondaga. The
remaining limited partnership interests are owned by a non-affiliated party
who contributed $13.5 million in equity during 1992.
Construction of the project is being financed by a group of lenders through
the Onondaga County Industrial Development Authority (OCIDA). OCIDA has
provided for a construction loan of up to $89.5 million, which will, subject
to satisfaction of certain conditions, be converted to a term loan of up to
$82 million with a maturity of up to 15 years from the term loan conversion
date of the project. Geddes made its capital contribution of $13.5 million on
December 17, 1993. On December 18, 1993, the project commenced commercial
operations.
The Lenders have required Geddes to provide for up to $9 million of
additional funding, in the form of equity letters of credit, to provide for
cost overruns during the construction period and contingent obligations during
the term loan period. Geddes, through EII, has provided a letter of credit to
support other funding requirements in the amount of $9 million, which has been
guaranteed by GPU.
3. LEASE
In August 1992, EII entered into a lease for its corporate facilities with
GPU Nuclear Corporation (GPUN), a subsidiary of GPU. EII Paid GPUN $203,309
and $103,758 in 1993 and 1992, respectively, for rental payments and other
costs associated with the lease agreement.<PAGE>
</FN>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-B
Page 10 of 23
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See page 12-13) Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Investments in subsidiaries $2 723 196 $ 176 297 $2 899 493
Other investments 3 422 - 3 422
Total investments 2 726 618 176 297 2 902 915
Current Assets:
Cash and temporary cash investments 20 207 (55 425) (35 218)
Accounts receivable, net 2 058 - 2 058
Prepayments 100 - 100
Total current assets 22 365 (55 425) (33 060)
Deferred Debits and Other Assets 38 - 38
Total Assets $2 749 021 $ 120 872 $2 869 893
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ 12 500 $ 326 958
Capital surplus 670 329 118 125 788 454
Retained earnings 1 819 959 ( 4 501) 1 815 458
Total 2 804 746 126 124 2 930 870
Less: reacquired common stock, at cost 182 068 - 182 068
Total common stockholders's equity 2 622 678 126 124 2 748 802
Current Liabilities:
Notes payable 120 900 - 120 900
Accounts payable 103 - 103
Taxes accrued 1 (5 252) (5 251)
Interest accrued 1 442 - 1 442
Other 2 911 - 2 911
Total current liabilities 125 357 (5 252) 120 105
Deferred credits and other liabilities 986 - 986
Total Liabilities and Capital $2 749 021 $ 120 872 $2 869 893
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-B
Page 11 of 23
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See page 12-13) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 146 934 $( 9 753) $ 137 181
Other income, net 432 - 432
Total 147 366 ( 9 753) 137 613
Expense, Taxes and Interest:
General expenses 3 670 3 670
Income tax expense - (5 252) (5 252)
Interest expense 3 543 - 3 543
Total 7 213 (5 252) 1 961
Net Income $ 140 153 $( 4 501) $ 135 652
Retained Earnings:
Balance at beginning of period $1 882 164 $ - $1 882 164
Add - Net income 140 153 ( 4 501) 135 652
Deduct - Cash dividends on common stock 201 256 - 201 256
Other adjustments 1 102 - 1 102
Balance at end of period $1 819 959 $( 4 501) $1 815 458
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-B
Page 12 of 23
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Investments in subsidiaries $ 10 000
Cash and temporary cash investments $ 10 000
To reflect the proposed increase in capital
contributions to Energy Initiatives.
<CAPTION>
(2)
<S> <C> <C>
Investments in subsidiaries $176 000
Cash and temporary cash investments $176 000
To reflect the proposed increase in capital
contributions to Energy Initiatives (SEC File
No. 70-7727).
