File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
THE ACQUISITION OF CERTAIN ASSETS OF
AN ENERGY SERVICES BUSINESS
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EUA COGENEX CORPORATION
P.O. Box 2333, BOSTON, MASSACHUSETTS 02107
(Name of company filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent of
applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, BOSTON, MASSACHUSETTS 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, ESQ.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
I. Overview of Application/Declaration. EUA Cogenex Corporation
("Cogenex"), a Massachusetts corporation and a wholly-owned subsidiary of
Eastern Utilities Associates ("EUA"), a Massachusetts business trust and a
registered holding company under the Public Utility Holding Company Act of
1935 ("Act"), hereby files this application-declaration with the Securities
and Exchange Commission ("Commission"). Cogenex seeks authorization: (i)
to form a wholly owned subsidiary to be named EUA Citizens Conservation
Services, Inc. ("CCS") for the purpose of acquiring certain assets of
Citizens Conservation Corporation ("CCC"), a Massachusetts corporation
exempt from taxation under Section 501(c)(3) of the Internal Revenue Code;
and (ii) to make loans to CCS to fund project development and working
capital requirements. CCC is, and CCS will be, principally engaged in the
business of providing energy conservation in multi-family housing and
consulting services to utilities, all as more fully described below.
Cogenex and CCC have executed a Memorandum of Understanding dated as
of September 2, 1994 (Exhibit B-1), the terms of which will be more fully
set forth in a definitive agreement among Cogenex, CCS and CCC filed as
Exhibit B-2 hereto (the "Definitive Agreement"). The obligation of Cogenex
to effect the acquisition will be subject to various closing conditions,
including the approval of the Commission under the Act.
II. Description of Cogenex's Business. Cogenex is engaged in the business
of investing in energy conservation-related business activities: (i)
employing energy efficiency technology and equipment primarily through
shared savings agreements; (ii) participating in self-generation projects;
and (iii) contracting to assist electric utilities in demand-side
management ("DSM") activities including but not limited to shared-savings
energy conservation projects and demand-side utility programs; (HCAR 35-
24273, December 19, 1986; HCAR 35-25697, December 9, 1992). The following
is a more complete description of the principal business activities of
Cogenex.
A. Energy Management/Shared Savings. Cogenex continues to
develop its original business activities in the areas of building
automation, lighting modifications, boiler replacement and other heat
recovery through shared savings contracts in which the customer agrees upon
a prescribed base year and a set of savings calculations and receives a
guaranteed allocation of savings. Cogenex evaluates the customer's site
and advises the customer as to what steps should be taken to reduce energy
consumption. Cogenex acts as a contractor by engaging the necessary
professionals to install the new equipment and/or modify the existing
equipment. Cogenex usually funds the initial cost of making its
recommended changes and is repaid through the shared savings contract. The
contract is for a fixed term, but typically contains an option of
prepayment. Cogenex maintains an ownership interest in the new equipment
while the contract is in force. Cogenex also may, from time to time,
acquire existing shared savings contracts or the benefits of these
agreements from other energy savings and/or DSM contractors.
B. Utility Demand Side Management. Cogenex's activities also
include acting as an energy services contractor for several electric
utilities to assist them in meeting their conservation and demand reduction
goals ("DSM Services"). Cogenex works with commercial and industrial
customers of the utility to implement demand reduction targets and may
enter into shared savings contracts of the type previously described with
those customers under II. A. above.
C. Self-Generation. Cogenex also participates in various
installed self-generation projects and is authorized to engage in
development activities with respect to the development of additional self-
generation projects. In a self-generation project, a cogeneration
facility: (i) is sized to a minimum base load thermal requirement for the
customer; and (ii) produces electricity which displaces a portion of the
customer's retail electric consumption -- a so-called "in the fence"
application. New self-generation projects are required to be certified as
qualifying cogeneration facilities under the Public Utility Regulatory
Policies Act of 1978 and the regulations promulgated thereunder.
III. Description of CCS' Business.
CCS will primarily specialize in energy services for residential
multi-family housing. The services will include energy audits, technical
assistance to owners/residents regarding energy costs and end uses,
assistance with financing projects, and energy performance contracting
similar to the services Cogenex currently provides to its commercial and
institutional customers. CCS will also contract directly with utilities to
implement residential low-income multi-family demand-side management
programs and will provide program design consultation to utilities,
governments and private entities.
