SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------- ------------------
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
300 Madison Avenue
Morristown, New Jersey 07962-1911
Telephone (973) 455-8200
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605-2459
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605-2459
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605-2459
Telephone (610) 929-3601
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Registrant Title of each class which registered
- ---------- ------------------- ----------------
GPU, Inc. Common Stock, par value
$2.50 per share New York Stock Exchange
Jersey Central Power & Cumulative Preferred
Light Company Stock, $100 stated value
4% Series New York Stock Exchange
7.88% Series E New York Stock Exchange
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Name of each exchange
Registrant Title of each class which registered
- ---------- ------------------- ----------------
Jersey Central Power & First Mortgage Bonds:
Light Company (cont.) 6 3/8% Series due 2003 New York Stock Exchange
7 1/8% Series due 2004 New York Stock Exchange
7 1/2% Series due 2023 New York Stock Exchange
6 3/4% Series due 2025 New York Stock Exchange
Monthly Income Preferred
Securities, 8.56%
Series A, $25 stated
Value (a) New York Stock Exchange
Metropolitan Edison Monthly Income Preferred
Company Securities, 9% Series A,
$25 stated value (b) New York Stock Exchange
Pennsylvania Electric Cumulative Preferred
Company Stock, $100 stated value:
4.40% Series B Philadelphia Stock Exchange
3.70% Series C Philadelphia Stock Exchange
4.05% Series D Philadelphia Stock Exchange
4.70% Series E Philadelphia Stock Exchange
4.50% Series F Philadelphia Stock Exchange
4.60% Series G Philadelphia Stock Exchange
Monthly Income Preferred
Securities, 8 3/4%
Series A, $25 stated
value (c) New York Stock Exchange
(a) Issued by JCP&L Capital, L.P., and unconditionally guaranteed by Jersey
Central Power & Light Company.
(b) Issued by Met-Ed Capital, L.P., and unconditionally guaranteed by
Metropolitan Edison Company.
(c) Issued by Penelec Capital, L.P., and unconditionally guaranteed by
Pennsylvania Electric Company.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrants' voting stock held by
non-affiliates based on the closing price of $39.1875 on February 2, 1998 was:
Registrant Amount
---------- ------
GPU, Inc. $4,731,285,452
The number of shares outstanding of each of the registrants' classes of
voting stock as of February 2, 1998 was as follows:
Shares
Registrant Title Outstanding
- ---------- ----- -----------
GPU, Inc. Common Stock, $2.50 par value 120,838,614
Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270
Metropolitan Edison Company Common Stock, no par value 859,500
Pennsylvania Electric Company Common Stock, $20 par value 5,290,596
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1998 Annual Meeting of Stockholders of GPU, Inc.
(Part III)
- -----------------------------------------------------------------------------
This combined Form 10-K is separately filed by GPU, Inc., Jersey
Central Power & Light Company, Metropolitan Edison Company and Pennsylvania
Electric Company. Information contained herein relating to any individual
registrant is filed by such registrant on its own behalf. Each registrant makes
no representation as to information relating to the other registrants.
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TABLE OF CONTENTS
Page
Number
------
Part I
Item 1. Business 1
Item 2. Properties 47
Item 3. Legal Proceedings 50
Item 4. Submission of Matters to a Vote of Security Holders 50
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 51
Item 6. Selected Financial Data 51
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 52
Item 8. Financial Statements and Supplementary Data 52
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 52
Part III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management 62
Item 13. Certain Relationships and Related Transactions 63
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 64
Signatures 76
<PAGE>
s
PART I
ITEM 1. BUSINESS.
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does
not directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU International, Inc., GPU Power, Inc. and GPU Electric,
Inc. which develop, own and operate generation, transmission and distribution
facilities in the United States and in foreign countries. Collectively, these
are referred to as the "GPUI Group." Other wholly-owned subsidiaries of GPU,
Inc. are GPU Advanced Resources, Inc. (GPU AR), a subsidiary engaging in energy
services and retail energy sales; and GPU Service, Inc. (GPUS), which provides
certain legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
GPU is subject to regulation by the Securities and Exchange Commission
(SEC) under the 1935 Act. Retail rates, conditions of service, issuance of
securities and other matters relating to the GPU Energy companies are subject to
regulation in the state in which each utility operates - in New Jersey by the
New Jersey Board of Public Utilities (NJBPU) and in Pennsylvania by the
Pennsylvania Public Utility Commission (PaPUC). The Nuclear Regulatory
Commission (NRC) regulates the construction, ownership and operation of nuclear
generating stations. The GPU Energy companies are also subject to wholesale rate
and other regulation by the Federal Energy Regulatory Commission (FERC) under
the Federal Power Act. In addition, certain foreign subsidiaries and affiliates
are subject to limited rate and other regulation (see Regulation section).
Financial information with respect to the business segments of GPU is
provided in Note 14, Segment Information, of the Combined Notes to the
Consolidated Financial Statements.
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical facts are forward-looking and, accordingly, involve
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Although such
forward-looking statements have been based on reasonable assumptions, there is
no assurance that the expected results will be achieved. Some of the factors
that could cause actual results to differ materially include, but are not
limited to: the effects of regulatory decisions; changes in law and other
governmental actions and initiatives; the impact of deregulation and increased
competition in the industry; industry restructuring; expected outcomes of legal
proceedings; generating plant performance; fuel prices and availability; and
uncertainties involved with foreign operations including political risks and
foreign currency fluctuations.
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RECENT DEVELOPMENTS
During the past year, there were a number of major developments which are
expected to significantly affect GPU. They are as follows:
- - In November 1997, GPU Electric acquired the business of PowerNet Victoria
(subsequently renamed GPU PowerNet) from the State of Victoria, Australia
for A$2.6 billion (approximately U.S. $1.9 billion). PowerNet owns and
operates the existing high-voltage electricity transmission system in the
State of Victoria. The PowerNet transmission system serves all of Victoria
covering an area of approximately 87,900 square miles and a population of
approximately 4.5 million.
The PowerNet acquisition was financed through: (1) a senior debt credit
facility of A$1.9 billion (approximately U.S. $1.4 billion), which is
non-recourse to GPU, Inc.; (2) a five-year U.S. $450 million bank credit
agreement which is guaranteed by GPU, Inc.; and (3) an equity contribution
from GPU, Inc. of U.S. $50 million.
In February 1998, GPU, Inc. sold seven million shares of common stock. The
net proceeds of $269 million were used to reduce approximately $229 million
of indebtedness associated with the PowerNet and Midlands Electricity plc
(Midlands) acquisitions, and the balance will be applied for other
corporate purposes.
In January 1998, as a result of Victoria's cross-ownership restrictions,
GPU Electric sold its 50% stake in Solaris Power (Solaris) to The
Australian Gas Light Company for A$208 million (approximately U.S. $135.2
million) and a 10.36% stake in Allgas Energy Limited (Allgas), the natural
gas distributor in Queensland, Australia. The Allgas shares had a market
value of A$14.6 million (approximately U.S. $9.5 million) at the date of
the sale. As a result, GPU will record an after-tax gain on the sale of
U.S. $18.3 million in the first quarter of 1998. The cash proceeds from the
Solaris sale were used to reduce outstanding debt of GPU Electric.
- - In October 1997, GPU announced that it intends to begin a process to sell,
through a competitive bid process, up to all of the fossil fuel and
hydroelectric generating facilities owned by the GPU Energy companies.
These facilities, comprised of 26 operating stations, total approximately
5,300 MW of capacity and have a net book value of approximately $1.1
billion at December 31, 1997. GPU expects to use a multi-stage competitive
bid process, similar to the generation divestiture processes used by other
utilities. The net proceeds from the sale would be used to reduce the
capitalization of the respective GPU Energy companies and may also be
applied to reduce short-term debt, finance further acquisitions, and to
reduce acquisition debt of the GPUI Group. GPU will begin seeking
indicative bids in April 1998. It is anticipated that definitive agreements
with the purchaser(s) will be entered into by the end of 1998 and the sale
completed by mid-1999, subject to the timely receipt of the necessary
regulatory and other approvals.
In February 1998, GPU and New York State Electric & Gas (NYSEG) agreed to
jointly sell the Homer City Generating station. GPU and NYSEG each own 50%
of the facility which Genco operates. The sale will require a number of
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federal and state regulatory approvals, which are expected to be received
in early 1999.
In addition to the continued operation of the Oyster Creek facility, JCP&L
is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. JCP&L is exploring these options
due to the plant's high cost of generation compared to the current market
price of electricity. If a decision is made to retire the plant early,
retirement would likely occur in 2000. In response to an inquiry regarding
the possible sale of Oyster Creek, the GPU Energy companies have stated
that they would also consider selling TMI-1. Unlike Oyster Creek, however,
the early retirement of TMI-1 is not being considered because of its lower
operating costs.
- - Pursuant to legislation enacted in 1996, Met-Ed and Penelec in 1997 filed
with the PaPUC their proposed restructuring plans to implement competition
and customer choice in Pennsylvania. Highlights of these plans, as revised
through January 1998, include:
- One-third of retail customers would be able to choose their electric
suppliers beginning on January 1, 1999, two-thirds permitted to choose
by January 1, 2000 and all retail customers would be permitted to
choose by January 1, 2001.
- As required by the restructuring legislation, rates would be unbundled
for generation, transmission and distribution charges.
- A competitive transition charge (CTC) would provide the opportunity to
recover all of Met-Ed and Penelec's generation plant, regulatory assets
and other non-NUG related transition and stranded costs within a
seven-year time period beginning January 1, 1999.
- A "NUG Cost Rate" is being proposed to capture payments to nonutility
generation (NUGs) in excess of amounts in current rates. This clause
will provide for a full reconciliation of amounts paid to NUGs, and
recovered from customers. This will ensure that customers do not
overpay for these obligations, and it will also provide a vehicle for
flowing through to customers the full benefits of any prospective
reductions in NUG obligations that result from mitigation. At December
31, 1997, the deferred NUG balances for Met-Ed and Penelec were $10.3
million and $14.6 million, respectively, and are included in Other
Regulatory Assets on the Consolidated Balance Sheets.
- Stranded costs at the time of initial customer choice (December 31,
1998), on a present value basis, are estimated at $1.5 billion for
Met-Ed and $1.2 billion for Penelec. These stranded costs include
above-market costs related to power purchase commitments, company-owned
generation, generating plant decommissioning, regulatory assets and
transition expenses.
- Ongoing stranded cost mitigation efforts include the buyout and/or
renegotiation of several above-market NUG agreements; the planned
retirement of uneconomical generating units as well as the continuing
evaluation of remaining generating facilities; and workforce reductions
achieved primarily through voluntary retirement and severance programs.
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- Met-Ed and Penelec have requested rate recovery of prudently incurred
costs associated with the buyout and restructuring of NUG projects that are
not currently being recovered in rates. The requested increase, based upon
a three-year recovery of the buyout costs, is $44.6 million for Met-Ed and
$19.1 million for Penelec. It is expected that these increases will be
offset by lower interest expense related to the issuance of transition
bonds. The estimated customer savings associated with these contract
buyouts/restructurings is $812 million for Met-Ed and $593 million for
Penelec.
- Met-Ed and Penelec will be the supplier of last resort for customers
who cannot or do not wish to purchase energy from an alternative
supplier.
Numerous parties have intervened in these proceedings and are actively
contesting various aspects of the filings, including the quantification of
stranded costs and the fixing of the level of generation credits for customers
who choose alternative suppliers. Evidentiary hearings have been concluded and
briefs are to be filed by mid-April. Initial decisions from the PaPUC are
expected by June 30, 1998. There can be no assurance as to the outcome of these
proceedings.
In December 1997, the PaPUC rejected PECO Energy Company's (PECO)
restructuring settlement and approved an alternate plan for PECO based on its
findings in that case. Among other things, the alternate plan accelerates the
pace of retail competition and reduces the amount of PECO's recoverable stranded
costs. PECO has appealed the PaPUC's decision. On January 26, 1998, PECO
announced a fourth quarter pre-tax charge to income of $3.1 billion reflecting
the effects of the PaPUC order.
Met-Ed and Penelec believe that the PaPUC's decision in the PECO case was
based on the specific facts and circumstances of that proceeding. Met-Ed and
Penelec further believe that they have demonstrated in their restructuring
proceedings ample evidence to distinguish sufficiently their cases from PECO's
and that the PaPUC should not, therefore, apply its findings in the PECO case to
their pending restructuring plans. If, however, the PaPUC were to apply these
findings, it would have a material adverse impact on Met-Ed and Penelec's
stranded cost recovery, restructuring proceedings and future earnings. There can
be no assurance as to the outcome of this matter.
The PaPUC has also issued a final order that sets forth the guidelines for
retail access pilot programs in Pennsylvania that give customers the ability to
choose their electricity supplier. These pilot programs include residential,
commercial and industrial class customers, and utilities are required to commit
about 5% of load to retail access programs and unbundle their rates to allow
customers to choose their electric generation supplier. The pilot program began
November 1, 1997 and will run until the first phase of retail competition begins
on January 1, 1999. Met-Ed and Penelec's pilot programs include approximately 5%
of each company's load.
- - Pursuant to a NJBPU directive, in 1997, JCP&L filed with the NJBPU its
proposed restructuring plan for a competitive electric marketplace in New
Jersey. Included in the plan were stranded cost, unbundled rate and
restructuring filings. Highlights of the plan, as revised through December
1997, include:
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- Some electric retail customers would be able to choose their supplier
beginning on October 1, 1998, expanding to include all retail customers
by July 1, 2000.
- As required by the NJBPU's final Findings and Recommendations for
Restructuring the Electric Power Industry in New Jersey, JCP&L would
unbundle its rates and these rates would apply to all distribution
customers, with the exception of a Production Charge, which would be
charged only to customers who do not choose an alternative energy
supplier. The proposed unbundled rate structure would include:
-- a flat monthly Customer Charge for the costs associated with
metering, billing and customer account administration.
-- a Delivery Charge consisting of capital and O&M costs
associated with the transmission and distribution system; the
recovery of regulatory assets, including those associated with
generation; the cost of social programs; and certain costs
related to the proposed ratemaking treatment of the Oyster Creek
Nuclear Generating Station (Oyster Creek).
-- a Production Charge for the estimated average market price
for electricity (EAMPE) provided to customers who elect JCP&L as
their electric generation supplier. JCP&L would be the supplier
of last resort for customers who cannot or do not wish to
purchase energy from an alternative supplier. A deferred market
price adjustment account would be set up for the difference
between the EAMPE and the actual market price for electricity,
plus interest. The EAMPE would be calculated every six months
during the transition period and adjusted by a true-up factor.
-- a Societal Benefits Charge to recover demand-side management
costs, manufactured gas plant remediation costs, and nuclear
decommissioning costs.
-- a NUG Transition Charge (NTC) to recover ongoing above-market
NUG costs over the life of the contracts and provide a mechanism
to flow through to customers the benefits of future NUG
mitigation efforts. The NTC would be subject to an annual
true-up for actual cost escalations or reductions, changes in
availability or dispatch levels and other cost variations over
the life of each NUG project. The NTC would also be subject to
adjustment in the future to reflect additional NUG buyout or
restructuring costs and any related savings.
The unbundling plan calls for an estimated 10% rate reduction, of which
2.1% became effective as part of JCP&L's Stipulation of Final Settlement
(Final Settlement) approved by the NJBPU in March 1997. The remaining
reductions would be phased in over a two-year period beginning October 1,
1998, and would be achieved through, among other things, the proposed early
retirement of Oyster Creek for ratemaking purposes in September 2000 and,
if legislation is enacted, the securitization of certain above-market
costs. In addition to this rate reduction, JCP&L customers would receive an
additional rate reduction of approximately 6% to be
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phased in over the next five years as a result of energy tax
legislation signed into law in July 1997.
- In addition to the continued operation of the Oyster Creek facility,
JCP&L is exploring the sale or early retirement of the plant to
mitigate costs associated with its continued operation. A final
decision on the plant's future has not been reached. Nevertheless,
JCP&L has proposed that the NJBPU approve an early retirement of Oyster
Creek in September 2000, for ratemaking purposes. The ratemaking
treatment being requested for Oyster Creek is as follows:
-- The market value of Oyster Creek's generation output would be
recovered in the Production Charge.
-- The above-market operating costs would be recovered as a
component of the Delivery Charge through September 2000. If the
plant is operated beyond that date, these costs would not be
included in customer rates.
-- Existing Oyster Creek regulatory assets would, like other
regulatory assets, be recovered as part of the Delivery Charge.
-- Oyster Creek decommissioning costs would, like Three Mile
Island Unit 1 (TMI-1) decommissioning costs, be recovered as a
component of the Societal Benefits Charge.
-- JCP&L's net investment in Oyster Creek would be recovered
through the Delivery Charge as a levelized annuity, effective
October 1998 through its original expected operating life, 2009.
- Stranded costs at the time of initial customer choice (September 30,
1998), on a present value basis, are estimated at $1.6 billion, of
which $1.5 billion is for above-market NUG contracts. The $1.6 billion
excludes above-market generation costs related to Oyster Creek.
Numerous parties have intervened in this proceeding and are actively
contesting various aspects of JCP&L's filings, including, among other things,
recovery by JCP&L of plant capital additions since its last base rate case in
1992, projections of future electricity prices on which stranded cost recovery
calculations are based, the appropriate level of return and the appropriateness
of earning a return on stranded investment.
Consultants retained by the NJBPU Staff, the Division of Ratepayer
Advocate and other parties have proposed that JCP&L's stranded cost recoveries
should be substantially lower than the levels JCP&L is seeking.
In February 1998, the NJBPU issued a written order clarifying an earlier
NJBPU oral decision. In its written order, the NJBPU substantially affirmed an
Administrative Law Judge's ruling which limited the unbundling proceeding to
1992 cost of service levels, but clarified that (1) JCP&L could update its 1992
cost of service study to reflect adjustments consistent with the NJBPU approved
Final Settlement which, among other things, recognized certain increased expense
levels and reductions to base rates and (2) all of the updated post-1992 cost
information that JCP&L had submitted in the proceeding should remain in the
record, which the NJBPU will utilize in establishing a reasonable level of rates
going forward.
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Furthermore, the NJBPU emphasized in its order that the final unbundled
rates established as a result of this proceeding will be lower than the current
bundled rates. This directive has been recognized in JCP&L's July 1997
restructuring plan which proposed annual revenue reductions totaling
approximately $185 million. The NJBPU will render final and comprehensive
decisions on the precise level of aggregate rate reductions required in order to
accomplish its primary goals of introducing retail competition and lowering
electricity costs for consumers.
If the NJBPU were to accept the positions of various parties or their
consultants, or were ultimately to deny JCP&L's request to recover post-1992
capital additions and increased expenses, it would have a material adverse
impact on JCP&L's stranded cost recovery, restructuring proceeding and future
earnings.
Discovery, evidentiary hearings and related proceedings are continuing.
The NJBPU intends to complete its review and issue final decisions in time for
retail competition to commence in October 1998. There can be no assurance as to
the outcome of these proceedings.
JCP&L has received NJBPU approval for a one-year pilot program offering
customers in Monroe Township, New Jersey, a choice of their electric energy
supplier. The pilot program began in September 1997, and can be extended until
the first phase of competition begins in October 1998. Monroe Township had been
exploring the possibility of establishing its own municipal electric system.
- - In 1997, GPU formed GPU AR, to engage in energy services and retail energy
sales and GPU Telcom, to conduct certain telecommunications related
businesses. In December 1997, GPU and The Williams Companies, Inc.
announced an agreement to form an alliance to jointly market energy and
related services at the retail level. The joint venture, which is expected
to commence operations in 1998, will offer electric, natural gas and oil
supply, as well as other related energy services, to consumers throughout
the Mid-Atlantic region.
- - In 1997, the Government of the United Kingdom imposed a windfall profits
tax on privatized utilities, including Midlands, in which the GPUI Group
has a 50% ownership interest. As a result, a one-time charge to income of
$109.3 million, or $0.90 per share, was taken. In December 1997, half of
this tax was paid; the remainder is due by December 1998.
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INDUSTRY DEVELOPMENTS
Electric utility customers have traditionally been served by vertically
integrated regulated monopolies. The electric utility industry is moving away
from a traditional rate regulated environment based on cost recovery to some
combination of a competitive marketplace and modified regulation. The enactment
of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the
entry of competitors into the electric generation business. The Energy Policy
Act of 1992 (EPAct) furthered competition among utilities and NUGs in the
wholesale electric generation market, accelerating industry restructuring. The
FERC, in its Order 888 and related proceedings, has required utilities to
provide open access and comparable transmission service to third parties.
Pennsylvania adopted comprehensive legislation which provides for the
restructuring of the electric utility industry, and the NJBPU has initiated
comparable proceedings pending adoption of legislation.
Operating in a competitive environment places pressures on utility profit
margins and credit quality. Utilities with significantly higher cost structures
than are supportable in the marketplace will experience reduced earnings as they
attempt to meet their customers' demands for lower-priced electricity.
Competitive forces continue to influence some retail pricing. In some cases,
commercial and industrial customers have indicated their intention to pursue
competitively priced electricity from other providers, and in some instances
have obtained price concessions from utilities. This prospect of increasing
competition in the electric utility industry has already led the major credit
rating agencies to apply more stringent guidelines in making credit rating
determinations.
The combination of the current market price of electricity being below
that of some utility owned generation and power purchase commitments, as well as
the ability of some customers to choose their energy suppliers, has created the
potential for stranded costs in the electric utility industry. These stranded
costs, while recoverable in a regulated environment, are at risk in a
deregulated competitive environment. In connection with their respective
restructuring filings, stranded costs at the time of initial customer choice
(December 31, 1998), on a present value basis, are estimated at $1.5 billion for
Met-Ed and $1.2 billion for Penelec. These stranded costs include above-market
costs related to power purchase commitments, company-owned generation,
generating plant decommissioning, regulatory assets and transition expenses.
Stranded costs at the time of initial customer choice (September 30, 1998), on a
present value basis for JCP&L, are estimated at $1.6 billion, of which $1.5
billion is for above-market NUG contracts. The $1.6 billion excludes
above-market generation costs related to Oyster Creek. The estimate is subject
to significant uncertainties including the future market price of both
electricity and other competitive energy sources, as well as the timing of when
these above-market costs become stranded due to customers choosing another
supplier. As discussed below, the restructuring legislation in Pennsylvania and
the proposed restructuring plan in New Jersey provide mechanisms for utilities
to recover, subject to regulatory approval, their above-market costs. These
regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but
should allow for the recovery of non-mitigable above-market costs through either
distribution charges or separate nonbypassable charges to customers.
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In response to competitive forces and regulatory changes, GPU is
considering various strategies designed to enhance its competitive position and
to increase its ability to adapt to, and anticipate changes in, its business.
GPU has identified the following strategic objectives to guide it over the next
several years: (1) build upon GPU's core competency in regulated infrastructure
(mainly the transmission and distribution of electricity), both internationally
and domestically; (2) investigate other investment opportunities in
infrastructure (i.e. natural gas, water, telecommunications); (3) continue to
develop the contract generation business (generation for which contracts to sell
power to third parties have been executed) through the GPUI Group; and (4) build
a retail energy services and supply business.
GPU's strategies may include business combinations with other companies,
internal restructurings involving the complete or partial separation of its
wholesale and retail businesses, acquisitions of other businesses, and additions
to or dispositions of all or portions of its transmission or distribution
businesses. GPU has announced its intention to divest its fossil fuel and
hydroelectric generating plants. As a result of federal and state actions, the
GPU Energy companies will be required to implement rate unbundling for
generation, transmission and distribution services. No assurances can be given
as to whether any potential transactions of the type described above may
actually occur, or as to the ultimate effect thereof on the financial condition
or competitive position of GPU.
OTHER DEVELOPMENTS
During 1997 and early 1998, there were other developments relating to
competition within the electric utility industry which are described below:
- - Several bills have been introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
propose, among other things, retail choice for all utility customers
beginning as early as January 1999, the opportunity for utilities to
recover their prudently incurred stranded costs in varying degrees, and
repeal of both PURPA and the 1935 Act.
- - In 1996, the GPU Energy companies, along with six other electric utility
members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool
(together, the supporting PJM companies), filed with the FERC a
transmission tariff and agreements (including, among other things,
establishing an independent system operator (ISO) to operate the energy
market and transmission system) that would create a new wholesale energy
market to meet the requirements of FERC Order 888, and to increase
competition in the Mid-Atlantic region. PECO, who opposed the supporting
PJM companies' proposed restructuring plan, filed its own plan with the
FERC. In February 1997, the FERC issued an order directing PJM to adopt
all recommendations proposed by the supporting PJM companies, after
certain issues were resolved regarding congestion pricing.
In addition, in November 1997 the FERC issued an order to PJM which, among
other things, directed the GPU Energy companies to implement a
single-system transmission rate, effective January 1, 1998. The
implementation of a single-system rate is not expected to effect total
transmission revenues,
9
<PAGE>
however, it would increase the pricing for transmission service in Met-Ed
and Penelec's service territories and reduce the pricing for transmission
service in JCP&L's service territory. The GPU Energy companies have
requested the FERC to reconsider its ruling requiring a single-system
transmission rate. The FERC's ruling may also have an effect on the GPU
Energy companies' distribution rates since the PaPUC has ordered a rate
cap effective January 1, 1997 and the NJBPU has recommended a 5-10% rate
reduction effective with the implementation of customer choice. There can
be no assurance as to the outcome of this matter.
Also in 1997, the PJM Power Pool converted to a limited liability company
governed by an independent board of managers and the FERC approved the
supporting PJM companies' proposal to permit the PJM Power Pool to be
recognized as an ISO effective January 1, 1998.
- - In response to the concerns expressed by the Staff of the SEC, the
Financial Accounting Standards Board's (FASB) Emerging Issues Task Force
(EITF) agreed to discuss the issues surrounding the continued
applicability of Statement of Financial Accounting Standards No. 71 (FAS
71) to the electric utility industry. In May and July 1997, the EITF met
to discuss these issues and concluded that utilities are no longer subject
to FAS 71, for the generation portion of their business, as soon as they
know details of their individual transition plans. The EITF also concluded
that utilities can continue to carry previously recorded regulated assets
as well as any newly established regulated assets (including those related
to generation), on their balance sheets if regulators have guaranteed a
regulated cash flow stream to recover the cost of these assets. While the
EITF's consensus must be complied with, the SEC has the final regulatory
authority for accounting by public companies.
In light of retail access legislation enacted in Pennsylvania and the
NJBPU's final Findings and Recommendations for Restructuring the Electric
Power Industry in New Jersey, the GPU Energy companies believe they will
no longer meet the requirements for continued application of FAS 71, for
the generation portion of their business, by no later than mid-1998 for
Met-Ed and Penelec, and October 1998 for JCP&L, the expected approval
dates of their restructuring plans filed with state regulators. Once the
GPU Energy companies are able to determine that the generation portion of
their operations is no longer subject to the provisions of FAS 71, the
related regulatory assets, net of regulatory liabilities, would, to the
extent that recovery is not provided for through their respective
restructuring plans, have to be written off and charged to expense.
Additional depreciation expense would have to be recorded for any
differences created by the use of a regulated depreciation method that is
different from that which would have been used under generally accepted
accounting principles for enterprises in general. In addition, write-downs
of plant assets could be required in accordance with Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets," discussed below.
Additionally, the inability of the GPU Energy companies to recover their
above-market costs of power purchase commitments, in whole or in part,
could result in the recording of liabilities and corresponding charges to
expense. The amount of charges resulting from the discontinuation of FAS
71
10
<PAGE>
will depend on the final outcome of the GPU Energy companies' individual
restructuring proceedings, and could have a material adverse effect on
GPU's results of operations and financial position. FAS 121 requires that
regulatory assets meet the recovery criteria of FAS 71 on an ongoing basis
in order to avoid a write-down. In addition, FAS 121 requires that
long-lived assets, identifiable intangibles, capital leases and goodwill
be reviewed for impairment whenever events occur or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. FAS 121 also requires the recognition of impairment losses
when the carrying amounts of those assets are greater than the estimated
cash flows expected to be generated from the use and eventual disposition
of the assets. The effects of FAS 121 have not been material to GPU's
results of operations.
- - The GPU Energy companies and certain affiliates have contracted for an
integrated information system to help manage their business growth,
accomplish year 2000 compliance and meet the mandates of electric utility
deregulation. The system is scheduled to be fully operational in early
1999. The estimated project costs for the system are $106 million, of
which $16 million was spent in 1997. A portion of these costs will be
expensed as incurred. The GPUI Group estimates that it will cost
approximately $7 million to modify its computer systems.
THE GPU ENERGY COMPANIES
The electric generating and transmission facilities of the GPU Energy
companies are physically interconnected and are operated as a single integrated
and coordinated system serving a population of approximately five million in New
Jersey and Pennsylvania. For the year 1997, the GPU Energy companies' revenues
were about equally divided between Pennsylvania customers and New Jersey
customers. During 1997, sales to customers by customer class were as follows:
% Operating Revenues % KWH Sales
--------------------------- --------------------------
Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec
----- ----- ------ ------- ----- ----- ------ -------
Residential 42 45 41 35 35 41 35 28
Commercial 35 39 29 33 33 39 28 30
Industrial 21 15 28 28 29 20 35 36
Other* 2 1 2 4 3 -- 2 6
--- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100
=== === === === === === === ===
* Rural electric cooperatives, municipalities, street and highway lighting,
and others.
The GPU Energy companies also make interchange and spot market sales of
electricity to other utilities. Reference is made to GPU Energy Companies'
Statistics and Company Statistics on pages F-3, F-112, F-122, and F-132, for
additional information concerning sales and revenues. Revenues of JCP&L, Met-Ed
and Penelec derived from their largest single customers accounted for less than
2%, 2% and 1%, respectively, of their electric operating revenues for the year
and their 25 largest customers, in the aggregate, accounted for approximately
9%, 14% and 13%, respectively, of such revenues.
11
<PAGE>
The area served by the GPU Energy companies extends from the Atlantic
Ocean to Lake Erie, is generally comprised of small communities, rural and
suburban areas and includes a wide diversity of industrial enterprises, as well
as substantial farming areas. JCP&L provides retail service in northern, western
and east central New Jersey, having an estimated population of approximately 2.5
million. Met-Ed provides retail electric service in all or portions of 14
counties, in the eastern and south central parts of Pennsylvania, having an
estimated population of almost one million. Met-Ed also sells electricity at
wholesale to four municipalities having an estimated population of over 11,000.
Penelec provides retail and wholesale electric service within a territory
located in western, northern and south central Pennsylvania extending from the
Maryland state line northerly to the New York state line, with a population of
about 1.5 million, approximately 24% of which is concentrated in ten cities and
twelve boroughs, all with populations over 5,000. Penelec also provides
wholesale service to five municipalities in New Jersey, as well as to Allegheny
Electric Cooperative, Inc., which serves 13 rural electric cooperatives in
Pennsylvania and one in New Jersey. Penelec, as lessee of the property of the
Waverly Electric Light & Power Company, also serves a population of about 13,700
in Waverly, New York and vicinity.
The GPU Energy companies' transmission facilities are physically
interconnected with neighboring nonaffiliated utilities in Pennsylvania, New
Jersey, Maryland, New York and Ohio. The interconnection facilities are used for
substantial capacity and energy interchange and purchased power transactions, as
well as emergency assistance. The GPU Energy companies are members of the PJM
Power Pool and the Mid-Atlantic Area Council, an organization providing
coordinated review of the planning by utilities in the PJM area. In 1997, the
PJM Power Pool converted to a limited liability company governed by an
independent board of managers and the FERC approved the supporting PJM
companies' proposal to permit the PJM Power Pool to be recognized as an ISO. For
additional discussion, see Competitive Environment - Recent Regulatory Actions,
Management's Discussion and Analysis.
GPUI GROUP
The GPUI Group develops, owns and operates electric generation,
transmission and distribution facilities in the U.S. and foreign countries. It
has also made investments in certain advanced technologies related to the
electric power industry. The GPUI Group has ownership interests in transmission,
distribution and supply businesses in England and Australia. It also has
ownership interests in eight operating cogeneration plants in the U.S. totaling
847 MW (of which the GPUI Group's equity interest represents 308 MW) of
capacity, and twelve operating generating facilities located in foreign
countries totaling 3,830 MW (of which the GPUI Group's equity interest
represents 728 MW) of capacity.
The GPUI Group is continuing to pursue investment opportunities and has
commitments, both domestically and internationally, in seven generating
facilities under construction totaling 2,141 MW (of which the GPUI Group's
equity interest represents 641 MW) of capacity.
At December 31, 1997, GPU, Inc.'s aggregate investment in the GPUI Group
was $268 million; GPU, Inc. has also guaranteed up to an additional $1.3
12
<PAGE>
billion of GPUI Group obligations. GPU, Inc. has SEC approval to finance
investments in foreign utility companies (FUCOs) and exempt wholesale generators
(EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated
retained earnings, or approximately $2.2 billion as of December 31, 1997. At
December 31, 1997, GPU, Inc. has remaining authorization to finance
approximately $754 million of additional investments in FUCOs and EWGs. To the
extent the GPU Energy companies no longer meet the requirements of FAS 71 as a
result of the implementation of the GPU Energy companies' restructuring plans,
any resulting write-offs would reduce GPU's retained earnings. Such reductions
would reduce the amount of available authorization for investments in FUCOs and
EWGs. For additional information on the GPUI Group's investments, see Note 6 of
the Notes to Consolidated Financial Statements.
In 1997, the Government of the United Kingdom imposed a windfall profits
tax on privatized utilities, including Midlands, in which the GPUI Group has a
50% ownership interest. As a result, a one-time charge to income of $109.3
million, or $0.90 per share, was taken. In December 1997, half of this tax was
paid; the remainder is due by December 1998.
In 1997, GPU Electric acquired the business of PowerNet Victoria
(subsequently renamed GPU PowerNet) from the State of Victoria, Australia for
A$2.6 billion (approximately U.S. $1.9 billion). PowerNet owns and maintains the
existing high-voltage electricity transmission system in Victoria. The PowerNet
transmission system serves all of Victoria covering an area of approximately
87,900 square miles and a population of approximately 4.5 million. GPU expects
the PowerNet acquisition to contribute positively to its 1998 earnings. For
additional information, see Note 5 of the Notes to Consolidated Financial
Statements.
In January 1998, as a result of Victoria's cross-ownership restrictions,
GPU Electric sold its 50% stake in Solaris to The Australian Gas Light Company
for A$208 million (approximately U.S. $135.2 million) and a 10.36% stake in
Allgas Energy Limited (Allgas), the natural gas distributor in Queensland,
Australia. The Allgas shares had a market value of A$14.6 million (approximately
U.S. $9.5 million) at the date of sale. As a result, GPU will record an
after-tax gain on the sale of $18.3 million in the first quarter of 1998.
Management expects that the GPUI Group will provide a substantial portion
of GPU's future earnings growth and intends on making additional investments in
its business activities. The timing and amount of these investments, however,
will depend upon the availability of appropriate opportunities and financing
capabilities.
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operating generation facilities, and Three Mile Island Unit 2 (TMI-2), which was
damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster
Creek is owned by JCP&L. At December 31, 1997, the GPU
13
.
<PAGE>
Energy companies' net investment, including nuclear fuel, in TMI-1 was $602
million (JCP&L $155 million; Met-Ed $300 million; Penelec $147 million) and $701
million for Oyster Creek. The GPU Energy companies' net investment in TMI-2 at
December 31, 1997 was $80 million (JCP&L $72 million; Met-Ed $1 million; Penelec
$7 million). JCP&L is collecting revenues for TMI-2 on a basis which provides
for the recovery of its remaining investment in the plant by 2008. Met-Ed and
Penelec are collecting revenues for TMI-2 related to their wholesale customers.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons, operation of these plants for the full
term of their operating licenses cannot be assured. Also, not all risks
associated with ownership or operation of nuclear facilities may be adequately
insured or insurable. Consequently, the recovery of costs associated with
nuclear projects, including replacement power, any unamortized investment at the
end of each plant's useful life (whether scheduled or premature), the carrying
costs of that investment and retirement costs, is not assured.
Oyster Creek
The operating license for the Oyster Creek station, a 619 MW boiling water
reactor, expires in 2009. Oyster Creek operated at a 91.0% capacity factor for
1997. The station's next refueling outage is scheduled to begin in September
1998. In addition to the continued operation of the Oyster Creek facility, JCP&L
is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. JCP&L is exploring these options due to
the plant's high cost of generation compared to the current market price of
electricity. If a decision is made to retire the plant early, retirement would
likely occur in 2000.
TMI-1
The operating license for TMI-1, a 786 MW pressurized water reactor,
expires in 2014. TMI-1 operated at a capacity factor of 83.4% for 1997. Its next
refueling outage is scheduled to begin in the fall of 1999. In response to an
inquiry regarding the possible sale of Oyster Creek, the GPU Energy companies
have stated that they would also consider selling TMI-1. Unlike Oyster Creek,
however, the early retirement of TMI-1 is not being considered because of its
lower operating costs.
TMI-2
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment. A
cleanup program was completed in 1990, and after receiving NRC approval, TMI-2
entered into long-term monitored storage in 1993.
14
<PAGE>
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, were asserted against GPU, Inc. and the GPU Energy
companies. Approximately 2,100 of such claims were filed in the United States
District Court for the Middle District of Pennsylvania. Some of the claims also
seek recovery for injuries from alleged emissions of radioactivity before and
after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating plan
providing for up to an aggregate of $335 million in premium charges under such
plan, and (c) an indemnity agreement with the NRC for up to $85 million,
bringing their total financial protection up to an aggregate of $560 million.
Under the secondary level, the GPU Energy companies are subject to a
retrospective premium charge of up to $5 million per reactor, or a total of $15
million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the "finite
fund" (the $560 million of financial protection under the Price-Anderson Act) to
which plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100
pending claims. The Court ruled that there was no evidence which created a
genuine issue of material fact warranting submission of plaintiffs' claims to a
jury. The plaintiffs have appealed the District Court's ruling to the Third
Circuit, before which the matter is pending.
There can be no assurance as to the outcome of this litigation.
Based on the above, GPU, Inc. and the GPU Energy companies believe that
any liability to which they might be subject by reason of the TMI-2 accident
will not exceed their financial protection under the Price-Anderson Act.
15
<PAGE>
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the U.S. Department of Energy (DOE).
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy companies intend to complete the funding for Oyster Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The
TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in
long-term storage and being decommissioned at the same time as TMI-1. Based on
NRC studies, a comparable funding target was developed for TMI-2 which took the
accident into account. Under the NRC regulations, the funding targets (in 1997
dollars) are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
JCP&L $ 45 $ 71 $306
Met-Ed 89 142 --
Penelec 45 71 --
---- ---- ----
Total $179 $284 $306
==== ==== ====
The funding targets, while not considered cost estimates, are reference
levels designed to assure that licensees demonstrate adequate financial
responsibility for decommissioning. While the NRC regulations address activities
related to the removal of the radiological portions of the plants, they do not
establish residual radioactivity limits nor do they address costs related to the
removal of nonradiological structures and materials.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered various
decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt removal/dismantlement method. GPUN management has
reviewed the methodology and assumptions used in these studies, is in agreement
with them, and believes the results are reasonable. The NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the plant is
retired early. The retirement cost estimates under the site-specific studies are
as follows (in 1997 dollars):
(in millions)
Oyster
GPU TMI-1 TMI-2 Creek
- --- ----- ----- -----
Radiological decommissioning $328 $399 $386
Nonradiological cost of removal 81 34* 37
---- ---- ----
Total $409 $433 $423
==== ==== ====
* Net of $10.1 million spent as of December 31, 1997.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
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<PAGE>
The ultimate cost of retiring the GPU Energy companies' nuclear facilities
may be different from the cost estimates contained in these site-specific
studies. Such costs are subject to (a) the escalation of various cost elements
(for reasons including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability of
nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Customer
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning trusts, at
market on the Consolidated Balance Sheets. Accounting for retirement costs may
change based upon the FASB's Exposure Draft discussed below.
The FASB has issued an Exposure Draft titled "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets," which includes
nuclear plant retirement costs. If the Exposure Draft is adopted, Oyster Creek
and TMI-1 future retirement costs would have to be recognized as a liability
immediately, rather than the current industry practice of accruing these costs
in accumulated depreciation over the life of the plants. A regulatory asset for
amounts probable of recovery through rates would also be established. Any
amounts not probable of recovery through rates would have to be charged to
expense. (For TMI-2, a liability (in 1997 dollars) has already been recognized,
based on the 1995 site-specific study since the plant is no longer operating
(see TMI-2)). The effective date of this accounting change has not yet been
established.
TMI-1 and Oyster Creek:
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $2.5 million and $13.5 million, respectively. These annual
revenues are based on both the NRC funding targets for radiological
decommissioning costs and a site-specific study which was performed in 1988 for
nonradiological costs of removal. The Final Settlement approved by the NJBPU in
March 1997 allows for JCP&L's future collection of retirement costs to increase
annually to $5.2 million and $22.5 million for TMI-1 and Oyster Creek,
respectively, beginning in 1998, based on the 1995 site-specific study
estimates. (See discussion of Final Settlement in Rate Matters section,
Management's Discussion and Analysis.)
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological costs
of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for
its share of TMI-1 retirement costs, on a basis consistent with that granted
Met-Ed. As part of their restructuring plans filed with the PaPUC in June 1997,
Met-Ed and Penelec have requested that these amounts be increased to reflect the
estimated retirement costs contained in the 1995 site-specific study for
radiological decommissioning and nonradiological costs of removal.
17
<PAGE>
The amounts charged to depreciation expense in 1997 and the provisions for
the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
----- -----
Amount expensed in 1997:
JCP&L $ 2 $ 13
Met-Ed 9 -
Penelec 4 -
--- ---
Total $ 15 $ 13
=== ===
Accumulated depreciation provision
at December 31, 1997:
JCP&L $ 38 $217
Met-Ed 68 -
Penelec 29 -
--- ---
Total $135 $217
=== ===
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 1997 and 1996 are $449 million (JCP&L $112 million; Met-Ed $225
million; Penelec $112 million) and $431 million (JCP&L $108 million; Met-Ed $215
million; Penelec $108 million), respectively. These amounts are based upon the
1995 site-specific study estimates (in 1997 and 1996 dollars, respectively)
discussed above and an estimate for remaining incremental monitored storage
costs of $16 million (JCP&L $4 million; Met-Ed $8 million; Penelec $4 million)
for 1997 and $17 million (JCP&L $4 million; Met-Ed $8 million; Penelec $5
million) for 1996, as a result of TMI-2's entering long-term monitored storage
in 1993. The GPU Energy companies are incurring annual incremental monitored
storage costs of approximately $1 million (JCP&L $250 thousand; Met-Ed $500
thousand; Penelec $250 thousand).
Offsetting the $449 million liability at December 31, 1997 is $261 million
(JCP&L $34 million; Met-Ed $145 million; Penelec $82 million), which management
believes is probable of recovery from customers and included in Three Mile
Island Unit 2 deferred costs on the Consolidated Balance Sheets, and $220
million (JCP&L $87 million; Met-Ed $96 million; Penelec $37 million) in trust
funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the
Consolidated Balance Sheets. Earnings on trust fund deposits are included in
amounts shown on the Consolidated Balance Sheets under Three Mile Island Unit 2
deferred costs. TMI-2 decommissioning costs charged to depreciation expense in
1997 amounted to $14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1
million).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the cost
of removal of nonradiological structures and materials. In addition, JCP&L is
recovering its share of TMI-2's incremental monitored storage costs.
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<PAGE>
The Final Settlement approved by the NJBPU in March 1997 adjusts JCP&L's future
revenues for retirement costs based on the 1995 site-specific study estimates,
beginning in 1998. Based on Met-Ed's rate order, Penelec has recorded a
regulatory asset for that portion of such costs which it believes to be probable
of recovery.
At December 31, 1997, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $71 million (JCP&L $18 million; Met-Ed
$35 million; Penelec $18 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1997 dollars). In connection
with rate case resolutions at the time, JCP&L, Met-Ed and Penelec made
contributions to irrevocable external trusts relating to their shares of the
accident-related portions of the decommissioning liability. In 1990, JCP&L
contributed $15 million and in 1991, Met-Ed and Penelec contributed $40 million
and $20 million, respectively, to irrevocable external trusts. These
contributions were not recovered from customers and have been expensed. The GPU
Energy companies will not pursue recovery from customers for any of these
amounts contributed in excess of the $71 million accident-related portion
referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
INSURANCE
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages. Losses or liabilities that are not
completely insured, unless allowed to be recovered through ratemaking, could
have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance policies
generally require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage for
the first $200 million of such liability is provided by private insurance. The
remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could result
in assessments of up to $79 million per incident for each of the GPU
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<PAGE>
Energy companies' two operating reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In addition to the retrospective
premiums payable under the Price-Anderson Act, the GPU Energy companies are also
subject to retrospective premium assessments of up to $44 million (JCP&L $27
million; Met-Ed $11 million; Penelec $6 million) in any one year under insurance
policies applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after a 17 week waiting period at $3.5
million per week, and after 23 weeks of an outage, continues for three years
beginning at $1.8 million and $2.6 million per week for the first year for
Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for
years two and three.
NONUTILITY AND OTHER POWER PURCHASES
Pursuant to the requirements of PURPA and state regulatory directives, the
GPU Energy companies have entered into power purchase agreements with NUGs for
the purchase of energy and capacity for remaining periods of up to 23 years. The
following table shows actual payments from 1995 through 1997, and estimated
payments from 1998 through 2002.
Payments Under NUG Agreements
-----------------------------
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
* 1995 $670 $381 $131 $158
* 1996 730 370 168 192
* 1997 759 384 172 203
1998 728 359 165 204
1999 746 365 165 216
2000 811 370 203 238
2001 836 378 231 227
2002 857 390 240 227
* Actual.
As of December 31, 1997, facilities covered by agreements having 1,666 MW
(JCP&L 905 MW; Met-Ed 356 MW; Penelec 405 MW) of capacity were in service. While
a few of these NUG facilities are dispatchable, most are must-run and generally
obligate the GPU Energy companies to purchase, at the contract price, the output
up to the contract limits. Substantially all unbuilt NUG facilities for which
the GPU Energy companies have executed agreements are fully dispatchable.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs, which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The GPU Energy companies'
future supply plan will likely focus on short- to intermediate-term commitments
and reliance on spot market purchases. The projected cost of energy from new
generation supply sources has also decreased due to improvements in power plant
technologies and lower forecasted fuel prices. As
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a result of these developments, the rates under virtually all of the GPU Energy
companies' NUG agreements for facilities currently in operation are
substantially in excess of current and projected prices from alternative
sources.
The GPU Energy companies are seeking to reduce the above-market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the agreements;
(3) offering contract buyouts (see Managing Nonutility Generation section of The
GPU Energy Companies' Supply Plan, Management's Discussion and Analysis); and
(4) initiating proceedings before federal and state agencies, and in the courts,
where appropriate. In addition, the GPU Energy companies intend to avoid, to the
maximum extent practicable, entering into any new NUG agreements that are not
needed or not consistent with current market pricing, and are supporting
legislative efforts to repeal PURPA. These efforts may result in claims against
GPU for substantial damages. There can be no assurance as to the extent to which
these efforts will be successful in whole or in part.
In 1997, Met-Ed and Penelec issued requests for proposals (RFPs) to 24 NUG
projects which currently supply a total of approximately 760 MW under power
purchase agreements. The RFPs requested the NUGs to propose buyouts, buydowns
and/or restructurings of current power purchase contracts in return for cash
payments. In January 1998, subject to PaPUC approval, Met-Ed and Penelec entered
into definitive buyout agreements with two bidders.
JCP&L has contracts through 2002 to purchase between 5,200 GWH and 5,550
GWH of electric generation per year at prices which are estimated to escalate
approximately 0.5% annually on a unit cost (cents/KWH) basis during this period.
From 2003 through 2008, JCP&L has contracts to purchase between 5,100 GWH and
5,400 GWH of electric generation per year at an average annual cost of $388
million. The prices during this period are estimated to escalate approximately
1.7% annually. After 2008, when major contracts begin to expire, purchases
steadily decline to approximately 1,180 GWH in 2014. The contract unit cost is
estimated to escalate approximately 5.3% annually from 2009 through 2014, with a
total average annual cost of $209 million during this period. All of JCP&L's
contracts will have expired by the end of 2020. During this entire period, the
NUG fuel mix is estimated to average approximately 94% natural gas.
Met-Ed has contracts through 1999 to purchase between 2,300 GWH and 2,350
GWH of electric generation per year at prices which are estimated to decrease
approximately 1.5% annually on a unit cost basis during this period. From 2000
through 2008, Met-Ed has contracts to purchase between 3,100 GWH and 4,600 GWH
of electric generation per year at an average annual cost of $242 million. The
prices during this period are estimated to escalate approximately 2.1% annually
on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to purchase
between 1,700 GWH and 2,100 GWH of electric generation per year at an average
annual cost of $165 million. During this period, the prices are estimated to
decrease approximately 0.8% annually on a unit cost basis. After 2012, Met-Ed's
remaining contracts expire rapidly through 2016; thereafter, they remain
constant until the expiration of the last contract in 2020. During this entire
period, the NUG fuel mix is estimated to average approximately 50% to 75%
coal/waste coal.
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Penelec has contracts through 2000 to purchase between 3,100 GWH and
3,500 GWH of electric generation per year at prices which are estimated to
escalate approximately 2.5% annually on a unit cost basis during this period.
From 2001 through 2010, Penelec has contracts to purchase between 3,100 GWH and
3,800 GWH of electric generation per year at an average annual cost of $237
million. The prices during this period are estimated to escalate approximately
2.3% annually on a unit cost basis. From 2011 through 2018, purchases decline
from approximately 2,500 GWH to approximately 1,200 GWH in 2018. The contract
unit cost is estimated to decrease approximately 0.1% annually from 2011 through
2018, with a total average annual cost of $143 million during this period. After
2018, Penelec's remaining contracts expire rapidly through 2020. During this
entire period, the NUG fuel mix is estimated to average approximately 89%
coal/waste coal.
In February 1997, Met-Ed and Penelec entered into revised power purchase
agreements with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and
related energy, respectively, related to a combined-cycle generating facility
that AES plans to construct in Pennsylvania. Met-Ed and Penelec have paid $63.4
million and $5 million, respectively, to previous developers and AES to
terminate the original power purchase agreements. In July 1997, the PaPUC
ordered that the issue of recovery of the related buyout costs and approval of
the revised power purchase agreements with AES be considered in Met-Ed and
Penelec's restructuring proceedings. If the revised power purchase agreements
with AES are not approved by the PaPUC, Met-Ed and Penelec have agreed to pay
AES up to an additional $28 million and $5 million, respectively.
This discussion of "Nonutility and Other Power Purchases" contains
estimates which are based on current knowledge and expectations of the outcome
of future events. The estimates are subject to significant uncertainties,
including changes in fuel prices, improvements in technology, the changing
regulatory environment and the deregulation of the electric utility industry.
The GPU Energy companies are recovering certain of their NUG costs
(including certain buyout costs) from customers. Although the recently enacted
legislation in Pennsylvania and the New Jersey Energy Master Plan both include
provisions for the recovery of costs under NUG agreements and certain NUG buyout
costs, there can be no assurance that the GPU Energy companies will continue to
be able to recover similar costs which may be incurred in the future. (See
Competitive Environment section, Management's Discussion and Analysis for
additional discussion.)
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 614 MW in 1998, declining to 529 MW in 1999 and 345 MW in
2000, through the expiration of the final agreement in 2004. Payments pursuant
to these agreements are estimated to be $129 million in 1998, $111 million in
1999, $83 million in 2000, $92 million in 2001, and $101 million in 2002.
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RATE PROCEEDINGS
Pennsylvania
In 1996, Pennsylvania adopted comprehensive legislation which provides for
the restructuring of the electric utility industry. The legislation, among other
things, permits one-third of Pennsylvania retail consumers to choose their
electric supplier beginning January 1, 1999, two-thirds permitted to choose by
January 1, 2000 and all retail consumers to do so by January 1, 2001. The
legislation requires the unbundling of rates for transmission, distribution and
generation services. Utilities would have the opportunity to recover their
prudently incurred stranded costs that result from customers choosing another
supplier through a PaPUC approved competitive transition charge, subject to
certain conditions, including that they attempt to mitigate these costs. For a
discussion of stranded costs, see the Competition and the Changing Regulatory
Environment section of Note 13 of the Notes to Consolidated Financial
Statements.
The legislation provides utilities the opportunity to reduce their
stranded costs through the issuance of transition bonds with maturities of up to
10 years. The sale proceeds could be used to buy out or buy down uneconomic NUG
contracts, to reduce capitalization, or both. Principal and interest payments on
the bonds would be paid by all distribution service customers through a
nonbypassable intangible transition charge. Reduced financing costs associated
with the sale of transition bonds would be used to provide rate reductions for
all customers. In order to securitize stranded costs, each Pennsylvania utility
is required to file with the PaPUC for a qualified rate order. Met-Ed and
Penelec expect to file for such rate orders during 1998.
Effective January 1, 1997, transmission and distribution rates charged to
Pennsylvania retail customers are generally capped for 4 1/2 years, and
generation rates are generally capped for up to nine years. Transmission and
distribution of electricity will continue as a regulated monopoly. An ISO will
be responsible for coordinating the generation and transmission of electricity
in an efficient and nondiscriminatory manner.
As part of this restructuring, Met-Ed and Penelec filed, in December 1996,
tariff supplements requesting to, among other things, include their currently
effective energy cost rates (ECRs) and State Tax Adjustment Surcharges (STAS) in
base rates, effective for all bills rendered after January 1, 1997. Since rates
that can be charged to customers for generation are capped for up to nine years,
to the extent Met-Ed and Penelec remain in the generation business, their future
earnings are subject to market volatility. Increases or decreases in fuel costs
are no longer subject to deferred accounting and are reflected in net income as
incurred. Met-Ed and Penelec will continue their efforts to manage fuel costs
and will mitigate, to the extent possible, any excessive risks.
In 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in
Pennsylvania. For highlights of these plans see "Recent Developments" section.
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New Jersey
In April 1997, the NJBPU issued final Findings and Recommendations for
Restructuring the Electric Power Industry in New Jersey and submitted the plan
to the Governor and the Legislature for their consideration. The NJBPU has
recommended, among other things, that certain electric retail customers be
permitted to choose their supplier beginning October 1998, expanding to include
all retail customers by July 1, 2000. The NJBPU also recommended a near-term
electric rate reduction of 5% to 10% with the phase-in of retail competition, as
well as additional rate reductions accomplished as a result of new energy tax
legislation, as discussed below.
The NJBPU has proposed that utilities have an opportunity to recover their
stranded costs associated with generating capacity commitments provided that
they attempt to mitigate these costs. Also, NUG contracts which cannot be
mitigated would be eligible for stranded cost recovery. The determination of
stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis,
with no guaranty for full recovery of these costs. A separate MTC would be
established for each utility to allow utilities to recover stranded costs over 4
to 8 years. The MTC would be capped to ensure that customers experience the
NJBPU's recommended overall rate reduction of 5% to 10%. New Jersey is also
considering securitization as a mechanism to help mitigate stranded costs.
In addition, the NJBPU is proposing that beginning October 1998, utilities
unbundle their rates and allow customers to choose their electric generation
supplier. Transmission and distribution of electricity would continue as a
regulated monopoly and utilities would be responsible for connecting customers
to the system and for providing distribution service. Transmission service would
be provided by an ISO, which would be responsible for maintaining the
reliability of the regional power grid and would be regulated by the FERC.
In July 1997, New Jersey enacted energy tax legislation which eliminates
the 13% gross receipts and franchise tax on utility bills. Utilities will
collect from customers a 6% sales tax and pay a corporate business tax which
amounts to 1-2% of revenues. Utilities will also pay a transitional energy
facilities assessment which will phase out over five years and result in a 5-6%
rate reduction to customers.
In July 1997, JCP&L filed with the NJBPU its proposed restructuring plan
for a competitive electric marketplace in New Jersey. Included in the plan were
stranded cost, unbundled rate and restructuring filings. In December 1997, JCP&L
submitted supplemental information with the NJBPU and parties to the
restructuring proceeding regarding the proposed sale of its fossil fuel and
hydroelectric generating facilities. For highlights of the plan see "Recent
Developments" section.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be approximately $11 million before tax. While a
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capacity factor below 40% would generate no specific monetary charge, it would
require the issue to be brought before the NJBPU for review. The annual
measurement period, which begins in March of each year, coincides with that used
for the Levelized Energy Adjustment Clause.
CAPITAL PROGRAMS
GPU Energy Companies
During 1997, the GPU Energy companies' capital spending was $356 million
(JCP&L $172 million; Met-Ed $88 million; Penelec $99 million), and was used
primarily for new customer connections and to maintain and improve existing
transmission and distribution facilities. In 1997, expenditures for maturing
obligations were $176 million (JCP&L $110 million; Met-Ed $40 million; Penelec
$26 million). Expenditures for maturing obligations are expected to total $43
million (JCP&L $13 million; Penelec $30 million) in 1998. In 1998, capital
expenditures are estimated to be $441 million, and will be used primarily for
ongoing system development and to implement an integrated information system.
Management estimates that a substantial portion of the GPU Energy companies'
1998 capital outlays will be satisfied through internally generated funds. The
GPU Energy companies' principal categories of estimated capital expenditures for
1998 are as follows:
(in millions)
Total JCP&L Met-Ed Penelec Other
Generation - Nuclear $ 29 $ 21 $ 5 $ 3 $--
Non-nuclear 36 7 9 20 --
---- ---- ---- ---- ----
Total Generation 65 28 14 23 --
Transmission & Distribution 302 153 66 83 --
Other 74 23 12 15 24
---- ---- ---- ---- ----
Total $441 $204 $ 92 $121 $ 24
==== ==== ==== ==== ====
Capital expenditures for the GPU Energy companies are estimated to be $411
million in 1999 (JCP&L $184 million; Met-Ed $97 million; Penelec $106 million;
Other $24 million). Expenditures for maturing obligations are expected to total
$83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999.
GPU Energy companies estimate that a substantial portion of their anticipated
total capital needs in 1999 will be satisfied through internally generated
funds.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue (see Limitations on Issuing Additional
Securities section).
The GPU Energy companies' 1997 capital expenditures exclude nuclear fuel
additions provided under capital leases that amounted to $40 million (JCP&L $11
million; Met-Ed $19 million; Penelec $10 million). When consumed, the presently
leased material, which amounted to $136 million (JCP&L $79 million; Met-Ed $38
million; Penelec $19 million) at December 31, 1997, is expected to be replaced
by additional leased material at an average annual rate (which is
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based on two full operating cycles, or four years) of between $40 million and
$55 million (JCP&L $25 million - $30 million; Met-Ed $10 million - $15 million;
Penelec $5 million - $10 million). In the event the needed nuclear fuel cannot
be leased, the associated capital requirements would have to be met by other
means.
