File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO AN INVESTMENT BY EUA ENERGY INVESTMENT
CORPORATION THROUGH ITS SUBSIDIARIES IN A TO-BE FORMED CORPORATION INCORPORATED
TO DEVELOP AND COMMERCIALIZE BIOMASS-FIRED COMBUSTION TURBINE POWER GENERATION
FACILITIES
UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EUA ENERGY INVESTMENT CORPORATION
P.O. Box 2333, Boston, Massachusetts 02107
EUA BIOTEN, INC.
750 West Center Street, West Bridgewater, MA 02379
BIOTEN PARTNERSHIP
10330 Technology Drive, Suite 10, Knoxville, Tennessee 37932
(Name of companies filing this statement and address of principal executive
office of each)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent of each 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, Suite 1700
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
I. Introduction.
A. Background of the Applicants. This application-declaration is
filed with the United States Securities and Exchange Commission (the
"Commission") by EUA ENERGY INVESTMENT CORPORATION ("EEIC"), a Massachusetts
corporation and a wholly-owned subsidiary of Eastern Utilities Associates, EUA
BIOTEN, Inc. ("EUA BIOTEN"), a Massachusetts corporation and a wholly owned
subsidiary of EEIC, and BIOTEN Partnership, a Tennessee general partnership
and a subsidiary of EUA BIOTEN (EEIC, EUA BIOTEN and BIOTEN Partnership are
sometimes hereinafter referred to individually as an "Applicant" and
collectively as the "Applicants"). Eastern Utilities Associates ("EUA") is 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".
B. Prior Authorizations and Historical Background. By Order dated
June 21, 1995 (Release No. 35-26314) (the "June 21, 1995 Order"), the
Commission authorized (i) EEIC to form EUA BIOTEN and (ii) upon its formation,
EUA BIOTEN to participate as one of two general partners in BIOTEN Partnership,
for the development and commercialization of biomass-fired combustion turbine
power generation facilities and products and/or services offered in connection
with such facilities, including the manufacture, fabrication, marketing, sale
and delivery of such facilities (collectively, "Business Opportunities").
Additionally, the Commission authorized EEIC (a) to make up to $3.907 million
of capital contributions to BIOTEN Partnership upon its formation, $1.907
million of which would be disbursed in connection with the testing and
development of a commercial prototype plant, and $2 million of which would be
an additional capital contribution payable at EEIC's sole discretion, and (b)
to provide BIOTEN Partnership, from time to time through December 31, 1998,
with a working capital line of credit of up to $3 million, 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 EEIC's receipt of
payment in full of certain returns on its investment in BIOTEN Partnership, and
Prime plus 2% thereafter, but in no event to exceed 16% per annum.
On June 26, 1995, pursuant to a 1995 Agreement of General Partnership,
EUA BIOTEN and BIOTEN LLC, a Tennessee limited liability company ("BIOTEN
LLC"), formed BIOTEN Partnership.
By Order dated November 14, 1996 (Release No. 35-26604) (the "November
14, 1996 Order"), the Commission authorized EEIC to increase the working
capital line of credit it provides to BIOTEN Partnership from "up to $3
million" to "up to $6 mill ion."
By Order dated April 16, 1998 (Release No. 35-26858) (the "April 16,
1998 Order") the Commission authorized, through December 31, 2002, (i) an
increase of up to $7 million in the amount of the working capital line of
credit which EEIC was authorized to provide to BIOTEN Partnership for an
aggregate total working capital line of credit of up to $13 million, which
funds may be provided by either EEIC or EUA BIOTEN, (ii) EEIC or EUA BIOTEN, as
applicable, to charge interest rates on such working capital line of credit at
rates of interest not to exceed those previously authorized pursuant to the
June 21, 1995 Order, which rates exceed the Applicants' effective cost of
capital, and (iii) EEIC or EUA BIOTEN to make additional capital contributions
to BIOTEN Partnership in an aggregate amount of up to $5 million, for a total
authorized aggregate capital contribution of up to $8.907 million, as a result
of which increased capital contributions EUA BIOTEN increased its voting
interest and profits interest in BIOTEN Partnership to seventy-nine and eight
tenths percent (79.8%) each and BIOTEN Partnership became a subsidiary of EUA
BIOTEN within the meaning of Section 2(a)(8) of the Act.
II. Overview of the Proposed Transactions.
A. Background. EEIC and EUA BIOTEN have determined to no longer
actively finance BIOTEN Partnership, and to limit the Applicants' exposure to
liability for future activities of BIOTEN Partnership or any successor thereto.