IV. The Acquisition Plan.
A. Formation of CCS. Cogenex hereby requests Commission
approval to incorporate CCS as a Massachusetts business corporation. The
initial authorized capitalization of CCS shall be 200,000 shares of common
stock, $.01 par value per share, and 7,500 shares of preferred stock,
$.01 par value ("Preferred Stock"). Cogenex hereby requests authorization
(i) for CCS to issue and for Cogenex to acquire 10,000 shares of CCS'
common stock at a purchase price of $100; and (ii) for CCS to issue to CCC
7,500 shares of the Preferred Stock. The Preferred Stock shall be issued
to CCC in exchange for (i) the transfer of certain assets of CCC, including
the rights to those prospective business opportunities of CCC, and the
rights to those contracts to which CCC is a party, set forth on Exhibits A
and B, respectively, to the Memorandum of Understanding, and the goodwill
of CCC associated therewith (hereinafter referred to as the "Assets"); and
(ii) CCC entering into a noncompete and cooperation agreement with CCS.
CCS will also assume the obligations of CCC with respect to the Assets.
Cogenex hereby requests authorization for CCS to acquire the Assets and
assume the liabilities thereof.
Forms of Articles of Organization and By-Laws of CCS are filed
herewith (Exhibits A-1 and A-2, respectively).
B. Terms of Preferred Stock. The Preferred Stock shall be non-
redeemable until January 1, 2002 or upon the seventh anniversary of the
execution of the Definitive Agreement, whichever is later. Upon such date,
the Preferred Stock may be redeemed at Cogenex's sole discretion at a
redemption price equal to $100 per share plus then-accrued dividends, if
any, plus an additional amount, if any, determined in accordance with the
following formula:
if upon the redemption date the cumulative dividends paid
and accrued to CCC equal $1,000,000 or less, such additional
amount shall be equal to $200 per share; if such dividends
equal $6,000,000 or more, such additional amount shall be
equal to $0 per share; if such dividends equal between
$1,000,000 and $6,000,000, such additional amount shall be
calculated proportionately.
The Preferred Stock shall be entitled to an annual dividend per share at a
rate equal to 33% of the net income of CCS divided by 7,500. The Preferred
Stock dividends shall be paid annually when and as declared by the board of
directors of CCS, but not later than June 30th of the calendar year in
which they are to be paid. The first such year for which dividends shall
be paid shall be the year ending December 31, 1995. Dividends shall be
noncumulative and shall be paid only from current earnings, if any.
In the event that the Preferred Stock has not been redeemed by CCS
prior to January 1, 2005 or the tenth anniversary of the execution of the
Definitive Agreement, whichever is later, such stock shall be tendered to
Cogenex by CCC on or as of December 31, 2004 for a total consideration of
one dollar. In the case of liquidation or sale of CCS or a sale of
substantially all of the assets, the proceeds thereof shall first be
applied to all outstanding liabilities of CCS, whether absolute or
contingent. Any excess proceeds shall be distributed one third to CCC and
two thirds to Cogenex. A liquidation or sale of CCS or a sale of
substantially all of its assets shall require the consent of a majority of
the holders of each class of stock of CCS.
C. Financing of CCS. Cogenex requests authorization from the
Commission (i) for Cogenex to make loans to CCS in an aggregate amount not
to exceed $5,000,000 outstanding at any one time for the purpose of funding
the development of projects (the "Development Loans"); and (ii) for CCS to
issue notes to Cogenex for the Development Loans. Cogenex also requests
authorization from the Commission (i) for Cogenex to make loans to CCS in
an aggregate amount not to exceed $2,500,000 outstanding at any one time
for working capital purposes (the "Working Capital Loans"); and (ii) for
CCS to issue notes to Cogenex for the Working Capital Loans. Provision of
credit shall be made at Cogenex's sole discretion and shall be provided
upon such terms, conditions and rates as is customarily provided to
affiliates of Cogenex. The source of this financing will be short-term
borrowings by Cogenex under the EUA system's existing bank lines of credit,
internally generated cash, repayment of funds advanced to CCS, proceeds of
future long-term debt to be issued by Cogenex and/or purchases of stock,
capital contributions, loans and/or advances by EUA previously authorized,
or to be authorized, by the Commission. CCS shall repay the Development
Loans and the Working Capital Loans from internally generated funds,
permanent project financing and the issuance of additional notes.