Under traditional retail regulation, supply planning in the electric
utility industry is directly related to projected sales growth in a utility's
franchise service territory. In light of retail access legislation enacted in
Pennsylvania and proposed in New Jersey, the extent to which competition will
affect the GPU Energy companies' supply plan remains uncertain. As the GPU
Energy companies prepare to operate in a competitive environment, their supply
planning strategy will focus on providing for the needs of existing retail
customers who continue to receive energy supplied by the GPU Energy companies
and whom the GPU Energy companies continue to have an obligation to serve. With
the proposed sale of the fossil fuel and hydroelectric generation facilities and
the evolving competitive climate in which the GPU Energy companies' existing
customers will be able to choose their electric generation supplier, the GPU
Energy companies' future supply plan will likely focus on short- to
intermediate-term commitments and reliance on spot market purchases. The GPU
Energy companies' present strategy includes minimizing the financial exposure
associated with new long-term purchase commitments.
GPUI Group
The GPUI Group's capital spending was $1.9 billion in 1997, which was
principally attributable to the acquisition of PowerNet (see Note 5 of the Notes
to Consolidated Financial Statements). In 1998, the GPUI Group's capital
spending, primarily for ongoing system development, is estimated to be $141
million. Management estimates that a substantial portion of the GPUI Group's
1998 capital outlays will be satisfied through external financings. In 1997, the
GPUI Group's expenditures for maturing obligations were $3 million. Expenditures
for maturing obligations (principally related to the Midlands and PowerNet
acquisition debt) are expected to total $589 million in 1998, and $152 million
in 1999. Approximately $241 million of the 1998 maturing obligations have
already been satisfied with the proceeds from GPU's common stock sale (discussed
below) and the Solaris sale.
In addition, during 1998 and 1999, GPU, Inc. may make additional capital
contributions and provide credit support (in amounts which may be substantial)
to the GPUI Group as investment opportunities arise.
FINANCING ARRANGEMENTS
GPU, Inc.
In February 1998, GPU, Inc. sold seven million shares of common stock. The
net proceeds of $269 million will be used to reduce $229 million of indebtedness
associated with the PowerNet and Midlands acquisitions, and the balance will be
applied for other corporate purposes. In 1996, GPU, Inc. received SEC approval
to issue and sell up to $300 million of unsecured debentures through 2001.
Further significant investments by the GPUI Group, or otherwise, may require
GPU, Inc. to issue additional debt and/or common stock.
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GPU Energy Companies
As a result of Pennsylvania legislation, Met-Ed and Penelec each plan to
sell securitized transition bonds through a separate trust or other special
purpose entity, and would use the proceeds to reduce stranded costs resulting
from customer choice, including NUG contract buyout costs, and to reduce
capitalization. The timing and amount of any sale will depend upon PaPUC
approval of restructuring plans, resolution of legal challenges, and receipt of
a favorable ruling from the Internal Revenue Service, as well as market
conditions. It is expected that similar legislation will be introduced in New
Jersey to permit the sale of securitized transition bonds.
JCP&L and Penelec have regulatory authority to issue and sell first
mortgage bonds (FMBs), including secured medium-term notes, and preferred stock
through June 1999. Met-Ed has similar authority through December 1999. Under
existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior
securities in aggregate amounts of $145 million, $190 million and $70 million,
respectively, of which up to $100 million for JCP&L and Met-Ed and $70 million
for Penelec may consist of preferred stock. The GPU Energy companies also have
regulatory authority to incur short-term debt, a portion of which may be through
the issuance of commercial paper.
In 1997, the GPU Energy companies issued an aggregate of $63.7 million
(Met-Ed $13.7 million; Penelec $50 million) principal amount of FMBs. The
proceeds from these issuances were used to replace short-term financing related
to a solid waste disposal facility at the jointly owned Conemaugh station, repay
short-term debt and for other corporate purposes. The GPU Energy companies
redeemed $166.1 million (JCP&L $100.1 million; Met-Ed $40 million; Penelec $26
million) principal amount of FMBs, of which $24.2 million were redeemed by JCP&L
prior to maturity. Also in 1997, JCP&L redeemed $20 million stated value of
cumulative preferred stock pursuant to mandatory and optional sinking fund
provisions. In February 1998, Penelec redeemed at maturity $30 million principal
amount of FMBs.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue. The GPU Energy companies' interest and
preferred dividend coverage ratios are currently in excess of indenture and
charter restrictions. The amount of FMBs that the GPU Energy companies could
issue based on the bondable value of property additions is in excess of amounts
currently authorized.
The GPU Energy companies' cost of capital and ability to obtain external
financing are affected by their security ratings, which are periodically
reviewed by the credit rating agencies. The GPU Energy companies' FMBs are
currently rated at an equivalent of "BBB+" or higher by the major credit rating
agencies, while the preferred stock and mandatorily redeemable preferred
securities have been assigned an equivalent of "BBB" or higher. In addition, the
GPU Energy companies' commercial paper is rated as having very good credit
quality.
Current plans call for the GPU Energy companies to issue senior securities
during the next three years to fund the redemption of maturing senior
securities, refinance outstanding senior securities if economic, and finance
construction activities.
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GPUI Group
In 1997, GPU Electric acquired the business of PowerNet from the State of
Victoria, Australia for A$2.6 billion (approximately U.S. $1.9 billion). To fund
the acquisition, subsidiaries of GPU Electric entered into a senior debt credit
facility with a syndicate of banks for A$1.9 billion (approximately U.S. $1.4
billion), which is non-recourse to GPU, Inc. and a five-year U.S. $450 million
bank credit agreement which is guaranteed by GPU, Inc. Borrowings under the bank
credit agreement are to be amortized ratably over the five-year period.
In January and February 1998, GPU reduced the borrowings outstanding under
the bank credit agreement by an aggregate of approximately $90 million, with a
portion of the proceeds from the sale of its Solaris interest and the sale of
additional common stock. Subject to obtaining favorable credit agency ratings
and market conditions, the GPUI Group intends to refinance a portion of the
PowerNet acquisition debt during 1998 through the issuance of commercial paper
and long-term debt securities.
In 1996, GPU and Cinergy Corp. formed a 50/50 joint venture to acquire
Midlands. To fund its investment in Midlands, a subsidiary of GPU Electric
entered into a GPU, Inc. guaranteed five-year (pound)350 million term loan
agreement with a syndicate of banks. As of December 31, 1997, the aggregate
borrowings outstanding under the term loan were (pound)340 million
(approximately U.S. $561 million). Borrowings under the bank agreement are to be
reduced to a maximum of (pound)280 million in May 1998 and by an additional
(pound)35 million per year until maturity on May 2001.
At February 28, 1998, the GPUI Group had outstanding obligations
(including guarantees) of $2.2 billion of which approximately $920 million was
guaranteed by GPU, Inc. The guaranteed amount primarily includes: $360 million
under a five-year U.S. bank credit agreement used to partially fund GPU
Electric, Inc.'s acquisition of PowerNet (see Note 5); (pound)225 million
(approximately U.S. $370 million) under a bank term loan facility used to fund
GPU Electric's investment in Midlands; and approximately $123 million related to
construction of GPU Power, Inc.'s Termobarranquilla S. A. project.
GPU has $527 million of credit facilities, which includes various lines of
credit totaling $247 million, and two Revolving Credit Agreements, as discussed
below:
Under the Credit Agreement between GPU, Inc., the GPU Energy companies and
a consortium of banks, total borrowings are limited to $250 million outstanding
at any time and are subject to various covenants. The agreement expires May 6,
2001. In addition, the credit facility limits GPU, Inc.'s outstanding
indebtedness (including guarantees) to $1.4 billion. At February 28, 1998, GPU,
Inc. had approximately $1.0 billion of such indebtedness outstanding. A facility
fee on the unborrowed amount of .15 of 1% is payable annually. Borrowing rates
and a facility fee are based on the long-term debt ratings of the GPU Energy
companies.
GPU International, Inc. has a separate Credit Agreement providing for
borrowings (guaranteed by GPU, Inc.) through June 1998 of up to $30 million
outstanding at any time, which decreases for two years thereafter. Up to
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$15 million may be utilized to provide letters of credit. An annual facility fee
of 3/8 of 1% on the total amount of the Credit Agreement and a letter of credit
fee of 1/2 of 1% on the outstanding letters of credit are payable by GPU
International, Inc. The GPUI Group is discussing with the banks an extension and
increase of borrowing availability under this facility.
LIMITATIONS ON ISSUING ADDITIONAL SECURITIES
The GPU Energy companies' FMB indentures and/or charters contain
provisions which limit the total amount of securities evidencing secured
indebtedness and/or unsecured indebtedness which the GPU Energy companies may
issue, the more restrictive of which are discussed below.
The GPU Energy companies' FMB indentures require that, for a period of any
twelve consecutive months out of the fifteen calendar months immediately
preceding the issuance of additional FMBs, net earnings (before income taxes,
with other income limited to 5% of operating income before income taxes for
JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have
been at least twice the annual interest requirements on all FMBs to be
outstanding immediately after such issuance. Moreover, the GPU Energy companies'
FMB indentures restrict the ratio of the principal amount of FMBs which may be
issued to not more than 60% of available bondable value of property additions.
In addition, the indentures, in general, permit the GPU Energy companies to
issue additional FMBs against a like principal amount of previously issued and
retired FMBs.
At December 31, 1997, the net earnings requirement under the GPU Energy
companies' FMB indentures, as described above, would have permitted JCP&L,
Met-Ed and Penelec to issue $1.7 billion, $845 million and $871 million,
respectively, principal amount of additional FMBs at an assumed 8% interest
rate. However, the GPU Energy companies had bondable value of property additions
sufficient to permit JCP&L, Met-Ed and Penelec to issue only approximately $368
million, $351 million and $215 million, respectively, principal amount of
additional FMBs. In addition, the GPU Energy companies' FMB indentures would
have permitted JCP&L, Met-Ed and Penelec to issue approximately $361 million,
$100 million and $168 million, respectively, of FMBs against retired FMBs.
In general, the FMB indentures permit the GPU Energy companies to direct
the trustee to utilize cash on deposit to purchase callable or maturing bonds
and to purchase bonds in the market at not more than 105% of their principal
amount, plus accrued interest. Penelec's FMB indenture, however, authorizes
Penelec to direct the trustee to redeem bonds (on a pro-rata basis for all bonds
outstanding) at par.
Among other restrictions, the GPU Energy companies' charters provide that
without the consent of the holders of two-thirds of the outstanding preferred
stock, no additional shares of preferred stock may be issued unless, for a
period of any twelve consecutive months out of the fifteen calendar months
immediately preceding such issuance, the after-tax net earnings available for
the payment of interest on indebtedness shall have been at least one and
one-half times the aggregate of (a) the annual interest charges on indebtedness
and (b) the annual dividend requirements on all shares of preferred stock to
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be outstanding immediately after such issuance. At December 31, 1997, these
provisions would have permitted JCP&L, Met-Ed and Penelec to issue $1.3 billion,
$604 million and $595 million, respectively, stated value of cumulative
preferred stock at an assumed 7.5% dividend rate.
The GPU Energy companies' charters also provide that, without the consent
of the holders of a majority of the total voting power of the GPU Energy
companies' outstanding preferred stock, the GPU Energy companies may not issue
or assume any securities representing short-term unsecured indebtedness, except
to refund certain outstanding unsecured securities issued or assumed by the GPU
Energy companies or to redeem all outstanding preferred stock, if immediately
thereafter the total principal amount of all outstanding unsecured debt
securities having an initial maturity of less than ten years (or within three
years of maturity for all unsecured indebtedness having original maturities in
excess of ten years) would exceed 10% of the aggregate of (a) the total
principal amount of all outstanding secured indebtedness issued or assumed by
the GPU Energy companies and (b) the capital and surplus of the GPU Energy
companies. At December 31, 1997, these restrictions would have permitted JCP&L,
Met-Ed and Penelec to have approximately $285 million, $130 million and $151
million, respectively, of unsecured indebtedness outstanding.
The GPU Energy companies have obtained authorization from the SEC to incur
short-term debt (including indebtedness under the Credit Agreement and
commercial paper) up to the GPU Energy companies' charter limitations.
REGULATION
As a registered holding company, GPU, Inc. is subject to regulation by the
SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act
with respect to accounting, the issuance of securities, the acquisition and sale
of utility assets, securities or any other interest in any business, the
entering into, and performance of, service, sales and construction contracts,
and certain other matters. The SEC has determined that the electric facilities
of the GPU Energy companies constitute a single integrated public utility system
under the standards of the 1935 Act. The 1935 Act also limits the extent to
which GPU may engage in nonutility businesses (see Other Developments section).
Each of the GPU Energy companies' retail rates, conditions of service, issuance
of securities and other matters are subject to regulation in the state in which
each operates in New Jersey by the NJBPU and in Pennsylvania by the PaPUC.
Additionally, Penelec, as lessee, operates the facilities serving the village of
Waverly, New York. Penelec's retail rates for New York customers, as well as
Penelec's New York operations and property, are subject to regulation by the New
York Public Service Commission. Although Penelec does not render electric
service in Maryland, the Public Service Commission of Maryland has jurisdiction
over the portion of Penelec's property located in that state. Moreover, with
respect to wholesale rates, the transmission of electric energy, accounting, the
construction and maintenance of hydroelectric projects and certain other
matters, the GPU Energy companies are subject to regulation by the FERC under
the Federal Power Act. The NRC regulates the construction, ownership and
operation of nuclear generating stations and other related matters. JCP&L is
also subject, in certain respects, to regulation by the PaPUC in connection with
its participation in the ownership and operation of certain facilities located
in
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Pennsylvania. See Electric Generation and the Environment - Environmental
Matters section, for additional information.
Midlands, the GPUI Group's electric distribution affiliate in England, is
subject to regulation by the Office of Electricity Regulation. Midlands' network
charges are subject to regulatory review every five years, with the results of
the next review scheduled for release on April 1, 2000. The supply business
franchise license currently relates only to customers having an annual maximum
demand of less than 100 KW. Customers with a higher maximum demand are able to
buy their electricity from any electricity supplier. This option will be
extended to cover all customers effective September 1, 1998.
GPU PowerNet, the GPUI Group's electric transmission company in Australia,
is subject to regulation by the Office of the Regulator General. GPU PowerNet's
network and connection charges are subject to regulatory review every five or
more years, with the next review scheduled in 2002 for application in 2003.
Empresa Guaracachi S.A., the GPUI Group's electric generation company in
Bolivia, is subject to regulation under the Electricity Law of 1994. Twice each
year, the Superintendency of Electricity recalculates the prices that Empresa
Guaracachi S.A. and other electric generators may charge for capacity based upon
an estimated cost of constructing a new generating unit. In addition, energy
prices are recalculated semi-annually based upon a projected cost of generation,
including fuel and nonfuel variable operation and maintenance costs.
ELECTRIC GENERATION AND THE ENVIRONMENT
Fuel
The GPU Energy companies utilized fuels in the generation of electric
energy during 1997 in approximately the following percentages:
1997 Actuals
------------
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
Coal 62% 24% 62% 89%
Nuclear 35% 70% 36% 11%
Gas 2% 4% 1% -
Oil 1% 3% - -
Other* - (1)% 1% -
* Represents hydro and pumped storage (which is a net user of electricity).
Approximately 39% (JCP&L 55%; Met-Ed 37%; Penelec 29%) of the GPU Energy
companies' total energy requirements in 1997 was supplied by utility and NUG
purchases and interchange from other utilities. For 1998, the GPU Energy
companies estimate that their use of fuels in the generation of electric energy
will be in the following percentages:
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1998 Estimates
--------------
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
Coal 61% 24% 58% 87%
Nuclear 37% 71% 39% 13%
Gas 2% 7% 1% -
Oil - - - -
Other* - (2)% 2% -
* Represents hydro and pumped storage.
Approximately 38% (JCP&L 58%; Met-Ed 31%; Penelec 28%) of the GPU Energy
companies' 1998 energy requirements are expected to be supplied by utility and
NUG purchases and interchange from other utilities.
Fossil: The GPU Energy companies have entered into long-term contracts
with nonaffiliated mining companies for the purchase of coal for certain
generating stations in which they have ownership interests (JCP&L - 16.67%
ownership interest in Keystone; Met-Ed - 16.45% ownership interest in Conemaugh;
and Penelec - 50% ownership interest in Homer City). The contracts, which expire
at various dates between 1998 and 2007, require the purchase of either fixed or
minimum amounts of the stations' coal requirements. The price of the coal under
the contracts is based on adjustments of indexed cost components. The GPU Energy
companies' share of the cost of coal purchased under these agreements is
expected to aggregate $171 million (JCP&L $26 million; Met-Ed $55 million;
Penelec $90 million) for 1998.
The GPU Energy companies' coal-fired generating stations now in service
are estimated to require an aggregate of 154 million tons (JCP&L 15 million
tons; Met-Ed 41 million tons; Penelec 98 million tons) of coal over the next
twenty years. Of this total requirement, approximately 6 million tons (JCP&L 2
million tons; Penelec 4 million tons) are expected to be supplied by
nonaffiliated mine-mouth coal companies with the balance supplied through short-
and long-term contracts and spot market purchases.
At the present time, adequate supplies of fossil fuels are readily
available to the GPU Energy companies, but this situation could change rapidly
as a result of actions over which they have no control.
Nuclear: The preparation of nuclear fuel for generating station use
involves various manufacturing stages for which GPU contracts separately. Stage
I involves the mining and milling of uranium ores to produce natural uranium
concentrates. Stage II provides for the chemical conversion of the natural
uranium concentrates into uranium hexafluoride. Stage III involves the process
of enrichment to produce enriched uranium hexafluoride from the natural uranium
hexafluoride. Stage IV provides for the fabrication of the enriched uranium
hexafluoride into nuclear fuel assemblies for use in the reactor core at the
nuclear generating station.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage facility. In December 1996, the DOE notified the GPU Energy
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companies and other standard contract holders that it will be unable to begin
acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA.
The DOE requested recommendations from contract holders for handling the delay.
In January 1997, the GPU Energy companies, along with other electric utilities
and state agencies, petitioned the U.S. Court of Appeals to, among other things,
permit utilities to cease payments into the Federal Nuclear Waste Fund until the
DOE complies with the NWPA. In May 1997, a joint petition was filed requesting
that the Court of Appeals compel the DOE to begin disposing of spent nuclear
fuel beginning not later than January 31, 1998. On November 14, 1997, the Court
declined to compel the DOE to begin disposing of spent fuel by the statutory
deadline or to authorize the utilities to cease payments into the Nuclear Waste
Fund. The DOE's inability to accept spent nuclear fuel by 1998 could have a
material impact on GPU's results of operations, as additional costs may be
incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1
has sufficient on-site storage capacity to accommodate spent nuclear fuel
through the end of its licensed life. In June 1997, a consortium of electric
utilities, including GPUN, filed a license application with the NRC seeking
permission to build an interim above-ground disposal facility for spent nuclear
fuel in northwestern Utah. There can be no assurance as to the outcome of these
matters.
Environmental Matters
GPU is subject to a broad range of federal, state and local environmental
and employee health and safety legislation and regulations. In addition, the GPU
Energy companies are subject to licensing of hydroelectric projects by the FERC
and of nuclear power projects by the NRC. Such licensing and other actions by
federal agencies with respect to projects of the GPU Energy companies are also
subject to the National Environmental Policy Act.
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but not
limited to acid rain, water quality, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants, coal mine refuse
piles and generation facilities.
GPU records liabilities (on an undiscounted basis) where it is probable
that a loss has been incurred and the amount of the loss can be reasonably
estimated, and adjusts these liabilities as required to reflect changes in
circumstances. At December 31, 1997, the GPU Energy companies have liabilities
recorded on their balance sheets for environmental matters totaling $81 million,
as follows:
Company Site Description Amount (in millions)
- ------- ---------------- --------------------
JCP&L MGP sites $46
Penelec Seward station 12
All Ash disposal and other sites 23*
---
Total $81
* (JCP&L $6; Met-Ed $5; Penelec $12)
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For further discussion of the liabilities recorded for JCP&L's manufactured gas
plant (MGP) sites, Penelec's Seward station property and the GPU Energy
companies' ash disposal and other sites, see the Water, Residual Waste and
Hazardous/Toxic Wastes sections, respectively.
In 1997, the GPU Energy companies made capital expenditures of
approximately $5 million (JCP&L $1 million; Met-Ed $1 million; Penelec $3
million) in response to environmental considerations and have budgeted
approximately $11 million (JCP&L $1 million; Met-Ed $2 million; Penelec $8
million) for this purpose in 1998. The incremental annual operating and
maintenance costs for such equipment is not expected to be material.
Water: The federal Water Pollution Control Act (Clean Water Act) generally
requires, with respect to existing steam electric power plants, the application
of the best conventional or practicable pollutant control technology available
and compliance with state-established water quality standards. Additionally,
water quality-based effluent limits (more stringent than "technology" limits)
may be applied to utility wastewater discharges based on receiving stream
quality. With respect to future plants, the Clean Water Act requires the
application of the "best available demonstrated control technology, processes,
operating methods or other alternatives."
The U.S. Environmental Protection Agency (EPA) has adopted regulations
that establish thermal and other limitations for effluents discharged from both
existing and new steam electric generating stations. Standards of performance
are developed, and enforcement of effluent limitations is accomplished, through
the issuance of discharge permits by the EPA, or states authorized by the EPA,
which specify limitations to be applied. Discharge permits are required for all
of the GPU Energy companies' steam generating stations and other stations that
discharge wastewater to surface water bodies. JCP&L has received a discharge
permit for its Yards Creek pumped storage facility from the New Jersey
Department of Environmental Protection (NJDEP). In addition, the discharge
permits for JCP&L's Sayreville station and Met-Ed's Portland station have
expired, but the terms of both have been administratively extended pending
action by the NJDEP and Pennsylvania Department of Environmental Protection
(PaDEP), respectively. The GPU Energy companies have obtained all other required
permits for their generating facilities under the Clean Water Act.
The NJDEP has proposed thermal and other conditions for inclusion in the
discharge permit for JCP&L's Sayreville generating station which, among other
things, could require JCP&L to install cooling towers and/or modify the water
intake/discharge systems at this facility. JCP&L has objected to these
conditions and has requested an adjudicatory hearing with respect thereto.
Implementation of these permit conditions has been stayed pending action on
JCP&L's hearing request, or alternatively, through negotiation during the permit
renewal process. JCP&L has made filings with the NJDEP that, JCP&L believes,
justify the issuance of a thermal variance to permit the continued use of the
present once-through cooling system. Based on the NJDEP's review of these
demonstrations, substantial modifications may be required at this station, which
may result in material capital expenditures.
The discharge permit for the Oyster Creek station may, among other things,
require the installation of a closed-cycle cooling system, such as a
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cooling tower, to meet New Jersey state water quality-based thermal effluent
limitations. Although construction of such a system is not required in order to
meet the EPA's regulations setting effluent limitations for the Oyster Creek
station (such regulations would accept the use of the once-through cooling
system now in operation at this station), a closed-cycle cooling system may be
required in order to comply with the water quality standards imposed by the
NJDEP for water quality certification and incorporated in the station's
discharge permit. If a cooling tower is required, the capital costs could exceed
$150 million. In October 1994, following six years of studies, the NJDEP issued
a new Discharge to Surface Water Permit for the Oyster Creek station. The new
permit grants JCP&L a variance from the New Jersey Surface Water Quality
Standards. The variance allows the continued operation of the existing
once-through cooling system without modifications such as cooling towers. The
variance is effective through October 1999. If this variance is not extended,
GPUN would retire the plant rather than construct a cooling tower. The NJDEP
could revoke the variance at any time upon failure to comply with the permit
conditions.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the PaDEP that contaminants from coal mine refuse piles were
identified in storm water run-off at Penelec's Seward station property. Penelec
signed a modified Consent Order, which became effective December 1996, that
establishes a schedule for submitting a plan for long-term remediation, based on
future operating scenarios. Penelec currently estimates that the remediation of
the Seward station property will range from $12 million to $20 million and has a
recorded liability of $12 million at December 31, 1997. These cost estimates are
subject to uncertainties based on continuing discussions with the PaDEP as to
the method of remediation, the extent of remediation required and available
cleanup technologies. Penelec has requested, and expects to receive, recovery of
these remediation costs in its restructuring plan filed with the PaPUC (see
Competitive Environment section, Management's Discussion and Analysis), and has
recorded a corresponding regulatory asset of approximately $12 million at
December 31, 1997.
In 1993, York Haven Power Company, a wholly-owned subsidiary of Met-Ed,
entered into an agreement with various agencies to construct a fish passage
facility at the York Haven hydroelectric project by April 2000. This agreement
is part of the FERC license. The present estimated installed cost of the
facility is $8.4 million. Construction is expected to begin in 1998.
The GPU Energy companies are also subject to environmental and water
diversion requirements adopted by the Delaware River Basin Commission and the
Susquehanna River Basin Commission, as administered by those commissions or the
PaDEP and the NJDEP.
Nuclear: Reference is made to the Nuclear Facilities section for
information regarding the TMI-2 accident, its aftermath and the GPU Energy
companies' other nuclear facilities.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing, constructing and site licensing the facility is estimated to be $58
million, which will be paid through 2002. Through December 31, 1997,
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$6 million has been paid. As a result, at December 31, 1997, a liability of $52
million is reflected on the Consolidated Balance Sheets. JCP&L is recovering
these costs from customers, and a regulatory asset has also been recorded. In
February 1998, the New Jersey Low-Level Radwaste Facility Siting Board (Siting
Board) voted to suspend the siting process in New Jersey. The Siting Board is
reviewing its legal and financial obligations, subject to review from the
Governor. GPUN cannot determine at this time what effect, if any, this matter
will have on its operations.
Pennsylvania, Delaware, Maryland and West Virginia have established the
Appalachian Compact to construct a facility for the disposal of low-level
radwaste in those states, including low-level radwaste from TMI-1. To date,
pre-construction costs of $33 million, out of an estimated $88 million, have
been paid. Eleven nuclear plants have so far shared equally in the
pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1. All
contributors, including nonutility radwaste producers within the compact that
make voluntary contributions, will receive certain credits against surcharges to
be paid by all depositors of waste over a ten-year period. The methodology for
the allocation of these credits has yet to be determined. In addition, $50
million of estimated construction costs will be funded by an independent
contractor and recovered by the contractor through waste disposal fees collected
during the first five years of the facility's operation. However, delays in the
facility's construction could result in additional funding requirements.
GPUN is currently shipping low-level radwaste to the Barnwell, South
Carolina radwaste disposal site. Operation of the Northeast Compact disposal
facility, initially expected to commence by the mid-1990's, is now expected to
be delayed until at least the end of 2003. The Appalachian Compact disposal
facility, which was scheduled to open in 1999, is now estimated to be
operational by 2002. Continuing delays in the completion of these disposal
facilities will require GPUN to perform an evaluation of its ability to safely
store radwaste beyond these dates.
The GPU Energy companies have provided for future contributions to the
Decontamination and Decommissioning Fund for the cleanup of uranium enrichment
plants operated by the Federal Government. GPU's total liability at December 31,
1997 amounted to $31 million (JCP&L $20 million; Met-Ed $7 million; Penelec $4
million). The remaining amount recoverable from ratepayers at December 31, 1997
is $33 million (JCP&L $21 million; Met-Ed $8 million; Penelec $4 million).
Air: With respect to air quality, the GPU-owned or operated generating
stations are subject to certain state environmental regulations of the NJDEP and
the PaDEP. The stations are also subject to certain federal environmental
regulations of the EPA. One of the major sets of regulations that governs air
quality is the Federal Clean Air Act of 1970 (CAA):
CAA Title I sets National Ambient Air Quality Standards (NAAQS) for
certain criteria pollutants. The criteria pollutants are ozone, sulfur dioxide
(SO2), nitrogen dioxide, particulate matter, carbon monoxide and lead. In
particular, this Title has established the Northeast Ozone Transport Region
(OTR), which includes 12 northeast states and the District of Columbia, to
address the transport of those pollutants leading to non-attainment of the
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ozone NAAQS in the Northeast. Ozone control is facilitated by the control of
pollutant precursors, which are nitrogen oxide (NOx) and volatile organic
compounds (VOCs). Fossil fuel-fired electric generating stations are major
sources of NOx emissions. Pennsylvania and New Jersey are part of the OTR, and
will be required to control NOx emissions to a level that will provide for the
attainment of the ozone standard in the Northeast. As an initial step, major
stationary sources of NOx were required to implement Reasonably Available
Control Technology (RACT) by May 31, 1995. The PaDEP proposed that RACT be
determined on a case-by-case basis and thus could be different for each unit or
facility. RACT proposals were prepared and submitted to the PaDEP in 1994. GPU
has opted for the installation of low NOx burners or other control technology,
and in some cases, limitations on annual operations, in order to achieve the
reductions required by the PaDEP RACT regulations. The NJDEP's RACT regulations
establish maximum allowable emission rates for utility boilers based on fuel
used and boiler type, and on combustion turbines based on the type of fuel used.
Existing units are eligible for emissions averaging upon approval of an
averaging plan by the NJDEP. JCP&L is in compliance with NJDEP RACT regulations.
A Memorandum of Understanding (MOU) has been signed by the members of the
Ozone Transport Commission (OTC). The MOU calls for inner and outer zones, with
seasonal NOx emission reductions from 1990 emission levels of 65% and 55%,
respectively, by May 1, 1999. JCP&L, Met-Ed and Penelec will spend an estimated
$0.2 million, $2.8 million and $3.0 million, respectively, to meet the 1999
reductions set by the OTC. The MOU also calls for a 75% reduction from 1990
emission levels by May 2003. The 2003 limits will not be imposed if a scientific
demonstration to be provided by the North American Research Strategy for
Tropospheric Ozone (NARSTO) finds that less restrictive limits would be
necessary to obtain compliance with the ozone NAAQS. However, there is also the
potential that the NARSTO effort may actually recommend more severe reductions
than outlined in the MOU. A market-based NOx trading system is proposed to allow
for the transfer of excess reductions encouraging alternate compliance
strategies.
Under mandatory, routine review of the ozone NAAQS, the EPA issued new
standards in July 1997 that will significantly increase the areas in the country
which are not in attainment of the NAAQS. A timeline for implementation of the
new standards calls for attainment designations by 2000; state implementation
plans (SIP) by 2001 and 2003 for attainment and non-attainment areas,
respectively; and attainment, with possible extensions, by 2011.
The area around the Warren station has been designated as non-attainment
for the SO2 NAAQS. The EPA and the PaDEP have both approved the use of a
non-guideline air quality model, which is more representative and less
conservative than the EPA guideline model, to evaluate the ambient air quality
impacts of the station. This modeling has demonstrated attainment for the area,
with no required reduction in Warren station emissions. At Shawville station,
the approved use of the same non-guideline model shows attainment of the SO2
NAAQS within current Pennsylvania default SO2 emission limits.
The vicinity of the Chestnut Ridge Energy Complex, which includes the
Homer City, Conemaugh, Keystone and Seward stations, is officially designated as
being in attainment of the SO2 NAAQS; however, both the EPA and the PaDEP
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have questioned the area's attainment of this standard. The EPA and the PaDEP
have both approved the use of the same non-guideline model discussed above to
evaluate the ambient air quality impacts of these generating stations. This
model will also be used in the development of a compliance strategy for all
generating stations in the Chestnut Ridge Energy Complex.
Attainment of the SO2 NAAQS has been taken into account as part of the
design of the Conemaugh station scrubbers. In addition, Met-Ed has initiated
ambient air quality modeling studies for its Portland and Titus stations, which
will take several years to complete. While the results are uncertain, these
studies may result in a revised Pennsylvania SIP with source-specific emission
limitations in order to attain NAAQS for SO2. If SO2 emissions need to be
reduced to meet the new SIP, Met-Ed will reevaluate its options available for
Portland and Titus stations.
Based on the results of the studies pursuant to compliance with NAAQS,
significant SO2 reductions may be required at one or more of these stations,
which could result in significant capital and additional operating expenditures.
Under a court ordered review of the NAAQS for particulate matter, the EPA
released new standards in July 1997, which could significantly increase the
areas in the country that are not in attainment of the standard. The particulate
matter NAAQS primarily impact NOx and SO2 emission sources. It is possible that
once attainment status is defined by the EPA and the reductions required under
other provisions of the CAA are realized, compliance with the particulate matter
NAAQS could require further reductions in NOx and/or SO2 emissions.
Certain other environmental regulations limit the amount of particulate
matter emitted into the environment. GPU has installed equipment at its
coal-fired generating stations and may find it necessary to either upgrade or
install additional equipment at certain of its stations to consistently meet
particulate emission requirements. Also, the proposed revision to the
particulate matter NAAQS could trigger reduction requirements.
Title III of the CAA deals with emissions of hazardous air pollutants
(HAPs). As part of Title III, the EPA is charged with conducting a study to
determine if fossil fuel-fired electric steam generating units pose a serious
threat to public health due to emissions of HAPs. The study will seek to
determine whether regulation of utility sources is appropriate and necessary. If
the study results prove, through risk analysis, that regulation is required, a
Maximum Achievable Control Technology standard will be developed for utility
sources. An interim study report was published in October 1996. In general, the
study did not find unacceptable health risks from utility sources, but
recommended further analysis of long-range transport of HAPs and the impact of
mercury emissions. The interim report does not include the EPA's official
recommendation as to the necessity of HAP regulation for utilities.
Title IV of the CAA requires substantial reductions to meet a national cap
in SO2 emissions beginning in the years 1995 and 2000 (Phases I and II,
respectively). As a result, it will be necessary for the GPU Energy companies to
install and operate emission control equipment, switch to slightly lower
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sulfur coal at some of their coal-fired plants, or purchase emission allowances
in order to achieve compliance. Title IV also imposes requirements for the
installation of NOx controls. To comply with Titles I and IV of the CAA, the GPU
Energy companies expect to spend up to $248 million (JCP&L $44 million; Met-Ed
$98 million; Penelec $106 million) for air pollution control equipment by the
year 2000, of which approximately $242 million (JCP&L $43 million; Met-Ed $96
million; Penelec $103 million) has been spent as of December 31, 1997 (these
amounts include costs to meet the 1999 reductions set by the OTC, as discussed
on page 37). The capital costs of equipment are for the installation of flue gas
desulfurization systems (scrubbers), low NOx burner technology, selective
noncatalytic reduction and particulate removal upgrades.
Conemaugh, Portland and Shawville stations are Phase I affected units. The
second of two scrubbers was completed at the Conemaugh station during 1995, as
part of GPU's plans to comply with SO2 emission limitations. For the Portland
station, Met-Ed plans to meet its Phase I compliance obligation through the use
of SO2 emission allowances, including allowances allocated directly to Portland
station by the EPA and excess allowances transferred from the Conemaugh station
that result from operation of the scrubbers. The Shawville station will require
lower sulfur coal and/or the purchase of emission allowances to meet its Phase I
requirements. Since these coal fired units are Phase I affected, they are also
subject to the Title IV NOx requirements.
Homer City, Keystone and Titus stations have been declared early election
units under federal regulations (40 CFR, Part 76). This limits the Title IV NOx
requirement to the Phase I NOx emission rates until 2008. GPU's current strategy
for Phase II SO2 compliance is the use of fuel switching and the purchase of
allowances at the Keystone and the Homer City Unit 3 stations, with periodic
reviews of the cost effectiveness of the installation of scrubbers. Switching to
lower sulfur coal and/or the purchasing of allowances is currently planned for
the Titus, Seward, Portland, Shawville and Warren stations as well. Homer City
units 1 and 2 will use existing coal cleaning technology and the purchase of
allowances. Additional control modifications are not expected to be necessary
for Phase II compliance at the Conemaugh and Sayreville Stations.
Title IV of the CAA also requires Phase I and Phase II affected units to
install a continuous emission monitoring system (CEMS) and provide quality
assurance for the data related to SO2, NOx, opacity and volumetric flow. In
addition, Title VIII of the CAA requires all affected sources to monitor carbon
dioxide emissions. Monitoring systems have been installed and certified on
JCP&L, Met-Ed and Penelec's Phase I and Phase II affected units as required by
EPA, NJDEP and PaDEP regulations. Additionally, regulations within Pennsylvania
and New Jersey which implement the OTC MOU will require the reporting of NOx
emissions from affected sources which are not Title IV affected.
The PaDEP has a CEMS enforcement policy to ensure consistent compliance
with air quality regulations under federal and state statutes. The CEMS
enforcement policy includes matters such as visible emissions, SO2 emission
standards, NOx emissions and a requirement to maintain certified CEMS equipment.
In addition, this policy provides a mechanism for the payment of
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certain prescribed amounts to the Pennsylvania Clean Air Fund (Clean Air Fund)
for air pollutant emission excess or monitoring failures. With respect to the
operation of Met-Ed and Penelec's generating stations, it is not anticipated
that payments to be made to the Clean Air Fund due to CEM penalties will be
material in amount. The CAA has also expanded the enforcement options available
to the EPA and the states and contains more stringent enforcement provisions and
penalties. Moreover, citizen suits can seek civil penalties for violations of
this Act.
CAA Title V required that comprehensive permit applications be submitted
by major stationary sources to the permitting authorities in 1995. Title V may
dramatically increase the level of effort required to track compliance and
tabulate emissions of the numerous processes regulated by the new permits once
issued. The states' Title V program also established new emission fee
structures. In 1997, the Pennsylvania stations paid $1.5 million in emissions
fees, and the New Jersey fees totaled approximately $50,000. Emission fees are
based on the level of actual emissions and are assessed on a per ton basis.
GPU continues to reassess its options for compliance with the CAA,
including those that may result from the continued development of the emission
trading allowance market. GPU's compliance strategy, especially with respect to
Phase II, could change as a result of further review, discussions with co-owners
of jointly owned stations and changes in federal and state regulatory
requirements.
In the fall of 1993, the Clinton Administration announced its Climate
Change Action Plan (Plan), intended to reduce greenhouse gas emissions to 1990
levels by the year 2000. The Plan relies heavily on voluntary action by
industry. GPU has joined approximately 630 other electric utility companies
which have signed accords or are otherwise cooperating with the DOE under the
Climate Challenge Program, which is the electric utility's response to the Plan.
As a result of this and other programs, the CO2 emissions from GPU-owned
generating facilities have been at or below 1990 levels since 1992.
In 1997, as a result of the United Nations Framework Convention on Climate
Change, over 160 countries met in Kyoto, Japan to produce a document which would
address the reduction of greenhouse gas emissions after the year 2000. The Kyoto
Protocol calls for the U.S. to reduce its CO2 emissions to 7% below 1990 levels
by 2008 to 2012. The protocol does not include commitments for reductions from
developing nations, a prerequisite for Senate approval. The President has stated
that he will not ask the Senate to ratify the agreement until the developing
nations have agreed to targets of their own.
Electromagnetic Fields: There have been a number of studies regarding the
possibility of adverse health effects from electric and power frequency magnetic
fields that are found everywhere there is electricity. While some of the studies
have indicated some association between exposure to magnetic fields and cancer,
other studies have indicated no such association. The studies have not shown any
causal relationship between exposure to magnetic fields and cancer, or any other
adverse health effects. In 1990, the EPA issued a draft report that identifies
magnetic fields as a possible carcinogen, although it acknowledged that there is
still scientific uncertainty surrounding these fields and their possible link to
adverse health
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effects. On the other hand, a 1992 White House Office of Science and Technology
policy report states that "there is no convincing evidence in the published
literature to support the contention that exposures to extremely low frequency
electric and magnetic fields generated by sources such as household appliances,
video display terminals, and local power lines are demonstrable health hazards."
In 1994, results of a large-scale epidemiology study of electric utility workers
suggested a statistical relationship between brain cancer and the class of
workers who received the highest exposure. These findings conflicted with two
earlier large-scale studies that found no such relationship. In 1996, the
National Research Council of the National Academy of Sciences released a report
which concluded that, "Based on a comprehensive evaluation of published studies
relating to the effects of power-frequency electric and magnetic fields on
cells, tissues and organisms (including humans), ... the current body of
evidence does not show that exposure to these fields presents a human-health
hazard. Specifically, no conclusive and consistent evidence shows that exposures
to residential electric and magnetic fields produce cancer, adverse
neurobehavioral effects, or reproductive and developmental effects." Additional
studies, which may foster a better understanding of the subject, are presently
underway.
Certain parties have alleged that exposure to electric and magnetic fields
associated with the operation of transmission and distribution facilities will
produce adverse impacts upon public health and safety and upon property values.
Furthermore, regulatory actions under consideration by the NJDEP and bills
introduced in the Pennsylvania legislature could, if enacted, establish a
framework under which the intensity of the fields produced by electric
transmission and distribution lines would be limited or otherwise regulated.
The GPU Energy companies cannot determine at this time what effect, if
any, this matter will have on their respective results of operations and
financial position.
Residual Waste: PaDEP regulations governing ash disposal sites require,
among other things, groundwater assessments of landfills if existing groundwater
monitoring indicates the possibility of degradation. The assessments could
require the installation of additional monitoring wells and the evaluation of
one year's data. If the assessments show degradation of the groundwater, Penelec
and Met-Ed would be required to develop abatement plans, which may include the
lining of currently unlined facilities. To date, Penelec has not identified any
cases requiring abatement. Although Met-Ed's Titus station ash disposal site was
upgraded in 1991 and meets many of the lined facility requirements, degradation
has been identified at the site. In 1996, Met-Ed filed an abatement plan with
the PaDEP in conjunction with its re-permitting application (see discussion
below), which states that the problem will be abated once the station is closed
and projected site closure procedures have been performed. The PaDEP has since
required a more detailed groundwater assessment to evaluate the groundwater
condition at the site. Also, Met-Ed's Portland station ash disposal site
requires significant modifications. Various alternatives for upgrading the site
are being evaluated, including beneficial uses of coal ash.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating
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ash disposal sites, including projected site closure procedures and related cost
estimates. The cost estimates for the closure of these sites range from
approximately $16 million to $29 million and a liability of $16 million (JCP&L
$1 million; Met-Ed $4 million; Penelec $11 million) is reflected on the
Consolidated Balance Sheets at December 31, 1997. JCP&L has requested recovery
of its share of closure costs in its restructuring plan filed with the NJBPU in
July 1997. Penelec and Met-Ed expect recovery through their restructuring plans
filed with the PaPUC in June 1997 (see Competitive Environment section,
Management's Discussion and Analysis). As a result, a regulatory asset of $16
million (JCP&L $1 million; Met-Ed $4 million; Penelec $11 million) is reflected
on the Consolidated Balance Sheets at December 31, 1997.
Other PaDEP residual waste compliance requirements involve storage
impoundments, which also will eventually require groundwater monitoring systems
and potential assessments of impact on groundwater. Groundwater abatement may be
necessary at locations where pollution problems are identified. The removal of
all the residual waste ("clean closure") will be done at some impoundments to
eliminate the need for future monitoring and abatement requirements. Storage
impoundments must have implemented groundwater monitoring plans by 2002, but the
PaDEP can require this at any time prior to this date or, at its discretion,
defer full compliance beyond 2002 for some storage impoundments. A January 1997
change in the regulations required submittal of groundwater monitoring plans for
residual waste storage impoundments by July 1997. Plans have been submitted for
all stations and the PaDEP has begun to implement these plans at the Conemaugh,
Homer City and Keystone stations.
There are also a number of issues still to be resolved regarding certain
waivers related to Penelec's existing landfill and storage impoundment
compliance requirements. These waivers could significantly reduce the cost of
many of Penelec's facility compliance upgrades.
Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the
EPA has adopted certain regulations governing the use, storage, testing,
inspection and disposal of electrical equipment that contains polychlorinated
biphenyls (PCBs). Such regulations permit the continued use and servicing of
certain electrical equipment (including transformers and capacitors) that
contain PCBs. GPU has met all requirements of the TSCA necessary to allow the
continued use of equipment containing PCBs and has taken substantive voluntary
actions to reduce the amount of PCB-containing electrical equipment.
Prior to 1953, the GPU Energy companies owned and operated MGP sites in
New Jersey and Pennsylvania. Waste contamination associated with the operation
and dismantlement of these MGP sites is, or may be, present both on-site and
off-site. Claims have been asserted against the GPU Energy companies for the
cost of investigation and remediation of these sites. The amount of such
remediation costs and penalties may be significant and may not be covered by
insurance. JCP&L has entered into agreements with the NJDEP for the
investigation and remediation of 17 formerly owned MGP sites. JCP&L has also
entered into various cost-sharing agreements with other utilities for most of
the sites. As of December 31, 1997, JCP&L has spent approximately $27 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded an
estimated environmental liability of $46 million relating to expected future
costs of these sites (as well as two other properties). This
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estimated liability is based upon ongoing site investigations and remediation
efforts, which generally involve capping the sites and pumping and treatment of
ground water. Moreover, the cost to clean up these sites could be materially in
excess of $46 million due to significant uncertainties, including changes in
acceptable remediation methods and technologies.
In 1997, JCP&L's request to establish a Remediation Adjustment Clause for
the recovery of MGP remediation costs was approved by the NJBPU as part of the
Final Settlement (see Rate Matters section, Management's Discussion and
Analysis). At December 31, 1997, JCP&L had recorded on its Consolidated Balance
Sheet a regulatory asset of $55 million, which included approximately $46
million related to expected future costs and approximately $9 million for past
remediation expenditures in excess of collections from customers (including
interest).
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994, JCP&L
filed a complaint with the Superior Court of New Jersey against several of its
insurance carriers, relative to these MGP sites. Pretrial discovery is
continuing.
In August 1997, the EPA filed a complaint against GPU, Inc. in the United
States District Court for the District of Delaware for enforcement of its
unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light
Company (Dover) manufactured gas production site in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings. All of the common
stock of Dover was sold in 1942 by a member of the AGECO/AGECORP group to an
unaffiliated entity, and was subsequently acquired by Chesapeake Utilities
Corporation. According to the complaint, the EPA is seeking up to $0.5 million
in past costs, $4.2 million for work in connection with the cleanup of the Dover
site and approximately $19 million in penalties. GPU, Inc. has responded to the
EPA complaint stating that such claims should be dismissed because, among other
things, they are barred by the operation of the Final Decree entered by the
United States District Court for the Southern District of New York at the
conclusion of the 1946 reorganization proceedings of AGECO/AGECORP. Chesapeake
Utilities Corporation has also sued GPU, Inc. for a contribution to the cleanup
of the Dover site. In December 1997, the Court refused to dismiss the complaint;
GPU has requested that the Court reconsider its decision. There can be no
assurance as to the outcome of these proceedings.
The Federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize
the EPA to issue an order compelling responsible parties to take cleanup action
at any location that is determined to present an imminent and substantial danger
to the public or to the environment because of an actual or threatened release
of one or more hazardous substances. Pennsylvania and New Jersey have enacted
legislation giving similar authority to the PaDEP and the NJDEP, respectively.
Because of the nature of the GPU Energy companies' business, various by-products
and substances are produced and/or handled that are classified as hazardous
under one or more of these statutes. GPU generally provides for the treatment,
disposal or recycling of such substances
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through licensed independent contractors, but these statutory provisions also
impose potential responsibility for certain cleanup costs on the generators of
the wastes. GPU has been formally notified by the EPA and state environmental
authorities that it is among the potentially responsible parties (PRPs) who may
be jointly and severally liable to pay for the costs associated with the
investigation and remediation at hazardous and/or toxic waste sites in the
following number of instances (in some cases, more than one company is named for
a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
7 4 2 1 1 12
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may nevertheless
consider them as PRPs. Certain of the GPU companies have also been named in
lawsuits requesting damages (which are material in amount) for hazardous and/or
toxic substances allegedly released into the environment. A discussion of five
PRP sites, where it is probable that a loss has been incurred, follows:
JCP&L, Met-Ed and GPUN are among the more than 800 PRPs under CERCLA who
may be liable to pay for costs associated with the investigation and remediation
of the Maxey Flats disposal site, located in Fleming County, Kentucky. A
negotiated settlement among all parties has been finalized and cleanup efforts
have begun. The interim remediation work is estimated to cost $63 million, for
which all responsible parties will be jointly and severally liable. The
estimated allocation, which is based upon a percentage of the total volume of
waste believed shipped to the site, is JCP&L $1.1 million, Met-Ed $400 thousand
and GPUN $150 thousand. A liability is reflected on the Consolidated Balance
Sheets accordingly.
JCP&L has been named as a PRP by the NJDEP for allegedly disposing of
hazardous waste at the Global Landfill, a dump site located in New Jersey. JCP&L
signed a Consent Decree, along with about 50 other PRPs, to investigate the site
and conduct site remediation. The current estimated cost of the remediation is
$33 million. A final allocation of JCP&L's share has not yet been made. However,
JCP&L's interim estimated allocation is $500,000. The extent of the future
liability beyond the $500,000 cannot be estimated at this time. At December 31,
1997, JCP&L has recorded a liability of $500,000.
Met-Ed received a PRP notice from the PaDEP asserting that it had disposed
of hazardous waste at the Industrial Solvents & Chemical Company site, a former
solvents recycler. This site is being remediated under the Pennsylvania
Hazardous Sites Cleanup Act. Met-Ed has made immaterial payments to the PRP
group for the water line installation and the removal of tanks, drums and other
materials at the site. Met-Ed cannot reasonably estimate its remaining liability
until the PaDEP selects a remedy for ground water contamination.
Penelec is part of a group of 10 PRPs who have entered into a Consent
Decree with Pennsylvania and a settlement with the EPA to pay for costs
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associated with the remediation of a dump site located in Mill Creek Township
near Erie, Pennsylvania. Penelec has paid approximately $114,000 in costs for
the settlement with Pennsylvania and $600,000 in costs for the settlement with
the EPA. Penelec's share of the remaining costs for the site is estimated to be
$500,000 (including costs to cap the site), for which a liability has been
recorded at December 31, 1997.
Penelec has been named as a PRP by the EPA, along with over 1,000 other
PRPs, for allegedly disposing of hazardous materials at the Jack's Creek/Sitken
site, a former metals recycling and smelting operation in Mifflin County,
Pennsylvania. Penelec has joined a PRP group, which is exploring a settlement
with the EPA, but cannot predict the ultimate outcome of the negotiations.
The ultimate cost of remediation of these and other hazardous waste sites
will depend upon changing circumstances as site investigations continue,
including (a) the existing technology required for site cleanup, (b) the
remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU companies involved.
FRANCHISES AND CONCESSIONS
JCP&L operates pursuant to franchises in the territory served by it and
has the right to occupy and use the public streets and ways of the state with
its poles, wires and equipment upon obtaining the consent in writing of the
owners of the soil, and also to occupy the public streets and ways underground
with its conduits, cables and equipment, where necessary, for its electric
operation. JCP&L has the requisite legal franchise for the operation of its
electric business within the State of New Jersey, including in incorporated
cities and towns where designations of new streets, public ways, etc., may be
obtained upon application to such municipalities. JCP&L holds a FERC license
expiring in 2013 authorizing it to operate and maintain the Yards Creek pumped
storage hydroelectric station in which JCP&L has a 50% ownership interest.
Met-Ed and Penelec have the necessary franchise rights to furnish electric
service in the various respective municipalities or territories in which each
company now supplies such services. These electric franchise rights, which are
generally nonexclusive rights, consist generally of (a) charter rights and (b)
certificates of public convenience issued by the PaPUC and/or "grandfather
rights". Such electric franchise rights are free from unduly burdensome
restrictions and unlimited as to time, except in a few relatively minor cases
and except as otherwise described below. The secondary franchise granted by the
Borough of Boyertown to Met-Ed contains a provision that the Borough shall have
the right at any time to purchase the electric system in the Borough at a
valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in
2014 for the continued operation and maintenance of the York Haven hydroelectric
project. Penelec holds a license from the FERC, which expires in 2002, for the
continued operation and maintenance of the Piney hydroelectric project. In
addition, Penelec and the Cleveland Electric Illuminating Company hold a license
expiring in 2015 for the Seneca Pumped Storage Hydroelectric station in which
Penelec has a 20% undivided interest. For the same station, Penelec and the
Cleveland Electric Illuminating Company hold a Limited Power Permit issued by
the Pennsylvania Water and Power Resources Board which is unlimited as to time.
For purposes of the Homer City station, Penelec and New York State Electric &
Gas Corporation hold a Limited
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Power Permit issued by the Pennsylvania Water and Power Resources Board which
expires in 2017, but is renewable by the permittees until they have recovered
all capital invested by them in the project. Penelec also holds a Limited Power
Permit issued by the Pennsylvania Water and Power Resources Board for its
Shawville station which expires in 2003, but is renewable by Penelec until it
has recovered all capital invested in the project.
The extent to which competition in the electric utility industry will
affect the territories currently served by the GPU Energy companies and their
rights to provide electric utility service in those territories is uncertain.
Refer to Competitive Environment and The GPU Energy Companies' Supply Plan,
Management's Discussion and Analysis for further discussion.
EMPLOYEE RELATIONS
At February 28, 1998, GPU, Inc. and consolidated affiliates had 9,387
full-time employees (JCP&L 2,470; Met-Ed 2,945; Penelec 1,667; GPUI Group 478;
all other companies 1,827). The nonsupervisory production and maintenance
employees of the GPU Energy companies and certain of their nonsupervisory
clerical employees are represented for collective bargaining purposes by local
unions of the International Brotherhood of Electrical Workers (IBEW) at JCP&L,
Met-Ed and Penelec and the Utility Workers Union of America (UWUA) at Penelec.
Penelec's five-year contract with the UWUA expires on June 30, 1998.
Penelec has renegotiated a four-year contract with the IBEW, expiring on May 14,
2002. The IBEW membership has ratified the new contract subject to reaching
agreement on employee transition arrangements to be implemented upon GPU's
divestiture of its fossil fuel and hydroelectric generating facilities. JCP&L
and Met-Ed's three-year contracts with the IBEW expire on October 31, 1999 and
April 30, 2000, respectively.
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ITEM 2. PROPERTIES.
GPU Energy Companies' Generating Stations
At December 31, 1997, the generating stations of the GPU Energy companies
had an aggregate effective capability of 6,751,000 net kilowatts (KW), as
follows:
Name of GPU Energy Year of Net KW
Station Company Installation (Summer)
------- ---------- ------------ --------
COAL-FIRED:
Homer City(a) Penelec 1969-1977 942,000
Shawville Penelec 1954-1960 597,000
Portland Met-Ed 1958-1962 401,000
Keystone(b) JCP&L 1967-1968 283,000
Conemaugh(c) Met-Ed 1970-1971 280,000
Titus Met-Ed 1951-1953 243,000
Seward Penelec 1950-1957 196,000
Warren Penelec 1948-1949 82,000
NUCLEAR:
TMI-1(d) All 1974 786,000
Oyster Creek JCP&L 1969 619,000
GAS/OIL-FIRED:
Sayreville JCP&L 1930-1958 229,000
Combustion
Turbines(e) All 1960-1997 1,444,000
Other(f) All 1968-1977 298,000
Hydroelectric(g) Met-Ed/Penelec 1905-1969 64,000
PUMPED STORAGE:(h)
Yards Creek JCP&L 1965 200,000
Seneca Penelec 1969 87,000
---------
TOTAL 6,751,000
=========
Aggregate Effective Capability of the GPU Energy Companies
Net KW
(Summer) (Winter)
JCP&L 2,729,000 3,139,000
Met-Ed 1,738,000 1,861,000
Penelec 2,284,000 2,365,000
--------- ---------
TOTAL 6,751,000 7,365,000
========= =========
(a) Represents Penelec's undivided 50% interest in the station.
(b) Represents JCP&L's undivided 16.67% interest in the station.
(c) Represents Met-Ed's undivided 16.45% interest in the station.
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(d) Jointly owned by JCP&L, Met-Ed and Penelec in percentages of 25%, 50%
and 25%, respectively.
(e) JCP&L - 912,000 KW, Met-Ed - 400,000 KW and Penelec 132,000 KW.
(f) Consists of internal combustion and combined-cycle units (JCP&L -
290,000 KW, Met-Ed - 2,000 KW and Penelec - 6,000 KW).
(g) Consists of Met-Ed's York Haven station (19,000 KW) and Penelec's Piney
(27,000 KW) and Deep Creek stations (18,000 KW).
(h) Represents the GPU Energy companies' undivided interests in these
stations which are net users rather than net producers of electric
energy.
The GPU Energy companies' coal-fired, hydroelectric (other than the Deep
Creek station) and pumped storage stations (other than the Yards Creek station)
are located in Pennsylvania. The TMI-1 nuclear station is also located in
Pennsylvania. The GPU Energy companies' gas-fired and oil-fired stations (other
than some combustion turbines in Pennsylvania), the Yards Creek pumped storage
station and the Oyster Creek nuclear station are located in New Jersey. The Deep
Creek hydroelectric station is located in Maryland.
Substantially all of the GPU Energy companies' properties are subject to
the lien of their respective FMB indentures.
The peak loads of the GPU Energy companies were as follows:
(In KW)
Company Date Peak Load
------- ---- ---------
GPU Energy companies July 15, 1997 9,555,000*
JCP&L July 15, 1997 4,817,000
Met-Ed July 15, 1997 2,224,000
Penelec Jan. 19, 1997 2,652,000
* System peak load.
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GPUI Group Generating Facilities
At December 31, 1997, the GPUI Group had ownership interests in 20
operating natural gas-fired cogeneration and other nonutility power production
facilities located both domestically and internationally, with an aggregate
capability of 4,676,500 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
- -------- -------- ------------ -------- -------------
U.S. Facilities
---------------
Selkirk NY 1992-94 350,000 66,900
Lake* FL 1993 110,000 109,900
Pasco* FL 1993 109,000 54,400
Onondaga* NY 1993 80,000 40,000
Syracuse* NY 1992 80,000 3,500
Marcal* NJ 1989 65,000 32,500
Camarillo* CA 1988 26,500 300
Chino* CA 1987 26,000 300
------- -------
Total 846,500 307,800
------- -------
Foreign Facilities
Teesside** England 1993 1,875,000 249,400
Redditch** England 1991 29,000 14,500
Hereford** England 1980 15,000 7,500
Humber** England 1997 750,000 70,500
Enersis Group** Portugal 1987-95 50,000 12,500
Micdos** Spain 1975-95 33,000 7,100
Crisa** Spain 1948-58 6,000 2,900
Termobarran-
quilla* Colombia 1972-96 832,000 238,000
Guaracachi* Bolivia 1975-94 161,000 80,500
Aranjuez* Bolivia 1974-94 40,000 20,000
Karachipampa* Bolivia 1982 15,000 7,500
Brooklyn Canada 1996 24,000 18,000
--------- ---------
Total 3,830,000 728,400
--------- ---------
Total capability 4,676,500 1,036,200
========= =========
* The GPUI Group has operating responsibility for these facilities.
** The GPUI Group's ownership interests in these facilities are through
its investment in Midlands.
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Transmission and Distribution System
At December 31, 1997, the GPU Energy companies owned the following
transmission and distribution facilities:
JCP&L Met-Ed Penelec Total
----- ------ ------- -----
Transmission and Distribution
Substations 303 249 473 1,025
========== ========== ========== ==========
Aggregate Installed Transformer
Capacity of Substations
(in kilovoltamperes - KVA) 21,030,384 11,495,061 15,849,354 48,374,799
========== ========== ========== ==========
Transmission System:
Lines (In Circuit Miles):
500 KV 18 188 235 441
345 KV -- -- 149 149
230 KV 570 383 650 1,603
138 KV -- 3 11 14
115 KV 232 381 1,330 1,943
69 KV, 46 KV and
34.5 KV 1,764 469 364 2,597
---------- ---------- ---------- ----------
Total 2,584 1,424 2,739 6,747
========== ========== ========== ==========
Distribution System:
Line Transformer Capacity (KVA) 10,113,205 6,020,913 6,844,215 22,978,333
========== ========== ========== ==========
Pole Miles of Overhead Lines 15,954 12,613 22,281 50,848
========== ========== ========== ==========
Trench Miles of Underground
Cable 7,023 1,943 1,918 10,884
========== ========== ========== ==========
In addition, GPU PowerNet which serves all of Victoria, Australia
covering an area of approximately 87,900 square miles and a population of 4.5
million, owns a total of 4,000 miles of overhead and underground lines.
