File No. 70-8473
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
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.
Item 1 of the Application-Declaration is hereby amended and
restated in its entirety as follows:
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 unde r 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 Citize ns 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 currently unaff iliated with Cogenex; 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 se rvices to utilities,
all as more fully described below.
Cogenex and CCC have executed a Memorandum of Understanding dated
as of September 2, 1994 and amended by Amendment No. 1 thereto dated as of
October 4, 1994 (Exhibit B-1), the terms of which will be more fully set
forth in a definitive agreem ent 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; (HC AR 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 savin gs 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 re paid 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 managem ent
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 p er 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
contracts and other intangible assets of CCC, including the rights to those
prospective business opportuniti es 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) CC
C entering into a noncompete and cooperation agreement with CCS. CCS will
also assume the obligations of CCC with respect to the Assets. The
acquisition of the Assets will allow Cogenex to indirectly expand its
customer base by, among other things, entering into the public housing
sector and will provide the public housing sector with the benefit of
Cogenex's experience and expertise in energy conservation and management.
Cogenex anticipates a synergistic relationship with CCS whereby CCS wil l
provide a new outlet for the services and products of EUA Day and EUA NOVA
(both divisions of Cogenex) and for the engineering services of Cogenex.
Cogenex hereby requests authorization for CCS to acquire the Assets and
assume the liabilities ther eof.
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 Stoc k 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 am ount 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 n ot 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 earnin gs, 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 stoc k 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. The
aggregate amount outstanding at an one time for the Development Loans and
the Work ing Capital Loans combined shall not exceed $7,500,000. 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. In general, the Development Loans and the Working
Capital Loans shall (i) mature within twelve months of their issuance and
be renewable from time to time (ii) be prepayable in whole or in part
without penalty and (iii) shall earn interest at a rate equal to the les
ser of Cogenex's short-term borrowing costs or the prime rate on the date
of issuance. 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 o f 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 Deve lopment Loans and
the Working Capital Loans from internally generated funds, permanent
project financing and the issuance of additional notes for Development
Loans and Working Capital Loans as authorized herein. CCS shall not incur
any indebtedness in the form of permanent project financing, nor use the
proceeds thereof for the purpose of repaying Cogenex, without first
obtaining the authorization of the Commission.
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 sh all enter into a service agreement with CCC, a
copy of which is filed herewith as Exhibit B-3 hereto, to provide certain
services to CCC for contracts and obligations retained by mutual agreement
by CCC. Such services shall be provided by CCS at co st. 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 oth er 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 i n 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 o f 1992.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (* Filed herewith with
confidential treatment requested)
Item 6 is hereby amended as follows:
(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, as amended by
Amendment No. 1 dated October 4,
1994, between EUA Citizens
Corporation and Citizens
Conservation Corporation.
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).
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 October 7, 1994
EXHIBIT B-1
[FILED WITH CONFIDENTIAL TREATMENT REQUESTED]