D. Miscellaneous. Cogenex also expects CCS to hire 15 current
employees of CCC, two of whom shall enter into employment contracts with
CCS which shall not exceed two years. The other employees will be
employees at will. CCS shall enter into a service agreement with CCC, a
copy of which will is filed herewith as Exhibit B-3, to provide certain
services to CCC for contracts and obligations retained by mutual agreement
by CCC. Such services shall be provided by CCS at cost. Cogenex shall
also provide office space and other necessary facilities for the operation
of CCS on such terms, conditions and rates as is customarily provided to
affiliates of Cogenex in its sole discretion.
Cogenex is currently restricted to earning less than 50% of its
revenues from outside New England and New York (the "50% Restriction").
CCS' revenues will be subject to the 50% Restriction just like any other
aspect of Cogenex's business other than revenues from QF projects and
consulting revenues, which revenues are not included in the calculation for
the 50% Restriction. However, revenues received by CCS through the service
agreement it will enter into with CCC will not be included in the
calculation for the 50% Restriction.
Cogenex does not now, and will not in the future, without prior
Commission approval, own or operate or be an equity participant in any
exempt wholesale generator or foreign utility company, as such terms are
defined in the Energy Policy Act of 1992.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, commissions and expenses of Cogenex expected to be paid or
incurred, directly or indirectly, in connection with the transactions
described will be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that the
applicant believes are or may be applicable to the transactions proposed
are set forth below:
Acquisition of Assets indirectly Sections 9(a) and 10.
by Cogenex and directly by CCS.
Issuance of Preferred Stock Sections 6(a), 7 and
by CCS. 12(b) and 12(f); Rules
43(a) and 45(a). An
exception from Rule 50
is requested.
Purchase by Cogenex of shares of Sections 9(a), 10 and
common stock of CCS. 12(b); Rule 45(a).
Issuance and sale by CCS to Cogenex Sections 6(a), 7 and 12(f)
of shares of common stock of CCS. and Rule 43(a); exempt from Rule 50
by paragraph (a)(3) thereunder.
Issuance of loans by Sections 12(a) and 12(f);
Cogenex to CCS and issuance Rule 45(a).
of notes to Cogenex by CCS.
Redemption of Preferred Section 12(c) and Rule 46(a).
Stock pursuant to the terms
thereof.
Cogenex requests that the Commission except the issuance of the
Preferred Stock from the requirements of Rule 50 pursuant to paragraph
(a)(5) thereof, on the ground that the identities of the persons to whom
the shares will be issued are necessarily determined by the nature of the
transactions, so that compliance with Rule 50 would be wholly impracticable
and therefore not appropriate or necessary for any of the purposes referred
to in that paragraph.
ITEM 4. REGULATORY APPROVALS.
No state commission and no Federal commission, other than the
Commission and the Federal Trade Commission, if required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, has jurisdiction over the
proposed transactions.
ITEM 5. PROCEDURE.
(a) In order to be in a position to carry out the proposed
transactions at the most advantageous time, Cogenex requests that the
Commission issue its order hereon on the earliest practical date.
(b) It is not considered necessary that there be a recommended
decision by a hearing officer or by any other responsible officer of the
Commission. The Office of Public Utility Regulation may assist in the
preparation of the decision of the Commission, and it is believed that a
thirty (30) day waiting period between the issuance of the order of the
Commission and the day on which the order is to become effective would not
be appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (* Filed herewith)
(a) Exhibits.
Exhibit A-1 Form of Articles of Organization for CCS (to
be filed by amendment).
Exhibit A-2 Form of By-laws of CCS (to be filed by
amendment).
Exhibit B-1 Memorandum of Understanding dated September
2, 1994 between Cogenex and CCC (to be filed
by amendment).
Exhibit B-2 Definitive Agreement among Cogenex, CCS and
CCC (to be filed by amendment).
Exhibit B-3 Service contract between CCS and CCC (to be
filed by amendment).
Exhibit F Opinion of counsel (to be filed by
amendment).
*Exhibit G Proposed Form of Notice.