Midlands, which provides service to 2.3 million customers in a 5,135 square mile
area in England, owns a total of 37,905 miles of overhead and underground lines.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Nuclear Facilities - TMI-2, Rate Proceedings, and
Electric Generation and the Environment - Environmental Matters under Item 1 and
to Commitments and Contingencies, Note 13 of the Notes to Consolidated Financial
Statements contained in Item 8 for a description of certain pending legal
proceedings involving GPU.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by
GPU, Inc. During 1997, JCP&L, Met-Ed and Penelec paid dividends on their common
stock to GPU, Inc. in the following amounts: JCP&L $150 million, Met-Ed $80
million and Penelec $60 million.
In accordance with JCP&L, Met-Ed and Penelec's FMB indentures, as
supplemented, the balances of retained earnings at December 31, 1997 that are
restricted as to the payment of dividends on their common stock are as follows:
JCP&L - $1.7 million Met-Ed - $3.4 million Penelec - $10.1 million
Stock Trading
GPU, Inc. is listed as GPU on the New York Stock Exchange. On
February 4, 1998, there were 40,377 registered holders of GPU, Inc. common
stock.
Dividends
GPU, Inc. common stock dividend declaration dates are the first
Thursdays of December, April, June, and October. Dividend payment dates fall on
the last Wednesdays of February, May, August and November. Dividend declarations
and quarterly stock price ranges for 1997 and 1996 are set forth below.
Common Stock
Dividends Declared Price Ranges*
- --------------------------- ---------------------------------------------
1997 1996
1997 1996 Quarter High/Low High/Low
----- ----- ------- ---------------- ------------------
April $ .50 $.485 First $36 1/8 $32 $35 1/8 $31 1/8
June .50 .485 Second 36 7/16 30 3/4 35 1/4 30 1/8
October .50 .485 Third 36 9/16 32 3/4 35 30 1/2
December .50 .485 Fourth 42 3/4 35 3/8 34 3/8 30 3/4
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
ITEM 6. SELECTED FINANCIAL DATA.
See pages F-1 and F-2 for references to each registrant's Selected
Financial Data required by this item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See pages F-1 and F-2 for references to each registrant's Management's
Discussion and Analysis of Financial Condition and Results of Operations
required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and F-2 for references to each registrant's Financial
Statements and Quarterly Financial Data (unaudited) required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors
Information regarding GPU, Inc.'s directors is incorporated by
reference to pages 2 through 6 of GPU, Inc.'s Proxy Statement for the 1998
Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and
Penelec, their ages, positions held and business experience during the past five
years are as follows:
Year First Elected
------------------
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- --------------
JCP&L/Met-Ed/Penelec:
- ---------------------
F. D. Hafer (a) 57 Chairman of the Board and 1996 1978 1994
Chief Executive Officer
D. Baldassari (b) 48 President 1982 1996 1996
D. W. Myers (c) 53 Vice President - Finance 1994 1996 1996
and Rates, and
Comptroller
C. B. Snyder (d) 52 Director 1997 1997 1997
JCP&L only:
- -----------
G. E. Persson (e) 66 Director 1983
S. C. Van Ness (f) 64 Director 1983
S. B. Wiley (g) 68 Director 1982
(a) Mr. Hafer is also Chairman, Chief Executive Officer, President and a
director of GPUS; Chairman of the Board, Chief Executive Officer and a
director of JCP&L, Met-Ed and Penelec; Chairman of the Board and a director
of GPUN; Chairman, Chief Executive Officer, and a director of Genco;
Chairman and a director of GPU International, Inc. (GPUI), GPU Power, Inc.
(GPU Power), GPU Electric, Inc. (GPU Electric), GPU AR, GPU Telcom; and a
director of Saxton Nuclear Experimental Corporation, all subsidiaries of
GPU, Inc. He is a director of Avon Energy Partners Holdings, Midlands
Electricity plc, and GPU PowerNet. Mr. Hafer also served as President of
Met-Ed from 1986 to 1996 and as President of Penelec from 1994 to 1996. Mr.
Hafer is also a director of Sovereign Bancorp Inc., Sovereign Bank, and
Utilities Mutual Insurance Company, and Chairman of the Board of the
Pennsylvania Electric Association.
(b) Mr. Baldassari was elected President of JCP&L in 1992, and President of
Met-Ed and Penelec in 1996. Prior to that, Mr. Baldassari served as Vice
President - Materials & Services of JCP&L since 1990. Mr. Baldassari is
also President, Chief Executive Officer and a director of GPU AR and GPU
Telcom; and a director of GPUN, Genco and First Morris Bank of Morristown,
NJ.
(c) Mr. Myers was elected Vice President - Finance and Rates, and Comptroller
of Met-Ed and Penelec in 1996, and has also served as Vice President -
Finance and Rates, and Comptroller of JCP&L since 1994. Prior to that, he
served as Vice President and Treasurer of GPU, Inc., GPUS, JCP&L, Met-Ed
and Penelec since 1993. He served as Vice President and Comptroller of GPUN
from 1986 to 1993.
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(d) Mrs. Snyder was elected Senior Vice President - Corporate Affairs of GPUS
in 1997. She is also a director of GPU PowerNet. Previously, she served as
Vice President - Public Affairs of JCP&L since 1996, and Vice President -
Public Affairs of Met-Ed and Penelec since 1994. Prior to 1994, she was
Regional Director of Met-Ed since 1991.
(e) Mrs. Persson serves as liaison (Special Assistant Director) between the
N.J. Division of Consumer Affairs and various State Boards. Prior to 1995,
she was owner and President of Business Dynamics Associates of Red Bank,
NJ. Mrs. Persson is a member of the United States Small Business
Administration National Advisory Board, the New Jersey Small Business
Advisory Council, the Board of Advisors of Brookdale Community College and
the Board of Advisors of Georgian Court College.
(f) Mr. Van Ness has been affiliated with the law firm of Pico, Mack, Kennedy,
Jaffe, Perrella and Yoskin of Trenton, NJ since 1990. He is also a director
of The Prudential Insurance Company of America.
(g) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota
of Morristown, NJ since 1973. He is also Chairman of First Morris Bank of
Morristown, NJ.
The directors of the GPU companies are elected at their respective annual
meetings of stockholders to serve until the next meeting of stockholders and
until their respective successors are duly elected and qualified.
There are no family relationships among the directors of the GPU companies.
Identification of Executive Officers
The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec,
their ages, positions held and business experience during the past five years
are as follows:
54
<PAGE>
Year First
Name Age Position Elected
---- --- -------- ---------
GPU, Inc.:
- ---------
F. D. Hafer (a) 57 Chairman, President and Chief 1996
Executive Officer
I. H. Jolles (b) 59 Senior Vice President and General 1990
Counsel
J. G. Graham (c) 59 Senior Vice President and Chief 1987
Financial Officer
F. A. Donofrio (d) 55 Vice President, Comptroller and 1985
Chief Accounting Officer
T. G. Howson (e) 49 Vice President and Treasurer 1994
M. A. Nalewako (f) 63 Secretary 1988
T. G. Broughton (g) 52 President, GPUN 1996
R. L. Wise (h) 54 President, Genco 1994
D. Baldassari (i) 48 President, JCP&L, Met-Ed, Penelec 1992
B. L. Levy (j) 42 President and Chief Executive 1991
Officer, GPUI, GPU Power and
GPU Electric
C. B. Snyder (k) 52 Senior Vice President - 1997
Corporate Affairs, GPUS
Year First Elected
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- ------ -------
JCP&L/Met-Ed/Penelec:
- --------------------
F. D. Hafer (a) 57 Chairman, and Chief 1996 1978 1994
Executive Officer
D. Baldassari (i) 48 President and Chief 1992 1996 1996
Operating Officer
I. H. Jolles (b) 59 Vice President and 1996 1996 1996
General Counsel
J. G. Graham (c) 59 Vice President and 1987 1987 1987
Chief Financial Officer
T. G. Howson (e) 49 Vice President 1994 1994 1994
and Treasurer
C. Brooks (l) 48 Vice President - Public 1997 1997 1997
Affairs
D. J. Howe (m) 47 Vice President - 1996 1996 1996
Information and Planning
C. A. Mascari (n) 50 Vice President - Power 1997 1997 1997
Services
D. W. Myers (o) 53 Vice President - 1994 1996 1996
Finance and Rates
and Comptroller
G. R. Repko (p) 52 Vice President - Customer 1996 1994 1986
Operations
R. J. Toole (q) 55 Vice President - 1990 1989 1996
Generation
R. S. Zechman (r) 54 Vice President - 1996 1990 1994
Corporate Services
S. L. Guibord (s) 49 Secretary 1996 1996 1996
55
<PAGE>
(a) See Note (a) on page 53.
(b) Mr. Jolles is also Executive Vice President, General Counsel and a
director of GPUS, General Counsel of GPUN and Genco, and a director of
GPUI, GPU Power, GPU Electric and GPU PowerNet. He is also a director of
Utilities Mutual Insurance Company.
(c) Mr. Graham is also Executive Vice President, Chief Financial Officer and
a director of GPUS; Vice President and Chief Financial Officer of GPUN;
and a director of GPUI, GPU Power, GPU Electric, GPU AR, GPU Telcom, Avon
Energy Partners Holdings, and Midlands Electricity plc. Mr. Graham is
also a director of Nuclear Electric Insurance Limited, Nuclear Mutual
Limited and Utilities Mutual Insurance Company.
(d) Mr. Donofrio is also Senior Vice President - Financial Controls of GPUS.
(e) Mr. Howson is also Vice President and Treasurer of GPUN, GPU AR and GPU
Telcom. He served as Vice President - Materials, Services and Regulatory
Affairs and a director of JCP&L in 1992.
(f) Mrs. Nalewako is also Secretary of GPUS and Genco and Assistant Secretary
of GPUN, JCP&L, Met-Ed and Penelec.
(g) Mr. Broughton is also a director of GPUN. He previously served as
Executive Vice President of GPUN since 1995. Prior to that, he served as
Vice President - TMI of GPUN since 1991.
(h) Mr. Wise is also a director of GPUN, Genco, GPUI, GPU Power and GPU
Electric. He previously served as President, Fossil Generation - GPUS
since 1994. Prior to that, Mr. Wise served as President and a director of
Penelec since 1986. He is also a director of U.S. Bancorp and U.S.
National Bank of Johnstown, PA.
(i) See Note (b) on page 53.
(j) Mr. Levy is also a director of GPUI, GPU Power, GPU Electric, Avon Energy
Partners Holdings, Midlands Electricity plc, and GPU PowerNet. He has
served as President, Chief Executive Officer and director of GPUI since
1991.
(k) See Note (d) on page 54.
(l) Mr. Brooks previously served as Vice President - Collect and Disburse
Money of Genco since 1996. Prior to that, he was Vice President -
Materials and Services of GPUS since 1990.
(m) Mr. Howe previously served as Director of Marketing and Pricing of JCP&L
since 1994. Prior to that, he was Director of Competitive Strategies and
Initiatives of JCP&L since 1993 and served as Manager - Cogeneration of
JCP&L from 1991-1993.
(n) Mr. Mascari previously served as Vice President - System Planning of GPUS
since 1994. Prior to that, he was Vice President - Nuclear Assurance of
GPUN since 1992.
(o) See Note (c) on page 53.
56
<PAGE>
(p) Mr. Repko has also served as Vice President - Customer Services of Met-Ed
and Penelec since 1994. Prior to that, he served as Vice President -
Division Operations of Penelec from 1986 to 1993.
(q) Mr. Toole is also a Vice President and a director of Genco.
(r) Mr. Zechman has also served as Vice President - Administrative Services
of Met-Ed since 1992 and as Vice President - Human Resources of Met-Ed
from 1990 to 1992.
(s) Mr. Guibord has also served as Corporate Compliance Auditing Director of
GPUS since 1994. Prior to that, he was a General Attorney at JCP&L. Mr.
Guibord also serves as Secretary of GPUN, GPU AR and GPU Telcom.
The executive officers of the GPU companies are elected each year by
their respective Boards of Directors at the first meeting of the Board held
following the annual meeting of stockholders. Executive officers hold office
until the next meeting of directors following the annual meeting of stockholders
and until their respective successors are duly elected and qualified. There are
no family relationships among the executive officers.
57
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item with respect to GPU, Inc. is
incorporated by reference to pages 9 through 20 of GPU, Inc.'s Proxy Statement
for the 1998 Annual Meeting of Stockholders. The following table sets forth
remuneration paid, as required by this Item, to the most highly compensated
executive officers of JCP&L, Met-Ed and Penelec for the year ended December 31,
1997.
The managements of JCP&L, Met-Ed and Penelec were combined in a 1996
reorganization. Accordingly, the amounts shown below represent the aggregate
remuneration paid to such executive officers by JCP&L, Met-Ed and Penelec during
1996 and 1997.
<TABLE>
Remuneration of Executive Officers
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------- -------------------------
Other
Name and Annual All Other
Principal Compen- LTIP Compen-
Position Year Salary Bonus sation(1) Payouts(2) sation
- -------- ---- ------ ----- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
J. R. Leva
Chairman of the
Board and Chief
Executive Officer
(retired May 1997) (3) (3) (3) (3) (3) (3)
F. D. Hafer
Chairman of the
Board and Chief
Executive Officer
(effective May 1997) (4) (4) (4) (4) (4) (4)
JCP&L/Met-Ed/Penelec:
D. Baldassari
President (5) (5) (5) (5) (5) (5)
G. R. Repko 1997 162,308 32,000 1,391 21,759 17,365 (6)
Vice President - 1996 154,625 44,000 615 20,085 12,562
Customer Services 1995 147,100 48,000 337 9,930 11,491
D. W. Myers 1997 162,308 32,000 1,471 23,014 15,248 (7)
Vice President - 1996 153,333 44,000 590 19,265 12,505
Finance and Rates 1995 144,000 34,000 362 10,665 10,687
D. J. Howe 1997 162,308 32,000 - - 12,702 (8)
Vice President - 1996 134,539 42,240 - - 6,582
Information and 1995 92,040 19,400 - - 4,096
Planning
<FN>
(1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") compensation
paid in the year the award vests.
(2) Consists of Performance Cash Incentive Awards paid on the 1990, 1991 and
1992 restricted stock awards which have vested under the 1990 Stock Plan.
These amounts are designed to compensate recipients of restricted
stock/unit awards for the amount of federal and state income taxes that
58
<PAGE>
are payable upon vesting of the restricted stock/unit awards. For Mr.
Leva, this amount also includes Performance Cash Incentive Awards paid on
his 1993 and 1994 restricted stock awards and the payout for restricted
units awarded in 1995, which vested upon his retirement.
The restricted units issued in 1995, 1996 and 1997 under the 1990 Stock
Plan are performance based. The 1997 awards are shown in "Long-Term
Incentive Plans - Awards in Last Fiscal Year" table (the "LTIP table").
Dividends are paid or accrued on the aggregate restricted stock/units
awarded under the 1990 Stock Plan and reinvested.
The aggregate number and value (based on the stock price per share at
December 31, 1997) of unvested stock-equivalent restricted units
(including reinvested dividends) includes the amounts shown on the LTIP
table, and at the end of 1997 were:
Aggregate Units Aggregate Value
J. R. Leva (3) (3)
F. D. Hafer (4) (4)
D. Baldassari (5) (5)
G. R. Repko 4,668 $196,640
D. W. Myers 4,646 195,712
D. J. Howe 2,270 95,624
(3) Mr. Leva retired as Chairman and Chief Executive Officer of GPU, Inc.
and its Subsidiaries in May 1997. Mr. Leva was compensated by GPUS for
his overall service on behalf of GPU and accordingly was not
compensated directly by the other subsidiary companies for his
services. Information with respect to Mr. Leva's compensation is
included on pages 13 through 15 in GPU, Inc.'s 1998 Proxy Statement,
which is incorporated herein by reference.
(4) Mr. Hafer was compensated by GPUS for his overall service on behalf of
GPU and accordingly was not compensated directly by the other
subsidiary companies for his services. Information with respect to Mr.
Hafer's compensation is included on pages 13 through 15 in GPU, Inc.'s
1998 Proxy Statement, which is incorporated herein by reference.
(5) Information with respect to Mr. Baldassari's compensation is included
on pages 13 through 15 in GPU, Inc.'s 1998 Proxy Statement, which is
incorporated herein by reference.
(6) Consists of GPU's matching contributions under the Savings Plan
($6,400), matching contributions under the non-qualified deferred
compensation plan ($1,852), above-market interest accrued on the
retirement portion of deferred compensation ($68), and earnings on LTIP
compensation not paid in the current year ($9,045).
(7) Consists of GPU's matching contributions under the Savings Plan
($6,246) and earnings on LTIP compensation not paid in the current year
($9,002).
(8) Consists of GPU's matching contributions under the Savings Plan
($6,400), matching contributions under the non-qualified deferred
compensation plan ($1,852), above-market interest accrued on the
retirement portion of deferred compensation ($35), and earnings on LTIP
compensation not paid in the current year ($4,415).
</FN>
</TABLE>
59
<PAGE>
<TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Performance Estimated future payouts
Number of or other under non-stock price-
shares, period until based plans(1)
units or maturation Threshold Target Maximum
Name other rights or payout (#) (#) (#)
---- ------------- --------------- --------- ------ -----
JCP&L/Met-Ed/Penelec:
- --------------------
<S> <C> <C> <C> <C> <C>
G. R. Repko 1,180 5 year vesting 590 1,180 2,360
D. W. Myers 1,180 5 year vesting 590 1,180 2,360
D. J. Howe 1,180 5 year vesting 590 1,180 2,360
<FN>
(1) The restricted units awarded in 1997 under the 1990 Stock Plan provide
for a performance adjustment to the aggregate number of units vesting for
the recipient, including the accumulated reinvested dividends, based on
the annualized GPU Total Shareholder Return (TSR) percentile ranking
against all companies in the Standard & Poor's Electric Utility Index for
the period between the award and vesting dates. With a 55th percentile
ranking, the performance adjustment would be 100% as reflected in the
"Target" column. In the event that the percentile ranking is below the
55th percentile, the performance adjustment would be reduced in steps
reaching 0% below the 40th percentile. The minimum payout or "Threshold"
begins at the 40th percentile, which results in a payout of 50% of
target. A ranking below the 40th percentile would result in no award.
Should the TSR percentile ranking exceed the 59th percentile, then the
performance adjustment would be increased in steps reaching 200% at the
90th percentile as reflected in the "Maximum" column. Under the 1990
Stock Plan, regular quarterly dividends are reinvested in additional
units that are subject to the vesting restrictions of the award. Actual
payouts under the Plan would be based on the aggregate number of units
awarded and the units accumulated through dividend reinvestment at the
time the restrictions lapse. Information with respect to Mr. Hafer's and
Mr. Baldassari's long-term incentive plans is included on page 15 in GPU,
Inc.'s 1998 Proxy Statement, which is incorporated herein by reference.
</FN>
</TABLE>
Proposed Remuneration of Executive Officers
None of the named executive officers in the Summary Compensation Table
has an employment contract. The compensation of executive officers is determined
from time to time by the Personnel & Compensation Committee of the GPU, Inc.
Board of Directors.
Retirement Plans
The GPU pension plans provide for pension benefits, payable for life
after retirement, based upon years of creditable service with GPU and the
employee's career average compensation as defined below. Federal law limits the
amount of an employee's pension benefits that may be paid from a qualified trust
established pursuant to a qualified pension plan (such as the GPU plans). The
GPU companies also have adopted non-qualified plans providing that the portion
of a participant's pension benefits which, by reason of such limitations, cannot
be paid from such a qualified trust shall be paid directly on an unfunded basis
by the participant's employer.
60
<PAGE>
The following table illustrates the amount of aggregate annual pension
benefits from funded and unfunded sources resulting from employer contributions
to the qualified trust and direct payments payable upon retirement in 1998
(computed on a single life annuity basis) to persons in specified compensation
and years of service classifications:
<TABLE>
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4) (5)
BASED UPON CAREER AVERAGE COMPENSATION
<CAPTION>
(1998 Retirement)
Career
Average
Compen- 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 45 Years
sation(1) of Service of Service of Service of Service of Service of Service of Service of Service
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 9,297 $ 13,945 $ 18,593 $ 23,242 $ 27,890 $ 32,539 $ 36,928 $ 40,928
100,000 19,297 28,945 38,593 48,242 57,890 67,539 76,528 84,528
150,000 29,297 43,945 58,593 73,242 87,890 102,539 116,128 128,128
200,000 39,297 58,945 78,593 98,242 117,890 137,539 155,728 171,728
250,000 49,297 73,945 98,593 123,242 147,890 172,539 195,328 215,328
300,000 59,297 88,945 118,593 148,242 177,890 207,539 234,928 258,928
350,000 69,297 103,945 138,593 173,242 207,890 242,539 274,528 302,528
400,000 79,297 118,945 158,593 198,242 237,890 277,539 314,128 346,128
450,000 89,297 133,945 178,593 223,242 267,890 312,539 353,728 389,728
500,000 99,297 148,945 198,593 248,242 297,890 347,539 393,328 433,328
550,000 109,297 163,945 218,593 273,242 327,890 382,539 432,928 476,928
600,000 119,297 178,945 238,593 298,242 357,890 417,539 472,528 520,528
650,000 129,297 193,945 258,593 323,242 387,890 452,539 512,128 564,128
700,000 139,297 208,945 278,593 348,242 417,890 487,539 551,728 607,728
750,000 149,297 223,945 298,593 373,242 447,890 522,539 591,328 651,328
800,000 159,297 238,945 318,593 398,242 477,890 557,539 630,928 694,928
<FN>
(1) Career Average Compensation is the average annual compensation received
from January 1, 1984 to retirement and includes Salary and Bonus. The
career average compensation amounts for the following named executive
officers differ by more than 10% from the three year average annual
compensation set forth in the Summary Compensation Table and are as
follows: Messrs. Leva - $474,882; Hafer - $310,706; Baldassari - $208,934;
Repko - $137,114; Myers - $154,573; and Howe - $97,871.
(2) Years of Creditable Service at December 31, 1997: Messrs. Leva - 45 years
(as of May 1997); Hafer - 35 years; Baldassari - 28 years; Repko - 31
years; Myers - 17 years; and Howe - 21 years.
(3) Mr. Leva, who retired in 1997, is entitled to receive $603,730 annually
($414,727 basic pension and $189,003 under supplemental pension
agreements). Following Mr. Leva's death, his surviving spouse, if any, will
receive an annuity payable for life equal to 50% of the supplemental
pensions payable to him.
61
<PAGE>
(4) Based on an assumed retirement at age 65 in 1998. To reduce the above
amounts to reflect a retirement benefit assuming a continual annuity to a
surviving spouse equal to 50% of the annuity payable at retirement,
multiply the above benefits by 90%. The estimated annual benefits are not
subject to any reduction for Social Security benefits or other offset
amounts.
(5) Annual retirement benefits under the basic pension per the above table
cannot exceed 55%, as defined in the pension plan, of the average
compensation during the highest paid 36 calendar months. As of December
31, 1997, none of the named executive officers exceed the 55% limit.
</FN>
</TABLE>
Remuneration of JCP&L Directors
Nonemployee directors receive an annual retainer of $15,000, a fee of
$1,000 for each Board meeting attended, and a fee of $1,000 for each Committee
meeting attended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item for GPU, Inc. is incorporated by
reference to page 8 of GPU, Inc.'s Proxy Statement for the 1998 Annual Meeting
of Stockholders.
All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and
Penelec (5,290,596) common stock are owned beneficially and of record by their
parent, GPU, Inc., 300 Madison Avenue, Morristown, NJ 07962.
The following table sets forth, as of February 1, 1998, the beneficial
ownership of equity securities of each of the directors and each of the
executive officers named in the Summary Compensation Tables, and of all
directors and executive officers of each of the respective GPU Energy companies
as a group. The shares owned by all directors and executive officers as a group
constitute less than 1% of the total shares outstanding.
62
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
-----------------------------------------
Shares(1) Stock-Equivalent
--------- ----------------
Name Title of Security Direct Indirect Restricted Units(2)
---- ----------------- ------ -------- -------------------
<S> <C> <C> <C>
JCP&L/Met-Ed/Penelec:
F. D. Hafer GPU Common Stock 7,545 139 18,563
D. Baldassari GPU Common Stock 2,900 - 13,198
G. R. Repko GPU Common Stock 1,599 - 4,668
D. W. Myers GPU Common Stock 741 - 4,646
D. J. Howe GPU Common Stock - 463 2,270
C. B. Snyder GPU Common Stock 344 - 3,868
JCP&L Only:
G. E. Persson GPU Common Stock None
S. C. Van Ness GPU Common Stock None
S. B. Wiley GPU Common Stock None
All Directors and
Executive Officers
as a Group GPU Common Stock 34,584 1,869 99,087
<FN>
(1) The number of shares owned and the nature of such ownership, not being
within the knowledge of GPU, have been furnished by each individual.
(2) Restricted units, which do not have voting rights, represent rights
(subject to vesting) to receive shares of Common Stock under the 1990
Stock Plan for Employees of GPU and Subsidiaries (the "1990 Stock Plan").
See Summary Compensation Table above.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
63
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See pages F-1 and F-2 for references to Financial Statements and
Financial Statement Schedules required by this item.
1. Exhibits:
3-A Articles of Incorporation of GPU, as amended through
March 27, 1990 - Incorporated by reference to Exhibit
3-A, 1989 Annual Report on Form 10-K, SEC File No.
1-6047.
3-A-1 Articles of Amendment to Articles of Incorporation of
GPU dated May 5, 1995 Incorporated by reference to
Exhibit A-4, Certificate Pursuant to Rule 24, SEC File
No.
70-8569.
3-A-2 Articles of Incorporation of GPU, Inc. as amended
August 1, 1996 - Incorporated by reference to Exhibit
3-A-2, 1996 Annual Report on Form 10-K, SEC File No.
1-6047.
3-B By-Laws of GPU, Inc. as amended December 4, 1997.
3-C Restated Certificate of Incorporation of JCP&L, as
amended - Incorporated by reference to Exhibit 3-A,
1990 Annual Report on Form 10-K, SEC File No. 1-3141.
3-C-1 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 -
Incorporated by reference to Exhibit A-2(a),
Certificate Pursuant to Rule 24, SEC File No. 70-7949.
3-C-2 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 -
Incorporated by reference to Exhibit A-2(a)(i),
Certificate Pursuant to Rule 24, SEC File No. 70-7949.
3-D By-Laws of JCP&L, as amended - Incorporated by
reference to Exhibit 3-B, 1993 Annual Report on Form
10-K, SEC File No. 1-3141.
3-E Restated Articles of Incorporation of Met-Ed -
Incorporated by reference to Exhibit B-18, 1991 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
3-F By-Laws of Met-Ed dated July 27, 1995, as amended -
Incorporated by reference to Exhibit 3-F, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
3-G Restated Articles of Incorporation of Penelec as
amended through March 10, 1992 Incorporated by
reference to Exhibit 3A, 1991 Annual Report on Form
10-K, SEC File No.
1-3522.
64
<PAGE>
3-H By-Laws of Penelec dated July 27 1995, as amended -
Incorporated by reference to Exhibit 3-H, 1995 Annual
Report on Form 10-K, SEC File No. 1-3522.
4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L
and United States Trust Company of New York, Successor
Trustee, as amended and supplemented by eight
supplemental indentures dated December 1, 1948 through
June 1, 1960 - Incorporated by reference to JCP&L's
Instruments of Indebtedness Nos. 1 to 7, inclusive,
and 9 and 10 filed as part of Amendment No. 1 to 1959
Annual Report of GPU on Form U5S, SEC File Nos. 30-126
and 1-3292.
4-A-1 Ninth Supplemental Indenture of JCP&L, dated November
1, 1962 - Incorporated by reference to Exhibit 2-C,
Registration No. 2-20732.
4-A-2 Tenth Supplemental Indenture of JCP&L, dated October
1, 1963 - Incorporated by reference to Exhibit 2-C,
Registration No. 2-21645.
4-A-3 Eleventh Supplemental Indenture of JCP&L, dated
October 1, 1964 - Incorporated by reference to Exhibit
5-A-3, Registration No. 2-59785.
4-A-4 Twelfth Supplemental Indenture of JCP&L, dated
November 1, 1965 - Incorporated by reference to
Exhibit 5-A-4, Registration No. 2-59785.
4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated
August 1, 1966 - Incorporated by reference to Exhibit
4-C, Registration No. 2-25124.
4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated
September 1, 1967 - Incorporated by reference to
Exhibit 5-A-6, Registration No. 2-59785.
4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated
October 1, 1968 - Incorporated by reference to Exhibit
5-A-7, Registration No. 2-59785.
4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated
October 1, 1969 - Incorporated by reference to Exhibit
5-A-8, Registration No. 2-59785.
4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated
June 1, 1970 - Incorporated by reference to Exhibit
5-A-9, Registration No. 2-59785.
4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated
December 1, 1970 - Incorporated by reference to
Exhibit 5-A-10, Registration No. 2-59785.
4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated
February 1, 1971 - Incorporated by reference to
Exhibit 5-A-11, Registration No. 2-59785.
65
<PAGE>
4-A-12 Twentieth Supplemental Indenture of JCP&L, dated
November 1, 1971 - Incorporated by reference to
Exhibit 5-A-12, Registration No. 2-59875.
4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated
August 1, 1972 - Incorporated by reference to Exhibit
5-A-13, Registration No. 2-59785.
4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated
August 1, 1973 - Incorporated by reference to Exhibit
5-A-14, Registration No. 2-59785.
4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated
October 1, 1973 - Incorporated by reference to
Exhibit 5-A-15, Registration No. 2-59785.
4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated
December 1, 1973 - Incorporated by reference to
Exhibit 5-A-16, Registration No. 2-59785.
4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated
November 1, 1974 - Incorporated by
reference to Exhibit 5-A-17, Registration No. 2-59785.
4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated
March 1, 1975 - Incorporated by
reference to Exhibit 5-A-18, Registration No. 2-59785.
4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated
July 1, 1975 - Incorporated by reference to Exhibit
5-A-19, Registration No. 2-59785.
4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated
October 1, 1975 - Incorporated by reference to Exhibit
5-A-20, Registration No. 2-59785.
4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated
February 1, 1976 - Incorporated by
reference to Exhibit 5-A-21, Registration No. 2-59785.
4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31,
1976 - Incorporated by reference
to Exhibit 5-A-22, Registration No. 2-59785.
4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June
1, 1976 - Incorporated by reference to Exhibit 5-A-23,
Registration No. 2-59785.
4-A-24 Thirty-first Supplemental Indenture of JCP&L,
dated May 1, 1977 - Incorporated by
reference to Exhibit 5-A-24, Registration No. 2-59785.
4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated
January 20, 1978 - Incorporated by reference to
Exhibit 5-A-25, Registration No. 2-60438.
66
<PAGE>
4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated
January 1, 1979 - Incorporated by reference to
Exhibit A-20(b), Certificate Pursuant to Rule 24, SEC
File No. 70-6242.
4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated
June 1, 1979 - Incorporated by reference to Exhibit
A-28, Certificate Pursuant to Rule 24, SEC File No.
70-6290.
4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated
October 1, 1979 - Incorporated by reference to Exhibit
A-30, Certificate Pursuant to Rule 24, SEC File No.
70-6354.
4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated
September 1, 1984 - Incorporated by reference to
Exhibit A-1(cc), Certificate Pursuant to Rule 24, SEC
File No. 70-7001.
4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated
July 1, 1985 - Incorporated by reference to Exhibit
A-1(dd), Certificate Pursuant to Rule 24, SEC File No.
70-7109.
4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated
April 1, 1988 - Incorporated by reference to Exhibit
A-1(a), Certificate Pursuant to Rule 24, SEC File No.
70-7263.
4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June
14, 1988 - Incorporated by reference to Exhibit
A-1(ff), Certificate Pursuant to Rule 24, SEC File No.
70-7603.
4-A-33 Forty-first Supplemental Indenture of JCP&L, dated
April 1, 1989 - Incorporated by reference to Exhibit
A-1(gg), Certificate Pursuant to Rule 24, SEC File No.
70-7603.
4-A-34 Forty-second Supplemental Indenture of JCP&L, dated
July 1, 1989 - Incorporated by reference to Exhibit
A-1(hh), Certificate Pursuant to Rule 24, SEC File No.
70-7603.
4-A-35 Forty-third Supplemental Indenture of JCP&L, dated
March 1, 1991 - Incorporated by reference to Exhibit
4-A-35, Registration No. 33-45314.
4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated
March 1, 1992 - Incorporated by reference to
Exhibit 4-A-36, Registration No. 33-49405.
4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated
October 1, 1992 - Incorporated by reference to Exhibit
4-A-37, Registration No. 33-49405.
4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated
April 1, 1993 - Incorporated by reference to Exhibit
C-15, 1992 Annual Report of GPU on Form U5S, SEC File
No. 30-126.
4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated
April 10, 1993 - Incorporated by reference to Exhibit
C-16, 1992 Annual Report of GPU on Form U5S, SEC File
No. 30-126.
67
<PAGE>
4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated
April 15, 1993 - Incorporated by reference to Exhibit
C-17, 1992 Annual Report of GPU on Form U5S, SEC File
No. 30-126.
4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated
October 1, 1993 - Incorporated by reference to Exhibit
C-18, 1993 Annual Report of GPU on Form U5S, SEC File
No. 30-126.
4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August
1, 1994 - Incorporated by reference to Exhibit C-19,
1994 Annual Report of GPU on Form U5S, SEC File No.
30-126.
4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated
August 15, 1996 - Incorporated by reference to Exhibit
4-A-43, 1996 Annual Report on Form 10-K, SEC File No.
1-6047.
4-B Indenture of Met-Ed, dated November 1, 1944 with
United States Trust Company of New York, Successor
Trustee, as amended and supplemented by fourteen
supplemental indentures dated February 1, 1947 through
May 1, 1960 - Incorporated by reference to Met-Ed's
Instruments of Indebtedness Nos. 1 to 14, inclusive
and 16, filed as part of Amendment No. 1 to 1959
Annual Report of GPU on Form U5S, SEC File Nos. 30-126
and 1-3292.
4-B-1 Supplemental Indenture of Met-Ed, dated December 1,
1962 - Incorporated by reference to
Exhibit 2-E(1), Registration No. 2-59678.
4-B-2 Supplemental Indenture of Met-Ed, dated March 20,
1964 - Incorporated by reference to
Exhibit 2-E(2), Registration No. 2-59678.
4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 -
Incorporated by reference to
Exhibit 2-E(3), Registration No. 2-59678.
4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 -
Incorporated by reference to
Exhibit 2-B-4, Registration No. 2-24883.
4-B-5 Supplemental Indenture of Met-Ed, dated March 22,
1968 - Incorporated by reference to
Exhibit 4-C-5, Registration No. 2-29644.
4-B-6 Supplemental Indenture of Met-Ed, dated September 1,
1968 - Incorporated by reference to Exhibit 2-E(6),
Registration No. 2-59678.
4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969
- Incorporated by reference to
Exhibit 2-E(7), Registration No. 2-59678.
4-B-8 Supplemental Indenture of Met-Ed, dated November 1,
1971 - Incorporated by reference to
Exhibit 2-E(8), Registration No. 2-59678.
68
<PAGE>
4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972 -
Incorporated by reference to
Exhibit 2-E(9), Registration No. 2-59678.
4-B-10 Supplemental Indenture of Met-Ed, dated December 1,
1973 - Incorporated by reference to
Exhibit 2-E(10), Registration No. 2-59678.
4-B-11 Supplemental Indenture of Met-Ed, dated October 30,
1974 - Incorporated by reference to
Exhibit 2-E(11), Registration No. 2-59678.
4-B-12 Supplemental Indenture of Met-Ed, dated October 31,
1974 - Incorporated by reference to
Exhibit 2-E(12), Registration No. 2-59678.
4-B-13 Supplemental Indenture of Met-Ed, dated March 20,
1975 - Incorporated by reference to
Exhibit 2-E(13), Registration No. 2-59678.
4-B-14 Supplemental Indenture of Met-Ed, dated September 25,
1975 - Incorporated by reference to Exhibit 2-E(15),
Registration No. 2-59678.
4-B-15 Supplemental Indenture of Met-Ed, dated January 12,
1976 - Incorporated by reference to
Exhibit 2-E(16), Registration No. 2-59678.
4-B-16 Supplemental Indenture of Met-Ed, dated March 1,
1976 - Incorporated by reference to
Exhibit 2-E(17), Registration No. 2-59678.
4-B-17 Supplemental Indenture of Met-Ed, dated September 28,
1977 - Incorporated by reference to Exhibit 2-E(18),
Registration No. 2-62212.
4-B-18 Supplemental Indenture of Met-Ed, dated January 1,
1978 - Incorporated by reference to
Exhibit 2-E(19), Registration No. 2-62212.
4-B-19 Supplemental Indenture of Met-Ed, dated September 1,
1978 - Incorporated by reference to Exhibit 4-A(19),
Registration No. 33-48937.
4-B-20 Supplemental Indenture of Met-Ed, dated June 1,
1979 - Incorporated by reference to
Exhibit 4-A(20), Registration No. 33-48937.
4-B-21 Supplemental Indenture of Met-Ed, dated January 1,
1980 - Incorporated by reference to
Exhibit 4-A(21), Registration No. 33-48937.
4-B-22 Supplemental Indenture of Met-Ed, dated September 1,
1981 - Incorporated by reference to Exhibit 4-A(22),
Registration No. 33-48937.
69
<PAGE>
4-B-23 Supplemental Indenture of Met-Ed, dated September 10,
1981 - Incorporated by reference to Exhibit 4-A(23),
Registration No. 33-48937.
4-B-24 Supplemental Indenture of Met-Ed, dated December 1,
1982 - Incorporated by reference to
Exhibit 4-A(24), Registration No. 33-48937.
4-B-25 Supplemental Indenture of Met-Ed, dated September 1,
1983 - Incorporated by reference to Exhibit 4-A(25),
Registration No. 33-48937.
4-B-26 Supplemental Indenture of Met-Ed, dated September 1,
1984 - Incorporated by reference to Exhibit 4-A(26),
Registration No. 33-48937.
4-B-27 Supplemental Indenture of Met-Ed, dated March 1,
1985 - Incorporated by reference to
Exhibit 4-A(27), Registration No. 33-48937.
4-B-28 Supplemental Indenture of Met-Ed, dated September 1,
1985 - Incorporated by reference to Exhibit 4-A(28),
Registration No. 33-48937.
4-B-29 Supplemental Indenture of Met-Ed, dated June 1,
1988 - Incorporated by reference to
Exhibit 4-A(29), Registration No. 33-48937.
4-B-30 Supplemental Indenture of Met-Ed, dated April 1,
1990 - Incorporated by reference to
Exhibit 4-A(30), Registration No. 33-48937.
4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture
of Met-Ed, dated April 1, 1990 Incorporated by
reference to Exhibit 4-A(31), Registration No.
33-48937.
4-B-32 Supplemental Indenture of Met-Ed, dated September 1,
1992 - Incorporated by reference
to Exhibit 4-A(32)(a), Registration No. 33-48937.
4-B-33 Supplemental Indenture of Met-Ed, dated December 1,
1993 - Incorporated by reference to Exhibit C-58, 1993
Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 -
Incorporated by reference to Exhibit 4-B-35, 1995
Annual Report on Form 10-K, SEC File No. 1-446.
4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996
- Incorporated by reference to Exhibit 4-B-35, 1996
Annual Report on Form 10-K, SEC File No. 1-446.
4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997.
70
<PAGE>
4-C Mortgage and Deed of Trust of Penelec dated January 1,
1942 between Penelec and United States Trust Company
of New York, Successor Trustee, and indentures
supplemental thereto dated March 7, 1942 through May
1, 1960 - Incorporated by reference to Penelec's
Instruments of Indebtedness Nos. 1-20, inclusive,
filed as a part of Amendment No. 1 to 1959 Annual
Report of GPU on Form U5S, SEC File Nos. 30-126 and
1-3292.
4-C-1 Supplemental Indentures to Mortgage and Deed of Trust
of Penelec dated May 1, 1961 through December 1, 1977
- Incorporated by reference to Exhibit 2-D(1) to
2-D(19), Registration No. 2-61502.
4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 -
Incorporated by reference to
Exhibit 4-A(2), Registration No. 33-49669.
4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 -
Incorporated by reference to
Exhibit 4-A(3), Registration No. 33-49669.
4-C-4 Supplemental Indenture of Penelec dated September 1,
1984 - Incorporated by reference to Exhibit 4-A(4),
Registration No. 33-49669.
4-C-5 Supplemental Indenture of Penelec dated December 1,
1985 - Incorporated by reference to
Exhibit 4-A(5), Registration No. 33-49669.
4-C-6 Supplemental Indenture of Penelec dated December 1,
1986 - Incorporated by reference to
Exhibit 4-A(6), Registration No. 33-49669.
4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 -
Incorporated by reference to
Exhibit 4-A(7), Registration No. 33-49669.
4-C-8 Supplemental Indenture of Penelec dated December 1,
1990-Incorporated by reference to
Exhibit 4-A(8), Registration No. 33-45312.
4-C-9 Supplemental Indenture of Penelec dated March 1,
1992 - Incorporated by reference to
Exhibit 4-A(9), Registration No. 33-45312.
4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993
- Incorporated by reference to Exhibit C-73, 1993
Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-C-11 Supplemental Indenture of Penelec dated November 1,
1995 - Incorporated by reference to Exhibit 4-C-11,
1995 Annual Report on Form 10-K, SEC File No. 1-3522.
4-C-12 Supplemental Indenture of Penelec dated August 15,
1996 - Incorporated by reference to Exhibit 4-C-12,
1996 Annual Report on Form 10-K, SEC File No. 1-3522.
71
<PAGE>
4-D Subordinated Debenture Indenture of JCP&L dated May 1,
1995 - Incorporated by reference to Exhibit A-8(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8495.
4-E Subordinated Debenture Indenture of Met-Ed dated
August 1, 1994 - Incorporated by reference to Exhibit
A-8(a), Certificate Pursuant to Rule 24, SEC File No.
70-8401.
4-F Subordinated Debenture Indenture of Penelec dated July
1, 1994 - Incorporated by reference to Exhibit A-8(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
4-G Amended and Restated Limited Partnership Agreement of
JCP&L Capital, L.P., dated May 11, 1995 - Incorporated
by reference to Exhibit A-5(a), Certificate Pursuant
to Rule 24, SEC File No. 70-8495.
4-H Action Creating Series A Preferred Securities of JCP&L
Capital, L.P., dated May 11, 1995 - Incorporated by
reference to Exhibit A-6(a), Certificate Pursuant to
Rule 24, SEC File No. 70-8495.
4-I Payment and Guarantee Agreement of JCP&L, dated May
18, 1995 - Incorporated by reference to Exhibit
B-1(a), Certificate Pursuant to Rule 24, SEC File No.
70-8495.
4-J Amended and Restated Limited Partnership Agreement of
Met-Ed Capital, L.P., dated August 16, 1994 -
Incorporated by reference to Exhibit A-5(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
4-K Action Creating Series A Preferred Securities of
Met-Ed Capital, L.P., dated August 16, 1994 -
Incorporated by reference to Exhibit A-6(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
4-L Payment and Guarantee Agreement of Met-Ed, dated
August 23, 1994 - Incorporated by reference to Exhibit
B-1(a), Certificate Pursuant to Rule 24, SEC File No.
70-8401.
4-M Amended and Restated Limited Partnership Agreement of
Penelec Capital, L.P., dated June 27, 1994 -
Incorporated by reference to Exhibit A-5(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
4-N Action Creating Series A Preferred Securities of
Penelec Capital, L.P., dated June 27, 1994 -
Incorporated by reference to Exhibit A-6(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
4-O Payment and Guarantee Agreement of Penelec, dated July
5, 1994 - Incorporated by reference to Exhibit B-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
10-A GPU System Companies Deferred Compensation Plan dated
June 5, 1997.
72
<PAGE>
10-B GPU System Companies Master Directors' Benefits
Protection Trust dated February 6, 1997.
10-C GPU System Companies Master Executives' Benefits
Protection Trust dated February 6, 1997.
10-D Employee Incentive Compensation Plan of JCP&L dated
April 1, 1995 - Incorporated by reference to Exhibit
10-D, 1995 Annual Report on Form 10-K, SEC File No.
1-3141.
10-E Employee Incentive Compensation Plan of Met-Ed dated
April 1, 1995 - Incorporated by reference to Exhibit
10-E, 1995 Annual Report on Form 10-K, SEC File No.
1-446.
10-F Employee Incentive Compensation Plan of Penelec dated
April 1, 1995 - Incorporated by reference to Exhibit
10-F, 1995 Annual Report on Form 10-K, SEC File No.
1-3522.
10-G Incentive Compensation Plan for Elected Officers of
JCP&L dated February 6, 1997.
10-H Incentive Compensation Plan for Elected Officers of
Met-Ed dated February 6, 1997.
10-I Incentive Compensation Plan for Elected Officers of
Penelec dated February 6, 1997.
10-J Deferred Remuneration Plan for Outside Directors of
JCP&L dated June 5, 1997.
10-K JCP&L Supplemental and Excess Benefits Plan dated
June 5, 1997.
10-L Met-Ed Supplemental and Excess Benefits Plan dated
June 5, 1997.
10-M Penelec Supplemental and Excess Benefits Plan dated
June 5, 1997.
10-N Letter agreements dated February 6, 1997 relating to
supplemental pension benefits for J.R. Leva.
10-O Letter agreement dated August 7,1997 relating to terms
of employment and pension benefits for I.H. Jolles.
10-P Letter agreement dated August 7,1997 relating to
supplemental pension benefits for J.G. Graham.
10-Q GPU, Inc. Restricted Stock Plan for Outside Directors
dated September 4, 1997.
10-R Retirement Plan for Outside Directors of GPU, Inc.
dated June 5, 1997.
10-S Deferred Remuneration Plan for Outside Directors of
GPU, Inc. dated October 8, 1997.
73
<PAGE>
10-T Amended and Restated Nuclear Material Lease Agreement,
dated November 17, 1995, between Oyster Creek Fuel
Corp. and JCP&L - Incorporated by reference to Exhibit
B-2(a)(i), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-U Amended and Restated Nuclear Material Lease Agreement,
dated November 17, 1995, between TMI-1 Fuel Corp. and
JCP&L - Incorporated by reference to Exhibit
B-2(a)(ii), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-V Letter Agreement, dated November 17, 1995, from JCP&L
relating to Oyster Creek Nuclear Material Lease
Agreement - Incorporated by reference to Exhibit
B-2(b)(i), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-W Letter Agreement, dated November 17, 1995, from JCP&L
relating to JCP&L TMI-1 Nuclear Material Lease
Agreement - Incorporated by reference to Exhibit
B-2(b)(ii), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-X Amended and Restated Trust Agreement, dated November
17, 1995, between United States Trust Company of New
York, as Owner Trustee, Lord Fuel Corp., as Trustor
and Beneficiary, and JCP&L, Met-Ed and Penelec -
Incorporated by reference to Exhibit B-3(i),
Certificate Pursuant to Rule 24, SEC File No. 70-7862.
10-Y Amended and Restated Nuclear Material Lease Agreement,
dated November 17, 1995, between TMI-1 Fuel Corp. and
Met-Ed - Incorporated by reference to Exhibit
B-2(a)(iii), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-Z Letter Agreement, dated November 17, 1995, from Met-Ed
relating to Met-Ed TMI-1 Nuclear Material Lease
Agreement - Incorporated by reference to Exhibit
B-2(b)(i), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-AA Amended and Restated Nuclear Material Lease Agreement,
dated November 17, 1995, between TMI-1 Fuel Corp. and
Penelec - Incorporated by reference to Exhibit
B-2(a)(iv), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-BB Letter Agreement, dated November 17, 1995, from
Penelec relating to Penelec Nuclear Material Lease
Agreement - Incorporated by reference to Exhibit
B-2(b)(i), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-CC GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc.
and Subsidiaries as amended and
restated to reflect amendments through June 5, 1997.
74
<PAGE>
12 Statements Showing Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
21 Subsidiaries of the Registrant
A - JCP&L
B - Met-Ed
C - Penelec
23 Consent of Independent Accountants
A - GPU, Inc.
B - JCP&L
C - Met-Ed
D - Penelec
27 Financial Data Schedule
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
(b) Reports on Form 8-K:
A - GPU, Inc.
Dated December 12, 1997, under Item 5 (Other Events).
Dated January 20, 1998, under Item 5 (Other Events).
Dated February 6, 1998, under Item 5 (Other Events).
Dated February 11, 1998, under Item 5 (Other Events).
Dated February 17, 1998, under Item 5 (Other Events).
75
<PAGE>
GPU, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GPU, INC.
Dated: March 12, 1998 BY: /s/F. D. Hafer
--------------
F. D. Hafer, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ F. D. Hafer March 12, 1998
- ----------------------------------------------
F. D. Hafer, Chairman (Chief Executive
Officer) and President
/s/ J. G. Graham March 12, 1998
- ----------------------------------------------
J. G. Graham, Senior Vice President
(Chief Financial Officer)
/s/ F. A. Donofrio March 12, 1998
- ----------------------------------------------
F. A. Donofrio, Vice President and
Comptroller (Chief Accounting Officer)
/s/ T. H. Black March 12, 1998
- ----------------------------------------------
T. H. Black, Director
/s/ T. B. Hagen March 12, 1998
- ----------------------------------------------
T. B. Hagen, Director
/s/ H. F. Henderson, Jr. March 12, 1998
- ----------------------------------------------
H. F. Henderson, Jr., Director
/s/ J. R. Leva March 12, 1998
- ----------------------------------------------
J. R. Leva, Director
/s/ J. M. Pietruski March 12, 1998
- ----------------------------------------------
J. M. Pietruski, Director
/s/ C. A. Rein March 12, 1998
- ----------------------------------------------
C. A. Rein, Director
/s/ P. R. Roedel March 12, 1998
- ----------------------------------------------
P. R. Roedel, Director
/s/ B. S. Townsend March 12, 1998
- ----------------------------------------------
B. S. Townsend, Director
/s/ C. A. H. Trost March 12, 1998
- ----------------------------------------------
C. A. H. Trost, Director
/s/ P. K. Woolf March 12, 1998
- ----------------------------------------------
P. K. Woolf, Director
76
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
JERSEY CENTRAL POWER & LIGHT COMPANY
Dated: March 12, 1998 BY: /s/ D. Baldassari
-----------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ F. D. Hafer March 12, 1998
- ----------------------------------------------
F. D. Hafer, Chairman
(Principal Executive Officer) and Director
/s/ D. Baldassari March 12, 1998
- ----------------------------------------------
D. Baldassari, President
(Principal Operating Officer) and Director
/s/ D. W. Myers March 12, 1998
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 12, 1998
- ----------------------------------------------
C. B. Snyder, Director
/s/ G. E. Persson March 12, 1998
- ----------------------------------------------
G. E. Persson, Director
/s/ S. C. Van Ness March 12, 1998
- ----------------------------------------------
S. C. Van Ness, Director
/s/ S. B. Wiley March 12, 1998
- ----------------------------------------------
S. B. Wiley, Director
77
<PAGE>
METROPOLITAN EDISON COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
METROPOLITAN EDISON COMPANY
Dated: March 12, 1998 BY: /s/ D. Baldassari
-----------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ F. D. Hafer March 12, 1998
- ----------------------------------------------
F. D. Hafer, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 12, 1998
- ----------------------------------------------
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ D. W. Myers March 12, 1998
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 12, 1998
- ----------------------------------------------
C. B. Snyder, Director
78
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
PENNSYLVANIA ELECTRIC COMPANY
Dated: March 12, 1998 BY: /s/ D. Baldassari
-----------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ F. D. Hafer March 12, 1998
- ----------------------------------------------
F. D. Hafer, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 12, 1998
- ----------------------------------------------
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ D. W. Myers March 12, 1998
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 12, 1998
- ----------------------------------------------
C. B. Snyder, Director
79
<PAGE>
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
GPU, INC. Page
Supplementary Data
GPU Energy Companies' Statistics F-3
Selected Financial Data F-4
Quarterly Financial Data F-5
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations F-6
Financial Statements
Report of Independent Accountants F-39
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-40
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-42
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1997, 1996 and 1995 F-43
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995 F-43
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-44
Combined Notes to Consolidated Financial Statements F-45
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1995-1997 F-111
JERSEY CENTRAL POWER & LIGHT COMPANY
Supplementary Data
Company Statistics F-112
Selected Financial Data F-113
Quarterly Financial Data F-114
Financial Statements
Report of Independent Accountants F-115
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-116
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-118
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995 F-119
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-120
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1995-1997 F-121
F-1
<PAGE>
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
METROPOLITAN EDISON COMPANY
Supplementary Data
Company Statistics F-122
Selected Financial Data F-123
Quarterly Financial Data F-124
Financial Statements
Report of Independent Accountants F-125
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-126
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-128
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1997, 1996 and 1995 F-129
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995 F-129
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-130
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1995-1997 F-131
PENNSYLVANIA ELECTRIC COMPANY
Supplementary Data
Company Statistics F-132
Selected Financial Data F-133
Quarterly Financial Data F-134
Financial Statements
Report of Independent Accountants F-135
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-136
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-138
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1997, 1996 and 1995 F-139
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995 F-139
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-140
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1995-1997 F-141
Schedules other than those listed above have been omitted since they are not
required, are inapplicable or the required information is presented in the
Financial Statements or Notes thereto.
F-2
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
GPU ENERGY COMPANIES' STATISTICS
<CAPTION>
For The Years Ended December 31, 1997 1996 1995 1994 1993 1992
- -------------------------------- ---- ---- ---- ---- ---- ----
Capacity at System Peak (in MW):
<S> <C> <C> <C> <C> <C> <C>
Company owned 6,740 6,680 6,637 6,655 6,735 6,718
Contracted 3,930 3,536 3,604 3,416 3,236 3,360
----- ----- ----- ----- ----- -----
Total capacity (a) 10,670 10,216 10,241 10,071 9,971 10,078
====== ====== ====== ====== ===== ======
Hourly Peak Load (in MW):
Summer peak 9,555 8,497 9,101 8,521 8,533 8,067
Winter peak 7,736 7,756 7,861 7,683 7,167 7,173
Reserve at system peak (%) 11.7 20.2 12.5 18.2 16.9 24.9
Load factor (%) (b) 57.6 64.2 57.5 61.7 60.9 62.3
Sources of Energy (in thousands of MWH):
Coal 19,390 18,133 17,500 16,548 16,969 18,123
Nuclear 10,992 11,439 11,582 10,216 10,614 11,449
Gas, hydro & oil 800 812 1,019 1,071 575 409
--- --- ----- ----- --- ---
Net generation 31,182 30,384 30,101 27,835 28,158 29,981
Utility purchases and interchange 9,004 8,795 10,297 10,326 11,984 11,931
Nonutility purchases 11,119 11,046 10,712 8,810 8,383 8,070
------ ------ ------ ----- ----- -----
Total sources of energy 51,305 50,225 51,110 46,971 48,525 49,982
Company use, line loss, etc (5,437) (5,777) (5,357) (4,313) (5,166) (4,843)
------ ------ ------ ------ ------ ------
Total electric energy sales 45,868 44,448 45,753 42,658 43,359 45,139
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $ 268 $ 263 $ 251 $ 260 $ 266 $ 266
Nuclear 63 70 74 65 66 69
Gas & oil 40 38 38 39 32 21
-- -- -- -- -- --
Total $ 371 $ 371 $ 363 $ 364 $ 364 $ 356
======== ======== ======== ======== ======== ========
Power Purchased and Interchanged (in millions):
Utility purchases and interchange purchases $ 294 $ 267 $ 351 $ 367 $ 406 $ 430
Nonutility purchases, net of deferred costs 734 730 671 528 491 471
Amortization of nonutility buyout costs 19 9 -- -- -- --
-- -- -- -- -- --
Total $ 1,047 $ 1,006 $ 1,022 $ 895 $ 897 $ 901
======== ======== ======== ======== ======== ========
Electric Energy Sales (in thousands of MWH):
Residential 15,091 15,298 14,802 14,788 14,498 13,725
Commercial 14,281 14,017 13,544 13,301 12,919 12,333
Industrial 12,469 12,093 11,982 11,983 11,699 11,901
Other 1,110 1,105 1,143 1,245 1,221 1,303
----- ----- ----- ----- ----- -----
Sales to customers 42,951 42,513 41,471 41,317 40,337 39,262
Sales to other utilities 2,917 1,935 4,282 1,341 3,022 5,877
----- ----- ----- ----- ----- -----
Total 45,868 44,448 45,753 42,658 43,359 45,139
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 1,617 $ 1,599 $ 1,542 $ 1,503 $ 1,465 $ 1,339
Commercial 1,372 1,324 1,258 1,215 1,169 1,079
Industrial 833 803 780 774 755 752
Other 75 71 73 78 89 89
-- -- -- -- -- --
Sales to customers 3,897 3,797 3,653 3,570 3,478 3,259
Sales to other utilities 77 57 101 24 67 127
-- -- --- -- -- ---
Total electric energy sales 3,974 3,854 3,754 3,594 3,545 3,386
Other revenues 70 64 51 56 51 48
-- -- -- -- -- --
Total $ 4,044 $ 3,918 $ 3,805 $ 3,650 $ 3,596 $ 3,434
======== ======== ======== ======== ======== ========
Price per KWH (in cents):
Residential 10.64 10.51 10.35 10.18 10.07 9.73
Commercial 9.54 9.47 9.25 9.12 9.04 8.72
Industrial 6.61 6.65 6.51 6.46 6.47 6.32
Total sales to customers 9.00 8.96 8.77 8.64 8.61 8.28
Total electric energy sales 8.60 8.70 8.17 8.43 8.17 7.49
Kilowatt-hour Sales per Residential Customer 8,528 8,741 8,539 8,646 8,575 8,215
Customers at Year-End (in thousands) 2,021 1,997 1,976 1,949 1,925 1,901
<FN>
(a) Summer ratings at December 31, 1997 of owned and contracted capacity were 6,751 MW and 4,113 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
</FN>
F-3
</TABLE>
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
SELECTED FINANCIAL DATA (CONSOLIDATED)
<CAPTION>
For The Years Ended December 31, 1997 (1) 1996 (2) 1995 (3) 1994 (4) 1993 1992
Common Stock Data
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share $ 2.78 $ 2.48 $ 3.79 $ 1.42 $ 2.65 $ 2.27
Diluted earnings per common share $ 2.77 $ 2.47 $ 3.79 $ 1.42 $ 2.65 $ 2.27
Cash dividends paid per share $ 1.98 $ 1.92 $ 1.86 $ 1.77 $ 1.65 $ 1.575
Book value per share $ 25.59 $ 25.21 $ 24.66 $ 22.31 $ 22.69 $ 21.46
Closing market price per share $ 42 1/8 $ 33 5/8 $ 34 $ 26 1/4 $ 30 7/8 $ 27 5/8
Common shares outstanding (In Thousands):
Basic average 120,722 120,513 116,063 115,077 111,732 110,817
Diluted average 121,002 120,751 116,179 115,110 111,749 110,822
At year-end 121,081 120,870 120,619 115,315 115,041 110,857
Market price to book value at year-end 165% 133% 138% 118% 136% 129%
Price/earnings ratio 15.2 13.6 9.0 18.5 11.7 12.2
Return on average common equity 10.7% 9.8% 16.0% 6.3% 11.9% 10.7%
Financial Data (In Thousands)
Operating revenues $ 4,143,379 $ 3,970,711 $ 3,822,459 $ 3,654,211 $ 3,599,371 $ 3,444,828
Other operation and maintenance expense 993,739 1,114,854 965,054 1,085,499 914,053 861,611
Net income 335,101 298,352 440,135 163,688 295,673 251,636
Net utility plant in service 7,100,512 5,942,354 5,862,390 5,730,962 5,512,057 5,244,039
Total assets 12,924,708 10,941,219 9,849,516 9,209,777 8,829,255 7,730,738
Long-term debt 4,325,972 3,177,016 2,567,898 2,345,417 2,320,384 2,221,617
Long-term obligations under
capital leases 3,308 6,623 11,696 16,982 23,320 24,094
Subsidiary-obligated mandatorily
redeemable preferred securities 330,000 330,000 330,000 205,000 -- --
Cumulative preferred stock with
mandatory redemption 91,500 114,000 134,000 150,000 150,000 150,000
Capital Expenditures:
GPU Energy companies 356,416 403,880 461,860 585,916 495,517 460,073
GPUI Group 1,912,221 573,587 164,831 73,835 16,426 747
Employees 9,346 9,345 10,286 10,555 11,963 11,969
<FN>
(1) Results for 1997 reflect a charge to other income of $109.3 million, or
$0.90 per share, for a windfall profits tax imposed on privatized
utilities, including Midlands, by the Government of the United Kingdom.
