File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
ALLEGHENY POWER SYSTEM, INC.
12 EAST 49TH STREET
NEW YORK, NY 10017
AYP CAPITAL, INC.
12 EAST 49TH STREET
NEW YORK, NY 10017
(Name of company or companies filing this statement and addresses of
principal executive offices)
Allegheny Power System, Inc.
(Name of top registered holding company parent of each applicant or
declarant)
Nancy H. Gormley, Esq.
Vice President
Allegheny Power System, Inc.
Tower Forty-Nine
12 East 49th Street
New York, NY 10017
(Name and address of agent for service)
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1. Description of Proposed Transaction.
A. Background
AYP Capital, Inc. ("AYP Capital") is a wholly-owned nonutility
subsidiary company of Allegheny Power System, Inc. ("APS"), a registered
holding company under the Public Utility Holding Company Act of 1935, as
amended (the "Act"). APS, through its three electric utility subsidiaries,
Monongahela Power Company, The Potomac Edison Company and West Penn Power
Company (collectively, the "Operating Companies") provides retail and
wholesale electric service throughout parts of Maryland, Ohio, Pennsylvania,
Virginia and West Virginia. By order dated July 14, 1994 (Holding Company Act
Release No. 26085), the Commission authorized APS to form AYP Capital and to
invest therein up to $500,000 to explore investment opportunities in companies
in the area of emerging technologies related to the core utility business of
APS. See also HCAR No. 26229 and 26401.
Restructuring of the electric utility industry has begun.
Beginning with the passage of the Energy Policy Act of 1992 and continuing
through the recent rulemaking initiative by the Federal Energy Regulatory
Commission ("FERC") in its Mega NOPR concerning open access to transmission,
today's utility environment has changed drastically. (Docket No. RM95-8-000.)
APS is making every effort to keep pace with these changes within the
parameters of the Energy Policy Act and the Public Utility Holding Company Act
of 1935. By this filing APS, which has a capitalization of $5 billion, is
requesting authority to invest up to $15 million in new technology companies
through a limited partnership and up to $5 million to fund preliminary
development activities. APS is looking to capitalize on the economics,
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efficiencies, and investment and technological expertise of this limited
partnership to encourage new technologies, products and services that will
advance APS' core business. These transactions may allow AYP Capital and APS
to pursue and develop new opportunities that will strengthen the long-term
competitiveness and profitability of APS. The business opportunities which
are pursued by AYP Capital will be closely related to the core utility
business of APS.
AYP Capital now proposes (i) to invest up to $5 million to engage
in preliminary development activities in connection with new technologies that
are closely related to the core utility business of APS, and (ii) to invest up
to $15 million to acquire an interest as a limited partner ("Limited Partner")
in a Delaware limited partnership to be formed (the "Partnership"). AYP
Capital proposes to invest in the Partnership from time to time through the
end of the initial term of the Partnership, as such initial term may be
extended pursuant to the terms of the Limited Partnership Agreement (the
"Agreement") to a date not later than two years following the initial term, in
accordance with calls by the general partner of the Partnership on AYP
Capital's commitment.
AYP Capital will acquire all of the limited partnership interests.
(See Georgia Power Company Release No. 35-25949 wherein Georgia Power was
authorized to invest up to $5 million to acquire all of the limited
partnership units of a Delaware limited partnership to be formed.) The sole
general partner of the Partnership (the "General Partner") will be Advent
International Corporation ("AIC"). AIC is a leading venture capital
investment firm having a staff of more than 50 professionals and over $1
billion in capital under management. AIC has had extensive experience
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managing other technology oriented investments in the energy and environmental
sectors.
APS proposes to provide any funds needed by AYP Capital in order
to engage in the aforementioned preliminary development activities and to
acquire the interests in the Partnership. APS will obtain such funds from
sales of common stock, from borrowings and/or commercial paper sales, and from
internally generated funds, chiefly dividends from subsidiaries.
B. Investment Objective of the Partnership
The Partnership is being formed to invest in companies (each a
"Portfolio Company") that are developing new technologies, products or
services related to APS' core business operations. This type of investment
was encouraged by the SEC when it authorized nonutility subsidiaries of APS,
American Electric Power Company, Inc., General Public Utilities Corporation
and The Southern Company to invest in EnviroTech Investment Fund I Limited
Partnership ("EnviroTech Partnership"). The SEC also permitted the EnviroTech
Partnership, in selecting suitable investments, to focus on the following
technology sectors, among others: alternate and renewable energy technologies,
environmental and waste treatment technologies and services, energy efficiency
technologies, process and services, electrotechnologies used in the reduction
of medical waste, technologies and processes promoting alternative energy for
transportation, and other technologies relating to improving the generation,
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transmission and delivery of electricity. See Release Nos. 35-26225, 35-
26222, 35-26230 and 35-26240. The Investment Charter for the Partnership has
likewise selected technology, product and service areas for investment that
are relevant to APS's core business and the energy industry as a whole. (See
Appendix B to Exhibit A herein).
Specifically, a key objective of the Partnership will be to make
investments that will facilitate the timely development of new products and
services that focus on improving APS' core business operations through
technological advancements; 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 APS with attractive
opportunities relating to the evolving utility business climate which meet the
above objectives. AYP Capital also believes that investing through this
Partnership will greatly enhance APS' continuing research and development
efforts to promote energy-related technological advancements.
In selecting suitable investments, the 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
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technologies, energy conservation storage and delivery technology, and motor
efficiency technologies; conservation, load management, and demand-side
management technologies, systems and services; 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; advanced computer hardware and software for use in the
generation, transmission and distribution (or planning therefor) of
electricity (including artificial intelligence/neural net systems and
components); power-related electronic systems, control systems and components;
electric automation systems and components, including instrumentation,
sensors, robotics and inspection techniques; 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 Partnership will invest in companies at all stages of
development from start-up companies (companies that are in formation or are
developing their first products or services and are not yet profitable) to
later stage companies (which are typically well established and profitable
though still not publicly traded) to diversify the portfolio while achieving
the best match of environmental and economic results.
The Partnership will provide AYP Capital with a range of
nonfinancial benefits in addition to generating an attractive financial return
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on investment. Whenever appropriate, the General Partner will facilitate
interactions between the Limited Partner and the Partnership's Portfolio
Companies. Finally, through its involvement in the Partnership, AYP Capital
will have the opportunity to gain experience and participate in new emerging
markets and business sectors relevant to its industry.
C. Terms of the Partnership Agreement
The term of the Partnership shall be for ten years from the date
of the Agreement, subject to extension for up to two years upon agreement of
the General Partner and the Limited Partner. (Agreement, Section 6.1). The
Agreement provides that, not later than the date of becoming a Limited Partner
of the Partnership, the Limited Partner shall contribute to the capital of the
Partnership cash in the amount of 10% of its capital commitment of $15
million. Thereafter, the balance of the Limited Partner's capital commitment
of $13.5 million shall be due and payable in cash installments as received by
the General Partner, subject to the following limitations: (i) each subsequent
installment shall not exceed $1.5 million; (ii) the General Partner shall not
call for the payment of any installment if the total amount of money called by
the General Partner but not yet invested equals or exceeds $1 million unless
such payment is necessary to meet anticipated Partnership expenses and to fund
a particular Partnership investment and (iii) the General Partner shall not
call in excess of $5 million prior to the first anniversary of the Agreement,
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in excess of $8 million prior to the second anniversary of the Agreement, in
excess of $11 million prior to the third anniversary of the Agreement or in
excess of $14 million prior to the fourth anniversary of the Agreement.
(Agreement, Section 3.1(a)). At any time after the sixth anniversary of the
Agreement, the Limited Partner may terminate its obligation to make any unpaid
contributions to the Partnership.
Subject to certain limitations set forth in the Agreement, the
management, operation, and implementation of policy of the Partnership will be
vested exclusively in the General Partner. (Agreement, Section 2.1). Among
other powers, the General Partner shall have discretion to invest the
Partnership's funds in accordance with investment guidelines set forth in the
Investment Charter (Appendix B to the Agreement). The investment guidelines
set forth criteria on approved types of technologies, products and services,
size of investment, and portfolio diversification. In addition, the
investment guidelines require consideration of nonfinancial public policy
criteria, including assessments of the likelihood of reducing costs and
increasing efficiencies to customers of products incorporating selected
technologies, and of enabling electric utilities to remain competitive in
existing markets. In certain respects, actions that may be taken by the
General Partner will require the consent of AYP Capital, as Limited Partner.
After execution of the Agreement, no term or provision may be waived, modified
or amended, unless AYP Capital has given its prior consent, nor shall any
investment be made in any new technology that AYP Capital does not consider
related to its core business.