(b) Financial Statements (to be filed by amendment).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transactions described in Item 1. do not involve major federal
actions significantly affecting the quality of the human environment. No
Federal agency has prepared or is preparing an environmental impact
statement with respect to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned applicant has duly caused this statement to be
signed on its behalf by the undersigned duly authorized individual.
EUA COGENEX CORPORATION
By: /s/ Basil G. Pallone
Basil G. Pallone
Vice President
Dated September 23, 1994
Exhibit G
(PROPOSED FORM OF NOTICE)
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35 - , 70 - )
EUA Cogenex Corporation ("Cogenex"), a wholly-owned subsidiary of
Eastern Utilities Associates ("EUA"), a registered holding company, has
filed an application-declaration with this Commission pursuant to Sections
6(a), 7, 9(a), 10, 12(b), 12(c) and 12(f) of the Public Utility Holding
Company Act of 1935 (the "Act") and Rules 43(a), 45(a), 46(a) and 50
promulgated thereunder.
Cogenex proposes: (i) to form a wholly owned subsidiary to be named
EUA Citizens Conservation Services, Inc. ("CCS") for the purpose of
acquiring certain assets of Citizens Conservation Corporation ("CCC"), a
Massachusetts corporation exempt from taxation under Section 501(c)(3) of
the Internal Revenue Code; and (ii) to make loans to CCS to fund project
development and working capital requirements. CCC is, and CCS will be,
principally engaged in the business of providing energy conservation in
multi-family housing and consulting services to utilities, all as more
fully described below.
Cogenex and CCC have executed a Memorandum of Understanding dated as
of September 2, 1994, the terms of which will be more fully set forth in a
definitive agreement among Cogenex, CCS and CCC filed as Exhibit B-2 to the
Application-Declaration (the "Definitive Agreement"). The obligation of
Cogenex to effect the acquisition will be subject to various closing
conditions, including the approval of the Commission under the Act.
CCS will primarily specialize in energy services for residential
multi-family housing. The services will include energy audits, technical
assistance to owners/residents regarding energy costs and end uses,
assistance with financing projects, and energy performance contracting
similar to the services Cogenex currently provides to its commercial and
institutional customers. CCS will also contract directly with utilities to
implement residential low-income multi-family demand-side management
programs and will provide program design consultation to utilities,
governments and private entities.
The initial authorized capitalization of CCS shall be 200,000 shares
of common stock, $.01 par value per share, and 7,500 shares of preferred
stock, $.01 par value ("Preferred Stock"). Cogenex is requesting
authorization (i) for CCS to issue and for Cogenex to acquire 10,000 shares
of CCS' common stock at a purchase price of $100; and (ii) for CCS to issue
to CCC 7,500 shares of the Preferred Stock. The Preferred Stock shall be
issued to CCC in exchange for (i) the transfer of certain assets of CCC,
including the rights to those prospective business opportunities of CCC,
and the rights to those contracts to which CCC is a party, set forth on
Exhibits A and B, respectively, to the Memorandum of Understanding, and the
goodwill of CCC associated therewith (hereinafter referred to as the
"Assets"); and (ii) CCC entering into a noncompete and cooperation
agreement with CCS. CCS will also assume the obligations of CCC with
respect to the Assets.
The Preferred Stock shall be non-redeemable until January 1, 2002 or
upon the seventh anniversary of the execution of the Definitive Agreement,
whichever is later. Upon such date, the Preferred Stock may be redeemed at
Cogenex's sole discretion at a redemption price equal to $100 per share
plus then-accrued dividends, if any, plus an additional amount, if any,
determined in accordance with the following formula:
if upon the redemption date the cumulative dividends paid
and accrued to CCC equal $1,000,000 or less, such additional
amount shall be equal to $200 per share; if such dividends
equal $6,000,000 or more, such additional amount shall be
equal to $0 per share; if such dividends equal between
$1,000,000 and $6,000,000, such additional amount shall be
calculated proportionately.
The Preferred Stock shall be entitled to an annual dividend per share at a
rate equal to 33% of the net income of CCS divided by 7,500. The Preferred
Stock dividends shall be paid annually when and as declared by the board of
directors of CCS, but not later than June 30th of the calendar year in
which they are to be paid. The first such year for which dividends shall
be paid shall be the year ending December 31, 1995. Dividends shall be
noncumulative and shall be paid only from current earnings, if any.