At the time o f the filing of this U-1, the Applicants anticipate pursuing one
of the two below-described options with respect to BIOTEN Partnership. The
Applicants hereby request authorization to undertake the actions comprising
Option #1 or Option #2, as described below.
B. Option #1-Dissolution and Liquidation of BIOTEN Partnership;
Formation of BIOTEN Corp. and Acquisition of Preferred Stock.
(1) Dissolution of BIOTEN Partnership. In order for EEIC
and EUA BIOTEN to recoup a portion of their investment in, and loans to, BIOTEN
Partnership, EUA BIOTEN would cause the dissolution of BIOTEN Partnership,
effective on or after October 25, 1998, pursuant to the terms and conditions of
the 1995 Agreement of General Partnership of BIOTEN Partnership, as amended
(the "Partnership Agreement"). As a result of such dissolution, after payment
of the obligations of BIOTEN Partnership to third parties, ownership of all of
the remaining assets of BIOTEN Partnership would vest in EUA BIOTEN and the
promissory notes of BIOTEN Partnership made in favor of EUA BIOTEN would be
cancelled.
(2) Formation of BIOTEN Corp.; Acquisition of Capital
Stock of BIOTEN Corp. Upon receipt of Commission authorization, EUA BIOTEN
would form a new Delaware corporation (hereinafter, "BIOTEN Corp.") and would
contribute the assets it received from the dissolution of BIOTEN Partnership
into BIOTEN Corp., in exchange for which EUA BIOTEN would acquire common and
convertible preferred stock of BIOTEN Corp. The proposed Certificate of
Incorporation and By-laws of BIOTEN Corp. are attached hereto as Exhibits A-1
and A-2. Upon the provision to BIOTEN Corp. of a working capital line of
credit of $3 million, to be obtained by certain individuals (the "Rizzie
Group") and a new corporate investor ("Investor"), and upon the payment of
approximately $485,000 to EUA BIOTEN by the Rizzie Group and Investor, EUA
BIOTEN would sell all of the issued and outstanding common stock of BIOTEN
Corp. to the Rizzie Group and Investor pursuant to a Stock Purchase Agreement
substantially i n the form attached hereto as Exhibit B-1. EUA BIOTEN would
retain ownership of all of the issued and outstanding convertible preferred
stock of BIOTEN Corp., the rights and preferences associated therewith to be as
set forth in the attached Exhibit A-1.
C. Option #2-Acquisition of Capital Stock of BIOTEN Corp. and
Dissolution and Liquidation of BIOTEN Partnership.
(1) Formation of BIOTEN Corp; Dissolution of BIOTEN
Partnership. In the event BIOTEN LLC determines that it wishes to continue to
pursue the development of Business Opportunities and to provide funding
therefor, then EUA BIOTEN and BIOTEN LLC will cause the dissolution of BIOTEN
Partnership and the formation of BIOTEN Corp. The assets and liabilities of
BIOTEN Partnership would be contributed into BIOTEN Corp. and BIOTEN LLC would
make the additional payment described in paragraph C.(2) below and would
arrange for the working capital line of credit described in paragraph C.(2)
below, in exchange for which, upon receipt of Commission authorization, BIOTEN
Partnership would receive common and preferred convertible stock of BIOTEN
Corp. in amounts equal to the fair market values of EUA BIOTEN's and BIOTEN
LLC's respective equity interests in BIOTEN Partnership. BIOTEN Partnership
would then distribute the common stock of BIOTEN Corp. to BIOTEN LLC and the
convertible preferred stock of BIOTEN Corp. to EUA BIOTEN, after which
distributions BIOTEN Partnership would dissolve.
(2) Stock Purchase Agreement: Investment by Investor and
Prepayment of Promissory Notes Payable to EUA BIOTEN. Subject to receipt of
Commission approval and pursuant to the terms and conditions of a Stock
Purchase Agreement substantially in the form attached hereto as Exhibit B-2,
BIOTEN LLC and Investor would (i) arrange for a working capital line of credit
of $3 million for BIOTEN Corp., and (ii) pay an aggregate amount of
approximately $485,000 to BIOTEN Corp., in exchange for which Investor would
receive common stock of BIOTEN Corp. As soon as practicable, but in no event
later than thirty (30) days, after the closing of the aforementioned Stock
Purchase Agreement (the "Closing"), BIOTEN Corp. would prepay certain
indebtedness owing to EUA BIOTEN pursuant to those certain promissory notes of
BIOTEN Partnership assumed by BIOTEN Corp., through BIOTEN Corp.'s issuance and
delivery of additional convertible preferred stock to EUA BIOTEN in an amount
equal to the outstanding principal and interest owing under such promissory
notes.