<CAPTION>
(3)
<S> <C> <C>
Cash and temporary cash investments $130 625
Common stock $ 12 500
Capital surplus $118 125
To reflect the proposed issuance of 5 million
shares of $2.50 par value common stock at $26 1/8
per share (SEC File No. 70-8455).<PAGE>
Financial Statements
Item 6(b) 1-B
Page 13 of 23
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1994
(IN THOUSANDS)
<CAPTION>
(4)
<S> <C> <C>
Equity in earnings of subsidiaries $ 9 753
Investments in subsidiaries $ 9 753
To reflect the anticipated net income
effect from (1) JCP&L's proposed issuance
of monthly income preferred securities (SEC
File No. 70-8495) and (2) the proposed $30 million
of borrowings by Energy Initiatives (SEC File
No. 70-7727)
<CAPTION>
(5)
<S> <C> <C>
Investment in subsidiaries $ 50
Cash and temporary cash investments $ 50
To reflect the acquisition of
all the common stock of GPU Generation
Corporation, a corporation to be formed for
$50,000 (SEC File No. 70-8409).
<CAPTION>
(6)
<S> <C> <C>
Taxes accrued $ 5 252
Income tax expense $ 5 252
To reflect the net decrease in the provision
for federal income taxes attributable to (1) JCP&L's
proposed issuance of monthly income preferred
securities (SEC File No. 70-8495) and 2) the
increase in interest expense from the proposed
$30 million of borrowings by Energy Initiatives
(SEC File No. 70-7727). <PAGE>
<FN>
Financial Statements
Item 6(b) 1-B
Page 14 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General Public Utilities Corporation (the Corporation) is a holding
company registered under the Public Utility Holding Company Act of 1935. The
Corporation does not directly operate any utility properties, but owns all
the outstanding common stock of three electric utilities -- Jersey Central
Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and
Pennsylvania Electric Company (Penelec) (the Subsidiaries). The Corporation
also owns all the common stock of GPU Service Corporation (GPUSC), a service
company; GPU Nuclear Corporation (GPUN), which operates and maintains the
nuclear units of the Subsidiaries; and Energy Initiatives, Inc. (EI), which
develops, owns and operates nonutility generating facilities. All of these
companies considered together with their subsidiaries are referred to as the
"GPU System."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1993 Annual Report on Form 10-K. The
year-end condensed balance sheet data contained in the attached financial
statements were derived from audited financial statements. For disclosures
required by generally accepted accounting principles, see the 1993 Annual
Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear projects -
- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which
was damaged during a 1979 accident. At September 30, 1994, the Subsidiaries'
net investment in TMI-1 and Oyster Creek, including nuclear fuel, was
$636 million and $804 million, respectively. TMI-1 and TMI-2 are jointly
owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%,
respectively. Oyster Creek is owned by JCP&L.
Costs associated with the operation, maintenance and retirement of
nuclear plants continue to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards and experience gained in the
construction and operation of nuclear facilities. The GPU System may also
incur costs and experience reduced output at its nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their now assumed lives cannot
be assured. Also, not all risks associated with the ownership or operation of
nuclear facilities may be adequately insured or insurable. Consequently, the
ability of electric utilities to obtain adequate and timely recovery of costs
associated with nuclear projects, including replacement power, any unamortized
investment at the end of each plant's useful life (whether scheduled or
premature), the carrying costs of that investment and retirement costs, is not
assured (see NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general,
to seek recovery of such costs through the ratemaking process, but recognizes
that recovery is not assured (see OTHER COMMITMENTS AND CONTINGENCIES -
Competition and the Changing Regulatory Environment).<PAGE>
Financial Statements
Item 6(b) 1-B
Page 15 of 23
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990. After receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
December 1993.
As a result of the accident and its aftermath, approximately 2,100
individual claims for alleged personal injury (including claims for punitive
damages), which are material in amount, have been asserted against the
Corporation and the Subsidiaries and the suppliers of equipment and services
to TMI-2, and are pending in the United States District Court for the Middle
District of Pennsylvania. Some of such claims also seek recovery on the basis
of alleged emissions of radioactivity before, during and after the accident.