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As a limited partner of the Partnership, AYP Capital will not
acquire any "voting securities," as that term is defined in Section 2(a)(17)
of the Act. Thus, the Partnership will not be an "affiliate" or "subsidiary
company" of AYP Capital within the meaning of the Act. Specifically, AYP
Capital will not be entitled to take part in the control, management or
investment decisions of the Partnership or, through the Partnership, the
control or management of any company in which the Partnership may invest. As
a limited partner, AYP Capital will only be entitled to receive notices and
other information from the General Partner, to inspect the Partnership's books
and records, to attend meetings and discussions with potential Portfolio
Companies and to vote on a limited number of actions that could fundamentally
change the structure and purposes of the Partnership and its relationship with
the General Partner. In addition, as a Limited Partner of the Partnership,
AYP Capital will have no independent right to vote on whether to invest in a
particular Portfolio Company or to remove the General Partner, except for
cause or a substantial change in the management of AIC.
Among other limitations on investment activities, the General
Partner may not cause or permit the Partnership to invest more than 10% of the
Partnership's total capital commitment in any single Portfolio Company, with a
target of 5% or less in a single company. The General Partner may also not
cause or permit the Partnership to invest more than 5% of the Partnership's
total capital commitment in securities of Portfolio Companies that, at the
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time the securities are acquired, are readily tradeable on established
securities markets; or invest in hostile takeover transactions or in highly
leveraged buy-outs. (Agreement, Section 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.
(Agreement, Sections 2.1(b) and 6.3(b)(iii)).
Under the terms of the Agreement, in consideration of its services
to the Partnership, the General Partner will be paid an annual management fee
up to 3.5% of the total committed capital, as well as a 20% share of net gains
and income on investments. (Agreement, Sections 2.3 and 3.3). In addition,
the General Partner shall be entitled to reimbursement for all reasonable
expenses incurred in the organization of the Partnership not covered in the
management fee. (Agreement, Section 2.3.)
The Limited Partner has no authority to remove the General
Partner. However, the General Partner shall be deemed removed 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 Partnership or the Limited Partner or bad faith, or any
"substantial change in the management" of the General Partner. (Agreement,
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Section 6.3(b)). Following any resignation or removal of the General Partner,
the Limited Partner may continue the Partnership by selecting a substitute
General Partner. (Agreement, Sections 5.1(b) and 6.3).
All 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 the Limited Partner and 20% to the General
Partner (Agreement, Section 3.3). 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. (Agreement, Section 3.5). Unless AYP Capital obtains
approval from the Commission to retain such Portfolio Company securities, AYP
Capital undertakes that it will in good faith attempt to sell such Portfolio
Company securities upon its receipt of the same, and in any event will sell
such Portfolio Company securities within one year from the date of its receipt
thereof.
D. Other Matters.
AYP Capital will file on an annual basis within 180 days of the
end of each calendar year a report pursuant to Rule 24 of the Commission's
Rules and Regulations which describes the nature of each of the Partnership's
investments, the cost thereof and the valuation thereof as established
pursuant to Section 7.2 of the Agreement. Such report will also detail the
receipt of the disposition by AYP Capital of any Portfolio Company securities
during the period covered by such report.
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2. Fees, Commissions and Expenses
No fees, commission or expenses have been paid or will be paid or
incurred in connection with the proposed transactions, other than the
Commission filing fee of $2,000.
No fees, commissions or expenses are to be paid to any associate
company or affiliate of the Applicant or any affiliate of any such associate
company except for legal, financial and other services to be performed at cost
by Allegheny Power Service Corporation.
3. Applicable Statutory Provisions
AYP Capital believes that the transactions proposed herein are
exempted from the requirements of Section 9(a) of the Act pursuant to Section
9(c)(3) thereof, in that (i) AYP Capital is proposing to acquire securities in
the "ordinary course of the business" of a registered holding company and its
subsidiaries, and (ii) such investment will not be detrimental to the public
interest or the interest of investors and consumers. Further, as a result of
the proposed transaction, the Partnership will not be or become an "affiliate"
of AYP Capital within the meaning of Section 2(a)(ii) of the Act.
The proposed investment in the Partnership is in the "ordinary
course of business" of APS and its subsidiaries in that it will contribute to
the development, application, and commercialization of technologies that will
help to promote new and more efficient uses for electricity, and promote the
development and use of alternative fuels. These are reasonable objectives, if
not responsibilities, of all electric utilities and ones that serve the public
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interest. Further, successful investments by the Partnership would indirectly
benefit all utilities, without regard to location, as well as utility
consumers, by making generally available in the marketplace technologies,
equipment and services that could lower electricity production costs and
increase efficiency in energy consumption, which, among other benefits, would
enable electric utilities to compete more effectively with other energy
suppliers for customers in existing markets.
In the alternative, should the Commission determine that the
transaction proposed herein is not exempt from Section 9(a) by reason of
Section 9(c)(3), then AYP Capital believes that the standards of Section 10 of
the Act, as applied to the proposed investment in the Partnership, will
nevertheless be satisfied, and therefore requests an order approving the
proposed transaction under Section 10. In this connection, there is no basis
for the Commission to make any adverse determination under Section 10(b).
Moreover, for the reasons stated above, the activities of the Partnership,
viewed in terms of its defined objectives and investment criteria, are
"reasonably incidental, or economically necessary and appropriate to the
operations of" a registered electric utility holding company system. (See The
Southern Company, Holding Company Act Release No. 26211, dated December 30,
1994.) Hence, the proposed acquisition will not be detrimental to the
carrying out of the provisions of Section 11 within the contemplation of
Section 10(c)(1).
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4. Regulatory Approval
The transaction proposed herein is not subject to the jurisdiction
of any State commission or of any federal commission other than the Securities
and Exchange Commission.
5. Procedure
AYP Capital requests that the Commission's order be issued as soon
as the rules allow, and that there be no thirty-day waiting period between the
issuance of the Commission's order and the date on which it is to become
effective. AYP Capital hereby waives a recommended decision by a hearing
officer or other responsible officer of the Commission and hereby consents
that the Division of Investment Management may assist in the preparation of
the Commission's decision and/or order in this matter unless such Division
opposes the matters covered hereby.
6. Exhibits and Financial Statements
(a) Exhibits
A Form of Limited Partnership
Agreement.
B None.
C None.
D None.
E None.
F Opinion of counsel (to be filed by
amendment).
G Financial Data Schedules.
H Form of notice.
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(b) Financial Statements as of September 30, 1995.
1-A AYP Capital balance sheet, per books.
2-A APS and subsidiaries consolidated balance sheet, per
books.
1-B AYP Capital statements of income, per books, and
earned surplus.
2-B APS and subsidiaries consolidated statements of
income, per books, and earned surplus.
7. Information as to Environmental Effects
(a) In light of the nature of the proposed transactions, as
described in Item 1 hereof, the Commission's action in this
matter will not constitute any major federal action
significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed
transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
ALLEGHENY POWER SYSTEM, INC.
By: NANCY H. GORMLEY
Nancy H. Gormley
Vice President
AYP CAPITAL, INC.