D. Divestiture of Ownership Interest in BIOTEN Corp. Under either
Option #1 or Option #2 above, EUA BIOTEN will be divested of its entire
ownership interest in BIOTEN Corp., through the redemption of the convertible
preferred stock of BIOTEN Corp. held by it, and will cease to maintain
representation on the Board of Directors of BIOTEN Corp., on or before November
1, 2002.
III. Request for Authorization to Acquire the Preferred Stock and the
Additional Preferred Stock. The Applicants hereby request authorization for
EUA BIOTEN to acquire the convertible preferred stock of BIOTEN Corp. pursuant
to Option #1 described in Section II.B above ("Option #1") or for BIOTEN
Partnership to acquire the convertible preferred stock of BIOTEN Corp. and to
subsequently transfer the same to EUA BIOTEN, pursuant to Option #2 described
in Section II.C above ("Option #2). In addition, the Applicants hereby request
authorization, under Option #2, for EUA BIOTEN to acquire the additional
convertible preferred stock of BIOTEN Corp. as payment of the debt owing to EUA
BIOTEN, as more fully described in Section II.C.(2) above.
A. No Voting Rights for Holders of the Convertible Preferred
Stock. The holder of the convertible preferred stock of BIOTEN Corp. will have
no voting rights other than those voting rights required to be granted to all
stockholders of a Delaware corporation under the Delaware General Corporation
Law, and certain consents required to be obtained for certain corporate actions
described in Exhibit A-1 hereto.
B. No Services to be Provided by EUA System Companies. BIOTEN
Corp. will have its own employees, and no employees of the EUA System retail
electric utilities will be assigned to perform services for BIOTEN Corp.
Neither EEIC nor EUA BIOTEN anticipates the need to hire any personnel in
connection with the investment in BIOTEN Corp. described herein.
C. No Ownership Interests in EWGs or FUCOs. With the exception,
by virtue of EUA BIOTEN's ownership interest in BIOTEN Corp. pursuant to Option
#1, or by virtue of BIOTEN Partnership's proposed ownership interest in, and
EUA BIOTEN's proposed subsequent ownership interest in, BIOTEN Corp. pursuant
to Option #2, which ownership interests would include indirect ownership of the
commercial prototype plant (that will either be an EWG as defined in Section 32
of the Act or a Qualified Facility within the meaning of the Public Utility
Regulatory Policies Act of 1978, as amended), 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. EEIC, for itself and its
subsidiaries, will not acquire any such interest or right without first
obtaining any necessary Commission authorization.
IV. Request for Authorization to Transfer Ownership of Assets to BIOTEN
Corp. EUA BIOTEN hereby requests authorization, upon the dissolution and
liquidation of BIOTEN Partnership, to transfer all of the then former assets of
BIOTEN Partnership to BIOTEN Corp. as consideration for its purchase of the
convertible preferred stock of BIOTEN Corp., pursuant to the terms and
conditions of the Stock Purchase Agreement and Option #1. Alternatively,
BIOTEN Partnership hereby requests authorization t o transfer all of its assets
to BIOTEN Corp. as consideration for its purchase of the common stock and the
convertible preferred stock of BIOTEN Corp. pursuant to the terms and
conditions of the Stock Purchase Agreement described in Option #2.
V. Description of the Operative Documents/Request to Enter Into the
Operative Documents.
A Certificate of Incorporation of BIOTEN Corp. (the "Charter") will be
filed with the Secretary of State of the State of Delaware.
Upon Commission approval of EUA BIOTEN's or BIOTEN Partnership's
participation, as applicable, in the Stock Purchase Agreement described under
Option #1 or Option #2 above, and consummation of a closing thereunder, EUA
BIOTEN or BIOTEN Partnership, as applicable, will enter into a Registration
Rights Agreement with BIOTEN Corp. (the "Registration Rights Agreement"), which
agreement would be amended solely: (i) in the case of Option #2, to include EUA
BIOTEN, and to eliminate BIOTEN Partnership, as a party thereto; and (ii) in
the case of either Option #1 or Option #2, to subject the additional
convertible preferred stock of BIOTEN Corp. issued to EUA BIOTEN to the
benefits and burdens of such amended Registration Rights Agreement. Such
Registration Rights Agreement shall be substantially in the form attached
hereto as Exhibit B-3.