If, notwithstanding the developments noted below, punitive damages are not
covered by insurance and are not subject to the liability limitations of the
federal Price-Anderson Act ($560 million at the time of the accident),
punitive damage awards could have a material adverse effect on the financial
position of the GPU System.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the Subsidiaries had (a) primary financial protection in the form of
insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating
plan providing for premium charges deferred in whole or in major part under
such plan, and (c) an indemnity agreement with the NRC, bringing their total
primary and secondary insurance financial protection and indemnity agreement
with the NRC up to an aggregate of $560 million.
The insurers of TMI-2 had been providing a defense against all TMI-2
accident related claims against the Corporation and the Subsidiaries and their
suppliers under a reservation of rights with respect to any award of punitive
damages. However, the defendants in the TMI-2 litigation and the insurers
agreed, in March 1994, that the insurers would withdraw their reservation of
rights, with respect to any award of punitive damages.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of ten allegedly representative
cases is likely to begin in 1996. In February 1994, the Court held that the
plaintiffs' claims for punitive damages are not barred by the Price-Anderson
Act to the extent that the funds to pay punitive damages do not come out of
the U.S. Treasury. The Court also denied the defendants' motion seeking a
dismissal of all cases on the grounds that the defendants complied with
applicable federal safety standards regarding permissible radiation releases
from TMI-2 and that, as a matter of law, the defendants therefore did not
breach any duty that they may have owed to the individual plaintiffs. The
Court stated that a dispute about what radiation and emissions were released
cannot be resolved on a motion for summary judgment. In July 1994, the Court
granted defendants' motion for interlocutory appeal of these orders, stating
that they raise questions of law that contain substantial grounds for
differences of opinion. The issues are now before the United States Court of
Appeals.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 16 of 23
In an Order issued in April 1994, the Court: (1) noted that the
plaintiffs have agreed to seek punitive damages only against the Corporation
and the Subsidiaries; and (2) stated in part that the Court is of the opinion
that any punitive damages owed must be paid out of and limited to the amount
of primary and secondary insurance under the Price-Anderson Act and,
accordingly, evidence of the defendants' net worth is not relevant in the
pending proceeding.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the U.S. Department of Energy.
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2 remaining in long-term
storage and being decommissioned at the same time as TMI-1. Under the NRC
regulations, the funding targets (in 1994 dollars) for TMI-1 and Oyster Creek
are $157 million and $189 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1994 dollars), which takes into
account the accident, is $250 million. The NRC continues to study the levels
of these funding targets. Management cannot predict the effect that the
results of this review will have on the funding targets. NRC regulations and
a regulatory guide provide mechanisms, including exemptions, to adjust the
funding targets over their collection periods to reflect increases or
decreases due to inflation and changes in technology and regulatory
requirements. The funding targets, while not actual cost estimates, are
reference levels designed to assure that licensees demonstrate adequate
financial responsibility for decommissioning. While the regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1988, a consultant to GPUN performed site-specific studies of TMI-1
and Oyster Creek that considered various decommissioning plans and estimated
the cost of decommissioning the radiological portions of each plant to range
from approximately $225 to $309 million and $239 to $350 million, respectively
(adjusted to 1994 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $74 million and $48 million, respectively (adjusted to 1994 dollars).
The ultimate cost of retiring the GPU System's nuclear facilities may be
materially different from the funding targets and the cost estimates contained
in the site-specific studies and cannot now be more reasonably estimated than
the level of the NRC funding target because such costs are subject to (a) the
type of decommissioning plan selected, (b) the escalation of various cost
elements (including, but not limited to, general inflation), (c) the further
development of regulatory requirements governing decommissioning, (d) the
absence to date of significant experience in decommissioning such facilities
and (e) the technology available at the time of decommissioning. The
Subsidiaries charge to expense and <PAGE>
Financial Statements
Item 6(b) 1-B
Page 17 of 23
contribute to external trusts amounts collected from customers for nuclear
plant decommissioning and non-radiological costs. In addition, the
Subsidiaries have contributed to external trusts amounts written off for TMI-2
nuclear plant decommissioning in 1990 and 1991 and expect to make further
contributions beginning in 1995 for amounts written off in 1994 described
below.