By: NANCY H. GORMLEY
Nancy H. Gormley
Counsel
Dated: November 29, 1995
ADVENT ENERGY LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
Agreement Dated as of November __, 1995
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TABLE OF CONTENTS
Page
Article I - General Provisions . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Partnership Name. . . . . . . . . . . . . . . . . . 4
Section 1.3 Fiscal Year . . . . . . . . . . . . . . . . . . . . 4
Section 1.4 Nature and Liability of Partners. . . . . . . . . . 5
Section 1.5 Purposes of Partnership . . . . . . . . . . . . . . 5
Section 1.6 Investment Objectives . . . . . . . . . . . . . . . 5
Section 1.7 Powers of Partnership . . . . . . . . . . . . . . . 5
Article II - Management of Partnership . . . . . . . . . . . . . . . . 6
Section 2.1 General . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 Services of General Partner . . . . . . . . . . . . 7
Section 2.3 Compensation of General Partner . . . . . . . . . . 8
Section 2.4 Restrictions. . . . . . . . . . . . . . . . . . . . 9
Section 2.5 Conflict of Interest Transactions . . . . . . . . .10
Section 2.6 Waiver of Restrictions. . . . . . . . . . . . . . .11
Section 2.7 Reliance by Third Parties . . . . . . . . . . . . .11
Section 2.8 Dedication of Resources . . . . . . . . . . . . . .11
Section 2.9 Partner's Transactions. . . . . . . . . . . . . . .11
Section 2.10 Exculpation of Liability. . . . . . . . . . . . . .12
Section 2.11 Indemnification . . . . . . . . . . . . . . . . . .12
Article III - Capital Accounts; Distributions; Profits and Losses. . .13
Section 3.1 Capital Contributions . . . . . . . . . . . . . . .13
Section 3.2 Capital Accounts. . . . . . . . . . . . . . . . . .14
Section 3.3 Allocation of Net Gain and Net Loss
and Other Partnership Items. . . . . . . . . . .15
Section 3.4 Distributions to Partners . . . . . . . . . . . . .16
Section 3.5 Distributions In Kind . . . . . . . . . . . . . . .18
Section 3.6 Re-allocation of Carried Interest . . . . . . . . .19
Article IV - No Withdrawal of Profits, Gains or Capital. . . . . . . .20
Section 4.1 No Withdrawal of Profits, Gains or Capital. . . . .20
Article V - Transfer of Partnership Interests. . . . . . . . . . . . .20
Section 5.1 Assignability of Interests. . . . . . . . . . . . .20
Section 5.2 Substituted Limited Partners. . . . . . . . . . . .21
Section 5.3 Obligation of Assignee. . . . . . . . . . . . . . .21
Section 5.4 Prohibition Against Public Trading. . . . . . . . .21
Article VI - Duration and Dissolution of the Partnership . . . . . . .22
Section 6.1 Duration. . . . . . . . . . . . . . . . . . . . . .22
Section 6.2 Withdrawal of Limited Partner . . . . . . . . . . .22
Section 6.3 Termination of the Partnership; Withdrawal and
Removal of General Partner. . . . . . . . . . . .22
Section 6.4 Liquidation . . . . . . . . . . . . . . . . . . . .23
Section 6.5 Distribution Upon Liquidation . . . . . . . . . . .24
Section 6.6 Deficit Restoration by General Partner. . . . . . .25
Section 6.7 Suspension of Active Investment . . . . . . . . . .25
Article VII - Reports to Partners. . . . . . . . . . . . . . . . . . .25
Section 7.1 Independent Auditors. . . . . . . . . . . . . . . .25
Section 7.2 Reports . . . . . . . . . . . . . . . . . . . . . .26
Section 7.3 Inspection. . . . . . . . . . . . . . . . . . . . .26
Section 7.4 Tax Returns . . . . . . . . . . . . . . . . . . . .26
Article VIII - Valuation . . . . . . . . . . . . . . . . . . . . . . .26
Section 8.1 Valuation of Partnership Net Worth. . . . . . . . .27
Section 8.2 Valuation Date. . . . . . . . . . . . . . . . . . .27
Section 8.3 Valuing Securities and Other Assets . . . . . . . .27
Section 8.4 Disputes. . . . . . . . . . . . . . . . . . . . . .28
Article IX - Miscellaneous . . . . . . . . . . . . . . . . . . . . . .28
Section 9.1 Admission of Limited Partners . . . . . . . . . . .28
Section 9.2 Disputed Matters. . . . . . . . . . . . . . . . . .28
Section 9.3 General . . . . . . . . . . . . . . . . . . . . . .29
Section 9.4 Notices . . . . . . . . . . . . . . . . . . . . . .29
Section 9.5 Execution of Certificate of Limited Partnership
and Other Documents . . . . . . . . . . . . . . .29
Section 9.6 Force Majeure . . . . . . . . . . . . . . . . . . .29
Section 9.7 Amendments. . . . . . . . . . . . . . . . . . . . .30
Section 9.8 Headings. . . . . . . . . . . . . . . . . . . . . .30
Section 9.9 Power of Attorney . . . . . . . . . . . . . . . . .30
Section 9.10 Effect of Securities Laws . . . . . . . . . . . . .30
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
<PAGE>
ADVENT ENERGY LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
BY THIS LIMITED PARTNERSHIP AGREEMENT made and entered into as of
November __, 1995, by Advent International Limited Partnership, a
partnership organized under the laws of the State of Delaware, as
general partner, and AYP Capital, Inc., as limited partner, 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) Advent International or AIC. "Advent International"
or "AIC" means Advent International Corporation, a Delaware corporation,
the general partner of the General Partner.
(b) Agreement. "Agreement" means this Limited Partnership
Agreement as it may be amended from time to time.
(c) AIC Affiliate. "AIC Affiliate" means:
(i) Advent International and all officers and
employee-directors of Advent International;
(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.
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(d) 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.
(e) 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, and as such
amount may be reduced pursuant to Sections 3.1(b) and 6.7(b) hereof.
(f) Capital Contribution. "Capital Contribution" means,
as to any Partner, the amount of money actually contributed to the
Partnership by such Partner.
(g) 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.
(h) Code. "Code" means the U.S. Internal Revenue Code of
1986, as amended.
(i) General Partner. "General Partner" means Advent
International Limited Partnership, a Delaware limited partnership of
which Advent International is the general partner, or any Person
substituted for or who succeeds Advent International Limited Partnership
as such General Partner pursuant to this Agreement.
(j) 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 2.8.
(k) 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.
(l) Limited Partner. "Limited Partner" means AYP Capital,
Inc., or any Person substituted for or who succeeds AYP Capital, Inc. as
such Limited Partner pursuant to this Agreement.
(m) Managed Fund. "Managed Fund" means any investment
fund, whether in corporate or partnership form, which is advised or
managed by Advent International or any AIC Affiliate.
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(n) Net Gain and Net Loss.
(i) "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 the 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.
(ii) "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 the 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) The following rules shall apply in determining
Net Gain and Net Loss:
(A) Gain or loss on the sale or exchange of
Partnership property shall be included in the determination
of Net Gain and Net Loss when recognized in accordance with
the Code, and when deemed recognized pursuant to the
provisions of Sections 3.5(a) and 6.5(e) hereof.
(B) For purposes of computing Net Gain 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
<PAGE>
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 the Limited Partner, reasonably satisfactory to
the General Partner.
(q) Partner. "Partner" means the General Partner or the
Limited Partner.
(r) Partnership. "Partnership" means Advent Energy
Limited Partnership, a Delaware limited partnership.
(s) Partnership Distributions. "Partnership
Distributions" means any payment to the Partners pursuant to Sections
3.4 or 6.5(e).
(t) Passive Mode. "Passive Mode" means the operation of
the Partnership in the manner described in Section 6.7.
(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
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.
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(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 a 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 "Advent Energy 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 the Limited
Partner.
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 Partner 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 its Capital Commitment 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 Partner shall share such losses,
liabilities and expenses only to the extent provided in Section 1.4(a)
hereof with respect to its liability for Partnership losses, liabilities
and expenses. The General Partner agrees to assume and be liable for all
such losses, liabilities and expenses not covered by the Limited
Partner's share of such losses, liabilities and expenses.
Section 1.5 Purposes of Partnership. The purposes of the
Partnership are to provide risk capital for, and make Investments in the
Securities of, privately held and other businesses. Investments shall
only be made if, in the good faith judgment of the General Partner, they
comply with the investment objectives set forth in Appendix B hereto
(the "Charter").
Section 1.6 Investment Objectives. The Investment objectives of
the Partnership shall be to invest in Securities of businesses engaged
in activities in the technology, product, service and market areas
described in the Charter. Notwithstanding the foregoing, the General
Partner shall at all times have sole and absolute discretion to make
Investments in Securities of businesses, so long as such businesses are
engaged in activities in the technology, product, service and market
areas described in the Charter. The Charter may be amended or modified
from time to time by the Limited Partner, with the consent of the
General Partner.
<PAGE>
Section 1.7 Powers of Partnership. In furtherance of the purposes
of the Partnership set forth in Sections 1.5 and 1.6, 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) Subject to Section 2.3, 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 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.
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
<PAGE>
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) The Limited Partner may cause the Partnership to cease
making Investments in new companies following the occurrence of a
substantial change in the management of Advent International or a change
of control of Advent International. For purposes of this Section
2.1(b), there shall be deemed to be a substantial change in the
management of Advent International 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 Advent International, and
(ii) at least two (2) of the following members of Advent International's
senior management group, Thomas R. Armstrong, Thomas H. Lauer,
Douglas R. Brown, Henry H. Haight and Clinton P. Harris, are no longer
actively involved in the management of Advent International.
Individuals may be substituted for the listed individuals with the
consent of the Limited Partner, and without the consent of the Limited
Partner provided: (x) that condition (i) does not exist; (y) they are
appointed by Peter A. Brooke; and (z) the individuals serve as members
of Advent International's senior management group. For the purposes of
this Section 2.1(b), there shall be deemed to be a change of control of
Advent International if Persons who are now stockholders of Advent
International do not have Voting Control of Advent International.
