File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
PARTICIPATION BY
EUA ENERGY INVESTMENT CORPORATION
IN A JOINT VENTURE TO DEVELOP AND COMMERCIALIZE
A BIOMASS-FIRED COMBUSTION TURBINE POWER GENERATION FACILITY
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EUA ENERGY INVESTMENT CORPORATION
P.O. Box 2333, Boston, Massachusetts 02107
(Name of companies filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company
parent of applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, P.C.
McDermott, Will & Emery
75 State Street
Boston, Massachusetts 02109
Item 1. Description of Proposed Transactions.
I. Introduction
A. Background of Applicant. This application-declaration is filed
with the United States Securities and Exchange Commission (the
"Commission") by EUA Energy Investment Corporation ("EEIC", or the
"Applicant"), a Massachusetts corporation and a wholly-owned subsidiary of
Eastern Utilities Associates ("EUA"), a Massachusetts voluntary association
and a registered public holding company under the Public Utility Holding
Company Act of 1935 (the "Act"). The holding company system of EUA is
sometimes hereinafter referred to as the "EUA System" or the "System".
B. Overview of Application. In this application-declaration, the
Applicant seeks Commission approval to incorporate a Massachusetts business
corporation (the "EEIC Subsidiary") to participate as one of two general
partners of a proposed joint venture general partnership to be formed under
Tennessee law (such proposed joint venture hereinafter referred to as the
"BIOTEN Partnership") for the purpose of developing and commercializing
biomass-fired combustion turbine power generation facilities and any
product and/or service offered in connection with such facilities,
including the manufacture, fabrication, marketing, sale and delivery of
such facilities (the "Business Opportunity"). Pursuant to the Commission's
order allowing EEIC to engage in certain research and development
activities (Release No. 35-24515 dated December 4, 1987, as amended by
Release No. 35-26028 dated April 15, 1994; hereinafter, the "Order"), EEIC
is developing certain Proprietary Technology (defined in Paragraph II.B
below) together with C. Michael Wood, Jerry H. Wood, Norbert J. Ackermann,
Jr., Joseph W. Rizzie, William H. McCall, Randel W. Gregory, Franck M.
Picker, UI-USA, Inc., a Delaware corporation and Azur Investment Services,
Inc., a Tennessee corporation. (The above-named individuals together with
UI-USA, Inc. and Azur Investment Services, Inc. are sometimes hereinafter
referred to collectively as the "Wood Group".) Upon the formation by the
Wood Group of BIOTEN LLC, a Tennessee limited liability company ("BIOTEN")
and BIOTEN Operations, Inc., a Tennessee corporation and a wholly-owned
subsidiary of BIOTEN LLC ("BIOTEN Operations"), these companies will
participate with EEIC and the Wood Group in the development of the
Proprietary Technology and will be included as members of the Wood Group.
Upon Commission authorization and subject to EEIC's discretion, EEIC will
contribute such Proprietary Technology to the EEIC Subsidiary in exchange
for capital stock in the EEIC Subsidiary. No other person or entity will
own stock in the EEIC Subsidiary.
Upon EEIC's receipt of Commission authorization, the EEIC Subsidiary
and BIOTEN will form the BIOTEN Partnership. BIOTEN LLC will transfer to
the BIOTEN Partnership all of its right, title and interest in and to all
issued and outstanding shares of the capital stock of BIOTEN Operations in
exchange for a general partner interest in the BIOTEN Partnership. EEIC,
for itself and for the EEIC Subsidiary, requests Commission approval under
Sections 6, 7, 9(a), 10, 12 and 13(b) of the Act to transfer the
Proprietary Technology and to provide certain financings to the BIOTEN
Partnership in exchange for a general partner interest therein. For itself
and for the EEIC Subsidiary, EEIC also seeks Commission approval to make
additional capital contributions and loans or advances (as described in
Paragraph II.D below) to the BIOTEN Partnership.
The initial authorized capitalization of the EEIC Subsidiary shall be
200,000 shares of Common Stock, $.01 par value per share, and EEIC will be
issued a portion of such Common Stock in exchange for its contribution to
the EEIC Subsidiary of the Proprietary Technology. References to EEIC
hereinafter shall mean EEIC or the EEIC Subsidiary, where the context so
allows. Forms of Articles of Organization and By-Laws of the EEIC
Subsidiary are attached hereto as Exhibits A-1 and A-2, respectively.