TMI-1 and Oyster Creek:
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L is also collecting revenues, based on estimates, for the cost of
removal of nonradiological structures and materials at each plant based on its
share of an estimated $15.3 million for TMI-1 and $31.6 million for Oyster
Creek. In 1993, the Pennsylvania Public Utility Commission (PaPUC) granted
Met-Ed revenues for decommissioning costs of TMI-1 based on its share of the
NRC funding target and nonradiological cost of removal as estimated in the
site-specific study. Also in 1993, the PaPUC approved a rate change for
Penelec which increased the collection of revenues for decommissioning costs
for TMI-1 to a basis equivalent to that granted Met-Ed. Collections from
customers for retirement expenditures are deposited in external trusts and are
classified as Nuclear decommissioning trusts on the balance sheet, which
includes the interest earned on these funds. Provision for the future
expenditures of these funds has been made in accumulated depreciation,
amounting to $43 million for TMI-1 and $99 million for Oyster Creek at
September 30, 1994. Oyster Creek and TMI-1 retirement costs are accrued and
charged to depreciation expense over the expected service life of each nuclear
plant.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable through the current ratemaking process.
TMI-2:
The Corporation and its Subsidiaries have recorded a liability amounting
to $250 million as of September 30, 1994, for the radiological decommissioning
of TMI-2, reflecting the NRC funding target. The Subsidiaries record
escalations, when applicable, in the liability based upon changes in the NRC
funding target. The Subsidiaries have also recorded a liability in the amount
of $20 million for incremental costs specifically attributable to monitored
storage. In addition, the Subsidiaries had recorded a liability in the amount
of $71 million for nonradiological cost of removal. Expenditures for such
costs through September 1994 have reduced the liability to $69 million. The
above amounts for retirement costs and monitored storage are reflected as
Three Mile Island Unit 2 Future Costs on the balance sheet.
In March 1993, a PaPUC rate order for Met-Ed allowed for the future
recovery of certain TMI-2 retirement costs. The recovery of these TMI-2
retirement costs was to begin when the amortization of the TMI-2 investment
ended in 1994. In May 1993, the Pennsylvania Office of Consumer Advocate filed
a petition for review with the Pennsylvania Commonwealth Court seeking to set
aside the PaPUC's 1993 rate order. In July 1994, the Commonwealth Court
reversed the PaPUC order; Met-Ed has requested the Pennsylvania Supreme Court
to review that decision. As a consequence of the Commonwealth Court decision,
Met-Ed recorded pre-tax charges totaling $127.6 million during the second
quarter. Penelec, which is also subject to PaPUC regulation, recorded pre-tax
charges of $56.3 million, also during the second quarter, for its share of<PAGE>
Financial Statements
Item 6(b) 1-B
Page 18 of 23
such costs applicable to its retail customers. These charges appear in the
Other Income and Deductions section of the Income Statement and are composed
of $121 million for radiological decommissioning costs, $48.2 million for the
nonradiological cost of removal and $14.7 million for incremental monitored
storage costs. Met-Ed and Penelec plan to begin making nonrecoverable funding
contributions to external trusts for these costs in the second half of 1995 to
fund their share of these costs. The Pennsylvania Subsidiaries will be
similarly required to charge to expense their share of future increases
(described above) in the estimate of the costs of retiring TMI-2. Future
earnings on trust fund deposits for Met-Ed and Penelec will be recorded as
income. Prior to the Commonwealth Court's decision, Met-Ed and Penelec
expensed and contributed $40 million and $20 million respectively, to external
trusts relating to their nonrecoverable shares of the accident-related portion
of the decommissioning liability. JCP&L has also expensed and made a
nonrecoverable contribution of $15 million to an external decommissioning
trust. JCP&L's share of earnings on trust fund deposits are offset against
amounts shown on the balance sheet under Three Mile Island Unit 2 Deferred
Costs as collectible from customers.