(c) The General Partner shall not cause or permit the
Partnership to:
(i) invest more than seven and one-half (7.5%) of the
Partnership's total Capital Commitments in a single Portfolio
Company without the prior approval of the Limited Partner;
(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 without the prior approval of the
Limited Partner, provided that the Partnership may invest in a
company simultaneously with a Managed Fund without such prior
approval; or
<PAGE>
(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 Limited Partner, 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 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 the
Limited Partner, 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 a monthly management fee (the "Management Fee")
with respect to the Capital Commitment of the Limited Partner, which,
for each calendar month, shall be equal to one-twelfth (1/12) of three
and one-half percent (3-1/2%) of the amount of such Capital Commitment
of the Limited Partner; such Management Fee and Capital Commitment will
be calculated in accordance with the provisions of Sections 3.1(b) and
6.7, if applicable. The Capital Commitment of the Limited Partner shall
be determined as of the last day of the month for which the Management
Fee is due and payable, and the Management Fee shall be payable on the
last day of such month. The Management Fee shall be prorated for any
period less than a calendar month. 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 an 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
<PAGE>
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) to the extent of $50,000 unless otherwise
approved by the Limited Partner, all reasonable travel,
legal, accounting, other third party professional and
out-of-pocket expenses incurred in the organization of the
Partnership;
(B) all such expenses made on behalf of the
Partnership in preparing any amendment to this Agreement;
and
(C) 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 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; costs of statistical services, publications and
periodicals; expenses of reports to the Limited Partner (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); and
other ordinary and usual expenses incurred in connection with the
making and monitoring of the Partnership's Investments.
Section 2.4 Restrictions. Subject to Section 2.6, the Partners
shall be restricted in their activities as follows:
<PAGE>
(a) No Services by Limited Partner. The Limited Partner
shall not participate in the management or control of the Partnership
and shall not hold itself out as a General Partner 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.
(ii)The Partnership may guarantee the obligations of
Portfolio Companies provided that the aggregate of the 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 the Charter.
(iii)Notwithstanding any other provision of this Article II,
the General Partner may defer Management Fees otherwise due and
payable under Section 2.3, or lend such Management Fees already
paid to the General Partner, for the purpose of making Investments
in existing Portfolio Companies in an amount necessary to maintain
the Partnership's proportionate ownership interest in such
Portfolio Companies; provided, however, that under no
circumstances will the aggregate amount of all deferred or loaned
Management Fees exceed the unpaid amount of the Limited Partner's
Capital Commitment at such time; such Capital Commitment shall be
calculated in accordance with Sections 3.1(b) and 6.7, if
applicable. The Management Fees that the General Partner defers
or lends to the Partnership shall be paid or repaid to the General
Partner with interest at the ninety (90) -day London Interbank
Offered Rate ("LIBOR") at such times as deemed appropriate by the
General Partner. The decision to defer or lend Management Fees to
the Partnership pursuant to this Section 2.4(c)(iii) is in the
sole discretion of the General Partner and, regardless of the
financial condition of the Partnership, the General Partner has no
obligation to make such a loan.
(iv)Nothing in this Section 2.4(c) shall be construed to
prohibit any AIC Affiliate 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).
<PAGE>
(d) Reinvestment of Capital. The General Partner shall
not, without the consent of the Limited Partner, reinvest the proceeds
from the realization of Portfolio Investments (other than Short-Term
Investments) except to the extent necessary for the aggregate amount
invested during the term of the Partnership 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) Registration Rights. In connection with the purchase
of Securities which are restricted as to transfer because of the
requirements of the Securities Act of 1933, as amended, or state "blue
sky" laws, the General Partner intends to use reasonable efforts (giving
due consideration to all factors incident to the purchase) to secure
appropriate registration rights or otherwise to provide for eventual
marketability of such Securities.
(f) 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) Subject to Sections 2.4(c)(iii) and 2.6, 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 the 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
<PAGE>
General Partner for 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 Partner annually.
Section 2.6 Waiver of Restrictions. With the consent of the
Limited Partner, compliance by the Partnership or the General Partner
with any of their respective covenants, agreements or restrictions
contained in Sections 2.4 or 2.5 may be waived, either generally or in
any particular instance and either retroactively or prospectively.
Section 2.7 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.
Section 2.8 Dedication of Resources. The General Partner shall
dedicate appropriate resources to the Partnership in accordance with the
General Partner's fiduciary duty to the Partnership, including, without
limitation, causing members of Advent International'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 technology, product, service 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 2.9 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
Advent International co-investment policy set forth in Appendix C
attached hereto, as such policy may be amended from time to time with
the consent of the Limited Partner.
Section 2.10 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 Partner 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 reasonably 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 Partner or by law. The Relevant
Party shall not be exculpated under the preceding sentence, however, if
<PAGE>
it has committed gross negligence, willful malfeasance or fraud with
respect to such act or omission, or if such act or omission caused the
Limited Partner to be liable in excess of its Capital Commitment for the
liabilities of the Partnership.
Section 2.11 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 2.11(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 a 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
Partner;
(iii) in a manner that was reasonably 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 Partner or by law; and
(iv) with respect to any criminal proceeding, in a manner
reasonably 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, or to have caused the Limited Partner to be
liable in excess of its Capital Commitment 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 Partnership if it is
ultimately determined that indemnification of such expenses is not
authorized under this Section 2.11. The General Partner may, if it
deems appropriate, require any person for whom such expenses are paid in
<PAGE>
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, 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 Partner (in its capacity as the Limited
Partner). 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 2.11 shall not be construed to increase the liability of the
Limited Partner as set forth in Section 1.4 or to require that the
General Partner make additional Capital Contributions to satisfy any
indemnification claim.
Article III - Capital Accounts; Distributions; Profits and Losses
Section 3.1 Capital Contributions.
(a) On or prior to the date of becoming a Limited Partner
of the Partnership, the Limited Partner has contributed or will
contribute to the capital of the Partnership cash in the amount of ten
percent (10%) of its Capital Commitment. The balance of the Limited
Partner's Capital Commitment shall be due and payable in cash
installments as required by the General Partner using its reasonable
discretion; provided, however, that each installment shall be in an
amount not to exceed ten percent (10%) of such Limited Partner's Capital
Commitment and shall be payable on not less than 30 days' prior written
notice to the Limited Partner; provided, further, that the General
Partner shall not call for the payment of any such installment if the
aggregate amount of all Capital Contributions previously called but not
yet invested equals or exceeds $1,000,000 (the "Buffer Amount"), except
that the General Partner may call for cash installments to be paid in
excess of the limitation set forth in the foregoing proviso to the
extent of the difference between the Buffer Amount and any amount
required to meet all anticipated Partnership expenses and to fund a
particular proposed Investment by the Partnership; and provided,
further, that the General Partner shall not call in excess of $5,000,000
of Capital Contributions prior to the first anniversary of the date of
this Agreement, in excess of $8,000,000 of Capital Contributions prior
to the second anniversary of the date of this Agreement, in excess of
$11,000,000 of Capital Contributions prior to the third anniversary of
the date of this Agreement, or in excess of $14,000,000 of Capital
<PAGE>
Contributions prior to the fourth anniversary of the date of this
Agreement.
(b) Notwithstanding Section 3.1(a), on and after six (6)
years from the date of this Agreement, the Limited Partner may terminate
its obligation to make any unpaid Capital Contributions by giving the
General Partner six (6) months' prior written notice (the "Termination
Notice") of the date of such termination (the "Termination Date"). The
obligation of the Limited Partner to make additional Capital
Contributions pursuant to Section 3.1(a) hereof will thereafter
terminate on the Termination Date; provided, however, that
notwithstanding any such termination, the Limited Partner shall be
obligated to contribute additional capital to the Partnership
("Follow-on Capital") as determined by the General Partner to be
necessary to fund the Partnership's anticipated requirements of
Portfolio Companies in which the Partnership has made Investments as of
the date of the Termination Notice or other companies with respect to
which the Partnership has entered into a commitment to make an
Investment as of the date of the Termination Notice, plus an amount
reasonably determined by the General Partner to be necessary to pay all
existing and anticipated expenses of the Partnership. All payments of
Follow-on Capital will be made in amounts determined by the General
Partner. Under no circumstances will the aggregate amount of such
Follow-on Capital exceed the unpaid Capital Commitment of the Limited
Partner at such time. Within ninety (90) days of the General Partner's
receipt of a Termination Notice from the Limited Partner, the General
Partner will notify the Limited Partner of the estimated dollar amount
of Follow-on Capital necessary to fulfill the Partnership's obligations
and commitments and will return to the Limited Partner any amounts
representing Capital Contributions in excess of amounts necessary to
satisfy such obligations and commitments. The Capital Commitment of the
Limited Partner shall be reduced to the amount of the Capital
Contribution paid as of the Termination Date plus the Follow-on Capital.
Section 3.2 Capital Accounts. 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 Gain allocated to
such Partner, and deducting therefrom (x) any Net Loss allocated to such
Partner, (y) any distributions made to such Partner and (z) any
Partnership expenses allocated to such Partner.