In the event that the Preferred Stock has not been redeemed by CCS
prior to January 1, 2005 or the tenth anniversary of the execution of the
Definitive Agreement, whichever is later, such stock shall be tendered to
Cogenex by CCC on or as of December 31, 2004 for a total consideration of
one dollar. In the case of liquidation or sale of CCS or a sale of
substantially all of the assets, the proceeds thereof shall first be
applied to all outstanding liabilities of CCS, whether absolute or
contingent. Any excess proceeds shall be distributed one third to CCC and
two thirds to Cogenex. A liquidation or sale of CCS or a sale of
substantially all of its assets shall require the consent of a majority of
the holders of each class of stock of CCS.
Cogenex is requesting authorization from the Commission (i) for
Cogenex to make loans to CCS in an aggregate amount not to exceed
$5,000,000 outstanding at any one time for the purpose of funding the
development of projects (the "Development Loans"); and (ii) for CCS to
issue notes to Cogenex for the Development Loans. Cogenex also requests
authorization from the Commission (i) for Cogenex to make loans to CCS in
an aggregate amount not to exceed $2,500,000 outstanding at any one time
for working capital purposes (the "Working Capital Loans"); and (ii) for
CCS to issue notes to Cogenex for the Working Capital Loans. Provision of
credit shall be made at Cogenex's sole discretion and shall be provided
upon such terms, conditions and rates as is customarily provided to
affiliates of Cogenex. The source of this financing will be short-term
borrowings by Cogenex under the EUA system's existing bank lines of credit,
internally generated cash, repayment of funds advanced to CCS, proceeds of
future long-term debt to be issued by Cogenex and/or purchases of stock,
capital contributions, loans and/or advances by EUA previously authorized,
or to be authorized, by the Commission. CCS shall repay the Development
Loans and the Working Capital Loans from internally generated funds,
permanent project financing and the issuance of additional notes.
Cogenex also expects CCS to hire 15 current employees of CCC, two
of whom shall enter into employment contracts with CCS which shall not
exceed two years. The other employees will be employees at will. CCS
shall enter into a service agreement with CCC, a copy of which is filed as
Exhibit B-3 to the Application-Declaration, to provide certain services to
CCC for contracts and obligations retained by mutual agreement by CCC.
Such services shall be provided by CCS at cost. Cogenex shall also provide
office space and other necessary facilities for the operation of CCS on
such terms, conditions and rates as is customarily provided to affiliates
of Cogenex in its sole discretion.
Cogenex is currently restricted to earning less than 50% of its
revenues from outside New England and New York (the "50% Restriction").
CCS' revenues will be subject to the 50% Restriction just like any other
aspect of Cogenex's business other than revenues from QF projects and
consulting revenues, which revenues are not included in the calculation for
the 50% Restriction. However, revenues received by CCS through the service
agreement it will enter into with CCC will not be included in the
calculation for the 50% Restriction.
Cogenex does not now, and will not in the future, without prior
Commission approval, own or operate or be an equity participant in any
exempt wholesale generator or foreign utility company, as such terms are
defined in the Energy Policy Act of 1992.
NOTICE IS FURTHER GIVEN that any interested person may, not later than
_________, 1994, request in writing that a hearing be held on such matter,
stating the nature of his interest, the reasons for such request, and the
issues of fact or law raised by said application/declaration which he
desires to controvert; or he may request that he be notified if the
Commission should order a hearing thereon. Any such request should be
addressed: Secretary, Securities and Exchange Commission, 450 5th Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. A copy of such request
should be served personally or by mail upon the applicant/declarant at the
above-stated address and proof of service (by affidavit or, in case of an
attorney at law, by certificate) should be filed with the request. At any
time after said date the application/declaration, as filed or as it may be
amended, may be granted and permitted to become effective as provided in
Rule 23 of the General Rules and Regulations promulgated under the Act, or
the Commission may grant exemption from such rules as provided in Rules
20(a) and 100 thereof or take such other action as it may deem appropriate.
Persons who request a hearing or advice as to whether a hearing is ordered
will receive any notices and orders issued in this matter, including the
date of the hearing (if ordered) and any postponements thereof.
For the Commission, by the Division of Corporate Regulation, pursuant
to delegated authority.
Secretary