The New Jersey Board of Public Utilities (NJBPU) has granted
decommissioning revenues for JCP&L's share of the remainder of the NRC funding
target and allowances for the cost of removal of nonradiological structures
and materials. JCP&L, which is not affected by the Commonwealth Court's
ruling, intends to seek recovery for any increases in TMI-2 retirement costs,
but recognizes that recovery cannot be assured.
As a result of TMI-2's entering long-term monitored storage, in late
1993, the Subsidiaries began incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that incremental
monitored storage costs will total $20 million through 2014, the expected
retirement date of TMI-1. JCP&L's $5 million share of these costs has been
recognized in rates by the NJBPU.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered
one site for insurance purposes) and for Oyster Creek totals $2.7 billion per
site. In accordance with NRC regulations, these insurance policies generally
require that proceeds first be used for stabilization of the reactors and then
to pay for decontamination and debris removal expenses. Any remaining amounts
available under the policies may then be used for repair and restoration costs
and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 19 of 23
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.0 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by the
GPU System, could result in assessments of up to $79 million per incident for
each of the GPU System's two operating reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In July 1994, GPUN received
an exemption from the NRC to eliminate the secondary protection requirements
for TMI-2.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years at decreasing levels beginning at $1.8 million for Oyster Creek
and $2.6 million for TMI-1, per week.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $51 million in any one year, in addition to those payable under the
Price-Anderson Act.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed equipment,
remediate or clean up waste disposal and other sites currently or formerly
used by it, including formerly-owned manufactured gas plants and mine refuse
piles, and with regard to electromagnetic fields, postpone or cancel the
installation of, or replace or modify, utility plant, the costs of which could
be material. Management intends to seek recovery through the current
ratemaking process for any additional costs, but recognizes that recovery
cannot be assured.
To comply with the federal Clean Air Act Amendments (Clean Air Act) of
1990, the GPU System expects to spend up to $380 million for air pollution
control equipment by the year 2000. The reduction from the previous estimate
of $590 million is primarily due to the postponement of two scrubber
installations until after the year 2000. In developing its least-cost plan to
comply with the Clean Air Act, the GPU System will continue to evaluate major
capital investments compared to participation in the emission allowance market
and the use of low-sulfur fuel or retirement of facilities. In September
1994, the Ozone Transport Commission (OTC), consisting of representatives of
11 northeast states (including New Jersey and Pennsylvania) and the District
of Columbia proposed further reductions in nitrogen oxide (NOx) emissions it
believes necessary to meet ambient air quality standards for ozone and the
statutory deadlines set by the Clean Air Act Amendments of 1990. The
Corporation expects that the U.S. Environmental Protection Agency will approve
the proposal, and that as a result, the GPU System will spend an estimated $60
million, beginning in 1997, to meet the new standards by the 1999 deadline.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 20 of 23
The GPU System companies have been notified by the Environmental
Protection Agency (EPA) and state environmental authorities that they are
among the potentially responsible parties (PRPs) who may be jointly and
severally liable to pay for the costs associated with the investigation and
remediation at ten hazardous and/or toxic waste sites. In addition, the GPU
System companies have been requested to voluntarily participate in the
remediation or supply information to the EPA and state environmental
authorities on several other sites for which they have not yet been named as
PRPs. The Subsidiaries have also been named in lawsuits requesting damages
for hazardous and/or toxic substances allegedly released into the environment.