Section 3.3 Allocation of Net Gain and Net Loss and Other
Partnership Items. As of the end of each fiscal year of the Partnership
and upon dissolution of the Partnership pursuant to Article VI, the
Capital Account of each Partner shall be adjusted by allocating the Net
Gain or Net Loss of the Partnership, and other Partnership items,
attributable to the Investments for the fiscal year or, in the case of
dissolution of the Partnership prior to the end of a fiscal year, for
the portion of said fiscal year ending on the date of dissolution, in
the manner and priority set forth in this Section 3.3.
<PAGE>
(a) Allocation of Gain and Loss on Non-Portfolio
Investments and Partnership Expenses. The aggregate income, gain or
loss on Non-Portfolio Investments for any fiscal year and the aggregate
of costs and expenses payable by the Partnership for that fiscal year
under Sections 2.3(a) and (b) (with the exception of the expenses
described in Section 2.3(b) which directly relate to Portfolio
Investments) shall be allocated one hundred percent (100%) to the
Limited Partner and such income, gain, loss and expenses will not be
calculated in determining the allocations under Section 3.3(b) or
3.3(c).
(b) Allocation of Net Losses.
(i) First, in the event, and to the extent that, Net Gain
shall have been allocated eighty percent (80%) to the Limited
Partner and twenty percent (20%) to the General Partner pursuant
to Section 3.3(c)(iii) hereof for prior fiscal years, Net Loss for
any fiscal year shall be allocated eighty percent (80%) to the
Limited Partner and twenty percent (20%) to the General Partner
until the aggregate amount of Net Loss allocated to the Partners
pursuant to this Section 3.3(b)(i) for all fiscal years shall
equal the aggregate amount of Net Gain allocated to the Partners
pursuant to Section 3.3(c)(iii) hereof for all fiscal years.
(ii) Second, Net Loss for any fiscal year shall be
allocated ninety-nine percent (99%) to the Limited Partner and one
percent (1%) to the General Partner until the Capital Account of
the Limited Partner equals zero.
(iii) Third, any remaining Net Loss for any fiscal year
shall be allocated one hundred percent (100%) to the General
Partner.
(c) Allocation of Net Gain.
(i) First, in the event, and to the extent that, Net Loss
shall have been allocated one hundred percent (100%) to the
General Partner pursuant to Section 3.3(b)(iii) hereof for prior
fiscal years, Net Gain shall be allocated one hundred percent
(100%) to the General Partner until the aggregate amount of Net
Gain allocated to the General Partner pursuant to this
Section 3.3(c)(i) for all fiscal years shall equal the aggregate
amount of Net Loss allocated to the General Partner pursuant to
Section 3.3(b)(iii) hereof for all fiscal years.
(ii) Second, in the event, and to the extent that, Net Loss
shall have been allocated ninety-nine percent (99%) to the Limited
Partner and one percent (1%) to the General Partner pursuant to
Section 3.3(b)(ii) hereof for prior fiscal years, Net Gain shall
be allocated ninety-nine percent (99%) to the Limited Partner and
one percent (1%) to the General Partner until the aggregate amount
of Net Gain allocated to the Limited Partner pursuant to this
Section 3.3(c)(ii) for all fiscal years shall equal the aggregate
amount of Net Loss allocated to the Limited Partner pursuant to
Section 3.3(b)(ii) hereof for all fiscal years.
<PAGE>
(iii) Third, any remaining Net Gain shall be allocated
eighty percent (80%) to the Limited Partner and twenty percent
(20%) to the General Partner.
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(a) shall be distributed 100% to the Limited
Partner. Partnership Distributions described in Section 3.4(b) shall be
distributed to and between the Partners in the following order of
priority:
(i) First, one-hundred percent (100%) to the Limited
Partner until the aggregate amount of Partnership Distributions
described in Section 3.4(b) distributed to the Limited Partner
equals the aggregate Capital Contributions made by it; provided,
however, that for purposes of this subsection (c), prior to the
seventh anniversary of the date of this Agreement, the Limited
Partner shall be deemed to have made Capital Contributions equal
to the full amount of its Capital Commitment;
(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
<PAGE>
(iii) Thereafter, one-hundred percent (100%) to the
Limited Partner.
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 Partner makes 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 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).
(e) Delinquent Capital Contributions. No part of any
distribution shall be paid pursuant to this Section 3.4 to the Limited
Partner if the Limited Partner owes 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 the Limited Partner when all such amounts have been paid in
full.
<PAGE>
(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, with the consent of the Limited Partner, 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 the
Limited Partner if the Limited Partner 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 an 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 and with the
consent of the Limited 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 more than
one class of Portfolio Investment in a 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.
<PAGE>
Section 3.6 Re-allocation of Carried Interest.
(a) If at any time the General Partner is removed pursuant
to Section 6.3(b)(iii), then the following provisions with respect to
Section 3.4(c) shall apply with regard to the General Partner:
(1) The Partnership interest of the 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 Partner
required by this Agreement.
(2) The General Partner's right to receive
allocations and Partnership Distributions with respect to any
Limited Partner interest it may hold shall not be affected.
(3) In addition, the 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 Distributions pursuant to Section 3.4(c)(ii)), which
when added to the amounts of the carried interest previously
received by the General Partner equals:
(A) the aggregate amount of carried interest paid to the
General Partner and 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
date of this Agreement shall equal twenty-five percent (25%)
and which shall be increased by an additional twenty-five
percent (25%) on each succeeding anniversary of the date of
this Agreement (so that on and after the fourth anniversary
the percentage shall equal one hundred percent (100%)).
(4) The 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.
<PAGE>
(b) If at any time:
(i) the General Partner is removed pursuant to Section
6.3(b)(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
this 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:
(1) The General Partner shall not be entitled to receive
Partnership Distributions subsequent to the date of such removal
or other event.
(2) The 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.
(3) The General Partner's rights to receive allocations
and Partnership Distributions with respect to any Limited Partner
interest it may hold shall not be affected.
Article IV - No Withdrawal of Profits, Gains or Capital
Section 4.1 No Withdrawal of Profits, Gains or Capital. Except as
specifically permitted under this Agreement, no Partner shall be
permitted to withdraw profits, gains or capital from the Partnership
prior to dissolution of the Partnership, without the approval of all the
Partners.
Article V - Transfer of Partnership Interests
Section 5.1 Assignability of Interests.
(a) Subject to the provisions of Section 5.1(c) hereof,
the interest of the Limited Partner shall not be assignable without the
prior written consent of the General Partner. The General Partner shall
not unreasonably withhold, delay or condition such consent. No
assignment by the Limited Partner of its interest in the Partnership
shall be binding upon the Partnership until the General Partner receives
<PAGE>
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, subject to compliance with Section
2.1(b), 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
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 Limited Partner prior to
any such proposed assignment of the General Partner's interest.
(c) Section 5.1(a) and 5.2 notwithstanding, the Limited
Partner may assign its interest to and substitute as a Limited Partner
in its place and stead any one 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; provided, 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 United
States Securities laws.
Section 5.2 Substituted Limited Partners. Subject to the
provisions of Section 5.1(c), the Limited Partner shall not 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 the 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 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
<PAGE>
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. The 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 Dissolution of the 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 the Limited
Partner,
(i) the Partnership may be extended for such period or
periods not in excess of two (2) years in the aggregate 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 the Limited Partner
shall withdraw, die, be declared incompetent or insane, or be
adjudicated as bankrupt, or in the event of the winding up or
liquidation of the 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.
<PAGE>
Section 6.3 Termination of the Partnership; Withdrawal and Removal
of General Partner.
(a) Unless the Limited Partner shall have determined to
continue the Partnership as provided in the second sentence of this
Section 6.3(a), the Partnership shall dissolve on the ninetieth (90th)
day after any of the following events:
(i) the filing by the General Partner or the Partnership
of a petition under the United States Bankruptcy Code; or
(ii) 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 60-day period.
If, following the occurrence of any of the events specified in (i) and
(ii) above, the Limited Partner determines in a writing executed within
such 90-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(a) 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.
(b) The General Partner shall be deemed removed (unless
waived by the affirmative vote of the Limited Partner) 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 (A) is guilty of
any gross negligence, willful malfeasance, fraud, material breach
of its fiduciary duty to the Partnership or the Limited Partner or
bad faith in connection with the performance of its duties
hereunder or (B) has committed any material breach of its
obligations hereunder which cannot be remedied or which, if it can
be remedied, is not remedied by the General Partner within thirty
(30) days after such determination or (C) has caused the Limited
Partner to be liable in excess of its Capital Commitment for the
liabilities of the Partnership;
(ii) upon (A) the conviction entered by a court of
competent jurisdiction against the General Partner, AIC or its
executive officers of any criminal act involving fraud or which is
a felony crime involving deliberate dishonesty or (B) a guilty
plea by any of the foregoing with respect to any criminal act
involving fraud or which is a felony crime involving deliberate
dishonesty; or
(iii) upon a "substantial change in management of
Advent International" as described in Section 2.1(b) at any time
prior to the sixth anniversary of the date of this Agreement, if,
<PAGE>
for a period of one hundred twenty (120) days after such change,
there has not been an approval by the Limited Partner to continue
to allow the 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 6.3(b) unless and until it has had at least
thirty (30) days' notice of the intent by the Limited Partner to remove
the General Partner pursuant to this Section 6.3(b).