(2) Results for 1996 reflect charges to other operation and maintenance expense
of $74.5 million (after-tax), or $0.62 per share, for costs related to
voluntary enhanced retirement programs.
(3) Results for 1995 reflect the reversal of $104.9 million (after-tax), or
$0.91 per share, of certain future TMI-2 retirement costs written off in
1994. The reversal of this write-off resulted from a 1995 Pennsylvania
Supreme Court decision that overturned a 1994 lower court order, and
restored a 1993 PaPUC order allowing for the recovery of such costs.
Partially offsetting this increase was a charge to income of $8.4 million
(after-tax), or $0.07 per share, of TMI-2 monitored storage costs deemed
not probable of recovery through ratemaking.
(4) Results for 1994 reflect a net decrease in earnings of $164.7 million
(after-tax), or $1.43 per share, due to a write-off of certain future TMI-2
retirement costs ($104.9 million, or $0.91 per share); charges for costs
related to early retirement programs ($76.1 million, or $0.66 per share); a
write-off of Penelec's postretirement benefit costs believed not probable
of recovery in rates ($10.6 million, or $0.09 per share); and net interest
income from refunds of previously paid federal income taxes related to the
tax retirement of TMI-2 ($26.9 million, or $0.23 per share).
</FN>
</TABLE>
F-4
<PAGE>
GPU, Inc. and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands Except
Per Share Data 1997 1996 1997 1996
Operating revenues $1,051,012 $1,035,467 $ 942,783 $ 922,655
Operating income 196,258 163,257 132,809 137,478
Net income 155,038 108,253 70,249 73,625
Basic earnings per share 1.29 .90 .58 .61
Diluted earnings per share 1.28 .90 .58 .61
Third Quarter Fourth Quarter
------------- --------------
In Thousands Except
Per Share Data 1997* 1996** 1997 1996
Operating revenues $1,117,140 $1,072,718 $1,032,444 $ 939,871
Operating income 177,286 96,443 140,765 121,088
Net income 16,904 35,821 92,910 80,653
Basic earnings per share .14 .30 .77 .67
Diluted earnings per share .14 .29 .77 .67
* Results for the third quarter of 1997 reflect a charge to Other income of
$109.3 million, or $0.90 per share, for a windfall profits tax imposed on
privatized utilities, including Midlands, by the Government of the United
Kingdom.
** Results for the third quarter of 1996 reflect charges to Other
operation and maintenance expense of $74.5 million (after-tax), or $0.62
per share, for costs related to voluntary enhanced retirement programs.
F-5
<PAGE>
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer
service, transmission and distribution operations of these electric utilities
are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU International, Inc., GPU Power, Inc. and GPU Electric,
Inc., which develop, own and operate generation, transmission and distribution
facilities in the United States and in foreign countries. Collectively, these
are referred to as the "GPUI Group." Other wholly-owned subsidiaries of GPU,
Inc. are GPU Advanced Resources, Inc. (GPU AR), a subsidiary engaging in energy
services and retail energy sales; and GPU Service, Inc. (GPUS), which provides
certain legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
GPU RESULTS OF OPERATIONS
-------------------------
GPU's 1997 earnings were $335.1 million, compared to 1996 earnings of
$298.4 million. Earnings per share on a diluted basis were $2.77 in 1997,
compared to $2.47 per share in 1996. GPU's return on average common equity was
10.7% in 1997 compared to 9.8% in 1996. Both periods included a nonrecurring
charge.
In 1997, a nonrecurring charge of $109.3 million, or $0.90 per share, was
taken for a windfall profits tax assessed by the Government of the United
Kingdom on privatized utilities, including Midlands Electricity plc (Midlands),
in which the GPUI Group has a 50% stake. In 1996, a nonrecurring charge of $74.5
million, or $0.62 per share, was taken for costs related to voluntary enhanced
retirement programs.
Excluding the impact of these nonrecurring items, earnings for 1997 would
have been $444.4 million, compared to $372.9 million in 1996, and earnings per
share on a diluted basis for 1997 would have been $3.67, compared to $3.09 in
1996. Return on average common equity for 1997 and 1996 would have been 14.0%
and 12.1%, respectively. The 1997 earnings increase, on this basis, was mainly
due to increased earnings from the GPUI Group (including the result of GPU's
policy of accruing U.S. income tax on its worldwide operations, which reduced
GPU's federal income tax liability); reduced operation and maintenance expenses;
increased kilowatt-hour (KWH) sales to domestic utility customers; and a step
increase in unbilled revenue recorded by Met-Ed and Penelec as a result of
including their energy cost rates (ECRs) in base rates and the cessation of
deferred energy accounting, both effective January 1, 1997. These increases were
partially offset by higher depreciation and financing expenses, increased
amortizations due to a rate cap on JCP&L's earnings and the absence in 1997 of
gains associated with the 1996 reacquisition of preferred stock.
F-6
<PAGE>
GPU RESULTS OF OPERATIONS (continued)
- -------------------------
GPU has reported to the financial community that in its view, GPU's 1997
earnings, on a "normalized" basis, to be $3.27 per share. This level of earnings
per share reflects adjustments to the reported $2.77 earnings per share for the
$0.90 per share windfall profits tax charge and the negative weather effect on
sales of $0.05 per share, offset in part by $0.14 per share of added income due
to the step increase in unbilled revenue as a result of the elimination in
Pennsylvania of the ECR and the U.S. tax benefit which reduced GPU's federal tax
liability by $0.31 per share.
GPU's 1996 earnings were $298.4 million, compared to 1995 earnings of
$440.1 million. Earnings per share on a diluted basis were $2.47 in 1996,
compared to $3.79 per share in 1995. If nonrecurring items are excluded,
earnings for 1996 would have been $372.9 million, or $3.09 per share, compared
to earnings of $343.6 million, or $2.95 per share, for 1995. The earnings
increase, on this basis, was due primarily to higher GPUI Group income, mainly
resulting from the earnings inclusion of Midlands, in which a 50% interest was
acquired in May 1996. Also affecting the 1996 earnings were lower reserve
capacity expense and gains associated with the reacquisition of preferred stock,
which were primarily offset by higher depreciation and operation and maintenance
expenses.
The 1995 nonrecurring items consisted of the reversal of a $104.9 million
after-tax expense, or $0.91 per share, for certain future Three Mile Island Unit
2 (TMI-2) retirement costs written off by Met-Ed and Penelec in 1994. This
reversal of expense resulted from a 1995 Pennsylvania Supreme Court decision
restoring a 1993 Pennsylvania Public Utility Commission (PaPUC) order allowing
Met-Ed to recover such costs from customers. Partially offsetting the effect of
this was a charge to income of $8.4 million after-tax, or $0.07 per share, for
TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking.
OPERATING REVENUES:
- ------------------
Operating revenues increased 4.3% to $4.1 billion in 1997, after
increasing 3.9% to $4.0 billion in 1996. The components of these changes are
as follows:
(in millions)
1997 1996
---- ----
GPU Energy companies:
KWH revenues $ 91.1 $ 60.2
Energy-related revenues 23.3 32.5
Other revenues 11.3 20.7
---- ----
Total GPU Energy companies 125.7 113.4
GPUI Group 45.7 34.8
GPU AR 1.3 -
---- ----
Total increase in revenues $172.7 $148.2
====== ======
F-7
<PAGE>
GPU RESULTS OF OPERATIONS (continued)
GPU Energy Companies
Kilowatt-hour revenues
1997
The increase in KWH revenues was due primarily to the step increase in
unbilled revenue recorded by Met-Ed and Penelec from inclusion of their ECRs in
base rates; higher usage by industrial customers; and an increase in the number
of commercial and residential customers. These increases were partially offset
by lower weather-related sales to residential customers. KWH revenues now
include Met-Ed and Penelec's energy and tax revenues, consistent with the
inclusion of their ECRs and State Tax Adjustment Surcharges (STAS) in base
rates, effective January 1, 1997 (see COMPETITIVE ENVIRONMENT). Prior years'
energy and tax revenues for Met-Ed and Penelec have been reclassified for
comparative purposes.
1997 KWH Customer Sales by Service Class
Residential 35%
Commercial 33%
Industrial/Other 32%
1996
The increase was due primarily to increased new commercial and residential
customer sales, partially offset by lower weather-related sales to residential
customers.
Energy-related revenues (JCP&L only)
1997 and 1996
Generally, changes in energy-related revenues do not affect earnings as
they reflect corresponding changes in JCP&L's levelized energy adjustment clause
(LEAC) billed to customers and expensed. The 1997 increase was due primarily to
higher energy cost rates and increased industrial and commercial customer sales.
The 1996 increase was due primarily to higher energy cost rates and increased
commercial and residential customer sales, partially offset by lower sales to
other utilities.
Other revenues
1997 and 1996
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense. However, increased transmission
revenues contributed to earnings in 1996.
GPUI Group
1997
The increase in revenues was due mainly to the inclusion of revenues from
PowerNet Victoria (PowerNet), which was acquired by GPU Electric in November
1997, and the effect of consolidating GPU Electric's investment in Lake Cogen,
Ltd. (Lake), beginning in June 1997.
F-8
<PAGE>
GPU RESULTS OF OPERATIONS (continued)
1996
The increase in revenues was due primarily to the inclusion of a full year
of revenues from Empresa Guaracachi S.A., which GPU Power acquired a 50%
interest in July 1995, and increased management fees at GPU International.
GPU Advanced Resources
1997
GPU AR, which was formed in 1997, derived its 1997 revenues from energy
sales to customers who chose it as their energy supplier as part of the retail
access pilot programs in Pennsylvania (see COMPETITIVE ENVIRONMENT). Some of GPU
AR's customers are located in the GPU Energy companies' service territories.
OPERATING EXPENSES:
Power purchased and interchanged (PP&I)
1997 and 1996
Changes in the energy component of PP&I expense do not significantly
affect JCP&L's earnings since these cost variances are passed through the LEAC.
However, beginning on January 1, 1997, such cost variances for Met-Ed and
Penelec are not subject to deferred accounting and have a current impact on
earnings, except for incremental nonutility generation (NUG) costs, which are
included in Regulatory assets on the Consolidated Balance Sheets (see
COMPETITIVE ENVIRONMENT). Lower reserve capacity expense (which is a component
of PP&I) contributed to earnings for 1997 and 1996.
Fuel and Deferral of energy and capacity costs, net
1997 and 1996
For JCP&L, changes in fuel and deferral of energy and capacity costs, net
do not affect earnings as they are offset by corresponding changes in energy
revenues. Effective January 1, 1997, Met-Ed and Penelec ceased deferred energy
accounting as their ECRs were combined with base rates; therefore, cost
variances have a current impact on earnings (see COMPETITIVE ENVIRONMENT). For
Met-Ed and Penelec, the changes in fuel and energy costs did not have a
significant impact on earnings for 1997. Earnings for 1996 benefited from a $6.3
million pre-tax performance award earned by JCP&L for the efficient operation of
its nuclear generating stations.
Other operation and maintenance (O&M)
1997
The decrease in other O&M expenses was due primarily to the absence of a
$122.7 million pre-tax charge incurred in 1996, related to voluntary enhanced
retirement programs. Also contributing to the decrease were lower production
expenses due to the 1996 retirement of JCP&L's Werner and Gilbert generating
stations, decreased emergency and storm-related activity, and reductions from
work process improvements and a decrease in the number of employees. Partially
offsetting these were increased expenses related to the upgrade and modification
of certain GPU computer systems.
F-9
<PAGE>
GPU RESULTS OF OPERATIONS (continued)
1996
The increase in other O&M was due primarily to the $122.7 million pre-tax
charge related to the 1996 voluntary enhanced retirement programs. Partially
offsetting the effect of this charge was a 1995 write-off of $14.7 million
pre-tax, for TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking. Greater storm damage and emergency repairs in 1996 also
contributed to the increase.
Depreciation and amortization
1997 and 1996
The increases in depreciation and amortization expense were due primarily
to additions to plant in service and higher depreciation rates.
Taxes, other than income taxes
1997 and 1996
For JCP&L, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues. However,
effective January 1, 1997, Met-Ed and Penelec's STAS were combined with base
rates and are no longer subject to annual adjustment (see COMPETITIVE
ENVIRONMENT). This did not have a significant impact on 1997 earnings.
OTHER INCOME AND DEDUCTIONS:
Equity in undistributed earnings/(losses) of affiliates (GPUI Group only)
1997
The decrease in equity in undistributed earnings/(losses) of affiliates
was due to the windfall profits tax charge of $109.3 million imposed on
privatized utilities, including Midlands, by the Government of the United
Kingdom. Partially offsetting this was the inclusion in results of a full year
of Midlands' 1997 income, which GPU Electric acquired a 50% interest in May
1996.
1996
The increase in equity in undistributed earnings/(losses) of affiliates
was due primarily to the acquisition of a 50% interest in Midlands.
Other income, net
1996
The decrease in other income, net was due primarily to the reversal in
1995, of $183.9 million pre-tax, of certain future TMI-2 retirement costs
written off in 1994 by Met-Ed and Penelec. This reversal of expense resulted
from the 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order
allowing Met-Ed to recover such costs from customers.
Income taxes
1997
The decrease in income taxes (on other income and deductions) was
primarily related to the GPUI Group. GPU's federal income tax liability was
reduced as a result of its policy of accruing U.S. income tax on its worldwide
operations.
F-10
<PAGE>
GPU RESULTS OF OPERATIONS (continued)
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt
1997 and 1996
The increases in interest on long-term debt were due primarily to debt
associated with the Midlands and PowerNet acquisitions.
Dividends on subsidiary-obligated mandatorily redeemable preferred securities
1996
The increase was due to the issuance of $125 million stated value of
mandatorily redeemable preferred securities, by a special-purpose finance
subsidiary of JCP&L, in May 1995.
Preferred stock dividends of subsidiaries, net of gain on reacquisition
in 1996
1997 and 1996
In both 1997 and 1996, JCP&L redeemed $20 million stated value of
cumulative preferred stock. In 1996, Met-Ed and Penelec reacquired $11.4 million
stated value and $20 million stated value, respectively, of their cumulative
preferred stock, through cash tender offers, resulting in an aggregate gain of
$9.3 million.
JCP&L RESULTS OF OPERATIONS
JCP&L's 1997 earnings were $200.6 million, compared to 1996 earnings of
$143.2 million. Contributing to this earnings increase were higher
weather-related sales, higher new customer sales and lower other operation and
maintenance expenses due in part to a $39.4 million after-tax charge in 1996 for
voluntary enhanced retirement programs. JCP&L's return on average common equity
was 13.1% in 1997, compared to 9.5% in 1996.
Earnings in 1996 were $143.2 million, compared to 1995 earnings of $184.6
million. This decrease in earnings was due primarily to the charge in 1996 for
voluntary enhanced retirement programs (including JCP&L's share of costs
allocated from Genco, GPUN and GPUS), which were accepted by 341 bargaining and
non-bargaining employees of JCP&L, or about 11.5% of its workforce. Excluding
this nonrecurring item, 1996 earnings would have been $182.6 million, and return
on average common equity would have been 12%.
OPERATING REVENUES:
Total revenues increased 1.8% to $2.09 billion in 1997, after increasing
1.1% to $2.06 billion in 1996. The components of these changes are as
follows:
(in millions)
1997 1996
---- ----
KWH Revenues $ 13.0 $ (7.2)
Energy-related revenues 22.1 22.1
Other revenues 1.0 7.1
--- ---
Increase in revenues $ 36.1 $ 22.0
====== ======
F-11
<PAGE>
JCP&L RESULTS OF OPERATIONS (continued)
Kilowatt-hour revenues
1997
The increase in KWH revenues was due to higher weather-related sales, an
increase in new residential and commercial customer sales, partially offset by
decreased usage.
1997 KWH Customer Sales by Service Class
Residential 41%
Commercial 39%
Industrial/Other 20%
1996
The decrease in KWH revenues was due to lower weather-related sales to
residential customers, partially offset by new residential and commercial
customer sales.
Energy-related revenues
1997 and 1996
Changes in energy-related revenues do not affect earnings as they reflect
corresponding changes in the LEAC billed to customers and expensed. The 1997
increase was due primarily to higher energy cost rates and increased commercial
and industrial customer sales. The 1996 increase was due primarily to higher
energy cost rates and increased commercial and residential customer sales,
partially offset by lower sales to other utilities.
Other revenues
1997 and 1996
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense.
OPERATING EXPENSES:
Power purchased and interchanged
1997 and 1996
Changes in the energy component of PP&I expense do not significantly
affect earnings since these cost variances are passed through the LEAC. However,
lower reserve capacity expense resulting primarily from reduced purchases from
Pennsylvania Power & Light Company contributed to the 1997 and 1996 earnings.
Fuel and Deferral of energy and capacity costs, net
1997 and 1996
Changes in fuel and deferral of energy and capacity costs, net do not
affect earnings as they are offset by corresponding changes in energy revenues.
However, earnings for 1996 benefited from a $6.3 million pre-tax performance
award earned by JCP&L for the efficient operation of its nuclear generating
stations.
F-12
<PAGE>
JCP&L RESULTS OF OPERATIONS (continued)
Other operation and maintenance
1997
The decrease in other O&M expenses was due in part to the absence of a
$62.9 million pre-tax charge incurred in 1996, related to the voluntary enhanced
retirement programs. Also contributing to the decrease were lower production
expenses due to the 1996 retirement of the Werner and Gilbert generating
stations, a decrease in transmission charges from associated companies and a
decrease in storm damage and emergency repairs.
1996
The increase in other O&M expenses was due in part to the $62.9 million
pre-tax charge related to the voluntary enhanced retirement programs. Payments
associated with the use of others' transmission facilities (primarily associated
companies) and greater storm damage and emergency repairs also contributed to
the increase.
Depreciation and amortization
1997
The increase in depreciation and amortization expense was due primarily to
additions to plant in service, higher depreciation rates and higher regulatory
asset amortizations.
1996
The increase in depreciation and amortization expense was due primarily to
additions to plant in service, partially offset by lower depreciation rates; and
higher regulatory asset amortizations.
Taxes, other than income taxes
1997 and 1996
Changes in taxes other than income taxes do not significantly affect
earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income, net
1997
The decrease in other income, net was due primarily to $11.0 million in
charges related to the termination of a NUG contract. Also contributing to the
decrease was a loss on the sale of fuel oil from the Gilbert generating station.
1996
The decrease in other income, net was due largely to the write-off of $3
million pre-tax of NUG buyout costs related to the Crown/Vista project (see Rate
Matters section) and the write-off of obsolete inventory in connection with the
retirements of the Werner and Gilbert generating stations.
F-13
<PAGE>
JCP&L RESULTS OF OPERATIONS (continued)
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Interest on long-term debt
1996
The decrease in interest on long-term debt was due to lower interest rates
on long-term debt.
Other interest
1997
The increase in other interest expense was due to higher short-term debt
levels.
Dividends on company-obligated mandatorily redeemable preferred securities
1996
The increase was due to the issuance of $125 million stated value of
mandatorily redeemable preferred securities, by a special-purpose finance
subsidiary, in May 1995.
Preferred stock dividends
1997 and 1996
In both 1997 and 1996, JCP&L redeemed $20 million stated value of
cumulative preferred stock.
MET-ED RESULTS OF OPERATIONS
Met-Ed's 1997 earnings were $93.0 million, compared to 1996 earnings of
$71.8 million. This increase in earnings was primarily due to a step increase in
unbilled revenue recorded by Met-Ed as a result of including its ECR in base
rates and the cessation of deferred energy accounting, both effective January 1,
1997. Also contributing to the increase was increased customer usage, higher new
customer sales and lower other operation and maintenance expenses due to a $15.4
million after-tax charge in 1996 for voluntary enhanced retirement programs.
Met-Ed's return on average common equity was 12.9% in 1997 compared to 10.3% in
1996.
Earnings in 1996 were $71.8 million, compared to 1995 earnings of $147.6
million. This decrease in earnings was due to the effect of 1996 and 1995
nonrecurring items. Excluding the nonrecurring items, earnings for 1996 would
have been $87.2 million and return on average common equity would have been
12.4%, compared to 1995 earnings of $80.5 million. The earnings increase, on
this basis, was primarily due to higher customer sales, lower reserve capacity
expense and gains associated with the reacquisition of preferred stock.
The 1996 charge for voluntary enhanced retirement programs (which includes
Met-Ed's share of costs allocated from Genco, GPUN and GPUS), reflects the
acceptance by 163 bargaining and non-bargaining employees of Met-Ed, or about
7.5% of its workforce.
F-14
<PAGE>
MET-ED RESULTS OF OPERATIONS (continued)
The 1995 nonrecurring items consisted of the reversal of a $72.8 million
after-tax expense, for certain future TMI-2 retirement costs written off in
1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court
decision restoring a 1993 PaPUC order allowing Met-Ed to recover such costs from
customers. Partially offsetting the effect of this was a charge to income of
$5.7 million after-tax for TMI-2 monitored storage costs deemed not probable of
recovery through ratemaking.
OPERATING REVENUES:
Total revenues increased 3.6% to $943.1 million in 1997, after increasing
6.5% to $910.4 million in 1996. The components of these changes are as
follows:
(in millions)
1997 1996
---- ----
KWH Revenues $ 27.5 $ 51.6
Other revenues 5.2 4.1
--- ---
Increase in revenues $ 32.7 $ 55.7
====== ======
Kilowatt-hour revenues
1997
The increase in KWH revenues was due to increased customer usage and an
increase in new commercial and residential customer sales, partially offset by
lower weather-related sales. Also contributing to the increase was the step
increase in unbilled revenue recorded by Met-Ed as a result of including its ECR
in base rates, amounting to $13 million. KWH revenues now includes energy and
tax revenues, consistent with the inclusion of the ECR and STAS in base rates,
effective January 1, 1997 (See COMPETITIVE ENVIRONMENT). Prior years' energy
and tax revenues have been reclassified for comparative purposes.
1997 KWH Customer Sales by Service Class
Residential 35%
Commercial 28%
Industrial/Other 37%
1996
The increase in KWH revenues was due to increased customer usage, higher
weather-related sales to residential customers and an increase in new commercial
and residential customer sales. Also contributing to the increase were higher
energy cost rates, offset by lower sales to other utilities.
Other revenues
1997 and 1996
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense.
F-15
<PAGE>
MET-ED RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES:
Fuel and Power purchased and interchanged
1997 and 1996
Effective January 1, 1997, Met-Ed ceased deferred energy accounting as its
ECR was combined with base rates. Thus, energy cost variances now have a current
impact on earnings, except for incremental NUG costs, which are included in
Regulatory assets on the Consolidated Balance Sheets (see COMPETITIVE
ENVIRONMENT). Changes in fuel and power purchased and interchanged did not have
a significant impact on earnings for 1997. However, lower reserve capacity
expense contributed to earnings for 1996.
Other operation and maintenance
1997
The decrease in other O&M expenses was due to the absence of a $26.2
million pre-tax charge incurred in 1996 related to the voluntary enhanced
retirement programs.
1996
The increase in other O&M expenses was due primarily to the $26.2 million
pre-tax charge related to the voluntary enhanced retirement programs and greater
storm damage and emergency repairs. Partially offsetting the effect of these was
a 1995 write-off of $10 million pre-tax, for TMI-2 monitored storage costs
deemed not probable of recovery through ratemaking.
Depreciation and amortization
1997
The increase in depreciation and amortization was due to additions to
plant in service and higher depreciation rates.
1996
The decrease in depreciation and amortization was due to adjustments in
1995 related to TMI-2 decommissioning. These adjustments more than offset 1996
increases in depreciation expense resulting from additions to plant in service
and higher depreciation rates.
Taxes, other than income taxes
1997 and 1996
Effective January 1, 1997, Met-Ed's STAS was combined with base rates and
is no longer subject to annual adjustment (see COMPETITIVE ENVIRONMENT). This
did not have a significant impact on 1997 earnings.
OTHER INCOME AND DEDUCTIONS:
Other income, net
1997
The increase in other income, net was due to an increase in interest
income.
F-16
<PAGE>
MET-ED RESULTS OF OPERATIONS (continued)
1996
The decrease in other income, net was due primarily to the reversal in
1995, of $127.6 million pre-tax, of certain future TMI-2 retirement costs
written off in 1994. This reversal of expense resulted from a 1995 Pennsylvania
Supreme Court decision restoring a 1993 PaPUC order allowing Met-Ed to recover
such costs from customers.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Other interest
1997
The increase in other interest expense was due to higher short-term debt
levels.
Preferred stock dividends and Gain on preferred stock reacquisition
1997 and 1996
In 1996, Met-Ed reacquired $11.4 million stated value of its cumulative
preferred stock through cash tender offers, resulting in an aggregate gain of
$3.7 million.
PENELEC RESULTS OF OPERATIONS
Penelec's 1997 earnings were $94.4 million, compared to 1996 earnings of
$73.9 million. This increase in earnings was primarily due to a step increase in
unbilled revenue recorded by Penelec as a result of including its ECR in base
rates and the cessation of deferred energy accounting, both effective January 1,
1997. Also contributing to the increase was increased customer usage and lower
other operation and maintenance expenses due primarily to a $19.7 million
after-tax charge in 1996 for voluntary enhanced retirement programs. Penelec's
return on average common equity was 12.1% in 1997 compared to 10% in 1996.
Earnings for 1996 were $73.9 million, compared to 1995 earnings of $109.5
million. This decrease in earnings was due to the effect of 1996 and 1995
nonrecurring items. Excluding the nonrecurring items, earnings for 1996 would
have been $93.6 million and return on average common equity would have been
12.6%, compared to earnings of $80.1 million for 1995. The earnings increase, on
this basis, was due primarily to higher customer sales and gains associated with
the reacquisition of preferred stock, which were partially offset by higher
depreciation expense.
The 1996 charge for voluntary enhanced retirement programs (which includes
Penelec's share of costs allocated from Genco, GPUN and GPUS), reflects the
acceptance by 165 bargaining and non-bargaining employees of Penelec, or about
7.5% of its workforce.
The 1995 nonrecurring items consisted of the reversal of a $32.1 million
after-tax expense, for certain future TMI-2 retirement costs written off in
1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme Court
decision restoring a 1993 PaPUC order allowing an affiliate (Met-Ed) to recover
such costs from customers. Partially offsetting the effect of this was a charge
to income of $2.7 million after-tax for TMI-2 monitored storage costs deemed not
probable of recovery through ratemaking.
F-17
<PAGE>
PENELEC RESULTS OF OPERATIONS (continued)
OPERATING REVENUES:
Total revenues increased 3.3% to $1.1 billion in 1997, after increasing
3.9% to $1 billion in 1996. The components of these changes are as follows:
(in millions)
1997 1996
---- ----
KWH Revenues $ 37.7 $ 22.2
Other revenues (4.4) 16.1
---- ----
Increase in revenues $ 33.3 $ 38.3
====== ======
Kilowatt-hour revenues
1997
The increase in KWH revenues was due to increased industrial and
commercial customer usage offset by lower weather-related sales. Also
contributing to the increase was the step increase in unbilled revenue recorded
by Penelec as a result of including its ECR in base rates, amounting to $15
million. KWH revenues now includes energy and tax revenues, consistent with the
inclusion of the ECR and STAS in base rates, effective January 1, 1997 (See
COMPETITIVE ENVIRONMENT). Prior years' energy and tax revenues have been
reclassified for comparative purposes.
1997 KWH Customer Sales by Service Class
Residential 28%
Commercial 30%
Industrial 36%
Other 6%
1996
The increase in KWH revenues was due to increased new commercial and
residential customer sales, higher weather-related sales to residential
customers and higher energy cost rates, partially offset by lower sales to other
utilities.
Other revenues
1997 and 1996
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense. However, increased transmission
revenues contributed to earnings in 1996.
OPERATING EXPENSES:
Fuel and Power purchased and interchanged
1997 and 1996
Effective January 1, 1997, Penelec ceased deferred energy accounting as
its ECR was combined with base rates. Thus, energy cost variances now have a
current impact on earnings, except for incremental NUG costs, which are included
in Regulatory assets on the Consolidated Balance Sheets (see COMPETITIVE
ENVIRONMENT). Changes in fuel and power purchased and interchanged did not have
a significant impact on earnings for 1997.
F-18
<PAGE>
PENELEC RESULTS OF OPERATIONS (continued)
Other operation and maintenance
1997
The decrease in other O&M expenses was due primarily to the absence of a
$33.6 million pre-tax charge incurred in 1996, related to the voluntary enhanced
retirement programs.
1996
The increase in other O&M expenses was due primarily to the $33.6 million
pre-tax charge related to the voluntary enhanced retirement programs. Partially
offsetting the effect of this was a 1995 write-off of $4.7 million pre-tax, for
TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking.
Depreciation and amortization
1997 and 1996
The increases in depreciation and amortization expense were due to
additions to plant in service and higher depreciation rates.
Taxes, other than income taxes
1997 and 1996
Effective January 1, 1997, Penelec's STAS was combined with base rates and
is no longer subject to annual adjustment (see COMPETITIVE ENVIRONMENT). This
did not have a significant impact on 1997 earnings.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1997
The increase in other income/(expense), net was due primarily to an
increase in interest income.
1996
The decrease in other income/(expense), net was due primarily to the
reversal in 1995, of $56.3 million pre-tax, of certain future TMI-2 retirement
costs written off in 1994. This reversal of expense resulted from a 1995
Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing an
affiliate to recover such costs from customers. Partially offsetting this was a
write-off in 1995 of $2.5 million of deferred OPEB costs related to wholesale
customers, which were deemed not recoverable through ratemaking.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Preferred stock dividends and Gain on preferred stock reacquisition
1997 and 1996
In 1996, Penelec reacquired $20 million stated value of its cumulative
preferred stock through cash tender offers, resulting in an aggregate gain of
$5.6 million.
F-19
<PAGE>
The following sections of Management's Discussion and Analysis of
Financial Condition and Results of Operations contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Statements made that are not historical facts are forward-looking and,
accordingly, involve risks and uncertainties that could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. Although such forward-looking statements have been based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. Some of the factors that could cause actual results to differ
materially include, but are not limited to: the effects of regulatory decisions;
changes in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry restructuring;
expected outcomes of legal proceedings; generating plant performance; fuel
prices and availability; and uncertainties involved with foreign operations
including political risks and foreign currency fluctuations.
GPUI GROUP
The GPUI Group develops, owns and operates electric generation,
transmission and distribution facilities in the U.S. and foreign countries. It
has also made investments in certain advanced technologies related to the
electric power industry. The GPUI Group has ownership interests in transmission,
distribution and supply businesses in England and Australia. It also has
ownership interests in eight operating cogeneration plants in the U.S. totaling
847 megawatts (MW) (of which the GPUI Group's equity interest represents 308 MW)
of capacity, and twelve operating generating facilities located in foreign
countries totaling 3,830 MW (of which the GPUI Group's equity interest
represents 728 MW) of capacity.
The GPUI Group is continuing to pursue investment opportunities and has
commitments, both domestically and internationally, in seven generating
facilities under construction totaling 2,141 MW (of which the GPUI Group's
equity interest represents 641 MW) of capacity.
At December 31, 1997, GPU, Inc.'s aggregate investment in the GPUI Group
was $268 million; GPU, Inc. has also guaranteed up to an additional $1.3 billion
of GPUI Group obligations. GPU, Inc. has Securities and Exchange Commission
(SEC) approval to finance investments in foreign utility companies (FUCOs) and
exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of
GPU's average consolidated retained earnings, or approximately $2.2 billion. At
December 31, 1997, GPU, Inc. has remaining authorization to finance
approximately $754 million of additional investments in FUCOs and EWGs. For
additional information on the GPUI Group's investments, see Note 6 of the Notes
to Consolidated Financial Statements.
In 1997, the Government of the United Kingdom imposed a windfall profits
tax on privatized utilities, including Midlands, in which the GPUI Group has a
50% ownership interest. As a result, a one-time charge to income of $109.3
million, or $0.90 per share, was taken. In December 1997, half of this tax was
paid; the remainder is due by December 1998.
In 1997, GPU Electric acquired the business of PowerNet Victoria (PowerNet)
(subsequently renamed GPU PowerNet) from the State of Victoria, Australia for
A$2.6 billion (approximately U.S. $1.9 billion)(see Financing section of
LIQUIDITY AND CAPITAL RESOURCES). PowerNet owns and maintains the existing
high-voltage electricity transmission system in Victoria. The
F-20
<PAGE>
PowerNet transmission system serves all of Victoria covering an area of
approximately 87,900 square miles and a population of approximately 4.5 million.
GPU expects the PowerNet acquisition to contribute positively to its 1998
earnings. For additional information, see Note 5 of the Notes to Consolidated
Financial Statements.
In January 1998, as a result of Victoria's cross-ownership restrictions,
GPU Electric sold its 50% stake in Solaris Power (Solaris) to The Australian Gas
Light Company for A$208 million (approximately U.S. $135.2 million) and 10.36%
of the outstanding common stock of Allgas Energy Limited (Allgas), the natural
gas distributor in Queensland, Australia. The Allgas shares had a market value
of A$14.6 million (approximately U.S. $9.5 million) at the date of sale. As a
result, GPU will record an after-tax gain on the sale of $18.3 million in the
first quarter of 1998.
Management expects that the GPUI Group will provide a substantial portion
of GPU's future earnings growth and intends on making additional investments in
its business activities. The timing and amount of these investments, however,
will depend upon the availability of appropriate opportunities and financing
capabilities.
Market Risk Sensitive Instruments
The GPUI Group uses interest rate swaps to manage the risk of increases in
variable interest rates. All of the agreements effectively convert variable rate
debt to fixed rate debt. None of these swap agreements are held for trading
purposes. The following summarizes the primary characteristics of swap
agreements entered into as of December 31, 1997:
<TABLE>
(in thousands)
<CAPTION>
Fixed Variable
Swap Fair Termination Pay/Receive Interest Interest Rates
Amounts Value(a) Date Characteristics Rates at 12/31/97
------- -------- ---- --------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
GPU PowerNet A$ 481,250 A$ (5,836) 11/6/00 fixed/variable 6.14% 4.96-5%
A$ 481,250 A$ (10,911) 11/6/02 fixed/variable 6.56% 4.96-5%
A$ 385,000 A$ (12,940) 11/6/04 fixed/variable 6.82% 4.96-5%
A$ 288,750 A$ (16,124) 11/6/07 fixed/variable 7.14% 4.96-5%
A$ 288,750 A$ (16,323) 11/6/07 fixed/variable 7.15% 4.96-5%
---------- ----------
A$1,925,000 A$ (62,134)
========== ==========
Midlands (pound) 75,000(pound) 995 8/7/98 fixed/variable 6.50% 7.61%
====== ===
Mid-Georgia
Cogen, L.P. $ 31,656 $ (112) 6/30/98 fixed/variable 6.40% 5.97%
$ 27,401 $ (232) 6/30/98 fixed/variable 6.78% 5.97%
(b)$ 54,500 $ (5,569) 6/30/13 fixed/variable 7.64% n/a
---------- ----------
$ 113,557 $ (5,913)
========== ==========
Solaris
Power A$ 40,000 A$ (1,051) 11/23/98 fixed/variable 7.78% 4.97%
========== ==========
<FN>
(a) Represents the amount the GPUI Group would (pay)/receive to terminate the
swap agreements prior to their scheduled termination dates.
(b) There will be no underlying debt under this swap agreement until June 1998.
</FN>
</TABLE>
F-21
<PAGE>
The amount of debt obligations covered by swap agreements and the
expected variable interest rates on such debt, for each of the next five years,
are as follows:
(in thousands)
GPU PowerNet Midlands Mid-Georgia
------------ -------- -----------
Expected Expected Expected
Average Variable Average Variable Average Variable
Debt Interest Debt Interest Debt Interest
Year Covered Rates Covered Rates Covered Rates
- ---- ------- ----- ------- ----- ------- -----
1998 A$1,851,164 5.1-5.2% (pound)44,795 7.7% $ 63,932 5.7%
1999 A$1,443,750 5.6-6.0% - - $ 53,193 5.8%
2000 A$1,332,997 5.9-6.6% - - $ 51,463 5.9%
2001 A$ 721,875 6.1-6.7% - - $ 49,533 6.0%
2002 A$ 611,122 6.2-6.9% - - $ 47,254 6.0%
The expected variable interest rates included above, for the years 1998
through 2002, were provided by the financial institutions with whom the swap
agreements were executed, and were derived from their proprietary models based
upon recognized financial principles. The amount of the swaps related to GPU
PowerNet and Mid-Georgia fluctuate over the terms of the respective agreements,
through 2007 and 2013, respectively.
The swap agreements resulted in actual interest expense for covered debt
of $30.6 million in 1997, as compared to $26.9 million in interest expense, had
the GPUI Group not entered into the agreements. The swap agreement related to
Solaris was terminated in January 1998, due to the GPUI Group's sale of its
interest in Solaris and repayment of the underlying debt, and a termination fee
of $0.8 million was incurred at that date. For additional information on GPU's
accounting for swap agreements, see Note 7 of the Notes to Consolidated
Financial Statements.
In 1997, GPU Electric used sterling put options to reduce its exposure to
exchange rate fluctuations between the British pound and the U.S. dollar,
relative to distributions received from Midlands. The put options expired on
December 31, 1997. GPU Electric used an Australian put option to reduce its
exposure to exchange rate fluctuations between the Australian dollar and the
U.S. dollar, relative to the net proceeds expected from the sale of its 50%
stake in Solaris. The Solaris sale was completed in January 1998. For further
discussion of these options, see Note 7 of the Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
The GPU Energy companies' capital spending was $356 million (JCP&L $172
million; Met-Ed $88 million; Penelec $99 million) in 1997, and was used
primarily for new customer connections and to maintain and improve existing
transmission and distribution facilities. In 1998, capital expenditures are
estimated to be $441 million (JCP&L $204 million; Met-Ed $92 million; Penelec
$121 million; Other $24), mainly related to the GPU Energy companies and will be
used primarily for ongoing system development and to implement an integrated
information system as discussed below. In 1997, expenditures for maturing
obligations were $176 million (JCP&L $110 million; Met-Ed $40 million; Penelec
$26 million). Expenditures for maturing obligations are expected to total $43
million (JCP&L $13 million; Penelec $30 million) in
F-22
<PAGE>
1998, and $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50
million) in 1999. Management estimates that a substantial portion of the GPU
Energy companies' 1998 capital outlays will be satisfied through internally
generated funds.
The GPUI Group's capital spending was $1.9 billion in 1997, which was
principally attributable to the acquisition of PowerNet (see Note 5 of the Notes
to Consolidated Financial Statements). In 1997, expenditures for maturing
obligations were $3 million. Expenditures for maturing obligations are expected
to total $589 million in 1998, and $152 million in 1999. Management estimates
that a substantial portion of the GPUI Group's 1998 capital outlays will be
satisfied through external financings.
Capital Expenditures*
(in millions)
-------------
1993 1994 1995 1996 1997 1998**
---- ---- ---- ---- ---- ------
GPU Energy companies $ 496 $ 586 $ 462 $ 404 $ 356 $ 441
GPUI Group $ 16 $ 74 $ 165 $ 574 $1,912 $ 141
* Includes consolidated operations only
** Estimate
GPU's capital leases are primarily for nuclear fuel held by the GPU Energy
companies. Nuclear fuel capital leases at December 31, 1997 totaled $136 million
(JCP&L $79 million; Met-Ed $38 million; Penelec $19 million). When consumed,
portions of the presently leased material will be replaced by additional leased
material at an average annual rate (which is based on two full operating cycles,
or four years) of between $40 million and $55 million (JCP&L $25 million - $30
million; Met-Ed $10 million - $15 million; Penelec $5 million - $10 million). In
the event the needed nuclear fuel cannot be leased, the associated capital
requirements would have to be met by other means.
The GPU Energy companies and certain affiliates have contracted for an
integrated information system to help manage their business growth, accomplish
year 2000 compliance and meet the mandates of electric utility deregulation. The
system is scheduled to be fully operational in early 1999. The estimated project
costs for the system are $106 million (JCP&L $49 million; Met-Ed $25 million;
Penelec $32 million), of which $16 million (JCP&L $7 million; Met-Ed $4 million;
Penelec $5 million) was spent in 1997. A portion of these costs will be expensed
as incurred. The GPUI Group estimates that it will cost approximately $7 million
to modify its computer systems.
Financing
GPU, Inc.
GPU, Inc. has received SEC approval to issue and sell up to $300 million
of unsecured debentures through 2001. In February 1998, GPU, Inc. sold seven
million shares of common stock. The net proceeds of $269 million will be used to
reduce indebtedness associated with the PowerNet and Midlands acquisitions, and
for other corporate purposes. Further significant investments by the GPUI Group,
or otherwise, may require GPU, Inc. to issue additional debt and/or common stock
(see GPUI GROUP for a discussion of GPU, Inc.'s remaining investment
authorization).
F-23
<PAGE>
GPU Energy Companies
As a result of Pennsylvania legislation (see COMPETITIVE ENVIRONMENT),
Met-Ed and Penelec each plan to sell securitized transition bonds through a
separate trust or other special purpose entity, and would use the proceeds to
reduce stranded costs resulting from customer choice, including NUG contract
buyout costs (see the Managing Nonutility Generation section of THE GPU ENERGY
COMPANIES' SUPPLY PLAN), and to reduce capitalization. The timing and amount of
any sale will depend upon PaPUC approval of restructuring plans, resolution of
legal challenges, and receipt of a favorable ruling from the Internal Revenue
Service, as well as market conditions. It is expected that similar legislation
will be introduced in New Jersey to permit the sale of securitized transition
bonds. See COMPETITIVE ENVIRONMENT for further discussion of these bonds.
JCP&L and Penelec have regulatory authority to issue and sell first
mortgage bonds (FMBs), including secured medium-term notes, and preferred stock
through June 1999. Met-Ed has similar authority through December 1999. Under
existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior
securities in aggregate amounts of $145 million, $190 million and $70 million,
respectively, of which up to $100 million for JCP&L and Met-Ed and $70 million
for Penelec may consist of preferred stock. The GPU Energy companies also have
regulatory authority to incur short-term debt, a portion of which may be through
the issuance of commercial paper.
In 1997, the GPU Energy companies issued an aggregate of $63.7 million
(Met-Ed $13.7 million; Penelec $50 million) principal amount of FMBs. The
proceeds from these issuances were used to replace short-term financing related
to a solid waste disposal facility at the jointly owned Conemaugh station, repay
short-term debt and for other corporate purposes. The GPU Energy companies
redeemed $166.1 million (JCP&L $100.1 million; Met-Ed $40 million; Penelec $26
million) principal amount of FMBs, of which $24.2 million were redeemed by JCP&L
prior to maturity. Also in 1997, JCP&L redeemed $20 million stated value of
cumulative preferred stock pursuant to mandatory and optional sinking fund
provisions. In February 1998, Penelec redeemed at maturity $30 million principal
amount of FMBs.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue. The GPU Energy companies' interest and
preferred dividend coverage ratios are currently in excess of indenture and
charter restrictions. The amount of FMBs that the GPU Energy companies could
issue based on the bondable value of property additions is in excess of amounts
currently authorized.
The GPU Energy companies' cost of capital and ability to obtain external
financing are affected by their security ratings, which are periodically
reviewed by the credit rating agencies. The GPU Energy companies' FMBs are
currently rated at an equivalent of "BBB+" or higher by the major credit rating
agencies, while the preferred stock and mandatorily redeemable preferred
securities have been assigned an equivalent of "BBB" or higher. In addition, the
GPU Energy companies' commercial paper is rated as having very good credit
quality.
Current plans call for the GPU Energy companies to issue senior securities
during the next three years to fund the redemption of maturing senior
securities, refinance outstanding senior securities if economic, and finance
construction activities.
F-24
<PAGE>
GPUI Group
In 1997, GPU Electric acquired the business of PowerNet from the State of
Victoria, Australia for A$2.6 billion (approximately U.S. $1.9 billion). To fund
the acquisition, subsidiaries of GPU Electric entered into a senior debt credit
facility with a syndicate of banks for A$1.9 billion (approximately U.S. $1.4
billion), which is non-recourse to GPU, Inc. and a five-year U.S. $450 million
bank credit agreement which is guaranteed by GPU, Inc. Borrowings under the bank
credit agreement are to be amortized ratably over the five-year period.
In 1996, GPU and Cinergy formed a 50/50 joint venture to acquire Midlands.
To fund its investment in Midlands, a subsidiary of GPU Electric entered into a
GPU, Inc. guaranteed five-year (pound)350 million term loan agreement with a
syndicate of banks. As of December 31, 1997, the aggregate borrowings
outstanding under the term loan were (pound)340 million (approximately U.S. $561
million).
In January 1998, as a result of Victoria's cross-ownership restrictions,
GPU Electric sold its 50% stake in Solaris for A$208 million (approximately U.S.
$135.2 million) and a 10.36% stake in Allgas valued at A$14.6 million
(approximately U.S. $9.5 million) at the date of sale. Approximately U.S. $52
million of the net sales proceeds were used to extinguish Solaris acquisition
debt and approximately U.S. $60 million was used to reduce PowerNet acquisition
debt. The balance of the proceeds will be applied for other corporate purposes.
In 1998, GPU plans to reduce a portion of the Midlands and PowerNet
acquisition debt from proceeds provided by the sale of GPU common stock. In
addition, GPU announced that it intends to begin a process to sell up to all of
the GPU Energy companies' fossil fuel and hydroelectric generating facilities
(see Managing the Transition section of COMPETITIVE ENVIRONMENT). A portion of
the proceeds from the sale of these assets, which is expected to be finalized by
mid-1999, may be used to further reduce acquisition debt of the GPUI Group.
Capitalization
Each of the GPU companies' target capitalization ratios are designed to
provide credit quality ratings that permit capital market access at reasonable
costs. The target capitalization ratios vary by subsidiary depending upon their
business and financial risk. The GPU companies' actual capitalization ratios at
December 31, were as follows:
GPU, Inc. and Subsidiary Companies 1997 1996 1995
- ---------------------------------- ---- ---- ----
Common equity 35% 43% 47%
Preferred equity 6 7 9
Notes payable and long-term debt 59 50 44
-- -- --
100% 100% 100%
=== === ===
JCP&L 1997 1996 1995
- ----- ---- ---- ----
Common equity 50% 48% 49%
Preferred equity 9 9 10
Notes payable and long-term debt 41 43 41
-- -- --
100% 100% 100%
=== === ===
F-25
<PAGE>
Met-Ed 1997 1996 1995
- ------ ---- ---- ----
Common equity 49% 48% 47%
Preferred equity 7 8 9
Notes payable and long-term debt 44 44 44
-- -- --
100% 100% 100%
=== === ===
Penelec 1997 1996 1995
- ------- ---- ---- ----
Common equity 47% 45% 45%
Preferred equity 7 7 9
Notes payable and long-term debt 46 48 46
-- -- --
100% 100% 100%
=== === ===
In 1997, the quarterly dividend on GPU, Inc.'s common stock was increased
by 3.1% to an annualized rate of $2.00 per share. GPU, Inc.'s payout rate in
1997 was 54% of earnings (excluding the nonrecurring item). Management will
continue to review GPU, Inc.'s dividend policy to determine how to best serve
the long-term interests of shareholders.
COMPETITIVE ENVIRONMENT
Managing the Transition
As competition in the electric utility industry increases, the price of
electricity and quality of customer service will be critical. GPU has been
active both on the federal and state levels in helping to shape electric
industry restructuring while seeking to protect the interests of its
shareholders and customers, and is attempting to assess the impact that these
competitive pressures and other changes will have on its financial condition and
results of operations.
In October 1997, GPU announced that it intends to begin a process to sell,
through a competitive bid process, up to all of the fossil fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, total approximately 5,300 MW
(JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of capacity and have a net
book value of approximately $1.1 billion (JCP&L $280 million; Met-Ed $300
million; Penelec $495 million) at December 31, 1997. GPU expects to use a
multi-stage competitive bid process, similar to the generation divestiture
processes used by other utilities. The net proceeds from the sale would be used
to reduce the capitalization of the respective GPU Energy companies and may also
be applied to reduce short-term debt, finance further acquisitions, and to
reduce acquisition debt of the GPUI Group. GPU currently anticipates that it
will begin seeking indicative bids in mid-April 1998. It is anticipated that
definitive agreements with the purchaser(s) will be entered into by the end of
1998 and the sale completed by mid-1999, subject to the timely receipt of the
necessary regulatory and other approvals.
In addition to the continued operation of the Oyster Creek Nuclear
Generating Station (Oyster Creek), JCP&L is exploring the sale or early
retirement of the plant to mitigate costs associated with its continued
operation. In response to an inquiry regarding the possible sale of Oyster
Creek, the GPU Energy companies have stated that they would also consider
selling Three Mile Island Unit 1 (TMI-1). Unlike Oyster Creek, however, the
early retirement of TMI-1 is not being considered because of its lower operating
costs.
F-26
<PAGE>
In December 1997, GPU and The Williams Companies, Inc. announced an
agreement to form an alliance to jointly market energy and related services at
the retail level. The joint venture, which is expected to commence operations in
1998, will offer electric, natural gas and oil supply, as well as other related
energy services, to consumers throughout the Mid-Atlantic region.
As part of its strategy of achieving earnings growth, GPU is continuing to
investigate investment opportunities in various domestic and foreign power
projects and foreign utility systems, and intends on making additional
investments which would be financed with new debt or new equity. While GPU
recognizes that there are risks inherent in making these investments, it
believes the best long-term approach to managing these risks is through
portfolio diversification.
GPU has identified the following strategic objectives to guide it over the
next several years: (1) build upon GPU's core competency in regulated
infrastructure (mainly the transmission and distribution of electricity), both
internationally and domestically; (2) investigate other investment opportunities
in infrastructure (i.e. natural gas, water, telecommunications); (3) continue to
develop the contract generation business (generation for which contracts to sell
power to third parties have been executed) through the GPUI Group; and (4) build
a retail energy services and supply business.
GPU's strategies may include business combinations with other companies,
internal restructurings involving the complete or partial separation of its
wholesale and retail businesses, acquisitions of other businesses, and additions
to or dispositions of all or portions of its generation, transmission or
distribution businesses. As a result of federal and state actions noted below,
the GPU Energy companies will be required to implement rate unbundling for
generation, transmission and distribution services. No assurances can be given
as to whether any potential transactions of the type described above may
actually occur, or as to the ultimate effect thereof on the financial condition
or competitive position of GPU.
Recent Regulatory Actions
Pennsylvania
In 1996, Pennsylvania adopted comprehensive legislation which provides for
the restructuring of the electric utility industry. The legislation, among other
things, permits one-third of Pennsylvania retail consumers to choose their
electric supplier beginning January 1, 1999, two-thirds permitted to choose by
January 1, 2000 and all retail consumers to do so by January 1, 2001. The
legislation requires the unbundling of rates for transmission, distribution and
generation services. Utilities would have the opportunity to recover their
prudently incurred stranded costs that result from customers choosing another
supplier through a PaPUC approved competitive transition charge, subject to
certain conditions, including that they attempt to mitigate these costs. For a
discussion of stranded costs, see the Competition and the Changing Regulatory
Environment section of Note 13 of the Notes to Consolidated Financial
Statements.
The legislation provides utilities the opportunity to reduce their
stranded costs through the issuance of transition bonds with maturities of up to
10 years. The sale proceeds could be used to buy out or buy down uneconomic NUG
contracts, to reduce capitalization, or both. Principal and interest payments on
the bonds would be paid by all distribution service
F-27
<PAGE>
customers through a nonbypassable intangible transition charge. Reduced
financing costs associated with the sale of transition bonds would be used to
provide rate reductions for all customers. In order to securitize stranded
costs, each Pennsylvania utility is required to file with the PaPUC for a
qualified rate order. Met-Ed and Penelec expect to file for such rate orders
during 1998.
Effective January 1, 1997, transmission and distribution rates charged to
Pennsylvania retail customers are generally capped for 4 1/2 years, and
generation rates are generally capped for up to nine years. Transmission and
distribution of electricity will continue as a regulated monopoly. An
independent system operator (ISO) will be responsible for coordinating the
generation and transmission of electricity in an efficient and nondiscriminatory
manner.
As part of this restructuring, Met-Ed and Penelec filed, in December 1996,
tariff supplements requesting approval to, among other things, include their
currently effective ECRs and STAS in base rates, effective for all bills
rendered after January 1, 1997. In February 1997, the PaPUC approved this
request. Since rates that can be charged to customers for generation are capped
for up to nine years, to the extent Met-Ed and Penelec remain in the generation
business, their future earnings are subject to market volatility. Increases or
decreases in fuel costs are no longer subject to deferred accounting and are
reflected in net income as incurred. Met-Ed and Penelec will continue their
efforts to manage fuel costs and will mitigate, to the extent possible, any
excessive risks.
In June 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in
Pennsylvania. Highlights of these plans, as revised through January 1998,
include:
- - One-third of electric retail customers would be able to choose their
supplier beginning on January 1, 1999, expanding to include all customers
by January 1, 2001.
- - As required by the restructuring legislation, rates would be unbundled for
generation, transmission and distribution charges.
- - A competitive transition charge (CTC) would provide the opportunity to
recover all of Met-Ed and Penelec's generation plant, regulatory assets and
other non-NUG related transition and stranded costs within a seven-year
time period beginning January 1, 1999.
- - A "NUG Cost Rate" is being proposed to capture payments to NUGs in excess
of amounts in current rates. This clause will provide for a full
reconciliation of amounts paid to NUGs, and recovered from customers. This
will ensure that customers do not overpay for these obligations, and it
will also provide a vehicle for flowing through to customers the full
benefits of any prospective reductions in NUG obligations that result from
mitigation. At December 31, 1997, the deferred NUG balances for Met-Ed and
Penelec were $10.3 million and $14.6 million, respectively, and are
included in Other Regulatory Assets on the Consolidated Balance Sheets.
- - Stranded costs at the time of initial customer choice (December 31, 1998),
on a present value basis, are estimated at $1.5 billion for Met-Ed and $1.2
billion for Penelec. These stranded costs include above-market costs
F-28
<PAGE>
related to power purchase commitments, company-owned generation, generating
plant decommissioning, regulatory assets and transition expenses.
- - Ongoing stranded cost mitigation efforts include the buyout and/or
renegotiation of several above-market NUG agreements; the planned
retirement of uneconomical generating units as well as the continuing
evaluation of remaining generating facilities; and workforce reductions
achieved primarily through voluntary retirement and severance programs.
- - Met-Ed and Penelec have requested rate recovery of prudently incurred costs
associated with the buyout and restructuring of NUG projects that are not
currently being recovered in rates. The requested increase, based upon a
three-year recovery of the buyout costs, is $44.6 million for Met-Ed and
$19.1 million for Penelec. It is expected that these increases will be
offset by lower interest expense related to the issuance of transition
bonds. The estimated customer savings associated with these contract
buyouts/restructurings is $812 million for Met-Ed and $593 million for
Penelec.
- - Met-Ed and Penelec will be the supplier of last resort for customers who
cannot or do not wish to purchase energy from an alternative supplier.
Numerous parties have intervened in these proceedings and are actively
contesting various aspects of the filings, including the quantification of
stranded costs and the fixing of the level of generation credits for customers
who choose alternative suppliers. Discovery, evidentiary hearings and related
proceedings are continuing. Initial decisions from the PaPUC are expected by
June 30, 1998. There can be no assurance as to the outcome of these proceedings.
The PaPUC has also issued a final order that sets forth the guidelines for
retail access pilot programs in Pennsylvania that give customers the ability to
choose their electricity supplier. These pilot programs include residential,
commercial and industrial class customers, and utilities are required to commit
about 5% of load to retail access programs and unbundle their rates to allow
customers to choose their electric generation supplier. The pilot program began
November 1, 1997 and will run until the first phase of retail competition begins
on January 1, 1999. Met-Ed and Penelec's pilot programs include approximately 5%
of each company's load.
New Jersey
In April 1997, the New Jersey Board of Public Utilities (NJBPU) issued
final Findings and Recommendations for Restructuring the Electric Power Industry
in New Jersey and submitted the plan to the Governor and the Legislature for
their consideration. The NJBPU has recommended, among other things, that certain
electric retail customers be permitted to choose their supplier beginning
October 1998, expanding to include all retail customers by July 1, 2000. The
NJBPU also recommended a near-term electric rate reduction of 5% to 10% with the
phase-in of retail competition, as well as additional rate reductions
accomplished as a result of new energy tax legislation, as discussed below.
The NJBPU has proposed that utilities have an opportunity to recover their
stranded costs associated with generating capacity commitments provided that
they attempt to mitigate these costs. Also, NUG contracts which cannot be
mitigated would be eligible for stranded cost recovery. The determination
F-29
<PAGE>
of stranded cost recovery by the NJBPU would be undertaken on a case-by-case
basis, with no guaranty for full recovery of these costs. A separate market
transition charge (MTC) would be established for each utility to allow utilities
to recover stranded costs over 4 to 8 years. The MTC would be capped to ensure
that customers experience the NJBPU's recommended overall rate reduction of
5-10%. New Jersey is also considering securitization as a mechanism to help
mitigate stranded costs.
In addition, the NJBPU is proposing that beginning October 1998, utilities
unbundle their rates and allow customers to choose their electric generation
supplier. Transmission and distribution of electricity would continue as a
regulated monopoly and utilities would be responsible for connecting customers
to the system and for providing distribution service. Transmission service would
be provided by an ISO, which would be responsible for maintaining the
reliability of the regional power grid and would be regulated by the Federal
Energy Regulatory Commission (FERC).