II. Development and Commercialization of the Business Opportunity.
A. Parties and Principal Agreements. EEIC and members of the Wood
Group have entered and will enter into various agreements for the
development of the Proprietary Technology and the exercise and development
of the Business Opportunity. The principal operative agreements for the
proposed transactions, attached hereto as Exhibits B-1, B-2 and A-3,
respectively, will include a Research and Development Agreement, as
amended, a Form of 1995 Agreement to Form Joint Venture and a Form of 1995
Agreement of General Partnership of BIOTEN Partnership (the "Partnership
Agreement").
B. Research and Development Agreement. EEIC and the Wood Group
entered into a research and development agreement dated December 9, 1994,
which agreement will be amended by an Amendment No. 1 in the form included
in Exhibit B-1 hereto (the "Research and Development Agreement"), pursuant
to which EEIC is funding the research and development of the Proprietary
Technology in order to design a commercial prototype plant (the "CPP").
Pursuant to the Research and Development Agreement, EEIC (i) has
contributed a total of $393,000 to fund the design of the CPP, and (ii) may
contribute up to an additional $1,907,000 to fund the construction and
acceptance testing of the CPP, all such contributions to be subject to
agreed upon milestones and budgets. As a result of EEIC's funding
contributions, EEIC owns and will own all right, title and interest in and
to all proprietary technology and improvements thereon for the Business
Opportunity (hereinafter, the "Proprietary Technology"), including, without
limitation, the document index and revision status log, the CPP design
criteria log, the BIOTEN drawing log and the CPP drawing log, except that
EEIC is the joint and equal owner (together with an unrelated third party
who shall have no interest in the BIOTEN Partnership or any of the
transactions contemplated by this application-declaration) with full rights
to unrestricted use of a patent and a pending patent relating to the
Proprietary Technology.
C. 1995 Agreement to Form Joint Venture. EEIC and the Wood Group
will enter into a 1995 Agreement to Form Joint Venture in the form attached
hereto as Exhibit B-2, to more fully set forth the rights and obligations
of the parties upon completion of the design, construction and acceptance
testing of the CPP. Upon receipt of Commission authorization, EEIC and
BIOTEN LLC will form the BIOTEN Partnership pursuant to the terms and
conditions set forth in the Form of 1995 Agreement of General Partnership
attached hereto as Exhibit A-3. Upon formation, the BIOTEN Partnership
will be structured so that, initially, EEIC and BIOTEN LLC will have
profits interests in the BIOTEN Partnership of 30% and 70%, respectively,
subject to certain exceptions set forth in the Form of 1995 Agreement to
Form Joint Venture. Upon EEIC's election to make the Increased
Participation Contribution (described in Paragraph D below), EEIC and
BIOTEN LLC's profits interests in the BIOTEN Partnership shall be adjusted
to 45% and 55%, respectively. Notwithstanding the foregoing, EEIC's
profits interest shall be increased and BIOTEN LLC's profits interest shall
be decreased by an amount equal to 1 1/2% for each $100,000 by which EEIC's
capital contributions to the BIOTEN Partnership (exclusive of EEIC's
Increased Participation Contribution, if any) exceeds $1,607,000. At all
times, EEIC's voting interest in the BIOTEN Partnership shall be 9.9%.
Accordingly, the BIOTEN Partnership shall not be deemed to be a subsidiary
of the EUA System within the meaning of Section 2(a)(8) of the Act.
D. Partnership Agreement. Upon formation of the BIOTEN Partnership,
EEIC and BIOTEN LLC will (i) complete construction and perform acceptance
testing of the CPP, and (ii) commercially develop and market commercial
plants modeled on the CPP. Pursuant to the Partnership Agreement, and to
the extent that such amounts have not already been paid under the Research
and Development Agreement, EEIC may be required to contribute up to an
additional $1,907,000, such contributions to be conditioned upon and
subject to additional agreed upon milestones and budgets. Upon completion
of the construction and successful acceptance testing of the CPP, EEIC
shall have the option to make an additional capital contribution to the
BIOTEN Partnership in the amount of $2,000,000 (the "Increased
Participation Contribution") in exchange for an increase in EEIC's profits
interest in the Partnership. Such Increased Participation Contribution, if
made, would be payable in installments in accordance with the Partnership's
agreed upon budget. At any time during the construction and acceptance
testing of the CPP, if the BIOTEN Partnership fails in any material respect
in accordance with the agreed upon development timetable to meet any
developmental milestone, or in the event EEIC declines to make the
Increased Participation Contribution, EEIC will thereafter cease to make
capital contributions to the BIOTEN Partnership and shall have no further
funding obligations to the BIOTEN Partnership.