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 is no General Partner, then a Person
selected by the Limited Partner, 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 Partnership,
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 the Limited Partner;
(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 appointed by the Limited Partner, 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
<PAGE>
otherwise payable to the General Partner by the Partnership, and the
General Partner shall be liable to the Partnership for any excess.
(c) At the election of the Limited Partner, the liquidator
will make all or a specified portion of the liquidating distribution in
kind; absent any such election, 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 3.4(b)(iv)).
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 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.
<PAGE>
Section 6.7 Suspension of Active Investment. If the General
Partner and the Limited Partner mutually agree anytime after three (3)
years of the date of this Agreement, the Partnership shall enter the
Passive Mode. From the date the Partnership enters the Passive Mode,
(a) the General Partner shall be permitted to make further Investments
but shall not make any such further Investments in new Portfolio
Companies unless the Partnership has a commitment or obligation to make
such Investments or such Investments are under active consideration, (b)
the Capital Commitment of the Limited Partner shall be lowered to an
amount which is equal to all Capital Contributions paid prior to such
date and actually invested, or committed for Investment as provided in
Section 6.7(a), plus an estimate, to be mutually agreed upon by the
General Partner and the Limited Partner, of the amount of money which
the General Partner will need to invest thereafter to fulfill expected
requirements of existing Portfolio Companies, plus an amount reasonably
determined by the General Partner to be necessary to pay all existing
and anticipated expenses and liabilities of the Partnership, (c) the
Limited Partner shall not be required to make any Capital Contributions
in excess of the unpaid amount of the Limited Partner's Capital
Commitment (as reduced pursuant to Section 6.7(b)) and (d) until the
first anniversary of the date the Partnership begins the Passive Mode,
the Management Fee of 3-1/2% per annum shall be calculated based on the
Capital Commitment of the Limited Partner immediately prior to the date
on which the Partnership begins the Passive Mode, and thereafter the
Management Fee shall be reduced to one-twelfth (1/12) of two and one-
half percent (2-1/2%) of the amount of the Capital Commitment of the
Limited Partner as reduced pursuant to Section 6.7(b).
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 audited 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
the Limited Partner, 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 Limited Partner to prepare its respective income tax
returns and including:
(i) such Partner's Capital Account as of the close of such
fiscal year;
(ii) the sum of all Capital Accounts as of such date;
<PAGE>
(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 the Limited Partner may
reasonably request, or as required by this Agreement and any
amendments hereto.
(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 the Limited Partner
unaudited financial statements of the Partnership for such fiscal
quarter.
Section 7.3 Inspection. The 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 sixty (60) days after the end of each fiscal year of
the Partnership, and will 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.
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.
<PAGE>
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 Partner 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 saleability
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 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 as 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.
<PAGE>
Section 8.4 Disputes. If the Limited Partner disputes the values
determined by the General Partner, it shall give notice thereof to the
General Partner in writing by certified mail within thirty (30) days
following the date on which notice is 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 the Limited Partner. 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 Limited Partner 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 Limited
Partner shall pay the cost of the analyst selected by it. The cost of
any third analyst shall be divided equally between the Partnership on
one hand and the Limited Partner on the other.
Article IX - Miscellaneous
Section 9.1 Admission of Limited Partners. The Limited Partner
identified in Section 1.1(l) shall be the only limited partner hereof
and no new Partner shall be admitted to the Partnership except by
assignment of the interest of a Partner in accordance with Article V.
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 General or
Limited Partner 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. This 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.
<PAGE>
Section 9.4 Notices.
(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, postage prepaid, 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
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 State of Delaware
and its status as a qualified foreign limited partnership under the laws
of the Commonwealth of Massachusetts. The General Partner shall send
copies of such documents to the Limited 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.
<PAGE>
Section 9.7 Amendments. 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 only with the written consent
of the General Partner and the Limited Partner.
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. The 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, 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).
Section 9.10 Effect of Securities Laws. In the event that, due
to acts of the Limited Partner 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 Partner, to dissolve and liquidate the
Partnership.
<PAGE>
IN WITNESS WHEREOF, the General Partner and the Limited Partner
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, GENERAL
PARTNER
By:___________________________
LIMITED PARTNER
AYP CAPITAL, INC.
By:___________________________
<PAGE>
APPENDIX A
Capital
Name Address Commitment
General Partner:
Advent International 101 Federal Street $ 1,000
Limited Partnership Boston, MA 02110
Limited Partner:
AYP Capital, Inc. $15,000,000
<PAGE>
APPENDIX B
Advent Energy Limited Partnership
Investment Charter
Areas of Focus
The Investment Charter identifies the technology, product, and service
areas selected for investment by the Advent Energy Limited Partnership.
These areas were chosen for relevance to Allegheny Power System's core
business operations and for their potential to generate an attractive
financial return. These principal areas of focus for the Fund include:
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, energy conservation and delivery
technology, and motor efficiency technologies.
Conservation, load management and demand-side management
technologies, systems, and services.
Electrotechnologies used in the reduction of medical waste,
including plasma, pyrolysis and microwave processing.
Technology and processes promoting alternative energy for
transportation, including electric-powered vehicles and
related components such as fuel cells.
Advanced computer hardware and software for use in
generation, transmission, and distribution of electricity
(including artificial intelligence/neural net systems and
components).
Power-related electronic systems, control systems and
components.
Electric automation systems and components, including
instrumentation, sensors, robotics and inspection
techniques.
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.
<PAGE>
Size of Investments
The total capital invested by the Fund in any one portfolio company,
including loan guarantees, will average 5% of the Fund's committed
capital ($750,000) or less. No more than 7.5% of the Fund's committed
capital, or $1.125 million, may be invested in any single company
without the prior approval of AYP Capital. No more than 10% of the
Fund's committed capital, or $1.5 million, may be invested in any single
company.
Geographic Coverage
The Fund will be free to invest on a worldwide basis. Based on the
Fund's objectives and Advent's past experience and deal flow, the likely
distribution of the portfolio will be 80-90% of the Fund's capital
invested in North America, and 10-20% in Europe, Asia, Israel and the
rest of the world.
Stage of Company Development
To achieve an appropriate level of diversification, the Fund will invest
in companies at all stages of development, from start-ups and early
stage situations to the funding of developed, profitable companies.
Advent expects that approximately 60-70% of the Fund's capital will be
invested in later-stage situations and 30-40% in early stage situations.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,093,835
<OTHER-PROPERTY-AND-INVEST> 16,524
<TOTAL-CURRENT-ASSETS> 534,551
<TOTAL-DEFERRED-CHARGES> 755,232
<OTHER-ASSETS> 37,519
<TOTAL-ASSETS> 6,437,661
<COMMON> 150,496
<CAPITAL-SURPLUS-PAID-IN> 987,416
<RETAINED-EARNINGS> 971,322
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,109,234
0
170,086
<LONG-TERM-DEBT-NET> 2,282,303
<SHORT-TERM-NOTES> 5,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 129,950
<LONG-TERM-DEBT-CURRENT-PORT> 67,575
0
<CAPITAL-LEASE-OBLIGATIONS> 2,859
<LEASES-CURRENT> 1,164
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,668,890
<TOT-CAPITALIZATION-AND-LIAB> 6,437,661
<GROSS-OPERATING-REVENUE> 2,577,203
<INCOME-TAX-EXPENSE> 143,199
<OTHER-OPERATING-EXPENSES> 2,016,966
<TOTAL-OPERATING-EXPENSES> 2,160,165
<OPERATING-INCOME-LOSS> 417,038
<OTHER-INCOME-NET> 6,827
<INCOME-BEFORE-INTEREST-EXPEN> 423,865
<TOTAL-INTEREST-EXPENSE> 173,838
<NET-INCOME> 250,027
18,257
<EARNINGS-AVAILABLE-FOR-COMM> 231,770
<COMMON-STOCK-DIVIDENDS> 195,943
<TOTAL-INTEREST-ON-BONDS> 118,884
<CASH-FLOW-OPERATIONS> 0<F1>
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.94
<FN>
<F1>Not calculated for Form U-1 purposes
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17
<OTHER-PROPERTY-AND-INVEST> 197
<TOTAL-CURRENT-ASSETS> 17
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 231
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 612
<RETAINED-EARNINGS> (505)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 108
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 123
<TOT-CAPITALIZATION-AND-LIAB> 231
<GROSS-OPERATING-REVENUE> 16
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 521
<TOTAL-OPERATING-EXPENSES> 521
<OPERATING-INCOME-LOSS> (505)
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> (505)
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> (505)
0
<EARNINGS-AVAILABLE-FOR-COMM> (505)
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0<F1>
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Not calculated for Form U-1 purposes.