In July 1997, New Jersey enacted energy tax legislation which eliminates
the 13% gross receipts and franchise tax on utility bills. Utilities will
collect from customers a 6% sales tax and pay a corporate business tax which
amounts to 1-2% of revenues. Utilities will also pay a transitional energy
facilities assessment which will phase out over five years and result in a 5-6%
rate reduction to customers.
In July 1997, JCP&L filed with the NJBPU its proposed restructuring plan
for a competitive electric marketplace in New Jersey. Included in the plan were
stranded cost, unbundled rate and restructuring filings. In December 1997, JCP&L
submitted supplemental information with the NJBPU and parties to the
restructuring proceeding regarding the proposed sale of its fossil fuel and
hydroelectric generating facilities (see Managing the Transition). Highlights of
the plan include:
- - Some electric retail customers would be able to choose their supplier
beginning on October 1, 1998, expanding to include all retail customers by
July 1, 2000.
- - As required by the NJBPU's final findings and recommendations, JCP&L would
unbundle its rates and these rates would apply to all distribution
customers, with the exception of a Production Charge, which would be
charged only to customers who do not choose an alternative energy supplier.
The proposed unbundled rate structure would include:
-- a flat monthly Customer Charge for the costs associated with
metering, billing and customer account administration.
-- a Delivery Charge consisting of capital and O&M costs
associated with the transmission and distribution system; the
recovery of regulatory assets, including those associated with
generation; the cost of social programs; and certain costs
related to the proposed ratemaking treatment of Oyster Creek.
-- a Production Charge for the estimated average market price for
electricity (EAMPE) provided to customers who elect JCP&L as
their electric generation supplier. JCP&L would be the
supplier of last resort for customers who cannot or do not
wish to purchase energy from an alternative supplier. A
deferred market price adjustment account would be set up for
the difference between the EAMPE and
F-3O
<PAGE>
the actual market price for electricity, plus interest. The
EAMPE would be calculated every six months during the
transition period and adjusted by a true-up factor.
-- a Societal Benefits Charge to recover demand-side management
costs, manufactured gas plant remediation costs, and nuclear
decommissioning costs.
-- a MTC to recover non-NUG stranded generation costs. This
charge would include both owned generation and utility
purchase power commitments. It is expected that the MTC would
be in effect for less than a three-year period.
-- a NUG Transition Charge (NTC) to recover ongoing above-market
NUG costs over the life of the contracts and provide a
mechanism to flow through to customers the benefits of future
NUG mitigation efforts. The NTC would be subject to an annual
true-up for actual cost escalations or reductions, changes in
availability or dispatch levels and other cost variations over
the life of each NUG project. The NTC would also be subject to
adjustment in the future to reflect additional NUG buyout or
restructuring costs and any related savings.
- - The unbundling plan calls for an estimated 10% rate reduction, of which
2.1% became effective as part of JCP&L's Stipulation of Final Settlement
(Final Settlement) approved by the NJBPU in March 1997 (see RATE MATTERS).
The remaining reductions would be phased in over a two-year period
beginning October 1, 1998, and would be achieved through, among other
things, the proposed early retirement of Oyster Creek for ratemaking
purposes in September 2000 and, if legislation is enacted, the
securitization of certain above-market costs. In addition to this rate
reduction, JCP&L customers would receive an additional rate reduction of
approximately 6% to be phased in over the next five years as a result of
energy tax legislation signed into law in July 1997.
- - In addition to the continued operation of the Oyster Creek facility, JCP&L
is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. A final decision on the plant's
future has not been reached. Nevertheless, JCP&L has proposed that the
NJBPU approve an early retirement of Oyster Creek in September 2000, for
ratemaking purposes. The ratemaking treatment being requested for Oyster
Creek is as follows:
-- The market value of Oyster Creek's generation output would be
recovered in the Production Charge.
-- The above-market operating costs would be recovered as a
component of the Delivery Charge through September 2000. If
the plant is operated beyond that date, these costs would not
be included in customer rates.
-- Existing Oyster Creek regulatory assets would, like other
regulatory assets, be recovered as part of the Delivery
Charge.
-- Oyster Creek decommissioning costs would, like TMI-1
decommissioning costs, be recovered as a component of the
Societal Benefits Charge.
F-31
<PAGE>
-- JCP&L's net investment in Oyster Creek would be recovered
through the Delivery Charge as a levelized annuity, effective
October 1998 through its original expected operating life,
2009.
- - Stranded costs at the time of initial customer choice (September 30, 1998),
on a present value basis, are estimated at $1.6 billion, of which $1.5
billion is for above-market NUG contracts. The $1.6 billion excludes
above-market generation costs related to Oyster Creek.
- - Ongoing stranded cost mitigation efforts have included the buyout and/or
renegotiation of several above-market NUG agreements; the retirement of
uneconomical steam generating units at Gilbert and Werner stations in 1996;
the planned retirement of additional units at Sayreville station in 1999 as
well as the continuing evaluation of remaining generating facilities; and
workforce reductions achieved primarily through voluntary retirement and
severance programs.
- - JCP&L fully supports securitization of above-market costs in the
restructuring process. JCP&L expects to request securitization, if
legislation is enacted, of certain costs associated with generation assets,
regulatory assets and the buyout or renegotiation of NUG contracts.
Numerous parties have intervened in this proceeding and are actively
contesting various aspects of JCP&L's filings, including, among other things,
recovery by JCP&L of plant capital additions since its last base rate case in
1992, projections of future electricity prices on which stranded cost recovery
calculations are based, the appropriate level of return and the appropriateness
of earning a return on stranded investment.
Consultants retained by the NJBPU Staff, the Division of Ratepayer
Advocate and other parties have proposed that JCP&L's stranded cost recoveries
should be substantially lower than the levels JCP&L is seeking.
In February 1998, the NJBPU issued a written order clarifying an earlier
NJBPU oral decision. In its written order, the NJBPU substantially affirmed an
Administrative Law Judge's ruling which limited the unbundling proceeding to
1992 cost of service levels, but clarified that (1) JCP&L could update its 1992
cost of service study to reflect adjustments consistent with the NJBPU approved
Final Settlement which, among other things, recognized certain increased expense
levels and reductions to base rates and (2) all of the updated post-1992 cost
information that JCP&L had submitted in the proceeding should remain in the
record, which the NJBPU will utilize in establishing a reasonable level of rates
going forward.
Furthermore, the NJBPU emphasized in its order that the final unbundled
rates established as a result of this proceeding will be lower than the current
bundled rates. This directive has been recognized in JCP&L's July 1997
restructuring plan which proposed annual revenue reductions totaling
approximately $185 million. The NJBPU will render final and comprehensive
decisions on the precise level of aggregate rate reductions required in order to
accomplish its primary goals of introducing retail competition and lowering
electricity costs for consumers.
If the NJBPU were to accept the positions of various parties or their
consultants, or were ultimately to deny JCP&L's request to recover post-1992
capital additions and increased expenses, it would have a material adverse
impact on JCP&L's stranded cost recovery, restructuring proceeding and future
earnings.
F-32
<PAGE>
Discovery, evidentiary hearings and related proceedings are continuing.
The NJBPU intends to complete its review and issue final decisions in time for
retail competition to commence in October 1998. There can be no assurance as to
the outcome of these proceedings.
JCP&L has received NJBPU approval for a one-year pilot program offering
customers in Monroe Township, New Jersey, a choice of their electric energy
supplier. The pilot program began in September 1997, and can be extended until
the first phase of competition begins in October 1998. Monroe Township had been
exploring the possibility of establishing its own municipal electric system.
Other
In 1996, the GPU Energy companies, along with six other electric utility
members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool (together, the
supporting PJM companies), filed with the FERC a transmission tariff and
agreements (including, among other things, establishing an ISO to operate the
energy market and transmission system) that would create a new wholesale energy
market to meet the requirements of FERC Order 888, and to increase competition
in the Mid-Atlantic region. PECO Energy Company, who opposed the supporting PJM
companies' proposed restructuring plan, filed its own plan with the FERC. In
February 1997, the FERC issued an order directing PJM to adopt all
recommendations proposed by the supporting PJM companies, after certain issues
were resolved regarding congestion pricing.
In addition, in November 1997 the FERC issued an order to PJM which, among
other things, directed the GPU Energy companies to implement a single-system
transmission rate, effective January 1, 1998. The implementation of a
single-system rate is not expected to effect total transmission revenues,
however, it would increase the pricing for transmission service in Met-Ed and
Penelec's service territories and reduce the pricing for transmission service in
JCP&L's service territory. The GPU Energy companies have requested the FERC to
reconsider its ruling requiring a single-system transmission rate. The FERC's
ruling may also have an effect on the GPU Energy companies' distribution rates
since the PaPUC has ordered a rate cap effective January 1, 1997 and the NJBPU
has recommended a 5-10% rate reduction effective with the implementation of
customer choice. There can be no assurance as to the outcome of this matter.
Also in 1997, the PJM Power Pool converted to a limited liability company
governed by an independent board of managers and the FERC approved the
supporting PJM companies' application to permit the PJM Interconnection to be
recognized as an ISO.
Several bills have been introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
propose, among other things, retail choice for all utility customers beginning
as early as January 1999, the opportunity for utilities to recover their
prudently incurred stranded costs in varying degrees, and repeal of both the
Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding
Company Act of 1935.
F-33
<PAGE>
Nonutility Generation Agreements
Pursuant to the requirements of PURPA and state regulatory directives, the
GPU Energy companies have entered into power purchase agreements with NUGs for
the purchase of energy and capacity for remaining periods of up to 23 years.
Although a few of these facilities are dispatchable, most are must-run and
generally obligate the GPU Energy companies to purchase, at the contract price,
the output up to the contract limits. While the GPU Energy companies thus far
have been granted recovery of their NUG costs from customers by the PaPUC and
NJBPU, there can be no assurance that they will continue to be able to recover
these costs throughout the terms of the related agreements. As of December 31,
1997, facilities covered by these agreements having 1,666 MW (JCP&L 905 MW;
Met-Ed 356 MW; Penelec 405 MW) of capacity were in service.
The GPU Energy companies intend to avoid, to the maximum extent
practicable, entering into any new NUG agreements that are not needed or not
consistent with current market pricing and continue to support legislative
efforts to repeal PURPA. They are also attempting to renegotiate, and in some
cases buy out, existing high cost long-term NUG agreements (see Managing
Nonutility Generation section of THE GPU ENERGY COMPANIES' SUPPLY PLAN).
RATE MATTERS
Pennsylvania adopted comprehensive legislation in 1996 which provides for
the restructuring of the electric utility industry. For additional information
and related rate matters, see COMPETITIVE ENVIRONMENT.
In 1996, the NJBPU approved a provisional settlement for a combined LEAC
and Demand-Side Factor (DSF) increase of $27.9 million annually. The DSF is
applied to customer rates so electric utilities can recover their demand-side
management program costs, which include activities designed to improve
efficiency in customer electricity use and load-management programs that reduce
peak demand.
In March 1997, the NJBPU approved a Final Settlement, including the
recovery of costs associated with the buyout of the Freehold Cogeneration
project. The Freehold cost recovery was granted on an interim basis subject to
refund, pending further review by the NJBPU, before which the matter is pending.
Provisions of the Final Settlement include a further annual increase of $7
million in the LEAC in addition to that noted above and an annual reduction of
$11 million in base rates. Base rates are frozen at that level until the year
2000, and the LEAC rate is frozen through the year 1999. The Final Settlement
provides for the establishment of a remediation adjustment clause (RAC) for the
recovery of manufactured gas plant remediation costs. JCP&L could seek a
LEAC/DSF/RAC rate increase if the combined LEAC/DSF/RAC balance is projected to
exceed $40 million, or a base rate increase under certain other conditions, such
as a major change in the current regulatory environment. The Final Settlement
provides for recovery in base rates, beginning in 1998, of all postretirement
benefit costs recorded in accordance with Statement of Financial Accounting
Standards No. 106, including amounts previously deferred, and an increase in
decommissioning expense to reflect the radiological decommissioning and
nonradiological removal costs estimated in the 1995 site-specific studies
performed for GPUN. Also, included in base rates is recovery of the remaining
investments in the 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating
plants, which were retired in 1996.
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<PAGE>
The Final Settlement also provides for recovery through the LEAC of: (1)
buyout costs up to $130 million, and 50% of any costs from $130 million to $140
million, over a seven-year period for the termination of the Freehold power
purchase agreement (such recovery is interim and is subject to refund, pending
further review); and (2) $14 million of the $17 million buyout costs, over a
two-year period, for the termination of the agreement to purchase power from the
proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining $3 million of
buyout costs for the Crown/Vista project in 1996.
In addition, the Final Settlement resolves the NJBPU's generic proceeding
regarding recovery of capacity costs associated with electric power purchases
from NUG projects which the Division of the Ratepayer Advocate claimed to result
in a double recovery. JCP&L is not required to refund any amounts previously
collected. The Final Settlement provides annual allowances for the recovery of
forecasted additions to nuclear plant. The Final Settlement also provides that
if JCP&L's return on equity exceeds 12.2%, excluding demand-side management and
nuclear performance incentives, the excess will be used to reduce both customer
rates and certain regulatory assets.
THE GPU ENERGY COMPANIES' SUPPLY PLAN
Under traditional retail regulation, supply planning in the electric
utility industry is directly related to projected sales growth in a utility's
franchise service territory. In light of retail access legislation enacted in
Pennsylvania and proposed in New Jersey, the extent to which competition will
affect the GPU Energy companies' supply plan remains uncertain (see COMPETITIVE
ENVIRONMENT). As the GPU Energy companies prepare to operate in a competitive
environment, their supply planning strategy will focus on providing for the
needs of existing retail customers who continue to receive energy supplied by
the GPU Energy companies and whom the GPU Energy companies continue to have an
obligation to serve.
The GPU Energy companies' capacity (in megawatts) and sources of energy
(in gigawatt-hours) for 1997 are as follows:
Capacity Sources of Energy
-------- -----------------
MW % GWH %
-- - --- -
Coal 3,024 28 19,390 38
Nuclear 1,405 13 10,992 21
Gas, hydro & oil 2,322 21 808 2
Nonutility generation 1,666 15 11,119 22
Utility contracts 2,447 23 5,242 10
Spot market & interchange purchases - - 3,762 7
----- -- ----- -
Total 10,864 100 51,313 100
====== === ====== ===
With the proposed sale of the fossil fuel and hydroelectric generation
facilities and the evolving competitive climate in which the GPU Energy
companies' existing customers will be able to choose their electric generation
supplier, the GPU Energy companies' future supply plan will likely focus on
short- to intermediate-term commitments and reliance on spot market purchases.
The GPU Energy companies' present strategy includes minimizing the financial
exposure associated with new long-term purchase commitments.
F-35
<PAGE>
Managing Nonutility Generation
The GPU Energy companies are seeking to reduce the above-market costs of
NUG agreements by: (1) attempting to convert must-run agreements to dispatchable
agreements; (2) attempting to renegotiate prices of the agreements; (3) offering
contract buyouts; and (4) initiating proceedings before federal and state
agencies, and in the courts, where appropriate. In addition, the GPU Energy
companies intend to avoid, to the maximum extent practicable, entering into any
new NUG agreements that are not needed or not consistent with current market
pricing and are supporting legislative efforts to repeal PURPA. These efforts
may result in claims against GPU for substantial damages. There can, however, be
no assurance as to what extent these efforts will be successful in whole or in
part.
In 1997, Met-Ed and Penelec issued requests for proposals (RFPs) to 24 NUG
projects which currently supply a total of approximately 760 MW under power
purchase agreements. The RFPs requested the NUGs to propose buyouts, buydowns
and/or restructurings of current power purchase contracts in return for cash
payments. In January 1998, subject to PaPUC approval, Met-Ed and Penelec entered
into definitive buyout agreements with two bidders.
In 1997, Met-Ed and Penelec entered into revised power purchase agreements
with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and related
energy, respectively, related to a combined-cycle generating facility that AES
plans to construct in Pennsylvania. Met-Ed and Penelec have paid $63.4 million
and $5 million, respectively, to previous developers and AES to terminate the
original power purchase agreements. The PaPUC ordered that the issue of recovery
of the related buyout costs and approval of the revised power purchase
agreements with AES be considered in Met-Ed and Penelec's restructuring
proceedings. If the revised power purchase agreements with AES are not approved
by the PaPUC, Met-Ed and Penelec have agreed to pay AES up to an additional $28
million and $5 million, respectively.
In 1994, pursuant to a PaPUC order, Penelec entered into a power purchase
agreement with Erie Power Partners L.P. (Erie), the developer of a proposed 80
MW coal-fired cogeneration facility. In 1996, Penelec and Erie entered into an
amended power purchase agreement and Penelec paid Erie $11.7 million to
terminate the original agreement. In 1997, Penelec agreed to the buyout of the
amended power purchase agreement for up to an additional $12 million. Of this
amount, Penelec paid $5 million to Erie in 1997. Penelec will pay up to the
remaining $7 million to the extent the PaPUC approves recovery and has agreed to
pay 50% of any amount not approved. The PaPUC has issued an order consolidating
Penelec's request for recovery of the buyout costs with its restructuring
proceeding.
ENVIRONMENTAL MATTERS
The federal Clean Air Act Amendments of 1990 (Clean Air Act) require
substantial reductions in sulfur dioxide (SO2) and nitrogen oxide (NOX)
emissions by the year 2000. The GPU Energy companies plan to install and operate
emission control equipment at some coal-fired facilities and switch to lower
sulfur coal in conjunction with the purchase of SO2 and NOX allowances at other
coal-fired facilities.
To comply with the Clean Air Act, the GPU Energy companies expect to spend
up to $248 million (JCP&L $44 million; Met-Ed $98 million; Penelec $106 million)
for air pollution control equipment by the year 2000, of which
F-36
<PAGE>
approximately $242 million (JCP&L $43 million; Met-Ed $96 million; Penelec $103
million) has already been spent.
In 1994, the Ozone Transport Commission (OTC), consisting of
representatives of 12 northeast states (including New Jersey and Pennsylvania)
and the District of Columbia, proposed reductions in NOX emissions it believes
necessary to meet ambient air quality standards for ozone and the statutory
deadlines set by the Clean Air Act. Effective November 1997, the Pennsylvania
Environmental Quality Board adopted regulations implementing the OTC's proposed
NOX reductions and in December 1997, the New Jersey Department of Environmental
Protection reached agreement with the electric utility industry on a plan to
implement the OTC's proposed NOX reductions. The GPU Energy companies expect
that the U.S. Environmental Protection Agency (EPA) will approve state
implementation plans, including those in Pennsylvania and New Jersey, and that
as a result, they will spend an estimated $6 million (JCP&L $0.2 million; Met-Ed
$2.8 million; Penelec $3 million)(included in the above total), to meet the 1999
seasonal reductions agreed upon by the OTC. The OTC has stated that it
anticipates that additional NOX reductions will be necessary to meet the Clean
Air Act's 2005 National Ambient Air Quality Standard for ozone. However, the
specific requirements that will have to be met at that time have not been
finalized. In addition, in July 1997 the EPA adopted new, more stringent rules
on ozone and particulate matter. Several groups have filed suit in the U.S.
Court of Appeals to overturn these new air quality standards on the grounds
that, among other things, they are based on inadequate scientific evidence.
Also, legislation has been introduced in the Congress that would impose a
four-year moratorium on any new standards under the Clean Air Act. The GPU
Energy companies are unable to determine what additional costs, if any, will be
incurred if the EPA rules are upheld.
In developing their least-cost plan to comply with the Clean Air Act, the
GPU Energy companies will continue to evaluate major capital investments
compared to participation in the SO2 emission allowance market, the expected NOX
emissions trading market and the use of low-sulfur fuel or retirement of
facilities. These and other compliance alternatives may result in the
substitution of increased operating expenses for capital costs.
For more information, see the Environmental Matters section of Note 13 of
the Notes to Consolidated Financial Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
In 1996, a U.S. District Court granted a motion for summary judgment filed
by GPU, Inc. and the GPU Energy companies, dismissing all of the 2,100 pending
claims for alleged personal injury and punitive damages filed as a result of the
TMI-2 accident in March 1979. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs have appealed the District Court's ruling to
the Third Circuit, before which the matter is pending. There can be no assurance
as to the outcome of this litigation. For more information, see the Nuclear
Facilities section of Note 13 of the Notes to Consolidated Financial Statements.
F-37
<PAGE>
EFFECTS OF INFLATION
Since the regulatory process results in a time lag during which increased
operating costs are not fully recovered in rates, the GPU Energy companies are
affected by even modest inflation. Also, as competition and deregulation
accelerate, there can be no assurance as to the future recovery of increased
operating costs for generation. Inflation also affects the GPU Energy companies
in the form of increased replacement costs of utility plant, which are
significantly higher than the historical cost reflected in the financial
statements. General inflation has not had a significant impact on GPU over the
last three years.
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. In response to the continuing deregulation
of the electric utility industry, the SEC has questioned the continued
applicability of FAS 71 by investor-owned utilities with respect to their
electric generation operations. In May and July 1997, the Financial Accounting
Standards Board's Emerging Issues Task Force (EITF) met to discuss these issues
and concluded that utilities are no longer subject to FAS 71, for the generation
portion of their business, as soon as they know details of their individual
transition plans. The EITF also concluded that utilities can continue to carry
previously recorded regulated assets, as well as any newly established regulated
assets (including those related to generation), on their balance sheets if
regulators have guaranteed a regulated cash flow stream to recover the cost of
these assets.
In light of retail access legislation enacted in Pennsylvania and the
NJBPU's final findings and recommendations, the GPU Energy companies believe
they will no longer meet the requirements for continued application of FAS 71
for the generation portion of their business, by no later than mid-1998 for
Met-Ed and Penelec, and October 1998 for JCP&L, the expected approval dates of
their restructuring plans filed with state regulators. Once the GPU Energy
companies are able to determine that the generation portion of their operations
is no longer subject to the provisions of FAS 71, the related regulatory assets,
net of regulatory liabilities, would, to the extent that recovery is not
provided for through their respective restructuring plans, have to be written
off and charged to expense. Additional depreciation expense would have to be
recorded for any differences created by the use of a regulated depreciation
method that is different from that which would have been used under generally
accepted accounting principles for enterprises in general. In addition,
writedowns of plant assets could be required in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets."
Additionally, the inability of the GPU Energy companies to recover their
above-market costs of power purchase commitments, in whole or in part, could
result in the recording of liabilities and corresponding charges to expense. The
amount of charges resulting from the discontinuation of FAS 71 will depend on
the final outcome of the GPU Energy companies' individual restructuring
proceedings, and could have a material adverse effect on GPU's results of
operations and financial position.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
GPU, Inc.
Morristown, New Jersey
We have audited the consolidated financial statements and financial statement
schedule of GPU, Inc. and Subsidiary Companies as listed in the index on page
F-1 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GPU, Inc. and
Subsidiary Companies as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 4, 1998
F-39
<PAGE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
ASSETS
Utility Plant:
In service, at original cost $11,150,677 $ 9,646,380
Less, accumulated depreciation 4,050,165 3,704,026
--------- ---------
Net utility plant in service 7,100,512 5,942,354
Construction work in progress 250,050 277,440
Other, net 159,009 168,029
------- -------
Net utility plant 7,509,571 6,387,823
--------- ---------
Other Property and Investments:
GPUI Group equity investments (Note 6) 596,679 794,588
Goodwill, net (Note 5) 581,364 23,808
Nuclear decommissioning trusts, at market (Note 13) 579,673 464,011
Nuclear fuel disposal trust, at market 108,652 101,661
Other, net 252,335 157,123
------- -------
Total other property and investments 2,118,703 1,541,191
--------- ---------
Current Assets:
Cash and temporary cash investments 85,099 31,604
Special deposits 27,093 47,545
Accounts receivable:
Customers, net 290,247 270,844
Other 104,441 91,637
Unbilled revenues 147,162 114,891
Materials and supplies, at average cost or less:
Construction and maintenance 187,799 187,130
Fuel 40,424 40,207
Investment held for sale (Note 6) 106,317 --
Deferred income taxes (Note 8) 83,962 32,148
Prepayments 55,613 81,168
Other 1,023 --
----- -----
Total current assets 1,129,180 897,174
--------- -------
Deferred Debits and Other Assets:
Regulatory assets: (Note 13)
Income taxes recoverable through future rates 510,680 527,385
Three Mile Island Unit 2 deferred costs 345,326 356,517
Nonutility generation contract buyout costs 245,568 242,481
Unamortized property losses 99,532 100,310
Other 448,146 426,579
------- -------
Total regulatory assets 1,649,252 1,653,272
Deferred income taxes (Note 8) 383,169 332,828
Other 134,833 128,931
------- -------
Total deferred debits and other assets 2,167,254 2,115,031
--------- ---------
Total Assets $12,924,708 $10,941,219
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In Thousands)
December 31, 1997 1996
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C>
Common stock (Note 4) $ 314,458 $ 314,458
Capital surplus 755,040 750,569
Retained earnings 2,140,712 2,054,222
Accumulated other comprehensive income/(loss) (Note 4) (29,296) 14,754
------- ------
Total 3,180,914 3,134,003
Less, reacquired common stock, at cost 80,984 86,416
------ ------
Total common stockholders' equity 3,099,930 3,047,587
Cumulative preferred stock: (Note 4)
With mandatory redemption 91,500 114,000
Without mandatory redemption 66,478 66,478
Subsidiary-obligated mandatorily redeemable
preferred securities (Note 4) 330,000 330,000
Long-term debt (Note 3) 4,325,972 3,177,016
--------- ---------
Total capitalization 7,913,880 6,735,081
--------- ---------
Current Liabilities:
Securities due within one year 631,934 178,583
Notes payable (Note 2) 353,214 265,547
Obligations under capital leases (Note 12) 138,919 143,818
Accounts payable 413,791 354,819
Taxes accrued 48,304 25,717
Interest accrued 83,947 70,370
Deferred energy 25,645 15,559
Other 325,681 282,193
------- -------
Total current liabilities 2,021,435 1,336,606
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 1,566,131 1,562,979
Unamortized investment tax credits 123,162 133,572
Three Mile Island Unit 2 future costs 448,808 430,508
Regulatory liabilities (Note 13) 101,774 89,815
Other 749,518 652,658
------- -------
Total deferred credits and other liabilities 2,989,393 2,869,532
--------- ---------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $12,924,708 $10,941,219
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Revenues $4,143,379 $3,970,711 $3,822,459
---------- ---------- ----------
Operating Expenses:
Fuel 400,329 389,569 369,204
Power purchased and interchanged 1,046,906 1,005,630 1,022,361
Deferral of energy and capacity costs, net 6,043 19,788 (5,902)
Other operation and maintenance 993,739 1,114,854 965,054
Depreciation and amortization 467,714 407,672 380,664
Taxes, other than income taxes 357,913 355,283 349,233
------- ------- -------
Total operating expenses 3,272,644 3,292,796 3,080,614
--------- --------- ---------
Operating Income Before Income Taxes 870,735 677,915 741,845
Income taxes (Note 8) 223,617 159,649 175,808
------- ------- -------
Operating Income 647,118 518,266 566,037
------- ------- -------
Other Income and Deductions:
Allowance for other funds used during construction 75 2,249 5,113
Equity in undistributed earnings/(losses)
of affiliates (Note 6) (27,100) 33,981 (3,597)
Other income, net 5,585 23,490 215,007
Income taxes (Note 8) 30,081 (7,070) (88,898)
------ ------ -------
Total other income and deductions 8,641 52,650 127,625
----- ------ -------
Income Before Interest Charges and
Preferred Dividends 655,759 570,916 693,662
------- ------- -------
Interest Charges and Preferred Dividends:
Interest on long-term debt 246,935 213,544 189,541
Other interest 36,482 29,623 30,861
Allowance for borrowed funds used during
construction (5,508) (8,423) (9,558)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 28,888 28,888 24,816
Preferred stock dividends of subsidiaries, net of
gain on reacquisition of $9,288 in 1996 12,524 6,231 16,945
------ ----- ------
Total interest charges and preferred dividends 319,321 269,863 252,605
------- ------- -------
Minority interest net income 1,337 2,701 922
----- ----- ---
Net Income $ 335,101 $ 298,352 $ 440,135
========== ========== ==========
Basic - Earnings Per Average Common Share $ 2.78 $ 2.48 $ 3.79
========== ========== ==========
- Average Common Shares Outstanding(In Thousands) 120,722 120,513 116,063
======= ======= =======
Diluted - Earnings Per Average Common Share $ 2.77 $ 2.47 $ 3.79
========== ========== ==========
- Average Common Shares Outstanding(In Thousands) 121,002 120,751 116,179
======= ======= =======
Cash Dividends Paid Per Share $ 1.985 $ 1.925 $ 1.86
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net income $ 335,101 $ 298,352 $ 440,135
--------- --------- ---------
Other comprehensive income/(loss), net of tax: (Note 4)
Net unrealized gains on investments 6,374 704 5,731
Foreign currency translation (48,929) 3,054 959
Minimum pension liability (1,495) (2,175) 632
------ ------ ---
Total other comprehensive income/(loss) (44,050) 1,583 7,322
------- ----- -----
Comprehensive income $ 291,051 $ 299,935 $ 447,457
========= ========= =========
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 2,054,222 $ 1,991,599 $ 1,769,910
Net income 335,101 298,352 440,135
Cash dividends declared on common stock (241,517) (235,731) (218,288)
Other adjustments, net (7,094) 2 (158)
------ - ----
Balance at end of year $ 2,140,712 $ 2,054,222 $ 1,991,599
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
Operating Activities:
<S> <C> <C> <C>
Net income $ 335,101 $ 298,352 $ 440,135
Adjustments to reconcile income to cash provided:
Depreciation and amortization 487,962 422,506 381,618
Amortization of property under capital leases 50,108 55,642 57,324
Equity in undistributed (earnings)/losses
of affiliates, net of distributions received 69,862 (23,994) 6,880
Three Mile Island Unit 2 costs -- -- (170,005)
Voluntary enhanced retirement programs -- 122,739 --
Nuclear outage maintenance costs, net 2,374 (6,078) 7,407
Deferred income taxes and investment tax
credits, net (29,248) 57,144 115,278
Deferred energy and capacity costs, net 8,193 19,719 (6,061)
Accretion income (10,760) (11,610) (12,520)
Allowance for other funds used during
construction (75) (2,249) (5,113)
Changes in working capital:
Receivables (76,178) 2,893 (54,993)
Materials and supplies 4,803 6,604 9,323
Special deposits and prepayments 28,371 (36,294) 14,401
Payables and accrued liabilities 49,025 (103,221) (18,651)
Nonutility generation contract buyout costs (56,550) (120,018) (38,499)
Other, net (18,725) (29,479) (58,008)
------- ------- -------
Net cash provided by operating activities 844,263 652,656 668,516
------- ------- -------
Investing Activities:
Cash construction expenditures (356,416) (403,880) (461,860)
GPUI Group investments (1,912,221) (573,587) (164,831)
Contributions to decommissioning trusts (40,283) (40,324) (37,541)
Other, net 34,500 (26,238) (7,117)
------ ------- ------
Net cash used for investing activities (2,274,420) (1,044,029) (671,349)
---------- ---------- --------
Financing Activities:
Issuance of long-term debt 1,893,219 743,596 403,656
Increase/(Decrease) in notes payable, net 87,667 141,657 (223,962)
Retirement of long-term debt (184,015) (150,763) (192,664)
Capital lease principal payments (49,560) (56,217) (50,611)
Issuance of common stock -- -- 157,545
Issuance of subsidiary-obligated mandatorily
redeemable preferred securities -- -- 121,063
Redemption of preferred stock of subsidiaries (20,000) (42,347) (6,049)
Dividends paid on common stock (239,597) (231,956) (215,413)
-------- -------- --------
Net cash provided/(required) by
financing activities 1,487,714 403,970 (6,435)
--------- ------- ------
Effect of exchange rate changes on cash (4,062) 585 959
------ --- ---
Net increase/(decrease) in cash and temporary cash
investments from above activities 53,495 13,182 (8,309)
Cash and temporary cash investments, beginning of year 31,604 18,422 26,731
------ ------ ------
Cash and temporary cash investments, end of year $ 85,099 $ 31,604 $ 18,422
=========== =========== ===========
Supplemental Disclosure:
Interest and preferred dividends paid $ 307,064 $ 281,057 $ 254,906
=========== =========== ===========
Income taxes paid $ 229,373 $ 153,599 $ 187,361
=========== =========== ===========
New capital lease obligations incurred $ 41,898 $ 34,826 $ 54,478
=========== =========== ===========
Common stock dividends declared but not paid $ 60,414 $ 58,493 $ 54,718
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
<PAGE>
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935. GPU, Inc. does not
directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU International, Inc., GPU Power, Inc. and GPU Electric,
Inc. which develop, own and operate generation, transmission and distribution
facilities in the United States and in foreign countries. Collectively, these
are referred to as the "GPUI Group." Other wholly-owned subsidiaries of GPU,
Inc. are GPU Advanced Resources, Inc. (GPU AR), a subsidiary engaging in energy
services and retail energy sales; and GPU Service, Inc. (GPUS), which provides
certain legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
The Notes to Consolidated Financial Statements are presented below on a
combined basis for all of GPU, Inc., JCP&L, Met-Ed and Penelec.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
SYSTEM OF ACCOUNTS
Certain reclassifications of prior years' data have been made to conform
with the current presentation. The GPU Energy companies' accounting records are
maintained in accordance with the Uniform System of Accounts prescribed by the
Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania
Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities
(NJBPU), and also comply with the Securities and Exchange Commission's rules and
regulations.
CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions and accounts are
eliminated in consolidation. GPU consolidates the accounts of its wholly-
F-45
<PAGE>
owned subsidiaries and any affiliates in which it has a controlling financial
interest (generally evidenced by a greater than 50% ownership interest). GPU
also uses the equity method of accounting for investments in affiliates in which
it has the ability to exercise significant influence. (For further information,
see Note 6, GPUI Group Equity Investments.)
REGULATORY ACCOUNTING
In accordance with Statement of Financial Accounting Standards No. 71 (FAS
71), "Accounting for the Effects of Certain Types of Regulation," the
consolidated financial statements reflect assets and costs in accordance with
current cost-based ratemaking regulation. Continued accounting under FAS 71
requires that the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
In accordance with the provisions of FAS 71, the GPU Energy companies have
deferred certain costs pursuant to actions of the NJBPU, PaPUC and FERC, and are
recovering or expect to recover such costs in electric rates charged to
customers. Regulatory assets are reflected in the Deferred Debits and Other
Assets section of the Consolidated Balance Sheets, and regulatory liabilities
are reflected in the Deferred Credits and Other Liabilities section of the
Consolidated Balance Sheets. (For further information about regulatory assets
and liabilities, see Note 13, Commitments and Contingencies.)
CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52 (FAS
52), "Foreign Currency Translation," balance sheet accounts of the GPUI Group's
foreign operations are translated from foreign currencies into U.S. dollars at
either year-end rates or historical rates, while income statement accounts are
translated at the weighted average exchange rates for the relevant period. The
resulting translation adjustments are included in Accumulated other
comprehensive income/(loss) on the Consolidated Balance Sheets. Gains and losses
resulting from foreign currency transactions are included in Net Income.
F-46
<PAGE>
REVENUES
GPU recognizes electric operating revenues for services rendered
(including an estimate of unbilled revenues) to the end of the relevant
accounting period.
DEFERRED ENERGY COSTS
Energy costs are recognized in the period in which the related energy
clause revenues are billed. Through December 31, 1996, Met-Ed and Penelec
recovered energy costs through the Energy Cost Rate (ECR) mechanism and deferred
any differences between actual energy costs and amounts recovered. Comprehensive
legislation adopted in Pennsylvania in 1996, which provides for the
restructuring of the electric utility industry in the state, capped rates that
can be charged to customers for generation for up to nine years. In December
1996, Met-Ed and Penelec filed a request with the PaPUC and received a tentative
order, effective for all bills rendered after January 1, 1997, which allows
their currently effective ECRs to be included in base rates. As a result,
effective January 1, 1997, Met-Ed and Penelec will no longer defer energy costs.
(For further information, see Competitive Environment section, Management's
Discussion and Analysis.) JCP&L continues to recover energy- related costs
through the Levelized Energy Adjustment Clause (LEAC).
UTILITY PLANT
It is the policy of GPU to record additions to utility plant (material,
labor, overhead and an allowance for funds used during construction) at cost.
The cost of current repairs and minor replacements is charged to appropriate
operating and maintenance expense and clearing accounts, and the cost of
renewals is capitalized. The original cost of utility plant retired or otherwise
disposed of is charged to accumulated depreciation.
DEPRECIATION
GPU provides for depreciation at annual rates determined and revised
periodically, on the basis of studies, to be sufficient to depreciate the
original cost of depreciable property over estimated remaining service lives,
which are generally longer than those employed for tax purposes. These rates, on
an aggregate composite basis, were as follows:
GPU JCP&L Met-Ed Penelec
1997 3.34% 3.60% 3.39% 3.08%
1996 3.31% 3.58% 3.27% 2.82%
1995 3.22% 3.64% 3.07% 2.61%
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The Uniform System of Accounts defines AFUDC as "the net cost for the
period of construction of borrowed funds used for construction purposes and a
reasonable rate on other funds when so used." The GPU Energy companies record
F-47
<PAGE>
AFUDC as a charge to construction work in progress, and the equivalent credits
are to interest charges for the pre-tax cost of borrowed funds and to other
income for the allowance for other funds. While AFUDC results in an increase in
utility plant and represents current earnings, it is realized in cash through
depreciation or amortization allowances only when the related plant is
recognized in rates. These rates, on an aggregate composite basis, were as
follows:
GPU JCP&L Met-Ed Penelec
1997 6.38% 6.48% 6.12% 6.41%
1996 6.79% 6.88% 8.11% 6.15%
1995 8.05% 8.04% 8.62% 7.78%
AMORTIZATION POLICIES
Accounting for TMI-2 and Forked River Investments:
JCP&L is collecting annual revenues for the amortization of Three Mile
Island Unit 2 (TMI-2) of $9.6 million. This level of revenue will be sufficient
to recover the remaining investment by 2008. Met-Ed and Penelec have collected
all of their TMI-2 investment attributable to retail customers. At December 31,
1997, $74 million is included in Unamortized property losses on the Consolidated
Balance Sheets for JCP&L's Forked River project. JCP&L is collecting annual
revenues for the amortization of this project of $11.2 million, which will be
sufficient to recover its remaining investment by the year 2006. Because the GPU
Energy companies have not been provided revenues for a return on the unamortized
balances of the damaged TMI-2 facility and the cancelled Forked River project,
these investments are being carried at their discounted present values. The
related annual accretion, which represents the increase in carrying amounts that
are recorded as the asset is written up from its discounted value, is recorded
in Other income, net on the Income Statement in accordance with Statement of
Financial Accounting Standards No. 90, "Regulated Enterprises- Accounting for
Abandonments and Disallowances of Plant Costs."
Nuclear Fuel:
The GPU Energy companies amortize nuclear fuel on a unit-of-production
basis. Rates are determined and periodically revised to amortize the cost of the
fuel over its useful life.
At December 31, 1997 and 1996, the liability of the GPU Energy companies
for future contributions to the Federal Decontamination and Decommissioning Fund
for the cleanup of uranium enrichment plants operated by the Federal Government
amounted to $31 million (JCP&L $20 million; Met-Ed $7 million; Penelec $4
million) and $34 million (JCP&L $22 million; Met-Ed $8 million; Penelec $4
million), respectively, and was primarily reflected in Deferred Credits and
Other Liabilities-Other. Annual contributions, which began in 1993, are being
made over a 15-year period and are being recovered from customers. At December
31, 1997 and 1996, $33 million (JCP&L $21 million; Met-Ed $8 million; Penelec $4
million) and $36 million (JCP&L $23 million;
F-48
<PAGE>
Met-Ed $9 million; Penelec $4 million), respectively, was recorded on the
Consolidated Balance Sheets in Regulatory assets-Other.
Intangibles:
The GPUI Group records goodwill for any amount paid over the fair value of
net tangible assets it acquires, and other intangible assets for the right to
perform management services. As of December 31, 1997 and 1996, the GPUI Group
had goodwill and other intangibles, net of accumulated amortization, of
approximately $581 million and $24 million, respectively. Goodwill and other
intangibles are amortized on a straight-line basis over a period of 40 years.
Amortization expense, in the aggregate, amounted to $2.8 million and $0.8
million for the years ended December 31, 1997 and 1996, respectively. The GPUI
Group periodically reviews projections of future cash flows from operations to
assess any potential intangible impairment. An impairment, if identified, would
be recorded based upon discounted projected cash flows.
A discussion of the goodwill related to the GPUI Group's purchase of
PowerNet, and other acquisitions is included in Note 5 , "Acquisitions" and Note
6, "GPUI Group Equity Investments."
NUCLEAR OUTAGE MAINTENANCE COSTS
The GPU Energy companies accrue incremental nuclear outage maintenance
costs anticipated to be incurred during scheduled nuclear plant refueling
outages to provide a proper matching of revenues to expenses.
NUCLEAR FUEL DISPOSAL FEE
The GPU Energy companies are providing for estimated future disposal costs
for spent nuclear fuel at Oyster Creek and Three Mile Island Unit 1 (TMI-1) in
accordance with the Nuclear Waste Policy Act of 1982. The GPU Energy companies
entered into contracts in 1983 with the U.S. Department of Energy (DOE) for the
disposal of spent nuclear fuel. The total liability under these contracts,
including interest, at December 31, 1997, all of which relates to spent nuclear
fuel from nuclear generation through April 1983, amounted to $179 million (JCP&L
$134 million; Met-Ed $30 million; Penelec $15 million), and is reflected in
Deferred Credits and Other Liabilities Other. As the actual liability is
substantially in excess of the amount recovered to date from ratepayers, the GPU
Energy companies have reflected such excess of $21.5 million (JCP&L $23.7
million; Met-Ed $(1.5) million; Penelec $(0.7) million) at December 31, 1997 in
Regulatory assets-Other. The rates presently charged to customers provide for
the collection of these costs, plus interest, over remaining periods of nine
years for JCP&L and Met-Ed.
The GPU Energy companies are collecting one mill per kilowatt-hour from
their customers for spent nuclear fuel disposal costs resulting from nuclear
generation subsequent to April 1983. These amounts are remitted quarterly to the
DOE. (See Note 13, Commitments and Contingencies, for a discussion of the DOE's
current inability to begin acceptance of spent nuclear fuel from the GPU Energy
companies and other standard contract holders.)
F-49
<PAGE>
INCOME TAXES
GPU files a consolidated federal income tax return. All participants are
jointly and severally liable for the full amount of any tax, including penalties
and interest, which may be assessed against the group.
Deferred income taxes, which result primarily from liberalized
depreciation methods, deferred energy costs, decommissioning funds and
discounted Forked River and TMI-2 investments, reflect the impact of temporary
differences between the amounts of assets and liabilities recognized for
financial reporting purposes and the amounts recognized for tax purposes.
Investment tax credits (ITC) are amortized over the estimated service lives of
the related facilities.
CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS
The carrying amounts of Temporary cash investments, Special deposits,
Securities due within one year and Notes payable on the Consolidated Balance
Sheets approximate fair value due to the short period to maturity. The carrying
amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust,
whose assets are invested in cash equivalents and debt and equity securities,
also approximate fair value. At December 31, 1997, Deferred Debits and Other
Assets - Other on the Consolidated Balance Sheets included $47 million of
restricted cash, related to GPU Power's 50% ownership interest in Empresa
Guaracachi S.A.
ENVIRONMENTAL LIABILITIES
GPU may be subject to loss contingencies resulting from environmental laws
and regulations, which include obligations to mitigate the effects on the
environment of the disposal or release of certain hazardous wastes and
substances at various sites. GPU records liabilities (on an undiscounted basis)
for hazardous waste sites where it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated and adjusts these liabilities
as required to reflect changes in circumstances.
STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash flows, temporary
investments include all unrestricted liquid assets, such as cash deposits and
debt securities, with maturities generally of three months or less.
F-50
<PAGE>
<TABLE>
2. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1997 and 1996, GPU had short-term notes outstanding as
follows:
<CAPTION>
1997 1996
---- ----
Balance Weighted Balance Weighted
Company Facility Outstanding Avg. Rate Outstanding Avg. Rate
- ------- -------- ----------- --------- ----------- ---------
(in millions) (in millions)
<S> <C> <C> <C> <C>
GPU, Inc. Bank Lines of Credit $ 92 6.6% $ 75 5.7%
JCP&L Bank Lines of Credit 96 6.5 32 6.5
Commercial Paper 19 6.5 - -
Met-Ed Bank Lines of Credit 49 6.7 51 5.9
Commercial Paper 18 6.9 - -
Penelec Bank Lines of Credit 61 6.7 99 6.1
Commercial Paper 17 6.9 9 5.8
GPU International Bank Lines of Credit 1 6.2 - -
- --- -- ---
Total $353 6.6% $266 6.0%
==== === ==== ===
</TABLE>
GPU has $527 million of credit facilities, which includes various lines of
credit totaling $247 million, and two Revolving Credit Agreements, as discussed
below:
Under the Credit Agreement between GPU, Inc., the GPU Energy companies and
a consortium of banks, total borrowings are limited to $250 million outstanding
at any time and are subject to various covenants. The agreement expires May 6,
2001. A facility fee on the unborrowed amount of .15 of 1% is payable annually.
Borrowing rates and a facility fee are based on the long-term debt ratings of
the GPU Energy companies.
GPU International, Inc. has a separate Credit Agreement providing for
borrowings (guaranteed by GPU, Inc.) through June 1998 of up to $30 million
outstanding at any time, which decreases for two years thereafter. Up to $15
million may be utilized to provide letters of credit. An annual facility fee of
3/8 of 1% on the total amount of the Credit Agreement and a letter of credit fee
of 1/2 of 1% on the outstanding letters of credit are payable by GPU
International, Inc.
F-51
<PAGE>
3. LONG-TERM DEBT
At December 31, 1997 and 1996, long-term debt outstanding was as follows:
(in thousands)
GPU, Inc. and Subsidiary Companies
- ----------------------------------
1997 1996
---- ----
First Mortgage Bonds (GPU Energy Companies)(a) $2,447,810 $2,550,185
Amounts due within one year (30,000) (166,065)
Unamortized net discount (3,284) (3,508)
------ ------
Total 2,414,526 2,380,612
Other long-term debt:
GPUI Group (excludes amounts due within one year
of $589,390 for 1997 and $2,478 for 1996) 1,877,300 749,214
Other (excludes amounts due within one year
of $44 for 1997 and $40 for 1996) 34,146 47,190
------ ------
Total long-term debt $4,325,972 $3,177,016
========== ==========
<TABLE>
(in thousands)
JCP&L
- -----
First Mortgage Bonds - Series as noted (a):
<CAPTION>
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
6.90% due 1997 $ - $ 30,000 7.90% due 2007 $ 40,000 $ 40,000
6 5/8% due 1997 - 25,874 7 1/8% due 2009 6,300 6,300
6.70% due 1997 - 20,000 7.10% due 2015 12,200 12,200
7 1/4% due 1998 - 24,191 9.20% due 2021 50,000 50,000
6.04% due 2000 40,000 40,000 8.55% due 2022 30,000 30,000
6.45% due 2001 40,000 40,000 8.82% due 2022 12,000 12,000
9% due 2002 50,000 50,000 8.85% due 2022 38,000 38,000
6 3/8% due 2003 150,000 150,000 8.32% due 2022 40,000 40,000
7 1/8% due 2004 160,000 160,000 7.98% due 2023 40,000 40,000
6.78% due 2005 50,000 50,000 7 1/2% due 2023 125,000 125,000
8 1/4% due 2006 50,000 50,000 8.45% due 2025 50,000 50,000
6.85% due 2006 40,000 40,000 6 3/4% due 2025 150,000 150,000
------- -------
Subtotal 1,173,500 1,273,565
Amounts due within one year - (100,065)
Unamortized net discount (3,233) (3,457)
------ ------
Total 1,170,267 1,170,043
Other long-term debt (excludes amounts due within one year
of $11 for 1997 and $10 for 1996) 3,037 3,048
----- -----
Total long-term debt $1,173,304 $1,173,091
========== ==========
</TABLE>
F-52
<PAGE>
<TABLE>
(in thousands)
Met-Ed
- ------
First Mortgage Bonds - Series as noted (a):
<CAPTION>
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
7.47% due 1997 $ - $ 20,000 7.35% due 2005 $ 20,000 $ 20,000
9.2% due 1997 - 20,000 6.36% due 2006 17,000 17,000
7.05% due 1999 30,000 30,000 6.40% due 2006 33,000 33,000
6.2% due 2000 30,000 30,000 6.00% due 2008 8,700 8,700
9.48% due 2000 20,000 20,000 6.1% due 2021 28,500 28,500
8.05% due 2002 30,000 30,000 8.6% due 2022 30,000 30,000
6.6% due 2003 20,000 20,000 8.8% due 2022 30,000 30,000
7.22% due 2003 40,000 40,000 6.97% due 2023 30,000 30,000
9.1% due 2003 30,000 30,000 7.65% due 2023 30,000 30,000
6.34% due 2004 40,000 40,000 8.15% due 2023 60,000 60,000
6.77% due 2005 30,000 30,000 5.95% due 2027 13,690 -
------ -------
Subtotal 570,890 597,200
Amounts due within one year - (40,000)
Unamortized net discount (39) (43)
--- ---
Total $ 570,851 $ 557,157
Other long-term debt (excludes amounts due within one year
of $22 for 1997 and $20 for 1996) 6,073 6,095
----- -----
Total long-term debt $ 576,924 $ 563,252
========= =========
</TABLE>
<TABLE>
(in thousands)
Penelec
- -------
First Mortgage Bonds - Series as noted (a):
<CAPTION>
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
6 1/4% due 1997 $ - $ 26,000 6.7% due 2005 $ 30,000 $ 30,000
7 7/8% due 1998 30,000 30,000 6.35% due 2006 40,000 40,000
5.99% due 1999 50,000 - 8.05% due 2006 10,000 10,000
6.15% due 2000 30,000 30,000 6 1/8% due 2007 4,110 4,110
6.8% due 2001 20,000 20,000 6.55% due 2009 50,000 50,000
8.70% due 2001 30,000 30,000 5.35% due 2010 12,310 12,310
7.40% due 2002 10,000 10,000 5.35% due 2010 12,000 12,000
7.43% due 2002 30,000 30,000 5.80% due 2020 20,000 20,000
7.92% due 2002 10,000 10,000 8.33% due 2022 20,000 20,000
7.40% due 2003 10,000 10,000 7.49% due 2023 30,000 30,000
6.60% due 2003 30,000 30,000 8.38% due 2024 40,000 40,000
7.02% due 2003 20,000 20,000 8.61% due 2025 30,000 30,000
7.48% due 2004 40,000 40,000 7.53% due 2025 40,000 40,000
6.10% due 2004 30,000 30,000 6.05% due 2025 25,000 25,000
------ ------
Subtotal 703,420 679,420
Amounts due within one year (30,000) (26,000)
Unamortized net discount (12) (8)
--- --
Total 673,408 653,412
Other long-term debt (excludes amounts due within one year
of $11 for 1997 and $10 for 1996) 3,036 3,047
----- -----
Total long-term debt $ 676,444 $ 656,459
========= ==========
<FN>
(a) Substantially all of the utility plant owned by the GPU Energy companies is
subject to the lien of their respective mortgages.
</FN>
</TABLE>
F-53
<PAGE>
For the years 1998, 1999, 2000, 2001 and 2002 GPU has long-term debt
maturities for first mortgage bonds and other long-term debt as follows:
(in millions)
Company 1998 1999 2000 2001 2002
- ------- ---- ---- ---- ---- ----
JCP&L $ - $ - $ 40 $ 40 $ 50
Met-Ed - 30 50 - 30
Penelec 30 50 30 50 50
GPUI Group 589 152 622 441 564
GPUS - - - 22 -
--- --- --- --- ---
Total $619 $232 $742 $553 $694
==== ==== ==== ==== ====
The estimated fair value of GPU's long-term debt, including amounts due
within one year, as of December 31, 1997 and 1996 was as follows:
(in thousands)
1997 1996
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
JCP&L $1,173,315 $1,231,766 $1,273,166 $1,277,853
Met-Ed 576,946 607,336 603,272 607,588
Penelec 706,455 736,031 682,469 666,292
GPUI Group 2,466,690 2,467,286 751,692 744,605
GPUS 22,000 22,000 35,000 35,000
------ ------ ------ ------
Total $4,945,406 $5,064,419 $3,345,599 $3,331,338
========== ========== ========== ==========
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to GPU for
debt of the same remaining maturities and credit qualities.
At December 31, 1997, the GPUI Group had long-term debt outstanding of
$2.5 billion of which approximately $1.1 billion was guaranteed by GPU, Inc. The
guaranteed amount consisted of the following: $450 million under a five-year
U.S. bank credit agreement used to partially fund GPU Electric, Inc.'s
acquisition of PowerNet (see Note 5); (pound)340 million (approximately U.S.
$561 million at December 31, 1997) under a bank term loan facility used to fund
GPU Electric, Inc.'s investment in Midlands; A$80 million (approximately U.S.
$52 million at December 31, 1997) through a bank term loan facility used to fund
GPU Electric, Inc.'s purchase of its interest in Solaris Power; and
approximately $32 million through a bank term loan facility used to fund
construction of GPU International Inc.'s Mid-Georgia Cogen, L.P. project.
F-54
<PAGE>
4. STOCKHOLDERS' EQUITY
COMMON EQUITY
Common Stock:
GPU, Inc.
The following table presents information relating to the common stock
($2.50 par value) of GPU, Inc.:
1997 1996 1995
---- ---- ----
Authorized shares 350,000,000 350,000,000 350,000,000
Issued shares 125,783,338 125,783,338 125,783,338
Reacquired shares 4,950,727 5,172,201 5,359,997
Outstanding shares 120,832,611 120,611,137 120,423,341
Outstanding restricted units 248,883 258,705 195,499
In 1995, GPU, Inc. sold five million additional shares of common stock,
for net proceeds of $157.5 million. The issuance resulted in a credit to capital
surplus totaling $71.9 million. In 1997, 1996 and 1995, under GPU, Inc.'s
Dividend Reinvestment Plan, capital surplus was credited $3.0 million, $3.0
million and $2.7 million, respectively, for shares sold.
In 1997, 1996 and 1995, pursuant to the 1990 Restricted Stock Plan, GPU,
Inc. issued restricted units to officers representing rights to receive shares
of common stock, on a one-for-one basis, at the end of the five-year vesting or
restriction period. Beginning with awards in 1995, the number of shares
eventually issued will vary from the number of units awarded according to the
degree that GPU, Inc.'s performance goals have been met for the restriction
period. The shares issuable at the end of the period could range from 0% to 200%
of the originally awarded units. In 1997, GPU, Inc. also issued restricted units
to outside directors representing rights to receive shares of common stock, on a
one-for-one basis, under the Deferred Stock Unit Plan for Outside Directors. In
1997, GPU adopted Statement of Financial Accounting Standards No. 128 (FAS 128),
"Earnings Per Share," which requires a dual presentation of earnings per share
for companies that have common stock equivalents. GPU's basic and diluted
earnings per share in accordance with FAS 128 are not materially different. The
restricted units are considered common stock equivalents and accordingly, are
reflected in the computation of diluted earnings per share shown on the income
statement. The restricted units accrue dividend equivalents on a quarterly
basis, which are invested in additional equivalent units. In 1997, 1996 and
1995, GPU, Inc. awarded to plan participants 64,941, 63,206 and 83,600
restricted units, respectively. In 1997, 1996 and 1995, GPU, Inc. issued a total
of 54,491, 37,253 and 30,558 shares, respectively, from previously reacquired
shares.
In 1996, GPU adopted Statement of Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which establishes a fair
value-based method of accounting for employee stock-based compensation. Under
this method, compensation cost is measured at the grant date, based on the
market price of the stock at that date, and is recognized as expense over the
F-55
<PAGE>
restricted period. FAS 123 permits companies to continue to follow the
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No.
25), provided that pro forma disclosures of net income are made as if the fair
value-based method of accounting had been applied. GPU has elected to continue
accounting for stock-based compensation in accordance with APB No. 25, which
contains provisions for subsequent adjustments to compensation cost based on
market price fluctuations of the stock after the grant date. The pro forma
effects on net income resulting from the application of the fair value-based
method of accounting defined in FAS 123 are immaterial.