The ultimate cost of remediation will depend upon changing circumstances as
site investigations continue, including (a) the existing technology required
for site cleanup, (b) the remedial action plan chosen and (c) the extent of
site contamination and the portion attributed to the GPU System companies.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly-
owned manufactured gas plant sites. One of these sites has been repurchased
by JCP&L. JCP&L has also entered into various cost sharing agreements with
other utilities for some of the sites. At September 30, 1994, JCP&L has an
estimated environmental liability of $35 million recorded on its balance sheet
relating to these sites. The estimated liability is based upon ongoing site
investigations and remediation efforts, including capping the sites and
pumping and treatment of ground water. If the periods over which the
remediation is currently expected to be performed are lengthened, JCP&L
believes that it is reasonably possible that the ultimate costs may range as
high as $60 million. Estimates of these costs are subject to significant
uncertainties as JCP&L does not presently own or control most of these sites;
the environmental standards have changed in the past and are subject to future
change; the accepted technologies are subject to further development; and the
related costs for these technologies are uncertain. If JCP&L is required to
utilize different remediation methods, the costs could be materially in excess
of $60 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future manufactured gas
plant remediation costs when expenditures exceed prior collections. The NJBPU
decision provides for interest to be credited to customers until the
overrecovery is eliminated and for future costs to be amortized over seven
years with interest. JCP&L is awaiting a final NJBPU order. JCP&L is
pursuing reimbursement of the above costs from its insurance carriers and
intends to seek recovery of these costs from its customers, to the extent not
covered by insurance.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters. Also
unknown are the consequences of environmental issues, which could cause the
postponement or cancellation of either the installation or replacement of
utility plant. Management believes the costs described above should be
recoverable through the current ratemaking process.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 21 of 23
OTHER COMMITMENTS AND CONTINGENCIES
Competition and the Changing Regulatory Environment
As a result of the Energy Policy Act of 1992 and actions of regulatory
commissions, the electric utility industry appears to be moving toward
acombination of competition and a modified regulatory environment. In
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71), the GPU
System's financial statements reflect assets and costs based on current cost-
based ratemaking regulations. Continued accounting under FAS 71 requires that
the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
A utility's operations can cease to meet those criteria for various
reasons, including deregulation, a change in the method of regulation, or a
change in the competitive environment for the utility's regulated services.
Regardless of the reason, a utility whose operations cease to meet those
criteria should discontinue application of FAS 71 and report that
discontinuation by eliminating from its balance sheet the effects of any
actions of regulators that had been recognized as assets and liabilities
pursuant to FAS 71 but which would not have been recognized as assets and
liabilities by enterprises in general.
If a portion of the GPU System's operations continues to be regulated
and meets the above criteria, FAS 71 accounting may only be applied to that
portion. Write-offs of utility plant and regulatory assets may result for
those operations that no longer meet the requirements of FAS 71. In addition,
under deregulation, the uneconomical costs of certain contractual commitments
for purchased power and/or fuel supplies may have to be expensed currently.
Management believes that to the extent that the GPU System no longer qualifies
for FAS 71 accounting treatment, a material adverse effect on its results of
operations and financial position may result.
The Subsidiaries have entered into power purchase agreements with
independently owned power production facilities (nonutility generators) for
the purchase of energy and capacity for periods up to 25 years. The majority
of these agreements are subject to penalties for nonperformance and other
contract limitations. While a few of these facilities are dispatchable, most
are must-run and generally obligate the Subsidiaries to purchase all of the
power produced up to the contract limits. As of September 30, 1994,
facilities covered by these agreements having 1,198 MW (JCP&L 664 MW, Met-Ed
239 MW and Penelec 295 MW) of capacity were in service with another 215 MW
(all JCP&L) scheduled to commence operation in 1994. The estimated cost of
these agreements for 1994 is $551 million. These agreements together with <PAGE>
Financial Statements
Item 6(b) 1-B
Page 22 of 23
those for facilities which are not yet in operation provide for the purchase
of approximately 2,457 MW (JCP&L 1,197 MW, Met-Ed 846 MW and Penelec 414 MW)
of capacity and energy by the GPU System by the mid-to-late 1990s, at varying
prices.