<F2>All common stock is owned by parent, no EPS required.
</FN>
</TABLE>
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- : )
Allegheny Power System, Inc.
Notice Requesting Authority For AYP Capital, Inc. To Form A Limited
Partnership With Advent International Limited Partnership To Engage In
Preliminary Development Activities In Connection With New Technologies Closely
Related To The Core Business Of Allegheny Power System, Inc.
Allegheny Power System, Inc. ("APS"), 12 E. 49th Street, New York,
New York, 10017, a registered holding company and AYP Capital, Inc. ("AYP
Capital") 12 E. 49th Street, New York, New York, 10017, a nonutility
subsidiary of APS have filed an Application or Declaration pursuant to
Sections 6(a), 7, 9(a), 10, 11(b), 12 of the Public Utility Holding Company
Act of 1935 (the "Act") and Rules 23 and 45 thereunder.
AYP Capital is a wholly-owned nonutility subsidiary company of
APS. APS, through its three electric utility subsidiaries, Monongahela Power
Company, The Potomac Edison Company and West Penn Power Company (collectively,
the "Operating Companies") provides retail and wholesale electric service
throughout parts of Maryland, Ohio, Pennsylvania, Virginia and West Virginia.
By order dated July 14, 1994 (Holding Company Act Release No. 26085), the
Commission authorized APS to form AYP Capital and to invest therein up to
$500,000 to explore investment opportunities in companies in the area of
emerging technologies related to the core utility business of APS. See also
HCAR No. 26229 and 26401.
Restructuring of the electric utility industry has begun.
Beginning with the passage of the Energy Policy Act of 1992 and continuing
through the recent rulemaking initiative by the Federal Energy Regulatory
Commission ("FERC") in its Mega NOPR concerning open access to transmission,
today's utility environment has changed drastically. (Docket No. RM95-8-000.)
APS is making every effort to keep pace with these changes within the
parameters of the Energy Policy Act and the Public Utility Holding Company Act
of 1935. By this filing APS, which has a capitalization of $5 billion, is
requesting authority to invest up to $15 million in new technology companies
through a limited partnership and up to $5 million to fund preliminary
development activities. APS is looking to capitalize on the economics,
efficiencies, and investment and technological expertise of this limited
partnership to encourage new technologies, products and services that will
advance APS' core business. These transactions may allow AYP Capital and APS
to pursue and develop new opportunities that will strengthen the long-term
competitiveness and profitability of APS. The business opportunities which
are pursued by AYP Capital will be closely related to the core utility
business of APS.
<PAGE>
AYP Capital now proposes (i) to invest up to $5 million to engage
in preliminary development activities in connection with new technologies that
are closely related to the core utility business of APS, and (ii) to invest up
to $15 million to acquire an interest as a limited partner ("Limited Partner")
in a Delaware limited partnership to be formed (the "Partnership"). AYP
Capital proposes to invest in the Partnership from time to time through the
end of the initial term of the Partnership, as such initial term may be
extended pursuant to the terms of the Limited Partnership Agreement (the
"Agreement") to a date not later than two years following the initial term, in
accordance with calls by the general partner of the Partnership on AYP
Capital's commitment.
AYP Capital will acquire all of the limited partnership interests.
(See Georgia Power Company Release No. 35-25949 wherein Georgia Power was
authorized to invest up to $5 million to acquire all of the limited
partnership units of a Delaware limited partnership to be formed.) The sole
general partner of the Partnership (the "General Partner") will be Advent
International Corporation ("AIC"). AIC is a leading venture capital
investment firm having a staff of more than 50 professionals and over $1
billion in capital under management. AIC has had extensive experience
managing other technology oriented investments in the energy and environmental
sectors.
APS proposes to provide any funds needed by AYP Capital in order
to engage in the aforementioned preliminary development activities and to
acquire the interests in the Partnership. APS will obtain such funds from
sales of common stock, from borrowings and/or commercial paper sales, and from
internally generated funds, chiefly dividends from subsidiaries.
The Partnership is being formed to invest in companies (each a
"Portfolio Company") that are developing new technologies, products or
services related to APS' core business operations. This type of investment
was encouraged by the SEC when it authorized nonutility subsidiaries of APS,
American Electric Power Company, Inc., General Public Utilities Corporation
and The Southern Company to invest in EnviroTech Investment Fund I Limited
Partnership ("EnviroTech Partnership"). The SEC also permitted the EnviroTech
Partnership, in selecting suitable investments, to focus on the following
technology sectors, among others: alternate and renewable energy technologies,
environmental and waste treatment technologies and services, energy efficiency
technologies, process and services, electrotechnologies used in the reduction
of medical waste, technologies and processes promoting alternative energy for
transportation, and other technologies relating to improving the generation,
transmission and delivery of electricity. See Release Nos. 35-26225, 35-
26222, 35-26230 and 35-26240. The Investment Charter for the Partnership has
likewise selected technology, product and service areas for investment that
are relevant to APS's core business and the energy industry as a whole. (See
Appendix B to Exhibit A herein).
Specifically, a key objective of the Partnership will be to make
investments that will facilitate the timely development of new products and
services that focus on improving APS' core business operations through
<PAGE>
technological advancements; 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 APS with attractive
opportunities relating to the evolving utility business climate which meet the
above objectives. AYP Capital also believes that investing through this
Partnership will greatly enhance APS' continuing research and development
efforts to promote energy-related technological advancements.
In selecting suitable investments, the 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 conservation storage and delivery technology, and motor
efficiency technologies; conservation, load management, and demand-side
management technologies, systems and services; 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; advanced computer hardware and software for use in the
generation, transmission and distribution (or planning therefor) of
electricity (including artificial intelligence/neural net systems and
components); power-related electronic systems, control systems and components;
electric automation systems and components, including instrumentation,
sensors, robotics and inspection techniques; 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 Partnership will invest in companies at all stages of
development from start-up companies (companies that are in formation or are
developing their first products or services and are not yet profitable) to
later stage companies (which are typically well established and profitable
though still not publicly traded) to diversify the portfolio while achieving
the best match of environmental and economic results.
The Partnership will provide AYP Capital with a range of
nonfinancial benefits in addition to generating an attractive financial return
on investment. Whenever appropriate, the General Partner will facilitate
interactions between the Limited Partner and the Partnership's Portfolio
Companies. Finally, through its involvement in the Partnership, AYP Capital
will have the opportunity to gain experience and participate in new emerging
markets and business sectors relevant to its industry.
The term of the Partnership shall be for ten years from the date
of the Agreement, subject to extension for up to two years upon agreement of
the General Partner and the Limited Partner. (Agreement, Section 6.1). The
<PAGE>
Agreement provides that, not later than the date of becoming a Limited Partner
of the Partnership, the Limited Partner shall contribute to the capital of the
Partnership cash in the amount of 10% of its capital commitment of $15
million. Thereafter, the balance of the Limited Partner's capital commitment
of $13.5 million shall be due and payable in cash installments as received by
the General Partner, subject to the following limitations: (i) each subsequent
installment shall not exceed $1.5 million; (ii) the General Partner shall not
call for the payment of any installment if the total amount of money called by
the General Partner but not yet invested equals or exceeds $1 million unless
such payment is necessary to meet anticipated Partnership expenses and to fund
a particular Partnership investment and (iii) the General Partner shall not
call in excess of $5 million prior to the first anniversary of the Agreement,
in excess of $8 million prior to the second anniversary of the Agreement, in
excess of $11 million prior to the third anniversary of the Agreement or in
excess of $14 million prior to the fourth anniversary of the Agreement.
(Agreement, Section 3.1(a)). At any time after the sixth anniversary of the
Agreement, the Limited Partner may terminate its obligation to make any unpaid
contributions to the Partnership.
Subject to certain limitations set forth in the Agreement, the
management, operation, and implementation of policy of the Partnership will be
vested exclusively in the General Partner. (Agreement, Section 2.1). Among
other powers, the General Partner shall have discretion to invest the
Partnership's funds in accordance with investment guidelines set forth in the
Investment Charter (Appendix B to the Agreement). The investment guidelines
set forth criteria on approved types of technologies, products and services,
size of investment, and portfolio diversification. In addition, the
investment guidelines require consideration of nonfinancial public policy
criteria, including assessments of the likelihood of reducing costs and
increasing efficiencies to customers of products incorporating selected
technologies, and of enabling electric utilities to remain competitive in
existing markets. In certain respects, actions that may be taken by the
General Partner will require the consent of AYP Capital, as Limited Partner.