At December 31, 1997 and 1996, the following issues of common stock were
outstanding:
(in thousands)
GPU, Inc. 1997 1996
- --------- ---- ----
Common stock, par value $2.50 per share $314,458 $314,458
======== ========
JCP&L
- -----
Common stock, par value $10 per share,
16,000,000 shares authorized, 15,371,270
shares issued and outstanding $153,713 $153,713
======== ========
Met-Ed
- ------
Common stock, no par value, 900,000 shares
authorized, 859,500 shares issued
and outstanding $ 66,273 $ 66,273
======== ========
Penelec
- -------
Common stock, par value $20 per share,
5,400,000 shares authorized, 5,290,596
shares issued and outstanding $105,812 $105,812
======== ========
Accumulated Other Comprehensive Income/(Loss):
In 1997, GPU adopted Statement of Financial Accounting Standards No. 130
(FAS 130), "Reporting Comprehensive Income," which required GPU to reclassify,
for financial reporting purposes only, certain amounts shown below which were
previously included in Retained Earnings, and are now included in Accumulated
other comprehensive income/(loss) on the Consolidated Balance Sheets. After
making these balance sheet reclassifications, the following amounts were
included in Accumulated other comprehensive income/(loss) at December 31, 1997
and December 31, 1996:
GPU, Inc. and Subsidiary Companies (in thousands)
- ----------------------------------
1997 1996
---- ----
Net unrealized gains on investments $ 19,358 $ 12,984
Foreign currency translation (44,916) 4,013
Minimum pension liability (3,738) (2,243)
------ ------
Accumulated other comprehensive income/(loss) $(29,296) $ 14,754
======== ========
F-56
<PAGE>
Met-Ed (in thousands)
- ------
1997 1996
---- ----
Net unrealized gains on investments $ 12,906 $ 8,657
Minimum pension liability (419) (262)
---- ----
Accumulated other comprehensive income $ 12,487 $ 8,395
======== ========
Penelec
- -------
Net unrealized gains on investments $ 6,454 $ 4,329
Minimum pension liability (122) -
---- -----
Accumulated other comprehensive income $ 6,332 $ 4,329
======== ========
The components of other comprehensive income/(loss), and the related tax
effects, for the years 1997, 1996 and 1995 are as follows:
(in thousands)
GPU, Inc. and Subsidiary Companies Amount Income Tax Amount
Before (Expense) Net of
1997 Taxes Benefit Taxes
- ---- ----- ------- -----
Unrealized gains on investments:
Gains on investments during the year $ 10,895 $ (4,521) $ 6,374
Less: Realized gains in net income - - -
------- ------- ------
Net unrealized gains on investments 10,895 (4,521) 6,374
Foreign currency translation (73,115) 24,186 (48,929)
Minimum pension liability (2,541) 1,046 (1,495)
------ ----- ------
Total other comprehensive income/(loss) $(64,761) $ 20,711 $(44,050)
======== ======== ========
1996
- ----
Unrealized gains on investments:
Gains on investments during the year $ 10,797 $ (3,922) $ 6,875
Less: Realized gains in net income (9,494) 3,323 (6,171)
------ ----- ------
Net unrealized gains on investments 1,303 (599) 704
Foreign currency translation 3,054 - 3,054
Minimum pension liability (3,706) 1,531 (2,175)
------ ----- ------
Total other comprehensive income $ 651 $ 932 $ 1,583
======== ======== ========
1995
- ----
Unrealized gains on investments:
Gains on investments during the year $ 22,692 $ (9,307) $ 13,385
Less: Realized gains in net income (11,775) 4,121 (7,654)
------- ----- ------
Net unrealized gains on investments 10,917 (5,186) 5,731
Foreign currency translation 959 - 959
Minimum pension liability 1,094 (462) 632
----- ---- ---
Total other comprehensive income $ 12,970 $ (5,648) $ 7,322
======== ======== ========
F-57
<PAGE>
(in thousands)
Met-Ed Amount Income Tax Amount
- ------ Before (Expense) Net of
1997 Taxes Benefit Taxes
- ---- ----- ------- -----
Net unrealized gains on investments $ 7,263 $(3,014) $ 4,249
Minimum pension liability (267) 110 (157)
---- --- ----
Total other comprehensive income $ 6,996 $(2,904) $ 4,092
======= ======= =======
1996
- ----
Net unrealized gains on investments $ 6,883 $(2,856) $ 4,027
Minimum pension liability (448) 186 (262)
---- --- ----
Total other comprehensive income $ 6,435 $(2,670) $ 3,765
======= ======= =======
1995
- ----
Net unrealized gains on investments $ 8,768 $(3,649) $ 5,119
Minimum pension liability - - -
----- ----- -----
Total other comprehensive income $ 8,768 $(3,649) $ 5,119
======= ======= =======
Penelec
- -------
1997
- ----
Net unrealized gains on investments $ 3,632 $(1,507) $ 2,125
Minimum pension liability (209) 87 (122)
---- -- ----
Total other comprehensive income $ 3,423 $(1,420) $ 2,003
======= ======= =======
1996
- ----
Net unrealized gains on investments $ 3,442 $(1,428) $ 2,014
Minimum pension liability - - -
----- ----- -----
Total other comprehensive income $ 3,442 $(1,428) $ 2,014
======= ======= =======
1995
- ----
Net unrealized gains on investments $ 4,384 $(1,791) $ 2,593
Minimum pension liability - - -
----- ----- -----
Total other comprehensive income $ 4,384 $(1,791) $ 2,593
======= ======= =======
F-58
<PAGE>
PREFERRED EQUITY
Cumulative Preferred Stock:
At December 31, 1997 and 1996, the following issues of cumulative preferred
stock were outstanding:
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in thousands)
1997 1996
---- ----
Cumulative preferred stock (a):
With mandatory redemption (d) $ 104,000 $ 124,000
Amounts due within one year (e) (12,500) (10,000)
------- -------
Total cumulative preferred stock
with mandatory redemption $ 91,500 $ 114,000
========= =========
Without mandatory redemption (b), (f) $ 65,996 $ 65,996
Premium on cumulative preferred stock 482 482
--- ---
Total cumulative preferred stock
without mandatory redemption $ 66,478 $ 66,478
========= =========
JCP&L
- -----
Cumulative preferred stock, without par value, 15,600,000 shares authorized,
1,415,000 and 1,615,000 shares issued and outstanding in 1997 and 1996,
respectively (a):
(in thousands)
1997 1996
---- ----
Cumulative preferred stock -
without mandatory redemption (b):
4% Series, 125,000 shares,
callable at $106.50 a share $ 12,500 $ 12,500
7.88% Series E, 250,000 shares,
callable at $103.65 a share 25,000 25,000
------ ------
Subtotal 37,500 37,500
Premium on cumulative preferred stock 241 241
--- ---
Total cumulative preferred stock -
without mandatory redemption $ 37,741 $ 37,741
======== ========
Cumulative preferred stock -
with mandatory redemption (c), (d), (e):
8.48% Series I, 100,000 shares in 1997
and 300,000 shares in 1996 $ 10,000 $ 30,000
8.65% Series J, 500,000 shares 50,000 50,000
7.52% Series K, 440,000 shares 44,000 44,000
------ ------
Subtotal 104,000 124,000
Amounts due within one year (e) (12,500) (10,000)
------- -------
Total cumulative preferred stock -
with mandatory redemption $ 91,500 $114,000
======== ========
F-59
<PAGE>
Met-Ed
- ------
Cumulative preferred stock, without par value, 10,000,000 shares authorized,
119,475 shares issued and outstanding in 1997 and 1996, without mandatory
redemption (a), (b), (f):
(in thousands)
1997 1996
---- ----
3.90% Series, 64,384 shares in 1997 and
1996, callable at $105.625 a share $ 6,438 $ 6,438
4.35% Series, 22,517 shares in 1997 and
1996, callable at $104.25 a share 2,252 2,252
3.85% Series, 9,252 shares in 1997 and
1996, callable at $104.00 a share 925 925
3.80% Series, 7,982 shares in 1997 and
1996, callable at $104.70 a share 798 798
4.45% Series, 15,340 shares in 1997 and
1996, callable at $104.25 a share 1,534 1,534
----- -----
Subtotal 11,947 11,947
Premium on cumulative preferred stock 109 109
--- ---
Total cumulative preferred stock $ 12,056 $ 12,056
======== ========
Penelec
- -------
Cumulative preferred stock, without par value, 11,435,000 shares authorized,
165,485 shares issued and outstanding in 1997 and 1996, without mandatory
redemption (a), (b), (f):
(in thousands)
1997 1996
---- ----
4.40% Series B, 29,678 shares in 1997 and
1996, callable at $108.25 per share $ 2,968 $ 2,968
3.70% Series C, 49,568 shares in 1997 and
1996, callable at $105.00 per share 4,957 4,957
4.05% Series D, 28,219 shares in 1997 and
1996, callable at $104.53 per share 2,822 2,822
4.70% Series E, 14,103 shares in 1997 and
1996, callable at $105.25 per share 1,410 1,410
4.50% Series F, 17,081 shares in 1997 and
1996, callable at $104.27 per share 1,708 1,708
4.60% Series G, 26,836 shares in 1997 and
1996, callable at $104.25 per share 2,684 2,684
----- -----
Subtotal 16,549 16,549
Premium on cumulative preferred stock 132 132
--- ---
Total cumulative preferred stock $ 16,681 $ 16,681
======== ========
(a) At December 31, 1997 and 1996, the GPU Energy companies were authorized
to issue 37,035,000 shares of cumulative preferred stock. If dividends on
any of the preferred stock are in arrears for four quarters, the holders
of preferred stock, voting as a class, are entitled to elect a majority
of the board of directors of that company until all dividends in arrears
have been paid. A GPU Energy company may not redeem preferred stock
unless dividends on all of its preferred stock for all past quarterly
dividend periods have been paid or declared and set aside for payment.
F-60
<PAGE>
(b) The outstanding shares of preferred stock without mandatory redemption
are callable at various prices above their stated values. At December 31,
1997, the aggregate amount at which these shares could be called by the
GPU Energy companies was $69 million (JCP&L $39 million; Met-Ed $13
million; Penelec $17 million).
(c) The 7.52% and 8.65% Series are callable at various prices above their
stated values beginning in 2002 and 2000, respectively. The 7.52% Series
is to be redeemed ratably over twenty years beginning in 1998. The 8.65%
Series is to be redeemed ratably over six years beginning in 2000. The
8.48% Series is not callable and is to be redeemed ratably over a
five-year period which began in 1996.
(d) During 1997, JCP&L redeemed $20 million stated value of 8.48% cumulative
preferred stock pursuant to mandatory and optional sinking fund
provisions. JCP&L's total redemption cost was $20 million. During 1995,
JCP&L repurchased in the market 60,000 shares of its 7.52% cumulative
preferred stock with mandatory redemption, with a stated value of $6
million. JCP&L's total redemption cost was $6.1 million, which resulted
in a $0.1 million charge to Retained Earnings.
(e) The outstanding shares with mandatory redemption have the following
redemption requirements over the next five years: $12.5 million in 1998,
$2.5 million in 1999, and $10.8 million in 2000, 2001 and 2002. The fair
value of the preferred stock with mandatory redemption, including amounts
due within one year, based on market price quotations at December 31,
1997 and 1996, was $109.9 million and $133.9 million, respectively.
(f) During 1996, Met-Ed and Penelec reacquired, pursuant to cash tender
offers, preferred shares for a total cost of $7.7 million and $14.4
million, respectively. A reacquisition gain of $3.7 million and $5.6
million was recorded for Met-Ed and Penelec, respectively, which resulted
in an increase in GPU, Inc.'s 1996 diluted earnings per share of $0.08.
Subsidiary-Obligated Mandatorily Redeemable Preferred Securities:
JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P., are
special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec,
respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued
$125 million of mandatorily redeemable preferred securities (Preferred
Securities) and in 1994, Met-Ed Capital, L.P. and Penelec Capital, L.P. issued
$100 million and $105 million, respectively, of Preferred Securities. The
proceeds were then lent to JCP&L, Met-Ed and Penelec, respectively, which, in
turn, issued their deferrable interest subordinated debentures to the
partnerships. The following issues of Preferred Securities were outstanding at
December 31, 1997 and 1996:
F-61
<PAGE>
Issue Securities Total
Company Series Price Outstanding (in thousands)
- ------- ------ ----- ----------- --------------
JCP&L Capital, L.P. 8.56% $25 5,000,000 $125,000
Met-Ed Capital, L.P. 9.00% $25 4,000,000 100,000
Penelec Capital, L.P. 8.75% $25 4,200,000 105,000
-------
Total $330,000
========
The fair value of the Preferred Securities based on market price
quotations at December 31, 1997 and 1996 was $341 million (JCP&L $128 million;
Met-Ed $104 million; Penelec $109 million) and $337 million (JCP&L $127 million;
Met-Ed $103 million; Penelec $107 million), respectively.
The Preferred Securities of JCP&L Capital, L.P. mature in 2044, while
those of Met-Ed Capital, L.P. and Penelec Capital, L.P. mature in 2043. Their
respective Preferred Securities are redeemable at the option of JCP&L beginning
in 2000, and at the option of Met-Ed and Penelec beginning in 1999, at 100% of
their principal amount, or earlier under certain limited circumstances,
including the loss of the federal tax deduction for interest paid on the
subordinated debentures. JCP&L, Met-Ed and Penelec have fully and
unconditionally guaranteed payment of distributions, to the extent there is
sufficient cash on hand to permit such payments and legally available funds, and
payments on liquidation or redemption of their respective Preferred Securities.
Distributions on the Preferred Securities (and interest on the subordinated
debentures) may be deferred for up to 60 months, but JCP&L, Met-Ed and Penelec
may not pay dividends on, or redeem or acquire, any of their preferred or common
stock until deferred payments on their respective subordinated debentures are
paid in full.
5. ACQUISITIONS
POWERNET
In November 1997, GPU Electric acquired the business of PowerNet Victoria
(PowerNet) from the State of Victoria, Australia for A$2.6 billion
(approximately U.S. $1.9 billion). The fair value of the assets acquired totaled
approximately U.S. $2 billion and the amount of liabilities assumed totaled
approximately U.S. $135.7 million. PowerNet owns and operates the existing
high-voltage electricity transmission system in the State of Victoria. The
PowerNet transmission system serves all of Victoria covering an area of
approximately 87,900 square miles and a population of approximately 4.5 million.
The PowerNet acquisition was financed through: (1) a senior debt credit
facility of A$1.9 billion (approximately U.S. $1.4 billion), which is
non-recourse to GPU, Inc.; (2) a five-year U.S. $450 million bank credit
agreement which is guaranteed by GPU, Inc.; and (3) an equity contribution from
GPU, Inc. of U.S. $50 million. In early 1998, GPU, Inc. expects to issue and
sell up to seven million shares of common stock, the net proceeds of which will
be used to reduce indebtedness associated with the PowerNet and Midlands
acquisitions.
F-62
<PAGE>
As part of the PowerNet acquisition, the GPUI Group entered into various
interest rate swap agreements to mitigate the risk of increases in variable
interest rates on the senior debt credit facility. These swaps became effective
on November 6, 1997, and are scheduled to expire on various dates through
November 2007. The GPUI Group expects to record amounts paid and received under
the agreements as adjustments to the interest expense of the underlying debt.
The acquisition of PowerNet will be accounted for under the purchase
method of accounting. The total acquisition costs exceed the preliminary
estimated value of net assets by A$862 million (approximately U.S. $560
million). This excess amount is considered goodwill and will be amortized on a
straight-line basis over 40 years. The amount of goodwill will be revised within
twelve months when the final valuation of net assets is completed and is not
expected to be materially different.
PowerNet has been included in the consolidated financial statements since
its purchase on November 6, 1997. The following unaudited pro forma consolidated
results of operations for the years 1997 and 1996 have been prepared in
accordance with Accounting Principles Board Opinion No. 16 assuming the
acquisition date was effective January 1, 1996 with debt financing. The pro
forma results are not necessarily indicative of the actual results that would
have been realized had the acquisition occurred on the assumed date of January
1, 1996, nor are they necessarily indicative of future results. The pro forma
consolidated operating results are for information purposes only and are as
follows:
<TABLE>
(Unaudited)
<CAPTION>
1997 1996
(in thousands except As As
per share amounts) Reported Pro Forma Reported Pro Forma
<S> <C> <C> <C> <C>
Operating revenues $ 4,143,379 $ 4,316,452 $ 3,970,711 $ 4,184,661
Net income $ 335,101 $ 326,742 $ 298,352 $ 282,494
Basic earnings per share $ 2.78 $ 2.71 $ 2.48 $ 2.34
Diluted earnings per share $ 2.77 $ 2.70 $ 2.47 $ 2.34
</TABLE>
F-63
<PAGE>
MIDLANDS ELECTRICITY plc
In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
Holdings (Holdings), a 50/50 joint venture, to acquire Midlands Electricity plc
(Midlands), an English regional electric company. A wholly-owned subsidiary of
Holdings, Avon, purchased the outstanding shares of Midlands through a cash
tender offer of (pound)1.7 billion (approximately U.S. $2.6 billion). GPU's 50%
interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned
subsidiary of GPU Electric, Inc.
Midlands supplies and distributes electricity to 2.3 million customers in
England in an area with a population of five million. Midlands also owns a
generation business that produces electricity domestically and internationally
and a gas supply company that provides natural gas to 8,000 customers in
England. In addition, Midlands owns and has under development a number of
international generation projects.
EI UK borrowed approximately (pound)342 million (approximately U.S. $586
million) through a GPU, Inc. guaranteed five-year bank term loan facility to
fund its investment in Holdings. Holdings borrowed approximately (pound)1.1
billion (approximately U.S. $1.8 billion) through a term loan and revolving
credit facility to provide for the balance of the acquisition price.
EI UK accounts for its 50% investment in Holdings using the equity method
of accounting (see Note 6, GPUI Group Equity Investments). Accordingly, EI UK's
investment is reported on the Consolidated Balance Sheets in GPUI Group equity
investments, and its proportionate share of earnings from Holdings is reflected
in Equity in undistributed earnings/(losses) of affiliates in the Consolidated
Statements of Income. EI UK has recorded its proportionate share of Holdings'
income/(loss) from the acquisition date.
The acquisition of Midlands by Avon is accounted for under the purchase
method of accounting. The total acquisition cost exceeded the estimated value of
net assets by (pound)1.4 billion (approximately U.S. $2.1 billion). This excess
amount is considered goodwill and is being amortized to expense on a
straight-line basis over 40 years.
F-64
<PAGE>
6. GPUI GROUP EQUITY INVESTMENTS
The GPUI Group uses the equity method of accounting for investments in
which it has the ability to exercise significant influence over the operating
and financial policies of the investee (generally evidenced by a 20% to 50%
ownership interest). Investments accounted for under the equity method follow:
Ownership
Investment Location of Operations Percentage
- ---------- ---------------------- ----------
Brooklyn Energy, L.P. * Canada 75%
Midlands Electricity plc United Kingdom 50%
Solaris Power ** Australia 50%
Prime Energy, L.P. United States 50%
Onondaga Cogen, L.P. United States 50%
Pasco Cogen, Ltd. United States 50%
GPU Solar, Inc. United States 50%
Termobarranquilla S.A Colombia 29%
Selkirk Cogeneration Partners, L.P. United States 19%
EnviroTech Investment Fund United States 10%
Ballard Generation Systems, Inc. Canada 10%
Project Orange Associates, L.P. United States 4%
OLS Power, L.P. United States 1%
* Accounted for under the equity method in anticipation of a reduction in
ownership to 27%.
** Sold in January 1998.
Summarized financial information for the GPUI Group's equity method investments
(which are not consolidated in the financial statements), including both the
GPUI Group's ownership interests and the non-ownership interests, is as follows:
Ownership
---------
Balance Sheet Data (in thousands) GPUI Group Other Owners
- ------------------ ---------- ------------
1997
Current Assets $ 284,033 $ 391,018
Noncurrent Assets 2,918,125 3,616,461
Current Liabilities (755,499) (814,572)
Long-Term Debt (1,497,982) (2,086,257)
Other Noncurrent Liabilities (307,504) (396,675)
-------- --------
Equity in Net Assets $ 641,173 $ 709,975
=========== ===========
1996
Current Assets $ 457,936 $ 560,900
Noncurrent Assets 2,689,340 3,302,994
Current Liabilities (581,140) (642,459)
Long-Term Debt (1,544,598) (2,045,646)
Other Noncurrent Liabilities (287,141) (419,198)
-------- --------
Equity in Net Assets $ 734,397 $ 756,591
=========== ===========
F-65
<PAGE>
Ownership
---------
Earnings Data (in thousands) GPUI Group Other Owners
- ------------- ---------- ------------
1997
Operating Revenues $ 1,379,049 $ 1,552,016
Depreciation and Amortization (52,860) (77,899)
Operating Income 186,069 224,148
Other Income and Deductions (78,644) (72,708)
Interest and Preferred Dividends (124,222) (163,123)
Net Income Loss $ (16,797) $ (11,683)
GPUI Group's Equity in
Net Income/(Loss) $ (27,100)
===========
1996
Operating Revenues $ 841,757 $ 1,027,281
Depreciation and Amortization (35,642) (53,279)
Operating Income 108,011 158,326
Other Income and Deductions 4,037 632
Interest and Preferred Dividends (79,786) (120,874)
Net Income $ 32,262 $ 38,084
GPUI Group's Equity in
Net Income/(Loss) $ 33,981
===========
1995
Operating Revenues $ 262,044 $ 418,573
Depreciation and Amortization (9,852) (25,837)
Operating Income 34,527 63,018
Other Income and Deductions (401) (526)
Interest and Preferred Dividends (31,189) (66,621)
Net Income $ 2,937 $ 3,077
GPUI Group's Equity in
Net Income/(Loss) $ (3,597)
===========
For the years 1997, 1996 and 1995, the GPUI Group received cash distributions
totaling $42.8 million, $10 million and $3.3 million, respectively.
As of December 31, 1997 and 1996, GPUI Group equity investments on the
Consolidated Balance Sheets included goodwill (net of accumulated amortization)
of approximately $66 million and $34 million, respectively, which is amortized
to expense over periods not exceeding 40 years. Amortization expense for the
years ended December 31, 1997, 1996 and 1995 amounted to $3.6 million, $1.6
million and $1.3 million, respectively. In 1997, the GPUI Group recorded a net
increase in goodwill of $35.6 million due primarily to franchise fees associated
with the Solaris Power (Solaris) investment.
F-66
<PAGE>
In January 1998, as a result of Victoria's cross-ownership
restrictions, GPU Electric sold its 50% stake in Solaris to The Australian Gas
Light Company for A$208 million (approximately U.S. $135.2 million) and a 10.36%
stake in Allgas Energy Limited (Allgas), the natural gas distributor in
Queensland, Australia. The Allgas shares had a market value of A$14.6 million
(approximately U.S. $9.5 million) at the date of the sale. As a result, GPU will
record an after-tax gain on the sale of U.S. $18.3 million in the first quarter
of 1998.
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS
GPU's use of derivative financial and commodity instruments is
principally limited to the GPUI Group. GPU does not hold or issue derivative
financial or commodity instruments for trading purposes.
Interest Rate Swap Agreements:
The GPUI Group uses interest rate swap agreements to manage the risk of
increases in variable interest rates. At December 31, 1997, these agreements
covered approximately $1.5 billion of debt and are scheduled to expire on
various dates through November 2007. The GPUI Group records amounts paid and
received under the agreements as adjustments to the interest expense of the
underlying debt since the swaps are related to specific assets, liabilities or
anticipated transactions of the GPUI Group. For the year ended December 31,
1997, fixed rate interest expense exceeded variable rate interest by
approximately $3.7 million. (For additional information, see GPUI Group section,
Management's Discussion and Analysis.)
Sterling Put Options:
GPU Electric uses sterling put options to reduce exposure to exchange
rate fluctuations between the British pound and the U.S. dollar relative to
distributions received from Midlands. These put options give GPU Electric the
right, but not the obligation, to sell sterling and buy U.S. dollars at a
specific price. GPU Electric's exposure to losses from changes in the relative
values of these currencies is limited to its initial investment in the put
options, which was $0.6 million. Mark-to-market accounting is followed for these
put options, which are recorded in Other Current Assets in the Consolidated
Balance Sheets. Monthly mark-to-market gains and losses, gains from exercising
the put options and amortization of expiring options totaled $325 thousand for
the year ended December 31, 1997, and are included in Other Income, Net in the
Consolidated Statements of Income. The put options were purchased on January 3,
1997 and expired on December 31, 1997.
Australian Dollar Put Options:
GPU Electric used an Australian dollar put option to reduce its exposure
to exchange rate fluctuations between the Australian dollar and the U.S. dollar,
relative to the net proceeds to be received from the sale of its 50% stake in
Solaris. The put option gave GPU Electric the right, but not the obligation, to
sell Australian dollars and buy U.S. dollars at a specific
F-67
<PAGE>
price. GPU Electric's exposure to losses from changes in the relative values of
these currencies was limited to its initial investment in the put option, which
was $1.0 million. This put option was recorded as an asset when it was purchased
in 1997, and was charged to expense when Solaris was sold in January 1998.
8. INCOME TAXES
As of December 31, 1997 and 1996, the Consolidated Balance Sheets
reflected income taxes recoverable through future rates (primarily related to
liberalized depreciation), and a regulatory liability for income taxes
refundable through future rates (related to unamortized ITC), substantially due
to the recognition of amounts not previously recorded with the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" in 1993, as follows:
(in millions)
1997 1996
---- ----
Income Taxes Recoverable Through Future Rates:
JCP&L $128 $143
Met-Ed 179 174
Penelec 204 210
--- ---
Total $511 $527
==== ====
Income Taxes Refundable Through Future Rates:
JCP&L $ 37 $ 33
Met-Ed 22 23
Penelec 30 32
-- --
Total $ 89 $ 88
==== ====
F-68
<PAGE>
Summaries of the components of deferred taxes as of December 31, 1997 and
1996 are as follows:
GPU, Inc. and Subsidiary Companies:
- -----------------------------------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 31 $ 23 Revenue taxes $ 10 $ 12
====== ======
Deferred energy 7 -
Other 46 9
-- -
Total $ 84 $ 32
==== ====
Noncurrent: Noncurrent:
Unamortized ITC $ 89 $ 88 Liberalized
Decommissioning 74 75 depreciation:
Contributions in aid previously flowed
of construction 24 24 through $ 263 $ 292
Other 196 146 future revenue
--- ---
Total $383 $333 requirements 193 203
==== ==== --- ---
Subtotal 456 495
Liberalized
depreciation 860 859
Other 250 209
--- ---
Total $1,566 $1,563
====== ======
JCP&L:
- ------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 21 $ 18 Revenue taxes $ 10 $ 12
==== ====
Deferred energy 7 5
-- --
Total $ 28 $ 23
==== ====
Noncurrent: Noncurrent:
Unamortized ITC $ 38 $ 33 Liberalized
Decommissioning 33 32 depreciation:
Contributions in aid previously flowed
of construction 19 19 through $ 52 $ 76
Other 65 55 future revenue
-- -- requirements 36 41
Total $155 $139 -- --
==== ====
Subtotal 88 118
Liberalized
depreciation 411 412
Forked River 7 9
Other 138 125
--- ---
Total $644 $664
==== ====
F-69
<PAGE>
Met-Ed:
- -------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1997 1996 1997 1996
---- ---- ---- ----
Noncurrent:
Current: Liberalized
Unbilled revenue $ 3 $ 5 depreciation:
Other - 2 previously flowed
-- --
Total $ 3 $ 7 through $ 97 $ 95
==== ====
future revenue
Noncurrent: requirements 72 73
-- --
Unamortized ITC $ 22 $ 24
Decommissioning 27 28 Subtotal 169 168
Contributions in aid Liberalized
of construction 2 2 depreciation 191 185
Other 36 31 Other 53 48
-- -- -- --
Total $ 87 $ 85 Total $413 $401
==== ==== ==== ====
Penelec:
- --------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1997 1996 1997 1996
---- ---- ---- ----
Noncurrent:
Current: Liberalized
Unbilled revenue $ 8 $ - depreciation:
==== ====
previously flowed
Noncurrent: through $114 $119
Unamortized ITC $ 30 $ 32 future revenue
Decommissioning 14 15 requirements 85 89
-- --
Contributions in aid
of construction 3 3 Subtotal 199 208
Other 9 17 Liberalized
-- -- depreciation 245 239
Total $ 56 $ 67 Other 34 26
==== ==== -- --
Total $478 $473
==== ====
F-70
<PAGE>
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates are
as follows:
GPU, Inc. and Subsidiary Companies:
- -----------------------------------
(in millions)
1997 1996 1995
---- ---- ----
Net income $335 $298 $440
Preferred stock dividends 13 16 17
Gain on preferred stock reacquisition - (9) -
Income tax expense 234 184 265
--- --- ---
Book income subject to tax $582* $489* $722
==== ==== ====
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 4 3 4
Other 1 - (2)
-- -- --
Effective income tax rate 40% 38% 37%
== == ==
* Includes pre-tax foreign operations income of $34 million and $58 million,
of which $20 million and $54 million, respectively, are included in Equity
in undistributed earnings/(losses) of affiliates in the Consolidated
Statements of Income.
JCP&L:
- ------
(in millions)
1997 1996 1995
---- ---- ----
Net income $212 $156 $199
Income tax expense 112 74 97
--- -- --
Book income subject to tax $324 $230 $296
==== ==== ====
Federal statutory rate 35% 35% 35%
Other - (3) (2)
-- -- --
Effective income tax rate 35% 32% 33%
== == ==
Met-Ed:
- -------
(in millions)
1997 1996 1995
---- ---- ----
Net income $ 93 $ 69 $149
Income tax expense 66 50 92
-- -- --
Book income subject to tax $159 $119 $241
==== ==== ====
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 5 6
Amortization of ITC - (2) (1)
Other - 4 (2)
-- -- --
Effective income tax rate 41% 42% 38%
== == ==
F-71
<PAGE>
Penelec: (in millions)
- -------- -------------
1997 1996 1995
---- ---- ----
Net income $ 95 $ 70 $111
Income tax expense 71 45 70
-- -- --
Book income subject to tax $166 $115 $181
==== ==== ====
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 6 6
Other 2 ( 2) ( 2)
-- -- --
Effective income tax rate 43% 39% 39%
== == ==
Federal and state income tax expense is comprised of the following:
GPU, Inc. and Subsidiary Companies:
- -----------------------------------
(in millions)
1997 1996 1995
---- ---- ----
Provisions for taxes currently payable:
Domestic $206 $108 $154
Foreign 40 11 -
-- -- --
Total provision for taxes $246 $119 $154
==== ==== ====
Deferred income taxes:
Liberalized depreciation 9 27 31
Deferral of energy costs (3) (8) 1
Accretion income 4 5 5
Decommissioning (5) (9) 71
Pension expense/Voluntary Enhanced
Retirement Programs (10) 15 24
Nonutility generation contract buyout costs 5 41 15
Other (2) 6 (25)
-- -- ---
Deferred income taxes, net (2) 77 122
-- -- ---
Amortization of ITC, net (10) (12) (11)
--- --- ---
Income tax expense $234 $184 $265
==== ==== ====
The foreign taxes in the above table for 1997 and 1996, include $41
million ($37 million Current; $4 million Deferred) and $17 million ($10 million
Current; $7 million Deferred) in foreign tax expense which is netted in Equity
in undistributed earnings/(losses) of affiliates in the Consolidated Statements
of Income.
F-72
<PAGE>
JCP&L:
- ------
(in millions)
1997 1996 1995
---- ---- ----
Provisions for taxes currently payable $139 $ 70 $100
---- ---- ----
Deferred income taxes:
Liberalized depreciation (3) 1 8
Nonutility generation contract buyout costs 6 22 6
Gain/Loss on reacquired debt (1) - -
New Jersey revenue tax (3) (3) (2)
Deferral of energy costs (2) (8) 1
Abandonment loss - Forked River (5) (4) (4)
Nuclear outage maintenance costs (4) 5 (6)
Accretion income 4 5 5
Unbilled revenue (3) (5) (2)
Pension expense/VERP (5) 4 3
Decommissioning (3) (2) (2)
Demand-side management (3) (4) 2
Other postemployment benefits 2 - 1
Other (2) - (7)
--- -- ---
Deferred income taxes, net (22) 11 3
--- -- --
Amortization of ITC, net (5) (7) (6)
-- -- --
Income tax expense $ 112 $ 74 $ 97
===== ===== =====
Met-Ed:
- -------
(in millions)
1997 1996 1995
---- ---- ----
Provisions for taxes currently payable $ 63 $ 25 $ 23
---- ---- ----
Deferred income taxes:
Liberalized depreciation 6 10 10
Deferral of energy costs - 5 -
Decommissioning (2) (3) 46
Pension expense/VERP (3) 5 8
Unbilled revenue 3 - (4)
Nonutility generation contract buyout costs (6) 14 8
Nuclear outage maintenance costs 3 (3) 3
Nonutility generation contract
over/(under) collections 4 - -
Other postemployment benefits (1) 2 -
Other 1 (3) -
-- -- --
Deferred income taxes, net 5 27 71
- -- --
Amortization of ITC, net (2) (2) (2)
-- -- --
Income tax expense $ 66 $ 50 $ 92
==== ==== ====
F-73
<PAGE>
<TABLE>
Penelec:
- --------
<CAPTION>
(in millions)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Provisions for taxes currently payable $ 61 $ 26 $ 28
---- ---- ----
Deferred income taxes:
Liberalized depreciation 6 8 12
Deferral of energy costs (1) - -
Accretion income - - -
Decommissioning - (1) 21
Pension expense/VERP (2) 7 13
Unbilled revenue (7) 5 (2)
Nonutility generation contract buyout costs 5 5 -
Nuclear outage maintenance costs 1 (1) 1
Nonutility generation contract
over/(under)collections 6 - -
Other postemployment benefits 3 (1) 5
Other 2 - (5)
-- -- --
Deferred income taxes, net 13 22 45
-- -- --
Amortization of ITC, net (3) (3) (3)
-- -- --
Income tax expense $ 71 $ 45 $ 70
==== ==== ====
</TABLE>
The Internal Revenue Service (IRS) has completed its examinations of
GPU's federal income tax returns through 1992. The years 1993 through 1995 are
currently being audited.
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses
consisted of the following:
(in millions)
1997 1996 1995
---- ---- ----
Maintenance:
JCP&L $102 $120 $128
Met-Ed 46 50 54
Penelec 68 65 71
-- -- --
Total Maintenance $216 $235 $253
==== ==== ====
Other Taxes:
New Jersey Unit Tax (JCP&L) $211 $208 $209
---- ---- ----
Pennsylvania State Gross Receipts:
Met-Ed $ 39 $ 38 $ 35
Penelec 42 40 39
-- -- --
Total $ 81 $ 78 $ 74
---- ---- ----
F-74
<PAGE>
(in millions)
1997 1996 1995
---- ---- ----
Real Estate and Personal Property:
JCP&L $ 9 $ 8 $ 8
Met-Ed 8 8 7
Penelec 10 9 8
-- -- --
Total $ 27 $ 25 $ 23
---- ---- ----
Other:
JCP&L $ 12 $ 13 $ 10
Met-Ed 12 15 13
Penelec 15 16 20
-- -- --
Total $ 39 $ 44 $ 43
---- ---- ----
Total Other Taxes $358 $355 $349
==== ==== ====
The cost of services rendered to the GPU Energy companies by their
affiliates is as follows:
(in millions)
1997 1996 1995
---- ---- ----
JCP&L:
- ------
Cost of services rendered by GPUN $156 $221 $186
Cost of services rendered by GPUS 31 44 43
Cost of services rendered by Genco 52 85 -
-- -- --
Total $239 $350 $229
==== ==== ====
Amount Charged to Income $228 $293 $183
==== ==== ====
Met-Ed:
- -------
Cost of services rendered by GPUN $ 78 $ 67 $ 81
Cost of services rendered by GPU 31 29 27
Cost of services rendered by Genco 91 85 -
-- -- --
Total $200 $181 $108
==== ==== ====
Amount Charged to Income $179 $153 $ 92
==== ==== ====
Penelec:
- --------
Cost of services rendered by GPUN $ 40 $ 34 $ 41
Cost of services rendered by GPUS 19 31 38
Cost of services rendered by Genco 162 159 -
--- --- ---
Total $221 $224 $ 79
==== ==== ====
Amount Charged to Income $195 $181 $ 67
==== ==== ====
For the years 1997, 1996 and 1995, JCP&L purchased $24 million, $21
million and $23 million, respectively, of energy from a cogeneration project in
which an affiliate has a 50% partnership interest.
F-75
<PAGE>
10. EMPLOYEE BENEFITS
Pension Plans
GPU maintains defined benefit pension plans covering substantially all
employees. GPU's policy is to currently fund net pension costs within the
deduction limits permitted by the Internal Revenue Code.
Summaries of the components of net periodic pension cost follow:
(in millions)
GPU, Inc. and Subsidiary Companies 1997 1996 1995
- ---------------------------------- ---- ---- ----
Service cost-benefits earned during the period $ 31.1 $ 36.1 $ 30.0
Interest cost on projected benefit obligation 122.2 112.1 109.8
Less: Expected return on plan assets (131.5) (123.2) (112.9)
Amortization (0.3) (1.1) (1.4)
------ ------ ------
Net periodic pension cost $ 21.5 $ 23.9 $ 25.5
====== ====== ======
JCP&L
Service cost-benefits earned during the period $ 6.1 $ 8.0 $ 7.3
Interest cost on projected benefit obligation 34.2 32.1 32.9
Less: Expected return on plan assets (37.5) (36.3) (35.2)
Amortization (0.2) (0.3) (0.3)
------ ------ ------
Net periodic pension cost $ 2.6 $ 3.5 $ 4.7
====== ====== ======
Met-Ed
Service cost-benefits earned during the period $ 4.3 $ 4.5 $ 4.4
Interest cost on projected benefit obligation 21.8 19.6 20.2
Less: Expected return on plan assets (22.3) (21.3) (20.3)
Amortization 0.5 - (0.1)
------ ------ ------
Net periodic pension cost $ 4.3 $ 2.8 $ 4.2
====== ====== ======
Penelec
Service cost-benefits earned during the period $ 3.3 $ 6.0 $ 8.9
Interest cost on projected benefit obligation 26.2 29.3 34.9
Less: Expected return on plan assets (29.7) (32.3) (35.6)
Amortization 0.5 0.3 0.3
------ ------ ------
Net periodic pension cost $ 0.3 $ 3.3 $ 8.5
====== ====== ======
The above amounts for 1996 exclude pre-tax charges to earnings of $71
million (JCP&L $37 million; Met-Ed $17 million; Penelec $17 million) resulting
from early retirement programs in that year. At December 31, 1996, GPU had
funded the entire cost of its retirement programs.
F-76
<PAGE>
The actual return on the plans' assets for the years 1997, 1996 and 1995
resulted in gains as follows:
(in millions)
Company 1997 1996 1995
- ------- ---- ---- ----
JCP&L $ 97.8 $ 66.0 $101.3
Met-Ed 63.1 39.6 59.4
Penelec 81.1 53.5 100.3
Other 99.4 69.9 61.0
----- ----- -----
Total $341.4 $229.0 $322.0
===== ===== =====
The funded status of the plans and related assumptions at December 31,
1997 and 1996 were as follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1997 1996
- ---------------------------------- ---- ----
Accumulated benefit obligation (ABO):
Vested benefits $ 1,422.1 $ 1,338.5
Nonvested benefits 161.6 137.8
-------- --------
Total ABO 1,583.7 1,476.3
Effect of future compensation levels 208.0 215.1
-------- --------
Projected benefit obligation (PBO) $ 1,791.7 $ 1,691.4
======== ========
Plan assets at fair value $ 2,033.3 $ 1,801.8
PBO (1,791.7) (1,691.4)
-------- --------
Plan assets in excess of PBO 241.6 110.4
Less: Unrecognized net gain (282.8) (143.8)
Unrecognized prior service cost 19.2 5.7
Unrecognized net transition asset (2.5) (3.0)
Adjustment required to recognize
minimum liability (6.4) (3.8)
-------- --------
Accrued pension liability $ (30.9) $ (34.5)
======== ========
JCP&L
ABO:
Vested benefits $ 413.9 $ 391.9
Nonvested benefits 27.1 27.8
------ ------
Total ABO 441.0 419.7
Effect of future compensation levels 55.6 53.8
------ ------
PBO $ 496.6 $ 473.5
====== ======
Plan assets at fair value $ 577.1 $ 514.5
PBO (496.6) (473.5)
------ ------
Plan assets in excess of PBO 80.5 41.0
Less: Unrecognized net gain (87.7) (45.7)
Unrecognized prior service cost 9.3 2.2
Unrecognized net transition asset (1.2) (1.5)
------ ------
Prepaid (accrued) pension cost $ 0.9 $ (4.0)
====== ======
F-77
<PAGE>
(in millions)
Met-Ed 1997 1996
- ------ ---- ----
ABO:
Vested benefits $ 267.1 $ 240.7
Nonvested benefits 35.6 24.4
------ ------
Total ABO 302.7 265.1
Effect of future compensation levels 43.2 37.4
------ ------
PBO $ 345.9 $ 302.5
====== ======
Plan assets at fair value $ 373.2 $ 309.9
PBO (345.9) (302.5)
------ ------
Plan assets in excess of PBO 27.3 7.4
Less: Unrecognized net gain (32.8) (7.1)
Unrecognized prior service cost 5.0 2.8
Unrecognized net transition asset (0.8) (0.6)
Adjustment required to recognize
minimum liability (0.7) (0.4)
------ ------
Prepaid (accrued) pension cost $ (2.0) $ 2.1
====== ======
Penelec
ABO:
Vested benefits $ 332.5 $ 303.6
Nonvested benefits 29.0 24.3
------ ------
Total ABO 361.5 327.9
Effect of future compensation levels 42.9 39.1
------ ------
PBO $ 404.4 $ 367.0
====== ======
Plan assets at fair value $ 486.8 $ 411.8
PBO (404.4) (367.0)
------ ------
Plan assets in excess of PBO 82.4 44.8
Less: Unrecognized net gain (69.8) (35.2)
Unrecognized prior service cost 7.5 3.4
Unrecognized net transition obligation 1.5 2.1
Adjustment required to recognize
minimum liability (0.2) -
------ ------
Prepaid pension cost $ 21.4 $ 15.1
====== ======
Principal actuarial assumptions (%):
Annual long-term rate of return on plan assets 8.5 8.5
=== ===
Discount rate 7.0 7.5
=== ===
Annual increase in compensation levels 5.0 5.5
=== ===
F-78
<PAGE>
In 1997, changes in assumptions, primarily the decrease in the discount
rate assumption from 7.5% to 7%, resulted in a $63 million increase (JCP&L $16
million; Met-Ed $10 million; Penelec $12 million; Other $25 million) in the PBO
as of December 31, 1997. The assets of the plans are held in a Master Trust and
generally invested in common stocks and fixed income securities. The
unrecognized net gain represents actual experience different from that assumed,
which is deferred and not included in the determination of pension cost until it
exceeds certain levels. Both the unrecognized prior service cost resulting from
retroactive changes in benefits and the unrecognized net transition asset
arising out of the adoption of Statement of Financial Accounting Standards No.
87 (FAS 87), "Employers' Accounting for Pensions," are being amortized to
pension cost over the average remaining service periods for covered employees.
At December 31, 1997, 1996 and 1995, GPU had accumulated pension
obligations in excess of amounts accrued; as a result, additional minimum
liabilities in the amounts of $3.7 million (Met-Ed $0.4 million; Penelec $0.1
million; Other $3.2 million), $2.2 million (Met-Ed $0.3 million; Other $1.9
million) and $0.1 million (Other), respectively, net of deferred income taxes of
$2.7 million (Met-Ed $0.3 million; Penelec $0.1 million; Other $2.3 million),
$1.6 million (Met-Ed $0.2 million; Other $1.4 million) and $0.1 million (Other),
respectively, are reflected as reductions in Accumulated other comprehensive
income/(loss).
Savings Plans
GPU also maintains savings plans for substantially all employees. These
plans provide for employee contributions up to specified limits and for various
levels of employer matching contributions. The matching contributions for GPU
were as follows:
(in millions)
Company 1997 1996 1995
- ------- ---- ---- ----
JCP&L $ 2.4 $ 2.8 $ 3.2
Met-Ed 3.1 3.2 2.7
Penelec 1.3 1.4 2.5
Other 5.8 6.7 5.0
------- ------- -------
Total $ 12.6 $ 14.1 $ 13.4
======= ======= =======
Postretirement Benefits Other Than Pensions
GPU provides certain retiree health care and life insurance benefits for
substantially all employees who reach retirement age while working for GPU.
Health-care benefits are administered by various organizations. A portion of the
costs are borne by the participants. Effective January 1, 1993, GPU adopted
Statement of Financial Accounting Standards No. 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other Than Pensions." FAS 106 requires
that the estimated cost of these benefits, which are primarily for health care,
be accrued during the employee's active working career. GPU has elected to
amortize the unfunded transition obligation existing at January 1, 1993 over a
period of 20 years. The unrecognized net loss represents actual experience
different from that assumed, which is deferred and not included in the
determination of postretirement benefit cost
F-79
<PAGE>
until it exceeds certain levels. The unrecognized prior service cost resulting
from retroactive changes in benefits is being amortized to postretirement
benefit cost over the average remaining service periods for covered employees.
Summaries of the components of the net periodic postretirement benefit
cost for 1997, 1996 and 1995 follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1997 1996 1995
- ---------------------------------- ---- ---- ----
Service cost-benefits attributed to service
during the period $ 10.7 $ 14.3 $ 13.4
Interest cost on the accumulated postretirement
benefit obligation 51.7 45.7 43.4
Expected return on plan assets (23.7) (13.8) (11.0)
Amortization of transition obligation 16.8 17.4 17.4
Other amortization, net 2.3 2.9 1.3
----- ----- -----
Net periodic postretirement benefit cost 57.8 66.5 64.5
Less, deferred for future recovery (13.0) (18.2) (15.0)
----- ----- -----
Postretirement benefit cost, net of deferrals $ 44.8 $ 48.3 $ 49.5
===== ===== =====
The above amount for 1996 does not include pre-tax charges to earnings of
$52 million relating to early retirement programs. At December 31, 1996, GPU had
funded the entire cost of its retirement programs.
(in millions)
JCP&L 1997 1996 1995
- ----- ---- ---- ----
Service cost-benefits attributed to service
during the period $ 1.5 $ 2.8 $ 3.0
Interest cost on the accumulated postretirement
benefit obligation 13.2 11.4 11.2
Expected return on plan assets (5.7) (2.8) (2.3)
Amortization of transition obligation 4.7 4.8 5.0
Other amortization, net 0.6 0.7 0.5
----- ----- -----
Net periodic postretirement benefit cost 14.3 16.9 17.4
Less, deferred for future recovery (0.8) (4.4) (4.0)
----- ----- -----
Postretirement benefit cost, net of deferrals $ 13.5 $ 12.5 $ 13.4
===== ===== =====
The above amount for 1996 does not include pre-tax charges to earnings
of $26 million relating to early retirement programs. The amount deferred for
future recovery does not include $5.0 million of allocated postretirement
benefit costs from affiliates for 1997.
F-80
<PAGE>
(in millions)
Met-Ed 1997 1996 1995
- ------ ---- ---- ----
Service cost-benefits attributed to service
during the period $ 1.5 $ 1.9 $ 2.0
Interest cost on the accumulated postretirement
benefit obligation 10.0 8.6 8.3
Expected return on plan assets (3.1) (1.6) (1.4)
Amortization of transition obligation 3.2 3.2 3.4
Other amortization, net 0.8 0.7 0.3
----- ----- -----
Net periodic postretirement benefit cost 12.4 12.8 12.6
Less, deferred for future recovery (5.1) (4.1) (5.6)
----- ----- -----
Postretirement benefit cost, net of deferrals $ 7.3 $ 8.7 $ 7.0
===== ===== =====
The above amount for 1996 does not include a pre-tax charge to earnings of
$13 million relating to early retirement programs. The amount deferred for
future recovery does not include $2.1 million of allocated postretirement
benefit costs from affiliates for 1997.
(in millions)
Penelec 1997 1996 1995
- ------- ---- ---- ----
Service cost-benefits attributed to service
during the period $ 1.5 $ 2.7 $ 4.3
Interest cost on the accumulated postretirement
benefit obligation 13.7 14.1 15.6
Expected return on plan assets (6.6) (4.6) (4.3)
Amortization of transition obligation 4.8 5.4 6.2
Other amortization, net 0.6 0.9 0.5
----- ----- -----
Net periodic postretirement benefit cost 14.0 18.5 22.3
Net write-off -- -- 1.3
----- ----- -----
Postretirement benefit cost $ 14.0 $ 18.5 $ 23.6
===== ===== =====
The above amount for 1996 does not include a pre-tax charge to earnings
of $13 million relating to early retirement programs.
The actual return on the plans' assets for the years 1997, 1996 and 1995
resulted in gains as follows:
(in millions)
Company 1997 1996 1995
- ------- ---- ---- ----
JCP&L $ 17.4 $ 8.0 $ 5.7
Met-Ed 8.6 3.6 3.3
Penelec 21.5 14.7 11.1
Other 19.4 12.3 7.8
----- ----- -----
Total $ 66.9 $ 38.6 $ 27.9
===== ===== =====
F-81
<PAGE>
The funded status of the plans at December 31, 1997 and 1996, was as
follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1997 1996
- ---------------------------------- ---- ----
Accumulated postretirement benefit obligation (APBO):
Retirees $ 490.1 $ 452.7
Fully eligible active plan participants 20.4 17.1
Other active plan participants 287.5 236.2
------ ------
Total APBO $ 798.0 $ 706.0
====== ======
APBO $(798.0) $(706.0)
Plan assets at fair value 403.0 303.6
------ ------
APBO in excess of plan assets (395.0) (402.4)
Less: Unrecognized net loss 73.3 56.6
Unrecognized prior service cost 6.6 1.9
Unrecognized transition obligation 238.0 268.6
------ ------
Accrued postretirement benefit liability $ (77.1) $ (75.3)
====== ======
JCP&L
APBO:
Retirees $ 135.0 $ 120.2
Fully eligible active plan participants 8.5 7.7
Other active plan participants 60.3 52.0
------ ------
Total APBO $ 203.8 $ 179.9
====== ======
APBO $(203.8) $(179.9)
Plan assets at fair value 99.0 70.7
------ ------
APBO in excess of plan assets (104.8) (109.2)
Less: Unrecognized net loss 15.7 14.1
Unrecognized prior service cost 0.6 -
Unrecognized transition obligation 66.9 74.4
------ ------
Accrued postretirement benefit liability $ (21.6) $ (20.7)
====== ======
Met-Ed
APBO:
Retirees $ 94.4 $ 84.7
Fully eligible active plan participants 2.9 2.1
Other active plan participants 55.2 37.4
------ ------
Total APBO $ 152.5 $ 124.2
====== ======
APBO $(152.5) $(124.2)
Plan assets at fair value 49.5 34.7
------ ------
APBO in excess of plan assets (103.0) (89.5)
Less: Unrecognized net loss 34.1 19.6
Unrecognized prior service cost 1.2 -
Unrecognized transition obligation 42.1 44.7
------ ------
Accrued postretirement benefit liability $ (25.6) $ (25.2)
====== ======
F-82
<PAGE>
(in millions)
Penelec 1997 1996
- ------- ---- ----
APBO:
Retirees $ 163.7 $ 145.5
Fully eligible active plan participants 5.1 3.7
Other active plan participants 67.3 54.8
------ ------
Total APBO $ 236.1 $ 204.0
====== ======
APBO $(236.1) $(204.0)
Plan assets at fair value 130.4 95.6
------ ------
APBO in excess of plan assets (105.7) (108.4)
Less: Unrecognized net loss 21.0 13.2
Unrecognized prior service cost 1.8 1.6
Unrecognized transition obligation 77.0 83.2
------ ------
Accrued postretirement benefit liability $ (5.9) $ (10.4)
====== ======
Principal actuarial assumptions (%):
Annual long-term rate of return on plan assets 8.5 8.5
=== ===
Discount rate 7.0 7.5
=== ===
GPU intends to continue funding amounts for postretirement benefits with
an independent trustee, as deemed appropriate from time to time. The plan assets
include equities and fixed income securities.
In 1997, changes in assumptions, primarily the decrease in the discount
rate assumption from 7.5% to 7%, resulted in $22 million increase (JCP&L $5
million; Met-Ed $6 million; Penelec $6 million; Other $5 million) in the APBO as
of December 31, 1997. The APBO was determined by application of the terms of the
medical and life insurance plans, including the effects of established maximums
on covered costs, together with relevant actuarial assumptions and health-care
cost trend rates of 8% for those not eligible for Medicare and 6% for those
eligible for Medicare, then decreasing gradually to 5.5% in 2003 and thereafter.
These costs also reflect the implementation of a cost cap of 6% for individuals
who retire after December 31, 1995 and reach age 65. The effect of a 1% annual
increase in these assumed cost trend rates would increase the APBO by
approximately $68 million (JCP&L $16 million; Met-Ed $13 million; Penelec $19
million; Other $20 million) as of December 31, 1997 and the aggregate of the
service and interest cost components of net periodic postretirement health-care
cost by approximately $7 million (JCP&L $2 million; Met-Ed $1 million; Penelec
$2 million; Other $2 million).
In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect
$3 million annually for incremental postretirement benefit costs, charged to
expense and recognized as a result of FAS 106. Based on the final order and in
accordance with Emerging Issues Task Force (EITF) Issue 92-12, "Accounting for
OPEB Costs by Rate-Regulated Enterprises," JCP&L has deferred the amounts above
that level. A 1997 Stipulation of Final Settlement (Final Settlement) allows
JCP&L to recover and amortize the deferred balance at December 31, 1997 over a
fifteen-year period. In addition, the Final Settlement allows JCP&L to recover
current amounts accrued pursuant to FAS 106, including amortization of the
transition obligation. (See discussion of the Final Settlement in Rate Matters
section, Management's Discussion and Analysis.) Met-Ed has deferred the
incremental postretirement benefit costs, charged to expense, associated
F-83
<PAGE>
with the adoption of FAS 106 and in accordance with EITF Issue 92-12, as
authorized by the PaPUC in its 1993 base rate order. In accordance with EITF
Issue 92-12, effective January 1998, Met-Ed will no longer defer these costs.
Recovery of the deferred balance at December 31, 1997 is being sought through
proposed restructuring plans filed with the PaPUC in June 1997. (See discussion
of the proposed restructuring plans in Recent Regulatory Actions section of
Competitive Environment, Management's Discussion and Analysis.)
In 1994, the Pennsylvania Commonwealth Court reversed a PaPUC order that
allowed a nonaffiliated utility, outside a base rate proceeding, to defer
certain incremental postretirement benefit costs for future recovery from
customers. As a result of the Court's decision, in 1994, Penelec determined that
its FAS 106 costs, including costs deferred since January 1993, were not
probable of recovery and charged those deferred costs to expense. In 1997, 1996
and 1995, Penelec recorded charges to income of approximately $8 million, $12
million and $9 million, respectively, which represent continued amortization of
the transition obligation along with current accruals of FAS 106 expense for
active employees.
11. JOINTLY OWNED STATIONS
Each participant in a jointly owned station finances its portion of the
investment and charges its share of operating expenses to the appropriate
expense accounts. The GPU Energy companies participated with nonaffiliated
utilities in the following jointly owned stations at December 31, 1997:
Balance (in millions)
---------------------
% Accumulated
Station Owner Ownership Investment Depreciation
- ------- ----- --------- ---------- ------------
Homer City Penelec 50 $449.6 $168.5
Conemaugh Met-Ed 16.45 145.2 47.0
Keystone JCP&L 16.67 90.2 24.4
Yards Creek JCP&L 50 29.3 6.3
Seneca Penelec 20 16.3 5.2
12. LEASES
The GPU Energy companies' capital leases consist primarily of leases for
nuclear fuel. Nuclear fuel capital leases at December 31, 1997 totaled $136
million (JCP&L $79 million; Met-Ed $38 million; Penelec $19 million), net of
amortization of $251 million (JCP&L $151 million; Met-Ed $67 million; Penelec
$33 million). Nuclear fuel capital leases at December 31, 1996 totaled $139
million (JCP&L $95 million; Met-Ed $29 million; Penelec $15 million), net of
amortization of $208 million (JCP&L $124 million; Met-Ed $56 million; Penelec
$28 million). The recording of capital leases has no effect on net income
because all leases, for ratemaking purposes, are considered operating leases.
F-84
<PAGE>
The GPU Energy companies have nuclear fuel lease agreements with
nonaffiliated fuel trusts. In 1995, the GPU Energy companies refinanced the
Oyster Creek and TMI-1 nuclear fuel leases to provide for aggregate borrowings
of up to $210 million ($100 million for Oyster Creek and $110 million for TMI-1)
outstanding at any one time. Reductions in nuclear fuel financing costs are
expected through the new credit facilities. It is contemplated that when
consumed, portions of the presently leased material will be replaced by
additional leased material. The GPU Energy companies are responsible for the
disposal costs of nuclear fuel leased under these agreements. These nuclear fuel
leases have initial terms of three years expiring in November 1998, and are
renewable annually thereafter at the lender's option for a period up to 20
years. Subject to certain conditions of termination, the GPU Energy companies
are required to purchase all nuclear fuel then under lease at a price that will
allow the lessor to recover its net investment. Lease expense consists of an
amount designed to amortize the cost of the nuclear fuel as consumed plus
interest costs. For the years ended December 31, 1997, 1996 and 1995, these
amounts were as follows:
(in millions)
Company 1997 1996 1995
- ------- ---- ---- ----
JCP&L $ 31 $ 32 $ 35
Met-Ed 12 16 15
Penelec 6 8 7
----- ----- -----
Total $ 49 $ 56 $ 57
===== ===== =====
JCP&L and Met-Ed have sold and leased back substantially all of their
respective ownership interests in the Merrill Creek Reservoir project. The
minimum lease payments under these operating leases, which have remaining terms
of 36 years, average approximately $3 million annually for each company.
A subsidiary of GPU International, Inc. has sold and leased back an
electric cogeneration facility for an initial term of eleven years. For the
years 1997, 1996 and 1995, the annual lease payments under this operating lease
were approximately $10 million, $10 million and $9 million, respectively. The
lease payments escalate annually, increasing to $16 million in year eleven.
13. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects-Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operating generation facilities, and TMI-2, which was damaged during a 1979
accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the
percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L.
At December 31, 1997 and December 31, 1996, the GPU Energy companies' net
investment in TMI-1 and Oyster Creek, including nuclear fuel, was as follows:
F-85
<PAGE>
Net Investment (in millions)
----------------------------
TMI-1 Oyster Creek
----- ------------
1997
----
JCP&L $155 $701
Met-Ed 300 -
Penelec 147 -
--- --
Total $602 $701
=== ===
1996
----
JCP&L $154 $766
Met-Ed 297 -
Penelec 146 -
--- --
Total $597 $766
=== ===
The GPU Energy companies' net investment in TMI-2 at December 31, 1997 and
1996 was $80 million and $90 million, respectively (JCP&L $72 million and $81
million, respectively; Met-Ed $1 million and $1 million, respectively; Penelec
$7 million and $8 million, respectively). JCP&L is collecting revenues for TMI-2
on a basis which provides for the recovery of its remaining investment in the
plant by 2008. Met-Ed and Penelec are collecting revenues for TMI-2 related to
their wholesale customers.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons, operation of these plants for the full
term of their operating licenses cannot be assured. Also, not all risks
associated with the ownership or operation of nuclear facilities may be
adequately insured or insurable. Consequently, the recovery of costs associated
with nuclear projects, including replacement power, any unamortized investment
at the end of each plant's useful life (whether scheduled or premature), the
carrying costs of that investment and retirement costs, is not assured. (See the
Competition and the Changing Regulatory Environment section.)
In addition to the continued operation of the Oyster Creek facility, JCP&L
is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. JCP&L is exploring these options due to
the plant's high cost of generation compared to the current market price of
electricity. If a decision is made to retire the plant early, retirement would
likely occur in 2000. Management believes that the current rate structure would
allow for the recovery of and return on its net investment in the plant and
provide for decommissioning costs.
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In response to an inquiry regarding the possible sale of Oyster Creek, the
GPU Energy companies have stated that they would also consider selling TMI-1.
Unlike Oyster Creek, however, the early retirement of TMI-1 is not being
considered because of its lower operating costs. (See Competitive Environment
section, Management's Discussion and Analysis.)
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment. A
cleanup program was completed in 1990, and after receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against GPU, Inc. and the GPU Energy
companies. Approximately 2,100 of such claims were filed in the United States
District Court for the Middle District of Pennsylvania. Some of the claims also
seek recovery for injuries from alleged emissions of radioactivity before and
after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating plan
providing for up to an aggregate of $335 million in premium charges under such
plan, and (c) an indemnity agreement with the NRC for up to $85 million,
bringing their total financial protection up to an aggregate of $560 million.
Under the secondary level, the GPU Energy companies are subject to a
retrospective premium charge of up to $5 million per reactor, or a total of $15
million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the "finite
fund" (the $560 million of financial protection under the Price-Anderson Act) to
which plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
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In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100
pending claims. The Court ruled that there was no evidence which created a
genuine issue of material fact warranting submission of plaintiffs' claims to a
jury. The plaintiffs have appealed the District Court's ruling to the Court of
Appeals for the Third Circuit, before which the matter is pending. There can be
no assurance as to the outcome of this litigation.
Based on the above, GPU, Inc. and the GPU Energy companies believe that
any liability to which they might be subject by reason of the TMI-2 accident
will not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the Department of Energy (DOE).