The emerging competitive market has created uncertainty regarding the
forecasting of the System's energy supply needs which, in turn, has caused the
Subsidiaries to change their supply strategy to now seek shorter
termagreements offering more flexibility (see Management's Discussion and
Analysis - Competition). Due to the current availability of excess capacity,
the cost of near to intermediate-term energy supply from existing facilities
(i.e., one to eight years) is currently very competitively priced. The
forecasted cost of energy from new supply sources are now lower priced due to
improvements in power plant technologies and reduced forecast fuel prices. As
a result of these developments, the contract prices under virtually all of the
Subsidiaries' nonutility generation agreements are substantially in excess of
current and forecasted market prices. The Subsidiaries intend to initiate
actions geared toward substantially reducing these above market payments. In
addition, the Subsidiaries intend to avoid, to the maximum extent practicable,
entering into any new nonutility generation agreements that are not needed or
not consistent with current market pricing. The Subsidiaries are also
attempting to renegotiate, and in some cases buy out, high cost long-term
nonutility generation agreements. While the Subsidiaries thus far have been
granted substantial recovery of these costs from customers by the PaPUC and
NJBPU, there can be no assurance that the Subsidiaries will continue to be
able to recover these costs throughout the term of the related agreements. If
the costs under these agreements are ultimately not recoverable through
ratemaking, or in a competitive market, it could result in a material adverse
effect on the Corporation's financial position and results of operations.
Moreover, efforts to lower these costs have led to disputes before both the
NJBPU and the PaPUC, as well as to litigation and may result in claims against
the Subsidiaries for substantial damages. There can be no assurance as to the
outcome of these matters.
During the second quarter, the Corporation announced it was offering
voluntary enhanced retirement programs to certain employees. The enhanced
retirement programs are part of a corporate realignment announced in February
1994. At that time, the Corporation said that its goal was to achieve
$80 million in annual cost savings by the end of 1996. Approximately 82% of
eligible employees accepted the retirement programs, resulting in a pre-tax
charge to earnings of $127 million. These charges are included as Other
operation and maintenance expense on the Income Statement.
The NJBPU has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from nonutility generation projects. The proceeding was initiated, in part,
to respond to contentions of the Division of the Ratepayer Advocate (Ratepayer
Advocate), that by permitting utilities to recover such costs through the
LEAC, an excess or "double recovery" may result when combined with the
recovery of the utilities' embedded capacity costs through their base rates.
In 1993, JCP&L and the other New Jersey electric utilities filed motions for
summary judgment with the NJBPU requesting that the NJBPU dismiss contentions
being made by Ratepayer Advocate that adjustments for alleged "double
recovery" in prior periods are warranted. Ratepayer Advocate has filed a
brief in opposition to the utilities' summary judgment motions including a
statement from its consultant that in his view, the "double-recovery" for <PAGE>
Financial Statements
Item 6(b) 1-B
Page 23 of 23
JCP&L for the 1988-92 LEAC periods would be approximately $102 million. In
February 1994, the NJBPU ruled that the 1991 LEAC period was considered closed
but subsequent LEACs remain open for further investigation. This matter is
pending before a NJBPU Administrative Law Judge. Management estimates that
the potential exposure for LEAC periods subsequent to 1991 is approximately
$30 million through February 1995, the end of the current LEAC period.
Management is unable to predict the outcome of this proceeding.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million. While a capacity factor
below 40% would generate no specific monetary charge, it would require the
issue to be brought before the NJBPU for review. The annual measurement
period, which begins in March of each year, coincides with that used for the
LEAC. At the request of the PaPUC, Met-Ed and Penelec, as well as the other
Pennsylvania utilities, have supplied the PaPUC with proposals for the
establishment of a nuclear performance standard. Met-Ed and Penelec expect
the PaPUC to adopt a generic nuclear performance standard as a part of their
respective energy cost rate (ECR) clauses in 1995.
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU System companies are from
time to time involved in disputes, claims and, in some cases, as defendants in
litigation in which compensatory and punitive damages are sought by customers,
contractors, vendors and other suppliers of equipment and services and by
employees alleging unlawful employment practices. It is not expected that the
outcome of these matters will have a material effect on the GPU System's
financial position or results of operations. <PAGE>
</TABLE>