After execution of the Agreement, no term or provision may be waived, modified
or amended, unless AYP Capital has given its prior consent, nor shall any
investment be made in any new technology that AYP Capital does not consider
related to its core business.
As a limited partner of the Partnership, AYP Capital will not
acquire any "voting securities," as that term is defined in Section 2(a)(17)
of the Act. Thus, the Partnership will not be an "affiliate" or "subsidiary
company" of AYP Capital within the meaning of the Act. Specifically, AYP
Capital will not be entitled to take part in the control, management or
investment decisions of the Partnership or, through the Partnership, the
control or management of any company in which the Partnership may invest. As
a limited partner, AYP Capital will only be entitled to receive notices and
other information from the General Partner, to inspect the Partnership's books
and records, to attend meetings and discussions with potential Portfolio
Companies and to vote on a limited number of actions that could fundamentally
change the structure and purposes of the Partnership and its relationship with
the General Partner. In addition, as a Limited Partner of the Partnership,
AYP Capital will have no independent right to vote on whether to invest in a
<PAGE>
particular Portfolio Company or to remove the General Partner, except for
cause or a substantial change in the management of AIC.
Among other limitations on investment activities, the General
Partner may not cause or permit the Partnership to invest more than 10% of the
Partnership's total capital commitment in any single Portfolio Company, with a
target of 5% or less in a single company. The General Partner may also not
cause or permit the Partnership to invest more than 5% of the Partnership's
total capital commitment in securities of Portfolio Companies that, at the
time the securities are acquired, are readily tradeable on established
securities markets; or invest in hostile takeover transactions or in highly
leveraged buy-outs. (Agreement, Section 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.
(Agreement, Sections 2.1(b) and 6.3(b)(iii)).
Under the terms of the Agreement, in consideration of its services
to the Partnership, the General Partner will be paid an annual management fee
up to 3.5% of the total committed capital, as well as a 20% share of net gains
and income on investments. (Agreement, Sections 2.3 and 3.3). In addition,
the General Partner shall be entitled to reimbursement for all reasonable
expenses incurred in the organization of the Partnership not covered in the
management fee. (Agreement, Section 2.3.)
The Limited Partner has no authority to remove the General
Partner. However, the General Partner shall be deemed removed 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 Partnership or the Limited Partner or bad faith, or any
"substantial change in the management" of the General Partner. (Agreement,
Section 6.3(b)). Following any resignation or removal of the General Partner,
the Limited Partner may continue the Partnership by selecting a substitute
General Partner. (Agreement, Sections 5.1(b) and 6.3).
All 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 the Limited Partner and 20% to the General
Partner (Agreement, Section 3.3). 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. (Agreement, Section 3.5). Unless AYP Capital obtains
approval from the Commission to retain such Portfolio Company securities, AYP
Capital undertakes that it will in good faith attempt to sell such Portfolio
Company securities upon its receipt of the same, and in any event will sell
such Portfolio Company securities within one year from the date of its receipt
thereof.
AYP Capital will file on an annual basis within 180 days of the
end of each calendar year a report pursuant to Rule 24 of the Commission's
Rules and Regulations which describes the nature of each of the Partnership's
investments, the cost thereof and the valuation thereof as established
<PAGE>
pursuant to Section 7.2 of the Agreement. Such report will also detail the
receipt of the disposition by AYP Capital of any Portfolio Company securities
during the period covered by such report.
Except as described herein, no associate company or affiliate of
the Applicants or any affiliate of any such associate company has any material
interest, directly or indirectly, in the proposed transactions.
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 , 1995, to the Secretary, Securities and
Exchange Commission, Washington, DC 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 issued in this
matter. After said date, the application, as filed or as it may be amended,
may be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
CONTENTS
Statement
No.
Balance sheets at September 30, 1995
AYP Capital, Inc. 1-A
Allegheny Power System, Inc. and Subsidiaries 2-A
Statements of income and retained earnings for twelve months
ended September 30, 1995
AYP Capital, Inc. 1-B
Allegheny Power System, Inc. and Subsidiaries 2-B
These financial statements have been prepared for Form U-1
purposes and are unaudited.
Reference is made to the Notes to Financial Statements in the
Allegheny Power System companies combined Annual Report on
Form 10-K for the year ended December 31, 1994, and to the Form 10-Q's
for the quarters ended March 31, 1995, June 30, 1995 and
September 30, 1995.
<PAGE>
Statement 1-A
AYP CAPITAL, INC.
BALANCE SHEET - SEPTEMBER 30, 1995
(Thousands)
Assets
Property, plant, and equipment:
At original cost 17
Investments and Other Assets:
At original cost 197
Notes receivable
Current assets:
Cash 17
Total Assets 231
Capitalization and Liabilities
Capitalization:
Common stock:
Common stock - $10 par value, authorized
1,000 shares, outstanding 100 shares 1
Other paid-in capital 612
Retained earnings (505)
Current liabilities:
Accounts payable 4
Accounts payable to affiliates 119
Total Capitalization and Liabilities 231
<PAGE>
ALLEGHENY POWER SYSTEM, INC. AND SUBSIDIARIES Statement 2-A
CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 1995
Assets (Thousands)
Property, plant, and equipment:
At original cost 7,762,350
Accumulated depreciation (2,668,515)
5,093,835
Investments and other assets:
Subsidiaries consolidated--excess of cost
over book equity at acquisition 15,077
Securities of associated company--at cost,
which approximates equity 1,250
Nonutility investments 197
Other 37,519
54,043
Current assets:
Cash and temporary cash investments 5,354
Accounts receivable:
Electric service 281,055
Other 9,735
Allowance for uncollectible accounts (11,617)
Materials and supplies--at average cost:
Operating and construction 96,872
Fuel 69,867
Prepaid taxes 50,687
Other 32,598
534,551
Deferred charges:
Regulatory assets 653,940
Unamortized loss on reacquired debt 58,218
Other 43,074
755,232
Total Assets 6,437,661
Capitalization and Liabilities
Capitalization:
Common stock 150,496
Other paid-in capital 987,416
Retained earnings 971,322
2,109,234
Preferred stock:
Not subject to mandatory redemption 170,086
Long-term debt of subsidiaries 2,282,303
4,561,623
Current liabilities:
Short-term debt 135,550
Long-term debt and preferred stock
due within one year 67,575
Accounts payable 128,410
Taxes accrued:
Federal and state income 29,065
Other 48,663
Interest accrued 45,085
Restructuring liability 13,435
Other 98,689
566,472
Deferred credits and other liabilities:
Unamortized investment credit 151,815
Deferred income taxes 1,004,686
Regulatory liabilities 100,240
Other 52,825
1,309,566
Total Capitalization and Liabilities 6,437,661
<PAGE>
Statement 2-B
ALLEGHENY POWER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands)
ELECTRIC OPERATING REVENUES 2,577,203
OPERATING EXPENSES:
Operation:
Fuel 507,749
Purchased power and exchanges, net 480,363
Deferred power costs, net 48,402
Restructuring charges 13,435
Other 292,948
Maintenance 240,691
Depreciation 250,710
Taxes other than income taxes 182,668
Federal and state income taxes 143,199
Total Operating Expenses 2,160,165
Operating Income 417,038
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 6,122
Asset write-off, net (5,338)
Other income, net 6,043
Total Other Income and Deductions 6,827
Income Before Interest Charges and
Preferred Dividends 423,865
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on first mortgage bonds 118,884
Interest on other long-term obligations 46,039
Other interest 13,618
Allowance for borrowed funds used during
construction (4,703)
Dividends on preferred stock of subsidiaries 18,257
Total Interest Charges and
Preferred Dividends 192,095
Consolidated Net Income 231,770
<PAGE>
Statement 2-B
(continued)
ALLEGHENY POWER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands)
Balance at October 1, 1994 940,953
Add:
Consolidated net income 231,770
1,172,723
Deduct:
Dividends on common stock of Allegheny
Power System, Inc. (cash) 195,943
Charge on redemption of preferred stock 5,458
Total Deductions 201,401
Balance at September 30, 1995 971,322
<PAGE>
Statement 1-B
AYP CAPITAL, INC.
STATEMENT OF INCOME FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands)
TOTAL REVENUES 16
OPERATING EXPENSES:
Operation 520
Taxes other than income taxes 1
Total Operating Expenses 521
Net Income (Loss) (505)
<PAGE>
Statement 1-B
(continued)
AYP CAPITAL, INC.
STATEMENT OF RETAINED EARNINGS
FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands)
Balance at October 1, 1994 0
Add:
Net income (Loss) (505)
(505)
Balance at September 30, 1995 (505)