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy companies intend to complete the funding for Oyster Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The
TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in
long-term storage and being decommissioned at the same time as TMI-1. Based on
NRC studies, a comparable funding target was developed for TMI-2 which took the
accident into account. Under the NRC regulations, the funding targets (in 1997
dollars) are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
JCP&L $ 45 $ 71 $306
Met-Ed 89 142 -
Penelec 45 71 -
--- --- ---
Total $179 $284 $306
=== === ===
The funding targets, while not considered cost estimates, are reference levels
designed to assure that licensees demonstrate adequate financial responsibility
for decommissioning. While the NRC regulations address activities related to the
removal of the radiological portions of the plants, they do not establish
residual radioactivity limits nor do they address costs related to the removal
of nonradiological structures and materials.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered various
decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt removal/dismantlement method. GPUN management has
reviewed the methodology and assumptions used in these studies, is in agreement
with them, and believes the results are reasonable. The NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the
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plant is retired early. The retirement cost estimates under the site-specific
studies are as follows (in 1997 dollars):
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
Radiological decommissioning $328 $399 $386
Nonradiological cost of removal 81 34 * 37
--- --- ---
Total $409 $433 $423
=== === ===
* Net of $10.1 million spent as of December 31, 1997.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
The ultimate cost of retiring the GPU Energy companies' nuclear facilities
may be different from the cost estimates contained in these site-specific
studies. Such costs are subject to (a) the escalation of various cost elements
(for reasons including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability of
nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Customer
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning trusts, at
market on the Consolidated Balance Sheets. Accounting for retirement costs may
change based upon the Financial Accounting Standards Board (FASB) Exposure Draft
discussed below.
The FASB has issued an Exposure Draft titled "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets," which includes
nuclear plant retirement costs. If the Exposure Draft is adopted, Oyster Creek
and TMI-1 future retirement costs would have to be recognized as a liability
immediately, rather than the current industry practice of accruing these costs
in accumulated depreciation over the life of the plants. A regulatory asset for
amounts probable of recovery through rates would also be established. Any
amounts not probable of recovery through rates would have to be charged to
expense. (For TMI-2, a liability (in 1997 dollars) has already been recognized,
based on the 1995 site-specific study because the plant is no longer operating
(see TMI-2)). The effective date of this accounting change has not yet been
established.
TMI-1 and Oyster Creek:
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $2.5 million and $13.5 million, respectively. These annual
revenues are based on both the NRC funding targets for radiological
decommissioning costs and a site-specific study which was performed in 1988 for
nonradiological costs of removal. The Stipulation of Final Settlement approved
by the NJBPU in March 1997 allows for JCP&L's future collection of
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retirement costs to increase annually to $5.2 million and $22.5 million for
TMI-1 and Oyster Creek, respectively, beginning in 1998, based on the 1995
site-specific study estimates. (See discussion of Stipulation of Final
Settlement in Rate Matters section, Management's Discussion and Analysis.)
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological costs
of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for
its share of TMI-1 retirement costs, on a basis consistent with that granted
Met-Ed. As part of their restructuring plans filed with the PaPUC in June 1997,
Met-Ed and Penelec have requested that these amounts be increased to reflect the
estimated retirement costs contained in the 1995 site-specific study for
radiological decommissioning and nonradiological costs of removal.
The amounts charged to depreciation expense in 1997 and the provisions for
the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
----- -----
Amount expensed in 1997:
JCP&L $ 2 $ 13
Met-Ed 9 -
Penelec 4 -
--- ---
Total $ 15 $ 13
=== ===
Accumulated depreciation provision at December 31, 1997:
JCP&L $ 38 $217
Met-Ed 68 -
Penelec 29 -
--- ---
Total $135 $217
=== ===
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, are as follows:
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(in millions)
Total JCP&L Met-Ed Penelec
1997 $449 $112 $225 $112
1996 $431 $108 $215 $108
These amounts are based upon the 1995 site-specific study estimates (in 1997 and
1996 dollars, respectively) discussed above and an estimate for remaining
incremental monitored storage costs of $16 million (JCP&L $4 million; Met-Ed $8
million; Penelec $4 million) for 1997 and $17 million (JCP&L $4 million; Met-Ed
$8 million; Penelec $5 million) for 1996, as a result of TMI-2's entering
long-term monitored storage in 1993. The GPU Energy companies are incurring
annual incremental monitored storage costs of approximately $1 million (JCP&L
$250 thousand; Met-Ed $500 thousand; Penelec $250 thousand).
Offsetting the $449 million liability at December 31, 1997 is $261
million (JCP&L $34 million; Met-Ed $145 million; Penelec $82 million) which is
probable of recovery from customers and included in Three Mile Island Unit 2
deferred costs on the Consolidated Balance Sheets, and $220 million (JCP&L $87
million; Met-Ed $96 million; Penelec $37 million) in trust funds for TMI-2 and
included in Nuclear decommissioning trusts, at market on the Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown on
the Consolidated Balance Sheets under Three Mile Island Unit 2 deferred costs.
TMI-2 decommissioning costs charged to depreciation expense in 1997 amounted to
$14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the cost
of removal of nonradiological structures and materials. In addition, JCP&L is
recovering its share of TMI-2's incremental monitored storage costs. The
Stipulation of Final Settlement approved by the NJBPU in March 1997 adjusts
JCP&L's future revenues for retirement costs based on the 1995 site-specific
study estimates, beginning in 1998. Based on Met-Ed's rate order, Penelec has
recorded a regulatory asset for that portion of such costs which it believes to
be probable of recovery.
At December 31, 1997 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $71 million (JCP&L $18 million, Met-Ed
$35 million; Penelec $18 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1997 dollars). In connection
with rate case resolutions at the time, JCP&L, Met-Ed and Penelec made
contributions to irrevocable external trusts relating to their shares of the
accident-related portions of the decommissioning liability. In 1990, JCP&L
contributed $15 million and in 1991, Met-Ed and Penelec contributed $40 million
and $20 million, respectively, to irrevocable external trusts. These
contributions were not recovered from customers and have been expensed. The GPU
Energy companies will not pursue recovery from customers for any of these
amounts contributed in excess of the $71 million accident-related portion
referred to above.
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JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
INSURANCE
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages. Losses or liabilities that are not
completely insured, unless allowed to be recovered through ratemaking, could
have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance policies
generally require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage for
the first $200 million of such liability is provided by private insurance. The
remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could result
in assessments of up to $79 million per incident for each of the GPU Energy
companies' two operating reactors, subject to an annual maximum payment of $10
million per incident per reactor. In addition to the retrospective premiums
payable under the Price-Anderson Act, the GPU Energy companies are also subject
to retrospective premium assessments of up to $44 million (JCP&L $27 million;
Met-Ed $11 million; Penelec $6 million) in any one year under insurance policies
applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after a 17 week waiting period at $3.5
million per week, and after 23 weeks of an outage, continues for three years
beginning at $1.8 million and $2.6 million per week for the first year for
Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for
years two and three.
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<PAGE>
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
The Emerging Competitive Market and Stranded Costs:
The current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, combined with the
ability of some customers to choose their energy suppliers, has created the
potential for stranded costs in the electric utility industry. These stranded
costs, while potentially recoverable in a regulated environment, are at risk in
a deregulated and competitive environment. Met-Ed and Penelec estimate that
their total above-market costs related to power purchase commitments,
company-owned generation, generating plant decommissioning, regulatory assets
and transition expenses, on a present value basis at year-end 1998, are $1.5
billion and $1.2 billion, respectively. JCP&L estimates that its total
above-market costs related to power purchase commitments and company-owned
generation, on a present value basis at September 30, 1998, is $1.6 billion. The
$1.6 billion excludes above-market generation costs related to Oyster Creek. In
July 1997, JCP&L proposed, in its restructuring plans filed with the NJBPU,
recovery of its remaining Oyster Creek plant investment as a regulatory asset,
through a nonbypassable charge to customers (see Competitive Environment
section, Management's Discussion and Analysis). At December 31, 1997, JCP&L's
net investment in Oyster Creek was $701 million. These estimates are subject to
significant uncertainties including the future market price of both electricity
and other competitive energy sources, as well as the timing of when these
above-market costs become stranded due to customers choosing another supplier.
The restructuring legislation in Pennsylvania and the Energy Master Plan (NJEMP)
in New Jersey provide mechanisms for utilities to recover, subject to regulatory
approval, their above-market costs. These regulatory recovery mechanisms in
Pennsylvania and New Jersey differ, but should allow for the recovery of
non-mitigable above-market costs through either distribution charges or separate
nonbypassable charges to customers.
In June 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in Pennsylvania
as required by the comprehensive restructuring legislation enacted in 1996. In
July 1997, JCP&L filed with the NJBPU its proposed restructuring plan for a
competitive electric marketplace in New Jersey as required by the NJEMP.
Highlights of these plans are presented in the Competitive Environment section
of Management's Discussion and Analysis. The PaPUC has stated that it will
review and hold hearings on Met-Ed and Penelec's restructuring plans with
decisions due by mid-1998. The NJBPU has stated that it intends to complete its
review of JCP&L's plan so as to permit retail competition to begin in October
1998. In October 1997, GPU announced that it intends to begin a process to sell,
through a competive bid process, up to all of the fossil fuel and hydroelectric
generating facilities owned by the GPU Energy companies. It is anticipated that
definitive agreements with the purchaser(s) will be entered into by the end of
1998 and the sale completed by mid-1999, subject to the timely receipt of the
necessary regulatory and other approvals. There can be no assurance as to the
extent that stranded costs will be recoverable in Pennsylvania and New Jersey.
(For additional information, see Competitive Environment section, Management's
Discussion and Analysis.)
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In 1996, FERC issued Order 888, which permits electric utilities to
recover their legitimate and verifiable stranded costs incurred when a wholesale
customer purchases power from another supplier using the utility's transmission
system. In addition, Pennsylvania adopted comprehensive legislation in 1996
which provides for the restructuring of the electric utility industry and will
permit utilities the opportunity to recover their prudently incurred stranded
costs through a PaPUC-approved competitive transition charge, subject to certain
conditions, including that utilities attempt to mitigate these costs. In 1997,
the NJBPU released Phase II of the NJEMP, which proposes that New Jersey
electric utilities should have an opportunity to recover their stranded costs
associated with generating capacity commitments and caused by electric retail
competition, provided that they attempt to mitigate these costs.
The inability of the GPU Energy companies to recover their stranded costs
in whole or in part could result in the recording of liabilities for
above-market nonutility generation (NUG) costs and writedowns of uneconomic
generation plant and regulatory assets recorded in accordance with Statement of
Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of
Certain Types of Regulation." Decommissioning costs, for which a liability may
have to be recorded (see Nuclear Plant Retirement Costs), and the corresponding
regulatory asset for amounts recoverable from customers, could also be subject
to writedowns. The inability to recover these stranded costs would have a
material adverse effect on GPU's results of operations. (See additional
discussion of stranded costs in Competitive Environment section, Management's
Discussion and Analysis.)
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the GPU Energy companies
have entered into power purchase agreements with NUGs for the purchase of energy
and capacity for remaining periods of up to 23 years. The following table shows
actual payments from 1995 through 1997, and estimated payments from 1998 through
2002.
Payments Under NUG Agreements
(in millions)
Total JCP&L Met-Ed Penelec
* 1995 $670 $381 $131 $158
* 1996 730 370 168 192
* 1997 759 384 172 203
1998 728 359 165 204
1999 746 365 165 216
2000 811 370 203 238
2001 836 378 231 227
2002 857 390 240 227
* Actual.
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As of December 31, 1997, facilities covered by agreements having 1,666 MW
(JCP&L 905 MW; Met-Ed 356 MW; Penelec 405 MW) of capacity were in service. While
a few of these NUG facilities are dispatchable, most are must-run and generally
obligate the GPU Energy companies to purchase, at the contract price, the output
up to the contract limits. Substantially all unbuilt NUG facilities for which
the GPU Energy companies have executed agreements are fully dispatchable.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs, which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The GPU Energy companies'
future supply plan will likely focus on short- to intermediate-term commitments
and reliance on spot market purchases. The projected cost of energy from new
generation supply sources has also decreased due to improvements in power plant
technologies and lower forecasted fuel prices. As a result of these
developments, the rates under virtually all of the GPU Energy companies' NUG
agreements for facilities currently in operation are substantially in excess of
current and projected prices from alternative sources.
The GPU Energy companies are seeking to reduce the above-market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the agreements;
(3) offering contract buyouts (see Managing Nonutility Generation section of The
GPU Energy Companies' Supply Plan, Management's Discussion and Analysis); and
(4) initiating proceedings before federal and state agencies, and in the courts,
where appropriate. In addition, the GPU Energy companies intend to avoid, to the
maximum extent practicable, entering into any new NUG agreements that are not
needed or not consistent with current market pricing, and are supporting
legislative efforts to repeal PURPA. These efforts may result in claims against
GPU for substantial damages. There can be no assurance as to the extent to which
these efforts will be successful in whole or in part.
In 1997, Met-Ed and Penelec issued requests for proposals (RFPs) to 24 NUG
projects which currently supply a total of approximately 760 MW under power
purchase agreements. The RFPs requested the NUGs to propose buyouts, buydowns
and/or restructurings of current power purchase contracts in return for cash
payments. In January 1998, subject to PaPUC approval, Met-Ed and Penelec entered
into definitive buyout agreements with two bidders.
JCP&L has contracts through 2002 to purchase between 5,200 GWH and 5,550
GWH of electric generation per year at prices which are estimated to escalate
approximately 0.5% annually on a unit cost (cents/KWH) basis during this period.
From 2003 through 2008, JCP&L has contracts to purchase between 5,100 GWH and
5,400 GWH of electric generation per year at an average annual cost of $388
million. The prices during this period are estimated to escalate approximately
1.7% annually. After 2008, when major contracts begin to expire, purchases
steadily decline to approximately 1,180 GWH in 2014. The contract unit cost is
estimated to escalate approximately 5.3% annually from 2009 through 2014, with a
total average annual cost of $209 million during this period. All of JCP&L's
contracts will have expired by the end of 2020.
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During this entire period, the NUG fuel mix is estimated to average
approximately 94% natural gas.
Met-Ed has contracts through 1999 to purchase between 2,300 GWH and 2,350
GWH of electric generation per year at prices which are estimated to decrease
approximately 1.5% annually on a unit cost basis during this period. From 2000
through 2008, Met-Ed has contracts to purchase between 3,100 GWH and 4,600 GWH
of electric generation per year at an average annual cost of $242 million. The
prices during this period are estimated to escalate approximately 2.1% annually
on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to purchase
between 1,700 GWH and 2,100 GWH of electric generation per year at an average
annual cost of $165 million. During this period, the prices are estimated to
decrease approximately 0.8% annually on a unit cost basis. After 2012, Met-Ed's
remaining contracts expire rapidly through 2016; thereafter, they remain
constant until the expiration of the last contract in 2020. During this entire
period, the NUG fuel mix is estimated to average approximately 50% to 75%
coal/waste coal.
Penelec has contracts through 2000 to purchase between 3,100 GWH and 3,500
GWH of electric generation per year at prices which are estimated to escalate
approximately 2.5% annually on a unit cost basis during this period. From 2001
through 2010, Penelec has contracts to purchase between 3,100 GWH and 3,800 GWH
of electric generation per year at an average annual cost of $237 million. The
prices during this period are estimated to escalate approximately 2.3% annually
on a unit cost basis. From 2011 through 2018, purchases decline from
approximately 2,500 GWH to approximately 1,200 GWH in 2018. The contract unit
cost is estimated to decrease approximately 0.1% annually from 2011 through
2018, with a total average annual cost of $143 million during this period. After
2018, Penelec's remaining contracts expire rapidly through 2020. During this
entire period, the NUG fuel mix is estimated to average approximately 89%
coal/waste coal.
In February 1997, Met-Ed and Penelec entered into revised power purchase
agreements with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and
related energy, respectively, related to a combined-cycle generating facility
that AES plans to construct in Pennsylvania. Met-Ed and Penelec have paid $63.4
million and $5 million, respectively, to previous developers and AES to
terminate the original power purchase agreements. In July 1997, the PaPUC
ordered that the issue of recovery of the related buyout costs and approval of
the revised power purchase agreements with AES be considered in Met-Ed and
Penelec's restructuring proceedings. If the revised power purchase agreements
with AES are not approved by the PaPUC, Met-Ed and Penelec have agreed to pay
AES up to an additional $28 million and $5 million, respectively.
This discussion of "Nonutility Generation Agreements" contains estimates
which are based on current knowledge and expectations of the outcome of future
events. The estimates are subject to significant uncertainties, including
changes in fuel prices, improvements in technology, the changing regulatory
environment and the deregulation of the electric utility industry.
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The GPU Energy companies are recovering certain of their NUG costs
(including certain buyout costs) from customers. Although the recently enacted
legislation in Pennsylvania and the NJEMP in New Jersey both include provisions
for the recovery of costs under NUG agreements and certain NUG buyout costs,
there can be no assurance that the GPU Energy companies will continue to be able
to recover similar costs which may be incurred in the future. (See Competitive
Environment section, Management's Discussion and Analysis for additional
discussion.)
Regulatory Assets and Liabilities:
Regulatory assets and Regulatory liabilities, as reflected in the
December 31, 1997 and December 31, 1996 Consolidated Balance Sheets in
accordance with the provisions of FAS 71 were as follows:
GPU, Inc. and Subsidiary Companies Assets (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes recoverable through
future rates $ 510,680 $ 527,385
TMI-2 deferred costs 345,326 356,517
Nonutility generation contract buyout costs 245,568 242,481
Unamortized property losses 99,532 100,310
Other postretirement benefits 89,569 76,569
Environmental remediation 90,308 78,136
N.J. unit tax 39,797 45,877
Unamortized loss on reacquired debt 40,489 45,378
Load and demand-side management programs 23,164 40,770
N.J. low-level radwaste disposal 31,479 37,525
DOE enrichment facility decommissioning 33,472 36,352
Nuclear fuel disposal fee 21,512 21,552
Storm damage 31,097 20,226
Nonutility generation costs 24,857 -
Other 22,402 24,194
--------- ---------
Total $1,649,252 $1,653,272
========= =========
Liabilities (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes refundable through
future rates $ 89,247 $ 87,735
Other 12,527 2,080
--------- ---------
Total $ 101,774 $ 89,815
========= =========
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JCP&L Assets (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes recoverable through
future rates $ 128,111 $ 142,726
TMI-2 deferred costs 109,498 126,448
Nonutility generation contract buyout costs 140,500 139,000
Unamortized property losses 94,726 94,767
Other postretirement benefits 49,807 44,024
Environmental remediation 61,324 55,285
N.J. unit tax 39,797 45,877
Unamortized loss on reacquired debt 28,729 31,469
Load and demand-side management programs 23,164 40,770
N.J. low-level radwaste disposal 31,479 37,525
DOE enrichment facility decommissioning 21,223 23,150
Nuclear fuel disposal fee 23,781 23,319
Storm damage 31,097 20,226
Other 2,466 4,975
--------- ---------
Total $ 785,702 $ 829,561
========= =========
Liabilities (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes refundable through
future rates $ 37,759 $ 32,567
Other 11,467 683
---------- ---------
Total $ 49,226 $ 33,250
========== =========
Met-Ed Assets (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes recoverable through
future rates $ 178,927 $ 174,636
TMI-2 deferred costs 146,290 144,782
Nonutility generation contract buyout costs 76,368 86,781
Unamortized property losses 2,650 3,113
Other postretirement benefits 39,762 32,545
Environmental remediation 4,121 2,575
Unamortized loss on reacquired debt 5,329 6,223
DOE enrichment facility decommissioning 8,166 8,801
Nuclear fuel disposal fee (1,511) (1,282)
Nonutility generation costs 10,265 -
Other 4,515 4,209
--------- ---------
Total $ 474,882 $ 462,383
========= =========
Liabilities (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes refundable through
future rates $ 21,749 $ 23,486
Other 2,446 2,495
---------- ---------
Total $ 24,195 $ 25,981
========== =========
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Penelec Assets (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes recoverable through
future rates $ 203,642 $ 210,023
TMI-2 deferred costs 89,538 85,287
Nonutility generation contract buyout costs 28,700 16,700
Unamortized property losses 2,156 2,430
Environmental remediation 24,863 20,276
Unamortized loss on reacquired debt 6,431 7,686
DOE enrichment facility decommissioning 4,083 4,401
Nuclear fuel disposal fee (758) (485)
Nonutility generation costs 14,592 -
Other 16,853 16,120
--------- ---------
Total $ 390,100 $ 362,438
========= =========
Liabilities (in thousands)
December 31, December 31,
1997 1996
------------- --------
Income taxes refundable through
future rates $ 29,739 $ 31,682
Other 46 12
---------- ---------
Total $ 29,785 $ 31,694
========== =========
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in
1993.
TMI-2 deferred costs: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core,
radiological decommissioning and the cost of removal of nonradiological
structures and materials in accordance with the 1995 site-specific study (in
1997 dollars) and JCP&L's share of long-term monitored storage costs. For
additional information, see Nuclear Plant Retirement Costs.
Nonutility generation contract buyout costs: Represents amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has been
granted or is probable (see Managing Nonutility Generation section of The GPU
Energy Companies' Supply Plan, Management's Discussion and Analysis).
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with EITF Issue 92-12, "Accounting
for OPEB Costs by Rate-Regulated Enterprises."
Environmental remediation: Consists of amounts related to the investigation and
remediation of several manufactured gas plant sites formerly owned by
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JCP&L, as well as several other JCP&L sites; Penelec's Seward station property;
and future closure costs of various ash disposal sites for the GPU Energy
companies. For additional information, see the Environmental Matters section.
N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover over a ten-year period.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC regulations,
reacquired debt costs are amortized over the remaining original life of the
retired debt.
Load and demand-side management (DSM) programs: Consists of load management
costs and other DSM program expenditures that are currently being recovered,
with interest, through JCP&L's retail base rates and demand-side factor. Also
includes provisions for lost revenues between base rate cases and performance
incentives.
N.J. low-level radwaste disposal: Represents the estimated assessment for the
siting of a disposal facility for low-level waste from Oyster Creek, less
amortization, as allowed in JCP&L's rates.
DOE enrichment facility decommissioning: Represents payments to the DOE over a
15-year period beginning in 1994.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1
in accordance with the Nuclear Waste Policy Act of 1982.
Storm damage: Relates to incremental noncapital costs associated with various
storms in the JCP&L service territory that are not recoverable through
insurance. These amounts were deferred based upon past rate recovery precedent.
An annual amortization amount is included in JCP&L's retail base rates and is
charged to expense.
Nonutility generation costs: Represents incremental NUG operating costs incurred
above amounts reflected in Met-Ed and Penelec's current rates, for which rate
recovery is probable but has not yet been granted (see Competitive Environment
section, Management's Discussion and Analysis).
Amounts related to the decommissioning of TMI-1 and Oyster Creek, which
are not included in Regulatory assets on the Consolidated Balance Sheets, are
separately disclosed in the Nuclear Plant Retirement Costs section.
Accounting Matters:
Historically, electric utility rates have been based on a utility's costs.
As a result, the GPU Energy companies account for the economic effects of
cost-based ratemaking regulation under the provisions of FAS 71. FAS 71 requires
regulated entities, in certain circumstances, to defer as regulatory assets, the
impact on operations of costs expected to be recovered in future
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rates. At December 31, 1997, GPU has recorded on the Consolidated Balance Sheets
$1.6 billion in regulatory assets in accordance with FAS 71 (see Regulatory
Assets and Liabilities section of Competition and the Changing Regulatory
Environment).
In response to the continuing deregulation of the electric utility
industry, the Securities and Exchange Commission (SEC) questioned the continued
applicability of FAS 71 by investor-owned utilities with respect to their
electric generation operations.
In response to the concerns expressed by the Staff of the SEC, the FASB's
EITF agreed to discuss the issues surrounding the continued applicability of FAS
71 to the electric utility industry. In May and July 1997, the EITF met to
discuss these issues and concluded that utilities are no longer subject to FAS
71, for the generation portion of their business, as soon as they know details
of their individual transition plans. The EITF also concluded that utilities can
continue to carry previously recorded regulated assets, as well as any newly
established regulated assets (including those related to generation), on their
balance sheets if regulators have guaranteed a regulated cash flow stream to
recover the cost of these assets. While the EITF's consensus must be complied
with, the SEC has the final regulatory authority for accounting by public
companies.
In light of retail access legislation enacted in Pennsylvania and the
NJBPU's final findings and recommendations, the GPU Energy companies believe
they will no longer meet the requirements for continued application of FAS 71,
for the generation portion of their business, by no later than mid-1998 for
Met-Ed and Penelec, and October 1998 for JCP&L, the expected approval dates of
their restructuring plans filed with state regulators. Once the GPU Energy
companies are able to determine that the generation portion of their operations
is no longer subject to the provisions of FAS 71, the related regulatory assets,
net of regulatory liabilities, would, to the extent that recovery is not
provided for through their respective restructuring plans, have to be written
off and charged to expense. Additional depreciation expense would have to be
recorded for any differences created by the use of a regulated depreciation
method that is different from that which would have been used under generally
accepted accounting principles for enterprises in general. In addition,
write-downs of plant assets could be required in accordance with FAS 121,
"Accounting for the Impairment of Long-Lived Assets," discussed below.
Additionally, the inability of the GPU Energy companies to recover their
above-market costs of power purchase commitments, in whole or in part, could
result in the recording of liabilities and corresponding charges to expense. The
amount of charges resulting from the discontinuation of FAS 71 will depend on
the final outcome of the GPU Energy companies' individual restructuring
proceedings, and could have a material adverse effect on GPU's results of
operations and financial position.
In December 1997, the PaPUC rejected PECO Energy Company's (PECO)
restructuring settlement and approved an alternate plan for PECO based on its
findings in that case. Among other things, the alternate plan accelerates the
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pace of retail competition in Pennsylvania and reduces the amount of PECO's
recoverable stranded costs. PECO has appealed the PaPUC's decision. On January
26, 1998, PECO announced it had taken a fourth quarter pre-tax charge to income
of $3.1 billion reflecting the effects of the PaPUC order.
Met-Ed and Penelec believe that the PaPUC's decision in the PECO case was
based on the specific facts and circumstances of that proceeding. Met-Ed and
Penelec further believe that they have demonstrated in their restructuring
proceedings ample evidence to distinguish sufficiently their cases from PECO's
and that the PaPUC should not, therefore, apply its findings in the PECO case to
their pending restructuring plans. If, however, the PaPUC were to apply these
findings, it would have a material adverse impact on Met-Ed and Penelec's
stranded cost recovery, restructuring proceedings and future earnings. There can
be no assurance as to the outcome of this matter.
FAS 121 requires that regulatory assets meet the recovery criteria of FAS
71 on an ongoing basis in order to avoid a write-down. In addition, FAS 121
requires that long-lived assets, identifiable intangibles, capital leases and
goodwill be reviewed for impairment whenever events occur or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. FAS 121 also requires the recognition of impairment losses when the
carrying amounts of those assets are greater than the estimated cash flows
expected to be generated from the use and eventual disposition of the assets.
The effects of FAS 121 have not been material to GPU's results of operations.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but not
limited to acid rain, water quality, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
To comply with Titles I and IV of the federal Clean Air Act Amendments of
1990 (Clean Air Act), the GPU Energy companies expect to spend up to $248
million (JCP&L $44 million; Met-Ed $98 million; Penelec $106 million) for air
pollution control equipment by the year 2000, of which approximately $242
million (JCP&L $43 million; Met-Ed $96 million; Penelec $103 million) has
already been spent. In developing their least-cost plan to comply with the Clean
Air Act, the GPU Energy companies will continue to evaluate major capital
investments compared to participation in the sulfur dioxide (SO2) emission
allowance market, the expected nitrogen oxide (NOx) emissions trading market and
the use of low-sulfur fuel or retirement of facilities. In 1994, the Ozone
Transport Commission (OTC), consisting of representatives of 12 northeast states
(including New Jersey and Pennsylvania) and the District of Columbia, proposed
reductions in NOx emissions it believes necessary to meet ambient air quality
standards for ozone and the statutory deadlines set by the
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Clean Air Act. Effective November 1997, the Pennsylvania Environmental Quality
Board adopted regulations implementing the OTC's proposed NOx reductions and in
December 1997, the New Jersey Department of Environmental Protection reached
agreement with the electric utility industry on a plan to implement the OTC's
proposed NOx reductions. The GPU Energy companies expect that the U.S.
Environmental Protection Agency (EPA) will approve state implementation plans,
including those in Pennsylvania and New Jersey, and that as a result, they will
spend an estimated $6 million (JCP&L $0.2 million; Met-Ed $2.8 million; Penelec
$3.0 million) (included in the above total), to meet the 1999 seasonal
reductions agreed upon by the OTC. The OTC has stated that it anticipates that
additional NOx reductions will be necessary to meet the Clean Air Act's 2005
National Ambient Air Quality Standard for ozone. However, the specific
requirements that will have to be met at that time have not been finalized. In
addition, in July 1997 the EPA adopted new, more stringent rules on ozone and
particulate matter. Several groups have filed suit in the U.S. Court of Appeals
to overturn these new air quality standards on the grounds that, among other
things, they are based on inadequate scientific evidence. Also, legislation has
been introduced in the Congress that would impose a four-year moratorium on any
new standards under the Clean Air Act. The GPU Energy companies are unable to
determine what additional costs, if any, will be incurred if the EPA rules are
upheld.
GPU has been formally notified by the EPA and state environmental
authorities that it is among the potentially responsible parties (PRPs) who may
be jointly and severally liable to pay for the costs associated with the
investigation and remediation at hazardous and/or toxic waste sites in the
following number of instances (in some cases, more than one company is named for
a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
----- ------ ------- ---- --------- -----
7 4 2 1 1 12
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may nevertheless
consider them as PRPs. Certain of the GPU companies have also been named in
lawsuits requesting damages (which are material in amount) for hazardous and/or
toxic substances allegedly released into the environment. The ultimate cost of
remediation will depend upon changing circumstances as site investigations
continue, including (a) the existing technology required for site cleanup, (b)
the remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU companies involved.
In August 1997, the EPA filed a complaint against GPU, Inc. in the United
States District Court for the District of Delaware for enforcement of its
unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light
Company (Dover) manufactured gas production site in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings. All of the common
stock of Dover was sold in 1942 by a member of the AGECO/AGECORP
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group to an unaffiliated entity, and was subsequently acquired by Chesapeake
Utilities Corporation. According to the complaint, the EPA is seeking up to $0.5
million in past costs, $4.2 million for work in connection with the cleanup of
the Dover site and approximately $19 million in penalties. GPU, Inc. has
responded to the EPA complaint stating that such claims should be dismissed
because, among other things, they are barred by the operation of the Final
Decree entered by the United States District Court for the Southern District of
New York at the conclusion of the 1946 reorganization proceedings of
AGECO/AGECORP. Chesapeake Utilities Corporation has also sued GPU, Inc. for a
contribution to the cleanup of the Dover site. In December 1997, the Court
refused to dismiss the complaint; GPU has requested that the Court reconsider
its decision. There can be no assurance as to the outcome of these proceedings.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station property. Penelec signed a modified Consent Order,
which became effective December 1996, that establishes a schedule for submitting
a plan for long-term remediation, based on future operating scenarios. Penelec
currently estimates that the remediation of the Seward station property will
range from $12 million to $20 million and has a recorded liability of $12
million at December 31, 1997. These cost estimates are subject to uncertainties
based on continuing discussions with the PaDEP as to the method of remediation,
the extent of remediation required and available cleanup technologies. Penelec
has requested, and expects to receive, recovery of these remediation costs in
its restructuring plan filed with the PaPUC (see Competitive Environment
section, Management's Discussion and Analysis), and has recorded a corresponding
regulatory asset of approximately $12 million at December 31, 1997.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating ash
disposal sites, including projected site closure procedures and related cost
estimates. The cost estimates for the closure of these sites range from
approximately $16 million to $29 million, and a liability of $16 million (JCP&L
$1 million; Met-Ed $4 million; Penelec $11 million) is reflected on the
Consolidated Balance Sheets at December 31, 1997. JCP&L has requested recovery
of its share of closure costs in its restructuring plan filed with the NJBPU in
July 1997. Penelec and Met-Ed expect recovery through their restructuring plans
filed with the PaPUC in June 1997 (see Competitive Environment section,
Management's Discussion and Analysis). As a result, a regulatory asset of $16
million is reflected on the Consolidated Balance Sheets at December 31, 1997.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly
owned MGP sites. JCP&L has also entered into various cost-sharing agreements
with other utilities for most of the sites. As of December 31, 1997, JCP&L has
spent approximately $27 million in connection with the cleanup of these sites.
In addition, JCP&L has recorded an estimated environmental liability of $46
million relating to expected future costs of these sites (as well as two other
properties). This estimated liability is based upon ongoing site
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investigations and remediation efforts, which generally involve capping the
sites and pumping and treatment of ground water. Moreover, the cost to clean up
these sites could be materially in excess of $46 million due to significant
uncertainties, including changes in acceptable remediation methods and
technologies.
In 1997, JCP&L's request to establish a Remediation Adjustment Clause for
the recovery of MGP remediation costs was approved by the NJBPU as part of the
Stipulation of Final Settlement (see Rate Matters section, Management's
Discussion and Analysis). At December 31, 1997, JCP&L had recorded on its
Consolidated Balance Sheet a regulatory asset of $55 million, which included
approximately $46 million related to expected future costs and approximately $9
million for past remediation expenditures in excess of collections from
customers (including interest).
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994, JCP&L
filed a complaint with the Superior Court of New Jersey against several of its
insurance carriers, relative to these MGP sites. Pretrial discovery is
continuing.
OTHER COMMITMENTS AND CONTINGENCIES
GPUI Group:
At December 31, 1997, the GPUI Group had investments totaling
approximately $2.5 billion in businesses and facilities located in foreign
countries. Although management attempts to mitigate the risk of investing in
certain foreign countries by securing political risk insurance, the GPUI Group
faces additional risks inherent to operating in such locations, including
foreign currency fluctuations (see GPUI Group section, Management's Discussion
and Analysis).
At December 31, 1997, GPU, Inc.'s aggregate investment in the GPUI Group
was $268 million; GPU, Inc. has also guaranteed up to an additional $1.3 billion
of GPUI Group obligations. Of this amount, $1.1 billion is included in Long-term
debt and Securities due within one year on GPU's Consolidated Balance Sheet at
December 31, 1997; $30 million of that amount relates to a GPU International,
Inc. revolving credit agreement; and $171 million relates to various other
obligations of the GPUI Group.
GPU International, Inc. has ownership interests in three NUG projects
which have long-term power purchase agreements with Niagara Mohawk Power
Corporation (NIMO) with an aggregate book value of approximately $28 million. In
July 1997, NIMO and 16 independent power producers (IPP), including the GPUI
Group, executed a master agreement providing for the restructuring or
termination of 29 power purchase agreements, pursuant to which NIMO has agreed
to pay an aggregate of $3.6 billion in cash and/or debt securities, and to issue
an aggregate of 46 million shares of NIMO common stock. The specific terms of
restructured contracts that may be executed are being negotiated separately with
each IPP.
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Parties to the agreement must still resolve a number of important issues
and final resolution will require the execution of separate agreements for each
project; approval by NIMO shareholders, the New York Public Service Commission,
and other state and federal agencies; third party consents; successful financing
by NIMO; and resolution of certain tax issues. While the parties are attempting
to complete the transactions in early 1998, there can be no assurance as to the
outcome of this matter.
NIMO has also initiated an action in federal court seeking to invalidate
numerous NUG contracts, including the three GPU International, Inc. projects
discussed above. GPU International, Inc. has filed motions to dismiss the
complaint. This proceeding has been stayed pending the outcome of the
restructuring negotiations.
In 1997, the Government of the United Kingdom imposed a windfall profits
tax on privatized utilities, including Midlands, in which the GPUI Group has a
50% ownership interest. As a result, a one-time charge to income of $109.3
million, or $0.90 per share, was taken. In December 1997, half of this tax was
paid; the remainder is due by December 1998.
Many of the GPUI Group's computer systems must be modified to accomplish
year 2000 compliance. The GPUI Group estimates that it will cost approximately
$7 million to modify its computer systems.
Other:
In October 1997, GPU announced that it intends to begin a process to sell,
through a competitive bid process, up to all of the fossil fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, total approximately 5,300 MW
(JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of capacity and have a net
book value of approximately $1.1 billion (JCP&L $280 million; Met-Ed $300
million; Penelec $495 million) at December 31, 1997. GPU expects to use a
multi-stage competitive bid process, similar to the generation divestiture
processes used by other utilities. The net proceeds from the sale would be used
to reduce the capitalization of the respective GPU Energy companies and may also
be applied to reduce short-term debt, finance further acquisitions, and to
reduce acquisition debt of the GPUI Group. GPU currently anticipates that it
will begin seeking indicative bids in mid-April 1998. It is anticipated that
definitive agreements with the purchaser(s) will be entered into by the end of
1998 and the sale completed by mid-1999, subject to the timely receipt of the
necessary regulatory and other approvals.
GPU's capital programs, for which substantial commitments have been
incurred and which extend over several years, contemplate expenditures of $582
million (JCP&L $204 million; Met-Ed $92 million; Penelec $121 million; Other
$165 million) during 1998. As a consequence of reliability, licensing,
environmental and other requirements, additions to utility plant may be required
relatively late in their expected service lives. If such additions are made,
current depreciation allowance methodology may not make adequate provision for
the recovery of such investments during their remaining lives.
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The GPU Energy companies have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests. The contracts, which expire at
various dates between 1998 and 2007, require the purchase of either fixed or
minimum amounts of the stations' coal requirements. The price of the coal under
the contracts is based on adjustments of indexed cost components. The GPU Energy
companies' share of the cost of coal purchased under these agreements is
expected to aggregate $171 million (JCP&L $26 million; Met-Ed $55 million;
Penelec $90 million) for 1998.
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 614 MW in 1998, declining to 529 MW in 1999 and 345 MW in
2000, through the expiration of the final agreement in 2004. Payments pursuant
to these agreements are estimated to be $129 million in 1998, $111 million in
1999, $83 million in 2000, $92 million in 2001, and $101 million in 2002.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage facility. In December 1996, the DOE notified the GPU Energy companies
and other standard contract holders that it will be unable to begin acceptance
of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE
requested recommendations from contract holders for handling the delay. In
January 1997, the GPU Energy companies, along with other electric utilities and
state agencies, petitioned the U.S. Court of Appeals to, among other things,
permit utilities to cease payments into the Federal Nuclear Waste Fund until the
DOE complies with the NWPA. In May 1997, a joint petition was filed requesting
that the Court of Appeals compel the DOE to begin disposing of spent nuclear
fuel beginning not later than January 31, 1998. On November 14, 1997, the Court
declined to compel the DOE to begin disposing of spent fuel by the statutory
deadline or to authorize the utilities to cease payments into the Nuclear Waste
Fund. The DOE's inability to accept spent nuclear fuel by 1998 could have a
material impact on GPU's results of operations, as additional costs may be
incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1
has sufficient on-site storage capacity to accommodate spent nuclear fuel
through the end of its licensed life. In June 1997, a consortium of electric
utilities, including GPUN, filed a license application with the NRC seeking
permission to build an interim above-ground disposal facility for spent nuclear
fuel in northwestern Utah. There can be no assurance as to the outcome of these
matters.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing, constructing and site licensing the facility is estimated to be $58
million, which will be paid through 2002. Through December 31, 1997, $6 million
has been paid. As a result, at December 31, 1997, a liability of $52 million is
reflected on the Consolidated Balance Sheets. JCP&L is recovering these costs
from customers, and a regulatory asset has also been recorded. (See the
Regulatory Assets and Liabilities section.)
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JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be approximately $11 million before tax. While a capacity factor
below 40% would generate no specific monetary charge, it would require the issue
to be brought before the NJBPU for review. The annual measurement period, which
begins in March of each year, coincides with that used for the Levelized Energy
Adjustment Clause.
The GPU Energy companies and certain affiliates have contracted for an
integrated information system to help manage their business growth, accomplish
year 2000 compliance and meet the mandates of electric utility deregulation. The
system is scheduled to be fully operational in early 1999. The estimated project
costs for the system are $106 million (JCP&L $49 million; Met-Ed $25 million;
Penelec $32 million), of which $16 million (JCP&L $7 million; Met-Ed $4 million;
Penelec $5 million) was spent in 1997.
At December 31, 1997, GPU, Inc. and consolidated affiliates had 9,346
employees worldwide, of which about 8,980 employees were located in the U.S. The
majority of the U.S. workforce is employed by the GPU Energy companies, of which
4,764 are represented by unions for collective bargaining purposes. Penelec,
JCP&L and Met-Ed's collective bargaining agreements expire in 1998, 1999 and
2000, respectively.
During the normal course of the operation of its businesses, in addition
to the matters described above, GPU is from time to time involved in disputes,
claims and, in some cases, as a defendant in litigation in which compensatory
and punitive damages are sought by the public, customers, contractors, vendors
and other suppliers of equipment and services and by employees alleging unlawful
employment practices. While management does not expect that the outcome of these
matters will have a material effect on GPU's financial position or results of
operations, there can be no assurance that this will continue to be the case.
14. SEGMENT INFORMATION
In 1997, GPU adopted Statement of Financial Accounting Standards No. 131
(FAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which requires the reporting of certain financial information by
business segment and geographic area. For the purpose of providing segment
information, the GPU Energy companies consist of the three domestic electric
utility companies serving customers in Pennsylvania and New Jersey, as well as
Genco, GPUN and GPUS. The GPUI Group primarily develops, owns and operates
generation, transmission and distribution facilities in the United States and in
foreign countries. For information related to the GPUI Group's acquisitions, see
Note 5, Acquisitions. GPU AR is engaged in energy services and retail energy
sales. Corporate represents the activities of GPU, Inc., a registered holding
company. GPU's reportable segments are strategic business units that are managed
separately due to their different operating and regulatory environments. GPU's
segment information is as follows:
F-108
<PAGE>
<TABLE>
Balance Sheet Segment Data (in thousands)
<CAPTION>
Current Noncurrent Current
1997 Assets Assets Liabilities
- ---- ------ ------ -----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 831,269 $ 9,117,687 $ 1,140,492
GPUI Group* 81,027 352,139 90,097
Less: GPUI Group equity investments
included above (43,777) (182,384) (21,360)
Add: Original equity investment and
income/(loss) less dividends to date -- 79,458 --
GPU AR 4,961 161 3,301
Corporate 165 6,313 155,977
------------ ------------ ------------
Subtotal 873,645 9,373,374 1,368,507
------------ ------------ ------------
Foreign: (GPUI Group only)
Australia* 86,226 2,091,619 558,496
United Kingdom* 188,462 2,152,977 785,152
Other* 114,786 396,078 43,419
Less: GPUI Group equity investments
included above (240,256) (2,735,741) (734,139)
Add: Original equity investment and
income/(loss) less dividends to date 106,317 517,221 --
------------ ------------ ------------
Subtotal 255,535 2,422,154 652,928
------------ ------------ ------------
Consolidated Total $ 1,129,180 $ 11,795,528 $ 2,021,435
============ ============ ============
Other Cash
Long-Term Noncurrent Capital
1997 Debt Liabilities Expenditures
- ---- ---- ----------- ------------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 2,448,672 $ 2,823,301 $ 356,416
GPUI Group* 263,378 46,880 111,125
Less: GPUI Group equity investments
included above (171,665) (12,321) (120)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
GPU AR -- -- --
Corporate -- 1,418 --
----------- ----------- -----------
Subtotal 2,540,385 2,859,278 467,421
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 1,485,639 115,390 1,811,921
United Kingdom* 1,367,471 245,105 77,706
Other* 258,794 64,803 1,213
Less: GPUI Group equity investments
included above (1,326,317) (295,183) (89,624)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
----------- ----------- -----------
Subtotal 1,785,587 130,115 1,801,216
----------- ----------- -----------
Consolidated Total $ 4,325,972 $ 2,989,393 $ 2,268,637
=========== =========== ===========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in the audited consolidated financial statements.
</TABLE>
F-109a
<PAGE>
<TABLE>
Balance Sheet Segment Data (in thousands)(continued)
<CAPTION>
Current Noncurrent Current
1996 Assets Assets Liabilities
- ---- ------ ------ -----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 807,551 $ 9,045,776 $ 1,174,250
GPUI Group* 97,494 274,648 41,982
Less: GPUI Group equity investments
included above (48,970) (195,453) (32,910)
Add: Original equity investment and
income/(loss) less dividends to date -- 68,779 --
GPU AR -- -- --
Corporate 7,535 5,792 138,381
------------ ------------ ------------
Subtotal 863,610 9,199,542 1,321,703
------------ ------------ ------------
Foreign: (GPUI Group only)
Australia* 38,822 385,997 33,527
United Kingdom* 356,646 1,935,287 507,879
Other* 47,062 291,297 21,727
Less: GPUI Group equity investments
included above (408,966) (2,493,887) (548,230)
Add: Original equity investment and
income/(loss) less dividends to date -- 725,809 --
------------ ------------ ------------
Subtotal 33,564 844,503 14,903
------------ ------------ ------------
Consolidated Total $ 897,174 $ 10,044,045 $ 1,336,606
============ ============ ============
Other Cash
Long-Term Noncurrent Capital
1996 Debt Liabilities Expenditures
- ---- ---- ----------- ------------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 2,427,802 $ 2,799,221 $ 403,880
GPUI Group* 242,038 32,494 56,180
Less: GPUI Group equity investments
included above (179,738) (15,836) (301)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
GPU AR -- -- --
Corporate -- 1,412 --
----------- ----------- -----------
Subtotal 2,490,102 2,817,291 459,759
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 336,957 4,490 9,952
United Kingdom* 1,538,342 238,207 567,407
Other* 176,475 80,849 51,714
Less: GPUI Group equity investments
included above (1,364,860) (271,305) (111,365)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
----------- ----------- -----------
Subtotal 686,914 52,241 517,708
----------- ----------- -----------
Consolidated Total $ 3,177,016 $ 2,869,532 $ 977,467
=========== =========== ===========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in the audited consolidated financial statements.
</TABLE>
F-109b
<PAGE>
<TABLE>
Balance Sheet Segment Data (in thousands)(continued)
<CAPTION>
Current Noncurrent Current
1995 Assets Assets Liabilities
- ---- ------ ------ -----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 773,092 $ 8,683,308 $ 944,070
GPUI Group* 64,826 286,810 42,046
Less: GPUI Group equity investments
included above (51,618) (238,149) (33,052)
Add: Original equity investment and
income/(loss) less dividends to date -- 69,492 --
GPU AR -- -- --
Corporate 8,573 4,837 130,753
----------- ----------- -----------
Subtotal 794,873 8,806,298 1,083,817
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 33,468 350,843 19,761
Other* 24,477 245,552 31,432
Less: GPUI Group equity investments
included above (44,954) (473,214) (46,748)
Add: Original equity investment and
income/(loss) less dividends to date -- 112,173 --
----------- ----------- -----------
Subtotal 12,991 235,354 4,445
----------- ----------- -----------
Consolidated Total $ 807,864 $ 9,041,652 $ 1,088,262
=========== =========== ===========
Other Cash
Long-Term Noncurrent Capital
1995 Debt Liabilities Expenditures
- ---- ---- ----------- ------------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 2,466,200 $ 2,599,332 $ 461,860
GPUI Group* 184,938 60,655 5,965
Less: GPUI Group equity investments
included above (184,938) (49,410) (1,253)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
GPU AR -- -- --
Corporate -- 1,213 --
----------- ----------- -----------
Subtotal 2,466,200 2,611,790 466,572
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 317,569 4,435 112,173
Other* 131,008 55,760 121,000
Less: GPUI Group equity investments
included above (346,879) (16,077) (73,054)
Add: Original equity investment and
income/(loss) less dividends to date -- -- --
----------- ----------- -----------
Subtotal 101,698 44,118 160,119
----------- ----------- -----------
Consolidated Total $ 2,567,898 $ 2,655,908 $ 626,691
=========== =========== ===========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in the audited consolidated financial statements.
</TABLE>
F-109c
<PAGE>
<TABLE>
Earnings Segment Data (in thousands)
<CAPTION>
Depreciation
Operating and Operating
1997 Revenues Amortization Income
- ---- -------- ------------ ------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 4,043,800 $ 451,009 $ 632,951
GPUI Group* 143,660 8,047 16,794
Less: GPUI Group equity investments
included above (104,933) (7,269) (20,691)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
GPU AR 1,339 -- (4,785)
Corporate -- -- (8,493)
----------- ----------- -----------
Subtotal 4,083,866 451,787 615,776
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 174,350 16,192 60,814
United Kingdom* 1,105,503 27,930 139,322
Other* 53,776 17,396 (3,416)
Less: GPUI Group equity investments
included above (1,274,116) (45,591) (165,378)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
----------- ----------- -----------
Subtotal 59,513 15,927 31,342
----------- ----------- -----------
Consolidated Total $ 4,143,379 $ 467,714 $ 647,118
=========== =========== ===========
Other Interest and
Income and Preferred
1997 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 4,094 $ 249,015 $ 388,030
GPUI Group* (1,699) 17,769 (2,674)
Less: GPUI Group equity investments
included above (3,104) (17,169) (6,626)
Add: Equity in undistributed earnings/(losses)
of affiliates (5,804) -- (5,804)
GPU AR 3 -- (4,782)
Corporate (136) 5,649 (14,278)
--------- --------- ---------
Subtotal (6,646) 255,264 353,866
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* (3,646) 46,025 11,143
United Kingdom* (94,768) 117,624 (73,070)
Other* 53,249 7,461 41,035
Less: GPUI Group equity investments
included above 81,748 (107,053) 23,423
Add: Equity in undistributed earnings/(losses)
of affiliates (21,296) -- (21,296)
--------- --------- ---------
Subtotal 15,287 64,057 (18,765)
--------- --------- ---------
Consolidated Total $ 8,641 $ 319,321 $ 335,101
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in the audited consolidated financial statements.
</TABLE>
F-110a
<PAGE>
<TABLE>
Earnings Segment Data (in thousands)(continued)
<CAPTION>
Depreciation
Operating and Operating
1996 Revenues Amortization Income
- ---- -------- ------------ ------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 3,918,089 $ 400,253 $ 517,915
GPUI Group* 121,721 9,229 23,652
Less: GPUI Group equity investments
included above (104,890) (8,327) (21,605)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
GPU AR -- -- --
Corporate -- -- (9,636)
----------- ----------- -----------
Subtotal 3,934,920 401,155 510,326
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 150,044 9,048 25,639
United Kingdom* 570,042 15,628 58,474
Other* 52,572 9,156 10,233
Less: GPUI Group equity investments
included above (736,867) (27,315) (86,406)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
----------- ----------- -----------
Subtotal 35,791 6,517 7,940
----------- ----------- -----------
Consolidated Total $ 3,970,711 $ 407,672 $ 518,266
=========== =========== ===========
Other Interest and
Income and Preferred
1996 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 6,099 $ 235,066 $ 288,948
GPUI Group* 2,560 18,415 7,797
Less: GPUI Group equity investments
included above 4,614 (17,601) 610
Add: Equity in undistributed earnings/(losses)
of affiliates (1,993) -- (1,993)
GPU AR -- -- --
Corporate 413 5,114 (14,337)
--------- --------- ---------
Subtotal 11,693 240,994 281,025
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* (930) 25,311 (602)
United Kingdom* 10,166 59,862 8,778
Other* 4,398 5,881 6,049
Less: GPUI Group equity investments
included above (8,651) (62,185) (32,872)
Add: Equity in undistributed earnings/(losses)
of affiliates 35,974 -- 35,974
--------- --------- ---------
Subtotal 40,957 28,869 17,327
--------- --------- ---------
Consolidated Total $ 52,650 $ 269,863 $ 298,352
========= ========= =========
*Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata
consolidation), which are not consolidated in the audited consolidated
financial statements.
</TABLE>
F-110b
<PAGE>
<TABLE>
Earnings Segment Data (in thousands)(continued)
<CAPTION>
Depreciation
Operating and Operating
1995 Revenues Amortization Income
- ---- -------- ------------ ------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 3,804,656 $ 377,650 $ 565,086
GPUI Group* 129,500 10,470 26,148
Less: GPUI Group equity investments
included above (123,475) (9,462) (22,341)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
GPU AR -- -- --
Corporate -- -- (4,535)
----------- ----------- -----------
Subtotal 3,810,681 378,658 564,358
----------- ----------- -----------
Foreign: (GPUI Group only)
Australia* 137,562 -- 12,505
Other* 12,785 2,396 1,360
Less: GPUI Group equity investments
included above (138,569) (390) (12,186)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
----------- ----------- -----------
Subtotal 11,778 2,006 1,679
----------- ----------- -----------
Consolidated Total $ 3,822,459 $ 380,664 $ 566,037
=========== =========== ===========
Other Interest and
Income and Preferred
1995 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
<S> <C> <C> <C>
GPU Energy companies $ 120,416 $ 243,808 $ 441,694
GPUI Group* 9,139 22,148 13,139
Less: GPUI Group equity investments
included above (18) (21,651) (708)
Add: Equity in undistributed earnings/(losses)
of affiliates (3,597) -- (3,597)
GPU AR -- -- --
Corporate 848 7,080 (10,767)
--------- --------- ---------
Subtotal 126,788 251,385 439,761
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* (946) 7,944 3,615
Other* 1,364 2,814 (1,012)
Less: GPUI Group equity investments
included above 419 (9,538) (2,229)
Add: Equity in undistributed earnings/(losses)
of affiliates -- -- --
--------- --------- ---------
Subtotal 837 1,220 374
--------- --------- ---------
Consolidated Total $ 127,625 $ 252,605 $ 440,135
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in the audited consolidated financial
statements.
</TABLE>
F-110c
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts $ 8,660 $17,984 $ 6,069(a) $24,626(b) $ 8,087
Allowance for inventory
obsolescence 2,256 -- 8(e) 780(c) 1,484
Year ended December 31, 1996
Allowance for doubtful
accounts $ 8,182 $17,501 $ 5,304(a) $22,327(b) $ 8,660
Allowance for inventory
obsolescence 3,373 650 2,207(d) 3,974(c) 2,256
Year ended December 31, 1995
Allowance for doubtful
accounts $ 7,430 $14,634 $ 5,789(a) $19,671(b) $ 8,182
Allowance for inventory
obsolescence 4,923 -- -- 1,550(c) 3,373
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off by Met-Ed ($4) and JCP&L ($4)
and reestablishment of zero value inventory by JCP&L ($2,199).
(e) Sale of inventory previously written off by Met-Ed ($7) and JCP&L ($1).
</FN>
</TABLE>
F-111
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
COMPANY STATISTICS
<CAPTION>
For The Years Ended December 31, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Capacity at Company Peak (in MW):
Company owned 2,718 2,850 2,749 2,765 2,839 2,826
Contracted 2,794 2,497 2,462 2,403 2,033 2,364
----- ----- ----- ----- ----- -----
Total capacity (a) 5,512 5,347 5,211 5,168 4,872 5,190
===== ===== ===== ===== ===== =====
Hourly Peak Load (in MW):
Summer peak 4,817 4,130 4,554 4,292 4,564 4,149
Winter peak 3,168 3,173 3,260 3,242 3,129 3,135
Reserve at company peak (%) 14.4 29.5 14.4 20.4 6.7 25.1
Load factor (%) (b) 46.5 53.9 47.1 50.8 49.1 51.7
Sources of Energy (in thousands of MWH):
Coal 2,215 2,105 1,929 1,738 1,983 1,985
Nuclear 6,553 6,114 6,791 5,275 6,151 6,259
Gas, hydro & oil 548 535 861 757 460 270
------ ------ ------ ------ ------ ------
Net generation 9,316 8,754 9,581 7,770 8,594 8,514
Utility purchases and interchange 6,044 6,608 6,304 6,966 7,253 7,173
Nonutility purchases 5,342 5,439 5,850 4,920 4,820 5,274
------ ------ ------ ------ ------ ------
Total sources of energy 20,702 20,801 21,735 19,656 20,667 20,961
Company use, line loss, etc. (1,794) (2,127) (1,749) (1,405) (2,026) (2,075)
------ ------ ------ ------ ------ ------
Total electric energy sales 18,908 18,674 19,986 18,251 18,641 18,886
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $ 28 $ 30 $ 26 $26 $28 $26
Nuclear 39 40 44 35 42 41
Gas & oil 34 31 31 34 29 18
--- --- --- -- -- --
Total $101 $101 $101 $95 $99 $85
=== === === == == ==
Power Purchased and Interchanged (in millions):
Utility purchases and interchange purchases $234 $246 $279 $295 $310 $325
Nonutility purchases 384 370 382 304 292 316
Amortization of nonutility buyout costs 9 - - - - -
--- --- --- --- --- ---
Total $627 $616 $661 $599 $602 $641
=== === === === === ===
Electric Energy Sales (in thousands of MWH):
Residential 7,256 7,266 7,112 7,094 6,983 6,568
Commercial 6,974 6,829 6,611 6,586 6,474 6,207
Industrial 3,536 3,497 3,562 3,673 3,689 3,723
Other 79 78 77 76 369 389
------ ------ ------ ------ ------ ------
Sales to customers 17,845 17,670 17,362 17,429 17,515 16,887
Sales to other utilities 1,063 1,004 2,624 822 1,126 1,999
------ ------ ------ ------ ------ ------
Total 18,908 18,674 19,986 18,251 18,641 18,886
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 907 $ 895 $ 881 $ 855 $ 835 $ 735
Commercial 797 775 742 721 699 630
Industrial 313 311 315 322 321 306
Other 21 21 21 21 40 40
----- ----- ----- ----- ----- -----
Sales to customers 2,038 2,002 1,959 1,919 1,895 1,711
Sales to other utilities 36 35 62 19 31 53
----- ----- ----- ----- ----- -----
Total electric energy sales 2,074 2,037 2,021 1,938 1,926 1,764
Other revenues 20 21 15 15 10 10
----- ----- ----- ----- ----- -----
Total $2,094 $2,058 $2,036 $1,953 $1,936 $1,774
===== ===== ===== ===== ===== =====
Price per KWH (in cents):
Residential 12.47 12.40 12.31 12.06 11.90 11.15
Commercial 11.42 11.38 11.20 10.92 10.78 10.08
Industrial 8.85 8.92 8.45 8.78 8.70 8.20
Total sales to customers 11.41 11.38 11.24 11.00 10.80 10.09
Total electric energy sales 10.96 10.96 10.08 10.61 10.31 9.30
Kilowatt-hour Sales per Residential Customer 8,493 8,637 8,559 8,690 8,669 8,264
Customers at Year-End (in thousands) 969 954 940 924 911 897
<FN>
(a) Summer ratings at December 31, 1997 of owned and contracted capacity were
2,729 MW and 2,483 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-112
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
SELECTED FINANCIAL DATA
<CAPTION>
(In Thousands)
For the Years Ended December 31, 1997 1996 (1) 1995 1994 (2) 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $2,093,972 $2,057,918 $2,035,928 $1,952,425 $1,935,909 $1,774,071
Other operation and maintenance expense 454,991 556,086 475,448 526,623 460,128 424,285
Net income 212,014 156,303 199,089 162,841 158,344 117,361
Earnings available for common stock 200,638 143,231 184,632 148,046 141,534 96,757
Net utility plant in service 2,664,141 2,717,056 2,641,565 2,620,212 2,558,160 2,429,756
Total assets 4,690,776 4,709,919 4,456,389 4,336,640 4,269,155 3,886,904
Long-term debt 1,173,304 1,173,091 1,192,945 1,168,444 1,215,674 1,116,930
Long-term obligations under
capital leases 6 933 2,402 4,362 6,966 4,645
Company-obligated mandatorily
redeemable preferred securities 125,000 125,000 125,000 - - -
Cumulative preferred stock with
mandatory redemption 91,500 114,000 134,000 150,000 150,000 150,000
Capital expenditures 172,243 199,823 217,805 243,878 197,059 218,874
Return on average common equity 13.1% 9.5% 13.1% 11.2% 11.1% 8.0%
Employees 2,509 2,538 3,111 3,077 3,447 3,434
<FN>
(1) Results for 1996 reflect a decrease in earnings of $39.4 million
(after-tax) for costs related to voluntary enhanced retirement
programs.