Upon formation of the BIOTEN Partnership, each of EEIC and BIOTEN LLC
shall have liquidity rights, rights of first refusal and co-sale rights
with respect to their respective ownership interests therein. Commencing
upon a date to be determined by EEIC and BIOTEN LLC, in the event that
either (i) EEIC has not received payment in full of an amount equal to its
Increased Participation Contribution, if any, (the "Priority Return") or
(ii) the BIOTEN Partnership has not obtained an independent working capital
line of credit, then, subject to Commission authorization, EEIC will have a
right for twelve months to purchase BIOTEN LLC's partnership interest in
the BIOTEN Partnership for (a) 90% of the fair market value of such
interest as determined through a negotiated value agreed to by EEIC and
BIOTEN LLC, or (b) 90% of the fair market value of such interest as
determined by independent appraisal.
E. EEIC Equity Participation. Pursuant to the terms and conditions
set forth in the Research and Development Agreement, the Form of 1995
Agreement to Form Joint Venture and the Partnership Agreement, and upon
Commission authorization, EEIC will contribute the Proprietary Technology
(having an agreed upon value equal to the aggregate amount of EEIC's
contributions pursuant to the Research and Development Agreement) and will
become a general partner of the BIOTEN Partnership. Pursuant to the
Partnership Agreement, and upon Commission approval, EEIC (i) will make
additional capital contributions to the BIOTEN Partnership in an aggregate
amount of up to $1,907,000 less any amounts in excess of $393,000 paid by
EEIC pursuant to the Research and Development Agreement (the "Additional
Capital Contributions"), and (ii) may make the Increased Participation
Contribution in the aggregate amount of $2,000,000, in exchange for which
EEIC's capital account in the BIOTEN Partnership will increase
correspondingly and EEIC's profits interest in the BIOTEN Partnership will
be increased in accordance with a formula set forth in the Partnership
Agreement.
F. EEIC Loans/Advances. Upon Commission authorization, from time to
time through December 31, 1998, EEIC will provide the BIOTEN Partnership
with a working capital line of credit of up to $3,000,000, at an annual
interest rate equal to the prime lending rate as announced by The First
National Bank of Boston, N.A. ("Prime) plus 6% before payment of the
Priority Return and Prime plus 2% thereafter, but in no event to exceed 16%
per annum. All such loans and advances will be evidenced by a promissory
note, with principal and interest due and payable on the third anniversary
of the later of the date of the Partnership Agreement or the date such
working capital line of credit is first drawn upon (the "Note). The Note
shall be secured by a first priority security interest in the assets of the
BIOTEN Partnership.
III. Analysis.
For the reasons set forth in paragraphs (i) through (vi) below, the
Applicant believes that the transactions proposed in this application-
declaration should be authorized.
(i) The Proprietary Technology and the development, construction and
testing of the CPP fall clearly within the scope of the utility-
related research and development activities for which the
Applicant was formed. See Eastern Utilities Associates, Release
No. 35-24515 (December 4, 1987), as amended by Release No. 35-
24515A (January 11, 1988). Additionally, the Applicant believes
that the exploration and development of renewable energy sources
including the proposed development and marketing of biomass-fired
combustion turbine power generation facilities is "closely
related to the core business of the utility." See, e.g., Eastern
Utilities Associates, Release No. 35-26232 (February 15, 1995) at
page 8 (approving the provision of energy management services
generally, including conservation and demand side management
services). The Applicant also believes that the development and
marketing of biomass-fired combustion turbine power generation
facilities will provide an economical, timely, environmentally
responsible, renewable and efficient alternative for energy
management services purposes, which is in furtherance of the
purposes set forth in Section 1201 of Title XII ("Renewable
Energy") of the Energy Policy Act of 1992. As such, the proposed
transactions are "reasonably incidental" and "economically
appropriate to the EUA System companies' operations," and
therefore "functionally related" within the meaning of Section 11
of the Act.
(ii) By their nature, the commercial plants which the BIOTEN
Partnership proposes to develop and market (subject to
authorization hereunder) embody a technology that can be used by
exempt wholesale generators ("EWGs") and foreign utility
companies ("FUCOs") (as such terms are defined in Sections 32 and
33 of the Act), and by qualifying facilities ("QFs", as such term
is defined under the Public Utility Regulatory Policies Act of
1978, as amended). The Energy Policy Act of 1992, codified in
part as Sections 32(g) and 33(c)(1) of the Act, explicitly
permits a registered holding company to acquire and hold the
securities of, or an interest in the business of, EWGs and FUCOs.