Under either Option #1 or Option #2, EUA BIOTEN will enter into a
License Agreement with BIOTEN Corp. (the "License Agreement") in substantially
the form attached hereto as Exhibit B-4 (the Registration Rights Agreement, in
its original and amended form, together with the License Agreement, the Stock
Purchase Agreement and the exhibits thereto are hereinafter sometimes
collectively referred to as the "Operative Documents"). The License Agreement
will grant to BIOTEN Corp. a royalty-free , worldwide, unrestricted, non-
exclusive right to use: (i) certain intellectual property owned by EUA BIOTEN,
which constitutes a part of, relates to, or is used or useful in connection
with, commercialization of biomass-fired combustion turbine power generation
facilities and related products and services; and (ii) certain related
equipment, also owned by EUA BIOTEN (collectively, the "Licensed Technology and
Equipment"). The License Agreement shall terminate when all of the convertible
prefer red stock of BIOTEN Corp. held by EUA BIOTEN shall have been redeemed by
BIOTEN Corp., at which time the ownership of the Licensed Technology and
Equipment shall be transferred to BIOTEN Corp. by EUA BIOTEN.
EUA BIOTEN would not be obligated to make any additional contributions
to BIOTEN Corp., nor would it be involved with the manufacturing, marketing or
sales activities of BIOTEN Corp.
EUA BIOTEN hereby requests authorization to enter into those Operative
Documents to which it would be a party, pursuant to either Option #1 or Option
#2, and BIOTEN Partnership hereby requests authorization to enter into those
Operative Documents to which it would be a party, pursuant to Option #2.
VI. Analysis
For the reasons set forth in paragraphs (i) through (iv) below, the
Applicants believe that the transactions proposed in this Application-
Declaration should be authorized.
(i) Pursuant to the June 21, 1995 Order, the November 14, 1996
Order, and the April 16, 1998 Order, the Commission has previously authorized
EEIC's and EUA BIOTEN's initial investment and increased investment/ownership
in substantially the same business activities to be engaged in by BIOTEN Corp.,
through their investment in BIOTEN Partnership.
(ii) The Applicants' investment in the proposed transactions is
within the dollar limitations previously authorized in the
April 16, 1998 Order.
(iii) EUA BIOTEN's direct or subsequent investment in BIOTEN Corp.
will have little or no effect on the cash resources or liquidity of the EUA
System, as the consideration for such investment is assets already acquired and
paid for, and the investment requires no future commitment for capital
contributions, loans or any other expenditure on the part of EUA BIOTEN or
EEIC.
(iv) The Applicants' investment in the proposed transactions shall
be in the interests of shareholders of EUA, as the proposed transactions are
likely to result in the return of substantially all of the funds invested by
EUA, through its subsidiaries EEIC and EUA BIOTEN, in BIOTEN Partnership.
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 transactions
described above are estimated as follows:
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, or the basis for exemption
therefrom, are set forth below:
Purchase by EUA BIOTEN, Sections 9(a)(1), 10;
or alternatively BIOTEN Partnership, Rule 51.
of the convertible preferred stock of
BIOTEN Corp.
Sale by EUA BIOTEN, or Sections 9(a), 10 and
alternatively BIOTEN Partnership, 12(d); Rule 44(a).
of generation assets (the commercial
demonstration plant)
Transfer by BIOTEN Partnership of the Sections 9(a)(1), 10;
shares of convertible preferred stock of Rule 51.
BIOTEN Corp. to EUA BIOTEN (under Option #2 only)
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 that are
the subject of this Application-Declaration.
ITEM 5. PROCEDURE.
(a) In order to enable BIOTEN Partnership and EUA BIOTEN to enter
into the proposed transactions promptly, the Applicants hereby
request 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
officer of the Commission. The Office of Public Utility
Regulation may assist in the preparation of the decision of the
Commission, and it is believed that a thirty (30) day waiting
period between the issuance of the order of the Commission and
the day on which the order is to become effective would not be
appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(* To be filed by amendment.)
(+ Confidential treatment requested.)
(a) Exhibits.
* Exhibit A-1 Certificate of Incorporation of
BIOTEN Corp.
* Exhibit A-2 By-laws of BIOTEN Corp.
*+ Exhibit B-1 Stock Purchase Agreement (for
Option #1)
*+ Exhibit B-2 Stock Purchase Agreement (for
Option #2).
*+ Exhibit B-3 Registration Rights Agreement
*+ Exhibit B-4 License Agreement
* 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
EUA BIOTEN, INC.
BIOTEN Partnership
By: /s/ Clifford J. Hebert,
Jr.
Clifford J. Hebert, Jr.
Treasurer
Date: October 15, 1998