Furthermore, Sections 32(h)(1) and 33(c)(3) of the Act provide
that such ownership or interest in the business of an EWG or FUCO
located anywhere in the world is statutorily deemed to satisfy
the functional relationship criteria of Section 11 of the Act.
(iii) The Commission has previously authorized a non-utility subsidiary
of a registered public utility holding company system to provide,
directly or indirectly, among other things, design, construction,
engineering, maintenance, management administration, employment,
tax, accounting, economic, financial, fuel, environmental,
communications, energy conservation, demand side management,
overhead efficiency, utility performance and electronic data
processing services and software development and support services
(collectively, "Service Activities") to EWGs, FUCOs and QFs.
See, e.g., Central and South West Corp., Release No. 35-26156
(November 3, 1994). The Applicant believes that it should be
permitted to perform similar Service Activities in furtherance of
the development of commercial plants to be modeled on the CPP,
because (1) the development of the CPP falls within the scope of
the Applicant's current authorization and corporate purposes, and
(2) the Act currently contemplates the development of such
commercial plants to the extent they are intended to be used for
EWGs, FUCOs and QFs.
(iv) The Applicant, the EUA System and its investors will benefit from
(a) the ongoing research, development and engineering of safe,
reliable, inexpensive domestic means of generating electric
power, (b) a continuing and practical commitment to develop
environmentally sensitive and efficient generation facilities,
and (c) the potential profitability of the Business Opportunity.
(v) EEIC's investment in the proposed transactions is de minimis in
relation to the EUA System's total financial resources, with the
proposed contributions of up to $7.3 million representing only
1.3% of the EUA System's gross revenues. Furthermore, the
proposed working capital loans and advances of up to $3 million
represent less than 2.3% of the EUA System's available lines of
credit.
(vi) The Applicant asserts that the proposed transactions will not be
detrimental to the proper functioning of the EUA System because:
(a) EEIC's total proposed investment is capped at $7.3 million;
(b) EEIC's proposed loans and advances for the BIOTEN
Partnership's working capital needs will be secured only by the
assets of the BIOTEN Partnership; (c) the proposed transactions
are structured using a to-be-formed subsidiary of EEIC to
insulate other EUA System companies from the acts and omissions
of the BIOTEN Partnership; and (d) no EUA System company will
seek recovery from System utility customers for potential future
losses of the BIOTEN Partnership or possible inadequate returns
on capital invested by EEIC.
IV. Proposed Activities and/or Transactions.
A. Request for Authorization of Formation and Capitalization of the
EEIC Subsidiary. The Applicant hereby requests authorization to form the
EEIC Subsidiary and to contribute the Proprietary Technology to such EEIC
Subsidiary in consideration for the issuance by the EEIC Subsidiary to EEIC
of 100 shares of it common stock, $.01 par value per share.
B. Requests For Authorization to Finance and to Participate in
BIOTEN. The Applicant, for itself and for the proposed EEIC Subsidiary,
requests Commission authorization to contribute the Proprietary Technology
to the BIOTEN Partnership in consideration for the receipt of the general
partnership interest therein described above. In addition, the Applicant
requests approval through December 31, 1998 (i) to make capital
contributions to the BIOTEN Partnership in an aggregate amount of up to
$3,907,000, and (ii) to provide additional funds for the BIOTEN
Partnership's working capital needs in an aggregate total amount of up to
$3,000,000, all upon the terms and conditions described in this
Application-Declaration.
C. Services Provided By System Companies. The BIOTEN Partnership
will have its own employees, including employees of BIOTEN LLC and BIOTEN
Operations who may enter into employment agreements with the BIOTEN
Partnership, and others as necessary. Any activities that EEIC needs to
perform under the Agreement to Form Joint Venture or the Partnership
Agreement would be accomplished by employees of EUA Service. EUA Service
may provide management services including but not limited to financial,
accounting, engineering design and review, construction management, data
processing and records management services, as appropriate, to the BIOTEN
Partnership. All such services would be rendered at cost pursuant to the
standard Service Contract entered into between EUA Service and the other
EUA System companies. No employees of the EUA System's retail electric
utilities will be assigned to any activities involving the BIOTEN
Partnership. The Applicant does not anticipate the need to hire any
additional personnel in connection with EEIC's participation in the BIOTEN
Partnership.
D. Quarterly Reports to be filed with the Commission. EEIC will
file quarterly reports with the Commission within ninety (90) days of the
end of each calendar quarter. These reports will include the following
information:
(1) A description of the BIOTEN Partnership's activities;
(2) A statement of the amount of funds invested and open account
advances made by EEIC in and to the BIOTEN Partnership during the quarter
and cumulative to date;
(3) A description of the services provided by EUA Service, if any,
during the quarter and the type and number of personnel assigned by EUA
Service to achieve the reported activities;
(4) Financial statements including a balance sheet of the BIOTEN
Partnership as at the quarterly reporting date, an income statement for the
quarter reporting, and a statement of cash flow.
With the exception, by virtue of EEIC's proposed acquisition of a
partnership interest in the BIOTEN Partnership, of EEIC's indirect
ownership interest in the CPP (which will either be an EWG as defined in
Section 32 of the Act or a QF), neither EEIC nor any subsidiary thereof has
acquired an ownership interest in any EWG or FUCO, or now is or as a
consequence of the transactions proposed herein will become a party to or
has or will as a consequence of the transactions proposed herein have any
right under a service, sales or construction contract with an EWG or FUCO,
except in accordance with the provisions of the Act. The Applicant, for
itself and its subsidiaries, will not acquire any such interest or right
without first obtaining any necessary Commission authorization.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, commissions and expenses of the Applicants expected to be
paid or incurred, directly or indirectly, in connection with the
transaction described above are estimated as follows:
Securities and Exchange Commission Fees $ 2,000
Legal Fees $________*
Miscellaneous $________*
TOTAL $________*
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that the
applicants consider applicable to the transactions for the basis for
exemption therefrom are set forth below:
Issuance and sale by the EEIC Sections 6(a) and 7 and
Subsidiary to EEIC of the common Rule 43(a).
stock of the EEIC Subsidiary.
Purchase by EEIC of the shares Sections 9(a), 10 and 12(b);
of common stock of the EEIC Rule 45(a).
Subsidiary.
Purchase of general partnership Sections 9(a) and 10.
interest in the BIOTEN Partnership.
Capital contributions, loans and Section 12; Rule 45(a).
open account advances by EEIC to
the BIOTEN Partnership.
Performance of services by Section 13(b); Rules
EUA Service Corp. for the 87(b)(1), 90 and 91.
for the BIOTEN Partnership.
ITEM 4. REGULATORY APPROVALS.
No consent or approval of any state commission or any federal
commission other than the Commission is necessary for the transactions
which are the subject of this Application/Declaration.
ITEM 5. PROCEDURE.
(a) In order to enable the Applicant to enter into the proposed
transactions promptly, the Applicant hereby requests that this
Application/Declaration be granted and made effective at the earliest
convenient date.
(b) It is not considered necessary that there be a recommended
decision by a hearing officer or by any other responsible office of the
Commission. The Office of Public Utility Regulation may assist in the
preparation of the decision of the Commission, and it is believed that a
thirty (30) day waiting period between the issuance of the order of the
Commission and the day on which the order is to become effective would not
be appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(* To be filed by amendment.)
(+ Confidential treatment requested.)
(a) Exhibits.
* Exhibit A-1 Form of Articles of Organization of the
EEIC Subsidiary
* Exhibit A-2 Form of By-Laws of the EEIC Subsidiary
+ Exhibit A-3 Form of 1995 Agreement of General
Partnership of BIOTEN General
Partnership
*+ Exhibit B-1 Research and Development Agreement dated
December 9, 1994, as amended by
Amendment No. 1 in the form attached
hereto
+ Exhibit B-2 Form of 1995 Agreement to Form Joint
Venture
* Exhibit F Opinion of Counsel
* Exhibit H Proposed Form of Notice
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transactions described in Item 1 do not involve major federal
actions significantly affecting the quality of the human environment. No
federal agency has prepared or is preparing an environmental impact
statement with respect to the proposed transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned Applicant has duly caused this statement to be
signed on its behalf by the undersigned duly authorized individual.
EUA ENERGY INVESTMENT CORPORATION
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
Dated: April 27, 1995
Exhibit A-3, 1995 AGREEMENT OF GENERAL PARTNERSHIP-BIOTEN
FILED WITH CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B-2, 1995 AGREEMENT TO FORM JOINT VENTURE
FILED WITH CONFIDENTIAL TREATMENT REQUESTED