(2) Results for 1994 reflect a net decrease in earnings of $23.0 million
(after-tax) due to charges for costs related to early retirement programs
($30.4 million); and net interest income from refunds of previously paid
federal income taxes related to the tax retirement of TMI-2 ($7.4 million).
</FN>
</TABLE>
F-113
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
First Quarter Second Quarter
------------- --------------
In Thousands 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $510,443 $529,274 $478,226 $475,884
Operating income 82,472 77,361 70,651 67,750
Net income 58,320 54,496 35,241 40,381
Earnings available for common stock 55,158 50,910 32,362 37,219
<CAPTION>
Third Quarter Fourth Quarter
------------- --------------
In Thousands 1997 1996* 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $602,900 $578,274 $502,403 $474,486
Operating income 102,527 53,452 69,200 58,743
Net income 77,306 27,519 41,147 33,907
Earnings available for common stock 74,709 24,357 38,409 30,745
* Results for the third quarter of 1996 reflect charges to Other operation
and maintenance expense of $39.4 million (after-tax) for costs related to
voluntary enhanced retirement programs.
</TABLE>
F-114
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Jersey Central Power & Light Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Jersey Central Power & Light Company and Subsidiary Company as
listed in the index on page F-1 of this Form 10-K. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jersey Central
Power & Light Company and Subsidiary Company as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 4, 1998
F-115
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
ASSETS
Utility Plant:
In service, at original cost $4,671,568 $4,528,676
Less, accumulated depreciation 2,007,427 1,811,620
--------- ---------
Net utility plant in service 2,664,141 2,717,056
Construction work in progress 124,887 106,512
Other, net 92,654 111,116
--------- ---------
Net utility plant 2,881,682 2,934,684
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 13) 343,434 278,342
Nuclear fuel disposal trust, at market 108,652 101,661
Other, net 8,951 8,305
--------- ---------
Total other property and investments 461,037 388,308
--------- ---------
Current Assets:
Cash and temporary cash investments 2,994 1,321
Special deposits 6,778 6,939
Accounts receivable:
Customers, net 153,753 135,655
Other 18,225 33,228
Unbilled revenues 59,687 56,522
Materials and supplies, at average cost or less:
Construction and maintenance 90,037 92,761
Fuel 14,260 19,257
Deferred income taxes (Note 8) 27,536 22,509
Prepayments 14,468 21,150
--------- ---------
Total current assets 387,738 389,342
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets: (Note 13)
Nonutility generation contract buyout costs 140,500 139,000
Income taxes recoverable through future rates 128,111 142,726
Three Mile Island Unit 2 deferred costs 109,498 126,448
Unamortized property losses 94,726 94,767
Other 312,867 326,620
--------- ---------
Total regulatory assets 785,702 829,561
Deferred income taxes (Note 8) 154,708 138,903
Other 19,909 29,121
--------- ---------
Total deferred debits and other assets 960,319 997,585
--------- ---------
Total Assets $4,690,776 $4,709,919
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-116
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock (Note 4) $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 875,639 825,001
--------- ---------
Total common stockholder's equity 1,540,121 1,489,483
Cumulative preferred stock: (Note 4)
With mandatory redemption 91,500 114,000
Without mandatory redemption 37,741 37,741
Company-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 125,000
Long-term debt (Note 3) 1,173,304 1,173,091
--------- ---------
Total capitalization 2,967,666 2,939,315
--------- ---------
Current Liabilities:
Securities due within one year 12,511 110,075
Notes payable (Note 2) 115,254 31,800
Obligations under capital leases (Note 12) 79,419 96,150
Accounts payable:
Affiliates 27,167 71,761
Other 113,822 94,258
Taxes accrued 3,966 2,063
Interest accrued 26,021 28,350
Deferred energy credits 25,645 15,559
Other 76,529 80,195
--------- ---------
Total current liabilities 480,334 530,211
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 644,562 664,440
Unamortized investment tax credits 54,675 59,893
Nuclear fuel disposal fee 134,326 127,543
Three Mile Island Unit 2 future costs 112,227 107,652
Regulatory liabilities (Note 13) 49,226 33,250
Other 247,760 247,615
--------- ---------
Total deferred credits and other liabilities 1,242,776 1,240,393
--------- ---------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $4,690,776 $4,709,919
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-117
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Revenues $2,093,972 $2,057,918 $2,035,928
--------- --------- ---------
Operating Expenses:
Fuel 101,030 101,357 101,110
Power purchased and interchanged:
Affiliates 15,979 27,058 17,950
Others 610,792 589,396 642,858
Deferral of energy and capacity costs, net 6,043 19,441 (5,949)
Other operation and maintenance 454,991 556,086 475,448
Depreciation and amortization 237,461 207,309 194,976
Taxes, other than income taxes 232,086 228,885 226,994
--------- --------- ---------
Total operating expenses 1,658,382 1,729,532 1,653,387
--------- --------- ---------
Operating Income Before Income Taxes 435,590 328,386 382,541
Income taxes (Note 8) 110,740 71,080 91,321
--------- --------- ---------
Operating Income 324,850 257,306 291,220
--------- --------- ---------
Other Income and Deductions:
Allowance for other funds used during construction - 1,536 1,803
Other income, net 1,919 7,202 14,889
Income taxes (Note 8) (1,376) (3,357) (5,905)
--------- --------- ---------
Total other income and deductions 543 5,381 10,787
--------- --------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 325,393 262,687 302,007
--------- --------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 89,869 89,648 92,602
Other interest 15,129 11,147 9,709
Allowance for borrowed funds used during
construction (2,319) (5,111) (6,021)
Dividends on company-obligated mandatorily
redeemable preferred securities 10,700 10,700 6,628
--------- --------- ---------
Total interest charges and dividends
on preferred securities 113,379 106,384 102,918
--------- --------- ---------
Net Income 212,014 156,303 199,089
Preferred stock dividends 11,376 13,072 14,457
--------- --------- ---------
Earnings Available for Common Stock $ 200,638 $ 143,231 $ 184,632
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-118
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 825,001 $ 816,770 $ 772,240
Net income 212,014 156,303 199,089
--------- --------- ---------
Total 1,037,015 973,073 971,329
--------- --------- ---------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
4% Series ($4.00 a share) (500) (500) (500)
7.88% Series E ($7.88 a share) (1,970) (1,970) (1,970)
8.48% Series I ($8.48 a share) (1,272) (2,968) (4,240)
8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325)
7.52% Series K ($7.52 a share) (3,309) (3,309) (3,422)
Common stock (not declared on a
per share basis) (150,000) (135,000) (140,000)
--------- --------- ---------
Total (161,376) (148,072) (154,457)
--------- --------- ---------
Other adjustments, net - - (102)
--------- --------- ---------
Balance at end of year $ 875,639 $ 825,001 $ 816,770
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-119
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
Operating Activities:
<S> <C> <C> <C>
Net income $ 212,014 $ 156,303 $ 199,089
Adjustments to reconcile income to cash provided:
Depreciation and amortization 253,278 217,225 212,609
Amortization of property under capital leases 28,703 28,339 31,963
Voluntary enhanced retirement programs -- 62,909 --
Nuclear outage maintenance costs, net 11,615 (15,392) 16,239
Deferred income taxes and investment tax
credits, net (27,449) 4,056 (3,264)
Deferred energy and capacity costs, net 8,193 19,436 (6,511)
Accretion income (10,760) (11,610) (12,520)
Allowance for other funds used during
construction -- (1,536) (1,803)
Changes in working capital:
Receivables (6,261) 12,897 (35,318)
Materials and supplies 7,721 2,624 (2,642)
Special deposits and prepayments 6,844 138 22,261
Payables and accrued liabilities (31,854) (62,157) (47,634)
Nonutility generation contract buyout costs (30,500) (65,000) (17,000)
Other, net 6,281 (6,334) (12,816)
--------- --------- ---------
Net cash provided by operating activities 427,825 341,898 342,653
--------- --------- ---------
Investing Activities:
Cash construction expenditures (172,243) (199,823) (217,805)
Contributions to decommissioning trusts (18,003) (18,004) (18,793)
Other, net (10,989) (10,253) (7,114)
--------- --------- ---------
Net cash used for investing activities (201,235) (228,080) (243,712)
--------- --------- ---------
Financing Activities:
Issuance of long-term debt -- 79,550 49,625
Increase/(Decrease) in notes payable, net 83,454 31,000 (109,700)
Retirement of long-term debt (100,075) (25,710) (47,439)
Capital lease principal payments (26,496) (29,763) (26,991)
Issuance of company-obligated mandatorily
redeemable preferred securities -- -- 121,063
Redemption of preferred stock (20,000) (20,000) (6,049)
Dividends paid on preferred stock (11,800) (13,496) (14,569)
Dividends paid on common stock (150,000) (135,000) (140,000)
Contribution from parent corporation -- -- 75,000
--------- --------- ---------
Net cash required by financing activities (224,917) (113,419) (99,060)
--------- --------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities 1,673 399 (119)
Cash and temporary cash investments, beginning of year 1,321 922 1,041
--------- --------- ---------
Cash and temporary cash investments, end of year $ 2,994 $ 1,321 $ 922
========= ========= =========
Supplemental Disclosure:
Interest paid $ 114,423 $ 106,264 $ 106,673
========= ========= =========
Income taxes paid $ 133,689 $ 90,960 $ 93,662
========= ========= =========
New capital lease obligations incurred $ 11,048 $ 32,694 $ 18,264
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-120
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- --------
Additions
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts $1,670 $4,976 $1,939 $7,171(b) $1,414
Allowance for inventory
obsolescence 206 - 1(e) 223(c) (16)
Year ended December 31, 1996
Allowance for doubtful
accounts $1,958 $5,080 $1,680(a) $7,048(b) $1,670
Allowance for inventory
obsolescence 197 - 4(e) 2,194(c) 206
2,199(d)
Year ended December 31, 1995
Allowance for doubtful
accounts $1,359 $5,076 $2,480(a) $6,957(b) $1,958
Allowance for inventory
obsolescence 348 - - 151(c) 197
<FN>
_____________________________________
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Reestablishment of zero value inventory.
(e) Sale of inventory previously written off.
</FN>
</TABLE>
F-121
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
COMPANY STATISTICS
For The Years Ended December 31, 1997 1996 1995 1994 1993 1992
Capacity at Company Peak (in MW):
<S> <C> <C> <C> <C> <C> <C>
Company owned 1,738 1,705 1,604 1,602 1,602 1,602
Contracted 507 853 492 499 676 609
----- ----- ----- ----- ----- -----
Total capacity (a) 2,245 2,558 2,096 2,101 2,278 2,211
===== ===== ===== ===== ===== =====
Hourly Peak Load (in MW):
Summer peak 2,224 2,017 2,186 2,000 1,944 1,845
Winter peak 2,054 2,114 2,012 1,954 1,940 1,834
Reserve at company peak (%) .9 21.0 (4.1) 5.1 17.2 19.8
Load factor (%) (b) 63.5 66.3 61.4 66.6 67.2 67.6
Sources of Energy (in thousands of MWH):
Coal 5,203 4,760 4,334 4,547 4,283 4,809
Nuclear 2,959 3,550 3,194 3,294 2,975 3,460
Gas, hydro & oil 204 182 253 194 42 64
------ ------ ------ ------ ------ ------
Net generation 8,366 8,492 7,781 8,035 7,300 8,333
Utility purchases and interchange 2,424 2,021 3,087 2,295 3,398 3,319
Nonutility purchases 2,481 2,406 2,066 1,654 1,623 1,333
------ ------ ------ ------ ------ ------
Total sources of energy 13,271 12,919 12,934 11,984 12,321 12,985
Company use, line loss, etc. (790) (718) (856) (660) (884) (479)
------ ------ ------ ------ ------ ------
Total electric energy sales 12,481 12,201 12,078 11,324 11,437 12,506
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $72 $69 $61 $71 $64 $72
Nuclear 16 20 20 20 16 19
Gas & oil 4 5 6 3 2 2
-- -- -- -- -- --
Total $92 $94 $87 $94 $82 $93
== == == == == ==
Power Purchased and Interchanged (in millions):
Utility purchases and interchange purchases $ 70 $ 54 $ 84 $ 80 $108 $105
Nonutility purchases, net of deferred costs 162 168 131 101 95 78
Amortization of nonutility buyout costs 10 9 - - - -
--- --- --- --- --- ---
Total $242 $231 $215 $181 $203 $183
=== === === === === ===
Electric Energy Sales (in thousands of MWH):
Residential 4,034 4,135 3,925 3,921 3,800 3,567
Commercial 3,209 3,144 3,011 2,921 2,794 2,638
Industrial 4,098 4,033 3,957 3,861 3,664 3,589
Other 210 213 209 211 284 329
------ ------ ------ ------ ------ ------
Sales to customers 11,551 11,525 11,102 10,914 10,542 10,123
Sales to other utilities 930 676 976 410 895 2,383
------ ------ ------ ------ ------ ------
Total 12,481 12,201 12,078 11,324 11,437 12,506
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $368 $365 $339 $327 $322 $306
Commercial 259 247 229 215 209 201
Industrial 253 243 228 215 207 213
Other 14 14 13 12 18 22
--- --- --- --- --- ---
Sales to customers 894 869 809 769 756 742
Sales to other utilities 24 20 26 12 27 63
--- --- --- --- --- ---
Total electric energy sales 918 889 835 781 783 805
Other revenues 25 21 20 20 18 17
--- --- --- --- --- ---
Total $943 $910 $855 $801 $801 $822
=== === === === === ===
Price per KWH (in cents):
Residential 9.04 8.90 8.54 8.39 8.42 8.60
Commercial 7.93 7.88 7.54 7.38 7.46 7.63
Industrial 6.07 6.04 5.74 5.55 5.68 5.95
Total sales to customers 7.63 7.58 7.23 7.07 7.16 7.34
Total electric energy sales 7.25 7.33 6.86 6.92 6.83 6.45
Kilowatt-hour Sales per Residential Customer 9,644 10,012 9,609 9,741 9,573 9,139
Customers at Year-End (in thousands) 477 470 465 458 451 445
<FN>
(a) Summer ratings at December 31, 1997 of owned and contracted capacity were
1,738 MW and 796 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-122
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
SELECTED FINANCIAL DATA
(In Thousands)
For the Years Ended December 31, 1997 1996 (1) 1995 (2) 1994 (3) 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 943,109 $ 910,408 $ 854,674 $ 801,303 $ 801,487 $ 821,823
Other operation and maintenance expense 228,258 249,993 229,559 258,656 210,822 208,756
Net income 93,517 69,067 148,540 731 77,875 73,077
Earnings available for common stock 93,034 71,845 147,596 (2,229) 70,915 62,788
Net utility plant in service 1,492,039 1,455,702 1,477,030 1,437,250 1,361,409 1,290,628
Total assets 2,533,981 2,472,978 2,437,165 2,236,279 2,172,543 1,811,689
Long-term debt 576,924 563,252 603,268 529,783 546,319 496,440
Long-term obligations under
capital leases 30 380 1,032 2,174 3,557 2,643
Company-obligated mandatorily
redeemable preferred securities 100,000 100,000 100,000 100,000 - -
Capital expenditures 87,613 76,660 112,554 159,717 142,380 130,641
Return on average common equity 12.9% 10.3% 23.5% (0.4%) 12.2% 11.8%
Employees 2,498 2,093 2,166 2,000 2,322 2,328
<FN>
(1) Results for 1996 reflect a decrease in earnings of $15.4 million
(after-tax) for costs related to voluntary enhanced retirement
programs.
(2) Results for 1995 reflect the reversal of $72.8 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The reversal
of this write-off resulted from a 1995 Pennsylvania Supreme Court
decision that overturned a 1994 lower court order, and restored a 1993
PaPUC order allowing for the recovery of such costs. Partially offsetting
this increase was a charge to income of $5.7 million (after-tax) of TMI-2
monitored storage costs deemed not probable of recovery through
ratemaking.
(3) Results for 1994 reflect a net decrease in earnings of $79.9 million
(after-tax) due to a write-off of certain future TMI-2 retirement costs
($72.8 million); charges for costs related to early retirement programs
($20.1 million); and net interest income from refunds of previously paid
federal income taxes related to the tax retirement of TMI-2 ($13.0
million).
</FN>
</TABLE>
F-123
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $255,260 $237,688 $208,554 $207,058
Operating income 54,113 38,392 28,303 31,129
Net income 39,685 24,037 14,203 16,806
Earnings available for common stock 39,564 23,801 14,082 16,570
Third Quarter Fourth Quarter
In Thousands 1997 1996* 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $248,161 $243,077 $231,134 $222,585
Operating income 41,714 23,575 26,021 33,804
Net income 27,225 8,382 12,404 19,842
Earnings available for common stock 27,105 8,146 12,283 23,328
<FN>
* Results for the third quarter of 1996 reflect charges to Other operation and
maintenance of $15.4 million (after-tax) for costs related to voluntary
enhanced retirement programs.
</FN>
</TABLE>
F-124
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Metropolitan Edison Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Metropolitan Edison Company and Subsidiary Companies as listed in
the index on page F-1 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metropolitan
Edison Company and Subsidiary Companies as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 4, 1998
F-125
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
ASSETS
Utility Plant:
In service, at original cost $2,411,810 $2,297,100
Less, accumulated depreciation 919,771 841,398
---------- ----------
Net utility plant in service 1,492,039 1,455,702
Construction work in progress 45,435 98,171
Other, net 39,056 31,000
---------- ----------
Net utility plant 1,576,530 1,584,873
---------- ----------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 13) 168,110 131,475
Other, net 11,958 11,261
---------- ----------
Total other property and investments 180,068 142,736
---------- ----------
Current Assets:
Cash and temporary cash investments 6,116 1,901
Special deposits 1,055 1,052
Accounts receivable:
Customers, net 65,156 61,522
Other 29,399 17,368
Unbilled revenues 39,747 27,019
Materials and supplies, at average cost or less:
Construction and maintenance 38,597 39,739
Fuel 11,323 11,026
Deferred income taxes (Note 8) 2,945 7,073
Prepayments 6,762 17,254
---------- ----------
Total current assets 201,100 183,954
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets:(Note 13)
Income taxes recoverable through future rates 178,927 174,636
Three Mile Island Unit 2 deferred costs 146,290 144,782
Nonutility generation contract buyout costs 76,368 86,781
Other 73,297 56,184
---------- ----------
Total regulatory assets 474,882 462,383
Deferred income taxes (Note 8) 87,332 85,169
Other 14,069 13,863
---------- ----------
Total deferred debits and other assets 576,283 561,415
---------- ----------
Total Assets $2,533,981 $2,472,978
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-126
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock (Note 4) $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 268,634 255,649
Accumulated other comprehensive income (Note 4) 12,487 8,395
---------- ----------
Total common stockholder's equity 717,594 700,517
Cumulative preferred stock (Note 4) 12,056 12,056
Company-obligated mandatorily redeemable
preferred securities (Note 4) 100,000 100,000
Long-term debt (Note 3) 576,924 563,252
---------- ----------
Total capitalization 1,406,574 1,375,825
---------- ----------
Current Liabilities:
Securities due within one year 22 40,020
Notes payable (Note 2) 67,279 50,667
Obligations under capital leases (Note 12) 38,372 29,964
Accounts payable
Affiliates 62,873 27,556
Other 95,589 89,857
Taxes accrued 21,455 11,222
Interest accrued 15,903 18,279
Other 33,351 45,825
---------- ----------
Total current liabilities 334,844 313,390
---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 412,692 401,104
Unamortized investment tax credits 29,134 31,584
Three Mile Island Unit 2 future costs 224,354 215,204
Nuclear fuel disposal fee 30,343 28,811
Regulatory liabilities (Note 13) 24,195 25,981
Other 71,845 81,079
---------- ----------
Total deferred credits and other liabilities 792,563 783,763
---------- ----------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $2,533,981 $2,472,978
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-127
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Revenues $ 943,109 $ 910,408 $ 854,674
--------- --------- ---------
Operating Expenses:
Fuel 92,726 93,881 87,477
Power purchased and interchanged:
Affiliates 17,936 20,724 31,411
Others 223,948 209,831 184,319
Deferral of energy costs, net -- (448) (1,041)
Other operation and maintenance 228,258 249,993 229,559
Depreciation and amortization 106,437 98,364 99,588
Taxes, other than income taxes 59,339 61,319 54,870
--------- --------- ---------
Total operating expenses 728,644 733,664 686,183
--------- --------- ---------
Operating Income Before Income Taxes 214,465 176,744 168,491
Income taxes (Note 8) 64,314 49,844 36,686
--------- --------- ---------
Operating Income 150,151 126,900 131,805
--------- --------- ---------
Other Income and Deductions:
Allowance for other funds used during construction 75 540 1,304
Other income, net 3,371 1,220 129,660
Income taxes (Note 8) (1,455) (489) (55,364)
--------- --------- ---------
Total other income and deductions 1,991 1,271 75,600
--------- --------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 152,142 128,171 207,405
--------- --------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 43,885 45,373 45,844
Other interest 6,765 5,436 5,147
Allowance for borrowed funds used during
construction (1,025) (705) (1,126)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,000 9,000 9,000
--------- --------- ---------
Total interest charges and dividends
on preferred securities 58,625 59,104 58,865
--------- --------- ---------
Net Income 93,517 69,067 148,540
Preferred stock dividends 483 944 944
Gain on preferred stock reacquisition -- 3,722 --
--------- --------- ---------
Earnings Available for Common Stock $ 93,034 $ 71,845 $ 147,596
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-128
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net income $ 93,517 $ 69,067 $148,540
-------- -------- --------
Other comprehensive income/(loss),
net of tax: (Note 4)
Net unrealized gains on investments 4,249 4,027 5,119
Minimum pension liability (157) (262) --
-------- -------- --------
Total other comprehensive income 4,092 3,765 5,119
-------- -------- --------
Comprehensive income $ 97,609 $ 72,832 $153,659
======== ======== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
Balance at beginning of year $ 255,649 $ 243,804 $ 191,231
Net income 93,517 69,067 148,540
--------- --------- ---------
Total 349,166 312,871 339,771
--------- --------- ---------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
3.90% Series ($3.90 a share) (251) (459) (459)
4.35% Series ($4.35 a share) (98) (145) (145)
3.85% Series ($3.85 a share) (36) (112) (112)
3.80% Series ($3.80 a share) (30) (69) (69)
4.45% Series ($4.45 a share) (68) (159) (159)
Common stock (not declared on a
per share basis) (80,000) (60,000) (95,000)
--------- --------- ---------
Total (80,483) (60,944) (95,944)
--------- --------- ---------
Gain on preferred stock reacquisition -- 3,722 --
Other adjustments, net (49) -- (23)
--------- --------- ---------
Balance at end of year $ 268,634 $ 255,649 $ 243,804
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-129
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
Operating Activities:
<S> <C> <C> <C>
Net income $ 93,517 $ 69,067 $ 148,540
Adjustments to reconcile income to cash provided:
Depreciation and amortization 113,662 104,820 84,848
Amortization of property under capital leases 11,637 15,704 13,667
Three Mile Island Unit 2 costs -- -- (118,209)
Voluntary enhanced retirement programs -- 26,204 --
Nuclear outage maintenance costs, net (6,169) 6,215 (5,931)
Deferred income taxes and investment tax
credits, net 3,137 25,168 68,827
Deferred energy costs, net -- (448) (1,041)
Allowance for other funds used during
construction (75) (540) (1,304)
Changes in working capital:
Receivables (28,393) 8,490 (19,130)
Materials and supplies 845 (1,611) 7,053
Special deposits and prepayments 10,489 (10,501) 1,615
Payables and accrued liabilities 47,819 (17,714) 11,478
Nonutility generation contract buyout costs (16,050) (43,318) (21,499)
Other, net (17,942) (15,964) (36,318)
--------- --------- ---------
Net cash provided by operating activities 212,477 165,572 132,596
--------- --------- ---------
Investing Activities:
Cash construction expenditures (87,613) (76,660) (112,554)
Contributions to decommissioning trusts (16,992) (17,057) (13,485)
Other, net (363) (1,087) (300)
--------- --------- ---------
Net cash used for investing activities (104,968) (94,804) (126,339)
--------- --------- ---------
Financing Activities:
Issuance of long-term debt 13,577 -- 87,911
Increase in notes payable, net 16,612 28,277 22,390
Retirement of long-term debt (40,020) (15,019) (40,519)
Capital lease principal payments (12,744) (15,171) (12,531)
Redemption of preferred stock -- (7,820) --
Dividends paid on preferred stock (719) (944) (944)
Dividends paid on common stock (80,000) (60,000) (95,000)
Contribution from parent corporation -- -- 25,000
--------- --------- ---------
Net cash required by financing activities (103,294) (70,677) (13,693)
--------- --------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities 4,215 91 (7,436)
Cash and temporary cash investments, beginning of year 1,901 1,810 9,246
--------- --------- ---------
Cash and temporary cash investments, end of year $ 6,116 $ 1,901 $ 1,810
========= ========= =========
Supplemental Disclosure:
Interest paid $ 59,819 $ 59,697 $ 57,606
========= ========= =========
Income taxes paid $ 55,375 $ 39,278 $ 47,343
========= ========= =========
New capital lease obligations incurred $ 19,695 $ 1,417 $ 22,316
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-130
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- --------
Additions
-------------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts $3,172 $6,644 $1,944(a) $8,613(b) $3,147
Allowance for inventory
obsolescence 1,864 - 7(c) 438(d) 1,433
Year ended December 31, 1996
Allowance for doubtful
accounts $3,072 $6,460 $1,651(a) $8,011(b) $3,172
Allowance for inventory
obsolescence 3,176 - 4(c) 1,316(d) 1,864
Year ended December 31, 1995
Allowance for doubtful
accounts $4,889 $3,040 $1,793(a) $6,650(b) $3,072
Allowance for inventory
obsolescence 4,575 - - 1,399(d) 3,176
<FN>
_______________________________
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Sale of inventory previously written off.
(d Inventory written off.
</FN>
</TABLE>
F-131
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
COMPANY STATISTICS
For The Years Ended December 31, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Capacity at Company Peak (in MW):
Company owned 2,365 2,365 2,365 2,369 2,369 2,371
Contracted 867 782 868 778 636 418
----- ----- ----- ----- ----- -----
Total capacity (a) 3,232 3,147 3,233 3,147 3,005 2,789
===== ===== ===== ===== ===== =====
Hourly Peak Load (in MW):
Summer peak 2,535 2,410 2,495 2,309 2,208 2,140
Winter peak 2,652 2,574 2,589 2,514 2,342 2,355
Reserve at company peak (%) 21.9 22.3 24.9 25.2 28.3 18.4
Load factor (%) (b) 69.7 71.1 67.6 69.4 70.5 69.3
Sources of Energy (in thousands of MWH):
Coal1 1,972 11,268 11,237 10,263 10,703 11,329
Nuclear 1,480 1,775 1,597 1,647 1,488 1,730
Gas, hydro & oil 48 95 (95) 120 73 75
------ ------ ------ ------ ------ ------
Net generation 13,500 13,138 12,739 12,030 12,264 13,134
Utility purchases and interchange 2,297 2,268 3,071 2,468 2,219 2,723
Nonutility purchases 3,296 3,201 2,796 2,236 1,940 1,463
------ ------ ------ ------ ------ ------
Total sources of energy 19,093 18,607 18,606 16,734 16,423 17,320
Company use, line loss, etc. (2,853) (2,932) (2,751) (2,248) (2,256) (2,289)
------ ------ ------ ------ ------ ------
Total electric energy sales 16,240 15,675 15,855 14,486 14,167 15,031
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $168 $164 $164 $163 $174 $168
Nuclear 8 10 10 10 8 9
Gas & oil 2 2 1 2 1 1
--- --- --- --- --- ---
Total $178 $176 $175 $175 $183 $178
=== === === === === ===
Power Purchased and Interchanged (in millions):
Utility purchases and interchange purchases $ 27 $ 18 $ 43 $ 35 $ 31 $ 51
Nonutility purchases, net of deferred costs 188 192 158 123 104 77
--- --- --- --- --- ---
Total $215 $210 $201 $158 $135 $128
=== === === === === ===
Electric Energy Sales (in thousands of MWH):
Residential 3,801 3,897 3,765 3,773 3,715 3,590
Commercial 4,098 4,044 3,922 3,794 3,651 3,488
Industrial 4,835 4,563 4,463 4,449 4,346 4,589
Other 821 814 857 958 568 585
------ ------ ------ ------ ------ ------
Sales to customers 13,555 13,318 13,007 12,974 12,280 12,252
Sales to other utilities 2,685 2,357 2,848 1,512 1,887 2,779
------ ------ ------ ------ ------ ------
Total 16,240 15,675 15,855 14,486 14,167 15,031
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 342 $ 339 $322 $321 $308 $298
Commercial 316 302 287 279 261 248
Industrial 267 249 237 237 227 233
Other 40 36 39 45 31 27
----- ----- --- --- --- ---
Sales to customers 965 926 885 882 827 806
Sales to other utilities 54 53 68 36 52 62
----- ----- --- --- --- ---
Total electric energy sales 1,019 979 953 918 879 868
Other revenues 34 41 28 27 29 28
----- ----- --- --- --- ---
Total $1,053 $1,020 $981 $945 $908 $896
===== ===== === === === ===
Price per KWH (in cents):
Residential 8.84 8.70 8.52 8.51 8.30 8.27
Commercial 7.58 7.48 7.29 7.34 7.17 7.11
Industrial 5.42 5.44 5.33 5.32 5.24 5.08
Total sales to customers 7.00 6.95 6.79 6.80 6.74 6.58
Total electric energy sales 6.18 6.24 6.00 6.34 6.21 5.77
Kilowatt-hour Sales per Residential Customer 7,648 7,857 7,620 7,678 7,607 7,393
Customers at Year-End (in thousands) 575 573 571 567 563 559
<FN>
(a) Winter ratings at December 31, 1997 of owned and contracted capacity were
2,365 MW and 848 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-132
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
SELECTED FINANCIAL DATA
(In Thousands)
For the Years Ended December 31, 1997 1996 (1) 1995 (2) 1994 (3) 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $1,052,936 $1,019,645 $ 981,329 $ 944,744 $ 908,280 $ 896,337
Other operation and maintenance expense 258,416 293,868 266,347 294,316 241,252 226,179
Net income 95,023 69,809 111,010 31,799 95,728 99,744
Earnings available for common stock 94,358 73,872 109,466 28,862 90,741 94,080
Net utility plant in service 1,720,755 1,715,670 1,692,850 1,621,818 1,542,276 1,473,293
Total assets 2,592,775 2,535,065 2,473,570 2,381,054 2,301,340 1,892,715
Long-term debt 676,444 656,459 642,487 616,490 524,491 582,647
Long-term obligations under
capital leases 3,272 4,129 5,277 6,741 7,745 7,691
Company-obligated mandatorily
redeemable preferred securities 105,000 105,000 105,000 105,000 - -
Capital expenditures 99,074 114,672 130,512 174,464 150,252 110,629
Return on average common equity 12.1% 10.0% 15.8% 4.2% 13.5% 14.5%
Employees 1,539 2,071 2,665 3,031 3,539 3,551
<FN>
(1) Results for 1996 reflect a decrease in earnings of $19.7 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(2) Results for 1995 reflect a the reversal of $32.1 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The reversal
of this write-off resulted from a 1995 Pennsylvania Supreme Court
decision that overturned a 1994 lower court order, and restored a 1993
PaPUC order allowing for the recovery of such costs. Partially offsetting
this increase was a charge to income of $2.7 million (after-tax) of TMI-2
monitored storage costs deemed not probable of recovery through
ratemaking.
(3) Results for 1994 reflect a net decrease in earnings of $61.8 million
(after-tax) due to a write-off of certain future TMI-2 retirement costs
($32.1 million); charges for costs related to early retirement programs
($25.6 million); a write-off of postretirement benefit costs believed not
probable of recovery in rates ($10.6 million); and net interest income
from refunds of previously paid federal income taxes related to the tax
retirement of TMI-2 ($6.5 million).
</FN>
</TABLE>
F-133
<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands 1997 1996 1997 1996
Operating revenues $289,753 $269,329 $247,862 $246,788
Operating income 58,856 46,660 34,255 37,508
Net income 42,894 30,515 18,841 21,609
Earnings available for common stock 42,750 30,129 18,667 21,223
Third Quarter Fourth Quarter
------------- --------------
In Thousands 1997 1996* 1997 1996
Operating revenues $257,569 $256,143 $257,752 $247,385
Operating income 35,444 19,230 29,395 30,311
Net income 19,369 2,865 13,919 14,820
Earnings available for common stock 19,196 2,479 13,745 20,041
* Results for the third quarter of 1996 reflect charges to Other operation
and maintenance expense of $19.7 million (after-tax) for costs related to
voluntary enhanced retirement programs.
F-134
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Pennsylvania Electric Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Pennsylvania Electric Company and Subsidiary Companies as listed in
the index on page F-1 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pennsylvania
Electric Company and Subsidiary Companies as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 4, 1998
F-135
<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
ASSETS
Utility Plant:
In service, at original cost $2,812,720 $2,738,223
Less, accumulated depreciation 1,091,965 1,022,553
---------- ----------
Net utility plant in service 1,720,755 1,715,670
Construction work in progress 69,089 72,757
Other, net 26,110 22,910
---------- ----------
Net utility plant 1,815,954 1,811,337
---------- ----------
Other Property and Investments:
Nuclear decommissioning trusts, at market(Note 13) 68,129 54,194
Other, net 7,071 7,271
---------- ----------
Total other property and investments 75,200 61,465
---------- ----------
Current Assets:
Cash and temporary cash investments -- --
Special deposits 2,449 2,348
Accounts receivable:
Customers, net 71,338 73,190
Other 21,051 15,151
Unbilled revenues 47,728 31,350
Materials and supplies, at average cost or less:
Construction and maintenance 47,853 49,007
Fuel 14,841 9,924
Deferred income taxes (Note 8) 7,589 --
Prepayments 29,856 36,930
---------- ----------
Total current assets 242,705 217,900
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets: (Note 13)
Income taxes recoverable through future rates 203,642 210,023
Three Mile Island Unit 2 deferred costs 89,538 85,287
Nonutility generation contract buyout costs 28,700 16,700
Other 68,220 50,428
---------- ----------
Total regulatory assets 390,100 362,438
Deferred income taxes (Note 8) 55,698 67,099
Other 13,118 14,826
---------- ----------
Total deferred debits and other assets 458,916 444,363
---------- ----------
Total Assets $2,592,775 $2,535,065
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-136
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1997 1996
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C> <C>
Common stock (Note 4) $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 393,708 359,373
Accumulated other comprehensive income (Note 4) 6,332 4,329
---------- ----------
Total common stockholder's equity 791,338 755,000
Cumulative preferred stock (Note 4) 16,681 16,681
Company-obligated mandatorily redeemable
preferred securities (Note 4) 105,000 105,000
Long-term debt (Note 3) 676,444 656,459
---------- ----------
Total capitalization 1,589,463 1,533,140
---------- ----------
Current Liabilities:
Securities due within one year 30,011 26,010
Notes payable (Note 2) 77,581 107,680
Obligations under capital leases (Note 12) 19,939 15,881
Accounts payable:
Affiliates 24,811 20,432
Other 62,483 53,424
Taxes accrued 15,966 11,223
Interest accrued 20,902 19,192
Other 19,654 17,224
---------- ----------
Total current liabilities 271,347 271,066
---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 478,182 473,268
Unamortized investment tax credits 39,353 42,095
Three Mile Island Unit 2 future costs 112,227 107,652
Regulatory liabilities (Note 13) 29,785 31,694
Nuclear fuel disposal fee 15,172 14,406
Other 57,246 61,744
---------- ----------
Total deferred credits and other liabilities 731,965 730,859
---------- ----------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $2,592,775 $2,535,065
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-137
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Revenues $ 1,052,936 $ 1,019,645 $ 981,329
----------- ----------- -----------
Operating Expenses:
Fuel 177,256 176,158 174,624
Power purchased and interchanged:
Affiliates 3,252 3,529 5,927
Others 212,166 206,403 195,184
Deferral of energy costs, net -- 795 1,088
Other operation and maintenance 258,416 293,868 266,347
Depreciation and amortization 107,111 94,580 83,086
Taxes, other than income taxes 66,395 64,955 67,064
----------- ----------- -----------
Total operating expenses 824,596 840,288 793,320
----------- ----------- -----------
Operating Income Before Income Taxes 228,340 179,357 188,009
Income taxes (Note 8) 70,390 45,648 45,948
----------- ----------- -----------
Operating Income 157,950 133,709 142,061
----------- ----------- -----------
Other Income and Deductions:
Allowance for other funds used during construction -- 173 2,006
Other income/(expense), net 2,469 (825) 56,454
Income taxes (Note 8) (909) 99 (24,431)
----------- ----------- -----------
Total other income and deductions 1,560 (553) 34,029
----------- ----------- -----------
Income Before Interest Charges and
Dividends on Preferred Securities 159,510 133,156 176,090
----------- ----------- -----------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 49,125 49,654 49,875
Other interest 8,338 7,112 8,428
Allowance for borrowed funds used during
construction (2,164) (2,607) (2,411)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,188 9,188 9,188
----------- ----------- -----------
Total interest charges and dividends
on preferred securities 64,487 63,347 65,080
----------- ----------- -----------
Net Income 95,023 69,809 111,010
Preferred stock dividends 665 1,503 1,544
Gain on preferred stock reacquisition -- 5,566 --
----------- ----------- -----------
Earnings Available for Common Stock $ 94,358 $ 73,872 $ 109,466
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-138
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net income $ 95,023 $ 69,809 $111,010
-------- -------- --------
Other comprehensive income/(loss),
net of tax: (Note 4)
Net unrealized gains on investments 2,125 2,014 2,593
Minimum pension liability (122) -- --
-------- -------- --------
Total other comprehensive income 2,003 2,014 2,593
-------- -------- --------
Comprehensive income $ 97,026 $ 71,823 $113,603
======== ======== ========
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 359,373 $ 325,499 $ 291,064
Net income 95,023 69,809 111,010
--------- --------- ---------
Total 454,396 395,308 402,074
--------- --------- ---------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
4.40% Series B ($4.40 a share) (125) (244) (250)
3.70% Series C ($3.70 a share) (174) (351) (359)
4.05% Series D ($4.05 a share) (109) (251) (258)
4.70% Series E ($4.70 a share) (64) (132) (135)
4.50% Series F ($4.50 a share) (74) (188) (193)
4.60% Series G ($4.60 a share) (119) (337) (349)
Common stock (not declared on a
per share basis) (60,000) (40,000) (75,000)
--------- --------- ---------
Total (60,665) (41,503) (76,544)
--------- --------- ---------
Gain on preferred stock reacquisition -- 5,566 --
Other adjustments, net (23) 2 (31)
--------- --------- ---------
Balance at end of year $ 393,708 $ 359,373 $ 325,499
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-139
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1997 1996 1995
Operating Activities:
<S> <C> <C> <C>
Net income $ 95,023 $ 69,809 $ 111,010
Adjustments to reconcile income to cash provided:
Depreciation and amortization 99,688 89,021 77,635
Amortization of property under capital leases 7,954 8,733 7,777
Three Mile Island Unit 2 costs -- -- (51,796)
Voluntary enhanced retirement programs -- 33,626 --
Nuclear outage maintenance costs, net (3,072) 3,099 (2,901)
Deferred income taxes and investment tax
credits, net 10,193 19,208 42,514
Deferred energy costs, net -- 731 1,491
Allowance for other funds used during
construction -- (173) (2,006)
Changes in working capital:
Receivables (20,426) 7,648 (7,713)
Materials and supplies (3,763) 5,591 4,912
Special deposits and prepayments 6,973 (26,232) (5,078)
Payables and accrued liabilities 19,736 (52,958) 8,241
Nonutility generation contract buyout costs (10,000) (11,700) --
Other, net (22,963) (7,746) 1,178
--------- --------- ---------
Net cash provided by operating activities 179,343 138,657 185,264
--------- --------- ---------
Investing Activities:
Cash construction expenditures (99,074) (114,672) (130,512)
Contributions to decommissioning trusts (5,288) (5,263) (5,263)
Other, net 454 (684) (323)
--------- --------- ---------
Net cash used for investing activities (103,908) (120,619) (136,098)
--------- --------- ---------
Financing Activities:
Issuance of long-term debt 49,875 39,513 197,997
Increase/(Decrease) in notes payable, net (30,099) 80,580 (83,952)
Retirement of long-term debt (26,010) (75,009) (99,319)
Capital lease principal payments (8,506) (8,418) (7,172)
Redemption of preferred stock -- (14,527) --
Dividends paid on preferred stock (695) (1,544) (1,544)
Dividends paid on common stock (60,000) (40,000) (75,000)
Contribution from parent corporation -- -- 20,000
--------- --------- ---------
Net cash required by financing activities (75,435) (19,405) (48,990)
--------- --------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities -- (1,367) 176
Cash and temporary cash investments, beginning of year -- 1,367 1,191
--------- --------- ---------
Cash and temporary cash investments, end of year $ -- $ -- $ 1,367
========= ========= =========
Supplemental Disclosure:
Interest paid $ 61,819 $ 63,162 $ 60,524
========= ========= =========
Income taxes paid $ 48,348 $ 43,098 $ 43,685
========= ========= =========
New capital lease obligations incurred $ 11,155 $ 715 $ 11,160
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-140
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- --------
Additions
--------------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful
accounts $3,818 $6,364 $2,186(a) $8,842(b) $3,526
Allowance for inventory
obsolescence 186 - - 119(c) 67
Year ended December 31, 1996
Allowance for doubtful
accounts $3,152 $5,961 $1,973(a) $7,268(b) $3,818
Allowance for inventory
obsolescence - 650 - 464(c) 186
Year ended December 31, 1995
Allowance for doubtful
accounts $1,182 $6,518 $1,516(a) $6,064(b) $3,152
Allowance for inventory
obsolescence - - - - -
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
</FN>
</TABLE>
F-141
Exhibits to be filed with 1997 10-K
3-B By-Laws of GPU dated December 19, 1997, as amended.
4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997.
10-A GPU System Companies Deferred Compensation Plan dated June 5, 1997.
10-B GPU System Companies Master Directors' Benefits Protection Trust
dated February 6, 1997.
10-C GPU System Companies Master Executives' Benefits Protection Trust
dated February 6, 1997.
10-G Incentive Compensation Plan for Elected Officers of JCP&L dated
February 6, 1997.
10-H Incentive Compensation Plan for Elected Officers of Met-Ed dated
February 6, 1997.
10-I Incentive Compensation Plan for Elected Officers of Penelec dated
February 6, 1997.
10-J Deferred Remuneration Plan for Outside Directors of JCP&L dated
June 5, 1997.
10-K JCP&L Supplemental and Excess Benefits Plan dated June 5, 1997.
10-L Met-Ed Supplemental and Excess Benefits Plan dated June 5, 1997.
10-M Penelec Supplemental and Excess Benefits Plan dated June 5, 1997.
10-N Letter agreements dated February 6, 1997 relating to supplemental
pension benefits for J.R. Leva.
10-O Letter agreement dated August 7,1997 relating to terms of
employment and pension benefits for I.H. Jolles.
10-P Letter agreement dated August 7,1997 relating to supplemental
pension benefits for J.G. Graham.
10-Q GPU, Inc. Restricted Stock Plan for Outside Directors dated
September 4, 1997.
10-R Retirement Plan for Outside Directors of GPU, Inc. dated
June 5, 1997.
10-S Deferred Remuneration Plan for Outside Directors of GPU, Inc. dated
October 8, 1997.
10-CC GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments through
June 5, 1997.
12 Statements Showing Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D -
Penelec
21 Subsidiaries of the Registrant
A - JCP&L
B - Met-Ed
C - Penelec
<PAGE>
Exhibits to be filed with 1997 10-K (continued)
23 Consent of Independent Accountants
A - GPU B - JCP&L C - Met-Ed D - Penelec
27 Financial Data Schedule
A - GPU B - JCP&L C - Met-Ed D - Penelec
I:\10k\1997\exhibits\exhibit list
EXHIBIT 3-B
GPU, INC.
-----------------
By-Laws
(As Amended December 4, 1997)
-----------------
<PAGE>
(As Amended December 4, 1997)
GPU, INC.
BY-LAWS
Offices
1. The principal office of the Corporation shall be in the County of
Morris, State of New Jersey. The Corporation may also have offices at such other
places as the Board of Directors may from time to time designate or the business
of the Corporation may require.
Seal
2. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Pennsylvania". If authorized by the Board of Directors, the corporate seal may
be affixed to any certificates of stock, bonds, debentures, notes or other
engraved, lithographed or printed instruments, by engraving, lithographing or
printing thereon such seal or a facsimile thereof, and such seal or facsimile
thereof so engraved, lithographed or printed thereon shall have the same force
and effect, for all purposes, as if such corporate seal had been affixed thereto
by indentation.
Stockholders' Meetings
3. All meetings of stockholders shall be held at the principal office of
the Corporation or at such other place as shall be stated in the notice of the
meeting. Such meetings shall be presided over by the chief executive officer of
the Corporation or, in his absence, by such other officer as shall have been
designated for the purpose by the Board of Directors, except when by statute the
election of a presiding officer is required.
4. Annual meetings of stockholders shall be held during the month of May
in each year on such day and at such time as shall be determined by the Board of
Directors and specified in the notice of the meeting. At the annual meeting the
stockholders
1
<PAGE>
entitled to vote shall elect by ballot a Board of Directors and transact such
other business as may properly be brought before the meeting. In advance of any
meeting of stockholders, the Board of Directors shall appoint three judges of
election, who need not be stockholders, to act at such meeting or an adjournment
thereof. If judges of election are not so appointed, the chairman of any such
meeting may, and on the request of any stockholder or his proxy shall, make such
appointment at the meeting. In case any person appointed as a judge of election
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment by the Board of Directors in advance of convening the meeting, or at
the meeting by the chairman of the meeting. No director, nominee for director or
other office, or officer of the Corporation shall be eligible for appointment or
election as a judge.
5. Except as otherwise provided by law or by the Articles of
Incorporation, as amended, the holders of a majority of the shares of stock of
the Corporation issued and outstanding and entitled to vote, present in person
or by proxy, shall be requisite for, and shall constitute a quorum at, any
meeting of the stockholders. If, however, the holders of a majority of such
shares of stock shall not be present or represented by proxy at any such
meeting, the stockholders entitled to vote thereat, present in person or by
proxy, shall have power, by vote of the holders of a majority of the shares of
capital stock present or represented at the meeting, to adjourn the meeting from
time to time without notice other than announcement at the meeting, until the
holders of the amount of stock requisite to constitute a quorum, as aforesaid,
shall be present in person or by proxy. At any adjourned meeting at which such
quorum shall be present, in person or by proxy, any business may be transacted
which might have been transacted at the meeting as originally noticed.
6. At each meeting of stockholders each holder of record of shares of
capital stock then entitled to vote shall be entitled to vote in person, or by
proxy appointed by instrument executed in writing by such stockholder or by his
duly authorized attorney; but no proxy shall be valid after the expiration of
eleven months from the date of its execution unless the stockholder executing it
shall have specified therein the length of time it is to continue in force,
which shall be for some specified period. As provided by the Articles of
Incorporation, as amended, at all elections of directors each holder of record
2
<PAGE>
of shares of capital stock then entitled to vote, shall be entitled to as many
votes as shall equal the number of votes which (except for such provision) he
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected, and he may
cast all such votes for a single director or may distribute them among the
number to be voted for, or any two or more of them, as he may see fit. Except as
otherwise provided by law or by the Articles of Incorporation, as amended, each
holder of record of shares of capital stock entitled to vote at any meeting of
stockholders shall be entitled to one vote for every share of capital stock
standing in his name on the books of the Corporation. Shares of capital stock of
the Corporation, belonging to the Corporation or to a corporation controlled by
the Corporation through stock ownership or through majority representation on
the board of directors thereof, shall not be voted and shall not be counted in
determining the total number of outstanding shares for voting purposes at any
given time. All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or by the Articles of Incorporation, as amended,
all other matters shall be determined by a vote of the holders of a majority of
the shares of the capital stock present or represented at a meeting and voting
on such questions.
7. A complete list of the stockholders entitled to vote at any meeting
of stockholders, arranged in alphabetical order, with the residence of each, and
the number of shares held by each, shall be prepared by the Secretary and filed
in the principal office of the Corporation at least five days before the
meeting, and shall be open to the examination of any stockholder at all times
prior to such meeting, during the usual hours for business, and shall be
available at the time and place of such meeting and open to the examination of
any stockholder.
8. Special meetings of the stockholders for any purpose or purposes,
unless otherwise prescribed by law, may be called by the Chairman or by the
President, and shall be called by the chief executive officer or Secretary at
the request in writing of any three members of the Board of Directors. Business
transacted at all special meetings of the stockholders shall be confined to the
purposes stated in the call.
9. (a) Notice of every meeting of stockholders, setting forth the time
and the place and briefly the purpose or purposes thereof, shall be mailed, not
less than ten nor more than ninety
3
<PAGE>
days prior to such meeting, to each stockholder of record (at his address
appearing on the stock books of the Corporation, unless he shall have filed with
the Secretary of the Corporation a written request that notices intended for him
be mailed to some other address, in which case it shall be mailed to the address
designated in such request) as of a date fixed by the Board of Directors
pursuant to Section 41 of the By-Laws. Except as otherwise provided by law, by
the Articles of Incorporation, as amended, or by the By-Laws, items of business,
in addition to those specified in the notice of meeting, may be transacted at
the annual meeting.
(b) At any annual meeting of stockholders, only such new business
shall be conducted, and only such proposals shall be acted upon, as shall have
been brought before the meeting (i) by, or at the direction of, the Board of
Directors or (ii) by any stockholder entitled to vote at such meeting. Only such
new business and only such proposals that have been raised in accordance with
the procedures set forth in this Section 9(b) shall be eligible for action or
consideration at an annual meeting.
In order for a proposal to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation as set forth in this Section
9(b). To be timely, a stockholder's notice must be delivered, mailed or
telegraphed to the principal executive offices of the Corporation not less than
30 days nor more than 75 days prior to the date of the originally scheduled
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that, if less than 40 days' notice
of the date of the scheduled meeting is given or made by the Corporation, notice
by the stockholder, to be timely, must be so delivered, mailed or telegraphed to
the Corporation not later than the close of business on the 10th day following
the day on which notice of the date of the scheduled meeting was first mailed to
stockholders. Such stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
proposal desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the number
of shares of the Corporation's common stock
4
<PAGE>
beneficially owned by such stockholder on the date of such stockholder's notice
and (d) any financial or other interest of such stockholder in the proposal.
The Board of Directors may reject any stockholder proposal not
timely made in accordance with this Section 9(b). If the Board of Directors
determines that the information provided in a stockholder's notice does not
satisfy the informational requirements hereof, the Secretary of the Corporation
shall promptly notify such stockholder of the deficiency in the notice. The
stockholder shall then have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed ten days from the date such deficiency notice is given to the
stockholder, as the Board of Directors shall determine. If the deficiency is not
cured within such period, or if the Board of Directors determines that the
additional information provided by the stockholder, together with the
information previously provided, does not satisfy the requirements of this
Section 9(b), then the Board of Directors may reject such stockholder's
proposal. The Secretary of the Corporation shall notify a stockholder in writing
whether his proposal has been made in accordance with the time and information
requirements hereof.
This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided.
Directors
10. (a) The business and affairs of the Corporation shall be managed by
its Board of Directors. At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, and until their successors have been elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the Pennsylvania Business Corporation Law. The directors of the Corporation
shall be divided into three classes as nearly equal in size as is practicable,
hereby designated Class I, Class II and Class III. The term of office of the
initial Class I directors shall expire at the next
5
<PAGE>
succeeding annual meeting of stockholders, the term of office of the initial
Class II directors shall expire at the second succeeding annual meeting of
stockholders and the term of office of the initial Class III directors shall
expire at the third succeeding annual meeting of the stockholders. For the
purposes hereof, the initial Class I, Class II and Class III directors shall be
the directors elected at the May 2, 1988 annual meeting and designated as
members of such Class. At each annual meeting after the May 2, 1988 annual
meeting, directors to replace those of a class whose terms expire at such annual
meeting shall be elected to hold office until the third succeeding annual
meeting and until their respective successors shall have been elected and shall
qualify. If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable. When
the number of directors is increased by the Board and any newly created
directorships are filled by the Board, there shall be no classification of the
additional directors until the next annual meeting of stockholders.
(b) The number of directors constituting the entire Board of
Directors shall be not less than five nor more than sixteen as may be fixed from
time to time by resolution adopted by a majority of the entire Board of
Directors; provided, however, that no decrease in the number of directors
constituting the entire Board of Directors shall shorten the term of any
incumbent director. In the event the number of directors is less than sixteen, a
majority of the entire Board of Directors may at any time increase the number of
directors to not more than sixteen. Each director shall be at least 21 years of
age and shall be a stockholder of the Corporation.
(c) Vacancies occurring on the Board of Directors for any reason
may be filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at any meeting of the Board of
Directors.
(d) A director serving in the status of director emeritus under
By-Laws in effect prior to July 2, 1987 shall be eligible to continue to serve
in that status.
(e) Nominations, other than those made by, or at the direction of,
a majority of the entire Board of Directors or a
6
<PAGE>
committee thereof shall be made only if timely written notice of such nomination
or nominations has been given to the Secretary of the Corporation. To be timely,
such notice shall be delivered, mailed or telegraphed to the principal executive
office of the Corporation not less than 30 days nor more than 75 days prior to
the meeting irrespective of any deferrals, postponements or adjournments thereof
to a later date; provided, however, that in the event that less than 40 days'
notice of the date of the meeting is given or made by the Corporation to
stockholders, notice by the stockholder to be timely must be so delivered,
mailed or telegraphed to the Corporation not later than the close of business on
the 10th day following the day on which such notice of the date of the meeting
was first mailed to stockholders. Each such notice to the Secretary of the
Corporation shall set forth: (i) the name and address of record of the
stockholder who intends to make the nomination; (ii) a representation that the
stockholder is a holder of record of shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) the name, age,
business and residence addresses, and principal occupation or employment of each
nominee; (iv) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (v) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission as then in
effect; and (vi) the consent of each nominee to serve as a director of the
Corporation if so elected. The Corporation may require any proposed nominee to
furnish such other information as may be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director of the
Corporation.
The Board of Directors may reject any nomination by a stockholder
not timely made or otherwise not in accordance with the terms of this Section
10(e). If the Board of Directors reasonably determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 10(e), the Secretary of the Corporation shall
promptly notify such stockholder of the deficiency in writing. The stockholder
shall have an opportunity
7
<PAGE>
to cure the deficiency by providing additional information to the Secretary
within such period of time, not to exceed ten days from the date such deficiency
notice is given to the stockholder, as the Board of Directors shall determine.
If the deficiency is not cured within such period, or if the Board of Directors
determines that the additional information provided by the stockholder, together
with the information previously provided, does not satisfy the requirements of
this Section 10(e), then the Board of Directors may reject such stockholder's
nomination. The Secretary of the Corporation shall notify a stockholder in
writing whether the nomination has been made in accordance with the time and
information requirements of this Section 10(e).
11. In addition to the powers and authority by the By-Laws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Articles of Incorporation, as amended, or by the By-Laws directed or required to
be exercised or done by the stockholders.
12. Unless otherwise required by law, in the absence of fraud no
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any corporation, partnership,
association and other organization in which one or more of its directors or
officers, are directors or officers, or have a financial interest shall be void
or voidable solely for such reason or solely because the director or officer is
present at or participates in the meeting of the Board of Directors which
authorize the contract or transaction, or solely because his votes are counted
for such purpose if:
(a) The material facts as to his interest and as to the contract
or transaction are disclosed or known to the Board of Directors,
and the Board authorized the contract or transaction by a vote
sufficient for such purposes without counting the vote of the
interested director or officer; or
(b) The material facts as to his interest and as to the contract
or transaction are disclosed or known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
8
<PAGE>
(c) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified by the Board of
Directors or the stockholders.
No director or officer shall be liable to account to the Corporation
for any profit realized by him from or through any such contract or transaction
of the Corporation by reason of his interest as aforesaid in such contract or
transaction if such contract or transaction shall be authorized, approved or
ratified as aforesaid.
No contract or other transaction between the Corporation and any of
its subsidiaries shall in any case be void or voidable or otherwise affected
because of the fact that directors or officers of the Corporation are directors
or officers of such subsidiary, nor shall any such director or officer, because
of such relation, be deemed interested in such contract or other transaction
under any of the provisions of this Section 12, nor shall any such director be
liable to account because of such relation. For the purpose of this Section 12,
the term "subsidiary" shall mean any corporation, more than 50% of whose issued
and outstanding shares having ordinary voting power may at the time be owned by
this Corporation and/or by one or more subsidiaries as said term is herein
defined.
Nothing herein shall create liability in any of the events described
in this Section 12 or prevent the authorization, ratification or approval, in
any other manner provided by law, of any contract or transaction described in
this Section 12.
Meetings of the Board of Directors
13. The first meeting of the Board of Directors, for the purpose of
organization, the election of officers, and the transaction of any other
business which may come before the meeting, shall be held on call of the
Chairman within one week after the annual meeting of stockholders. If the
Chairman shall fail to call such meeting, it may be called by the President or
by any director. Notice of such meeting shall be given in the manner prescribed
for Special Meetings of the Board of Directors.
14. Regular meetings of the Board of Directors may be held without
notice except for the purpose of taking action on matters as to which notice is
in the By-Laws required to be given, at such time and place as shall from time
to time be designated by
9
<PAGE>
the Board, but in any event at intervals of not more than three months. Special
meetings of the Board of Directors may be called by the Chairman or by the
President or in the absence or disability of the Chairman and the President, by
a Vice President, or by any two directors, and may be held at the time and place
designated in the call and notice of the meeting.
15. Except as otherwise provided by the By-Laws, any item or business may
be transacted at any meeting of the Board of Directors, whether or not such item
of business shall have been specified in the notice of meeting. Where notice of
any meeting of the Board of Directors is required to be given by the By-Laws,
the Secretary or other officer performing his duties shall give notice either
personally or by telephone or telegraph at least twenty-four hours before the
meeting, or by mail at least three days before the meeting. Meetings may be held
at any time and place without notice if all the directors are present or if
those not present waive notice in writing either before or after the meeting.
16. At all meetings of the Board of Directors a majority of the
directors in office shall be requisite for, and shall constitute, a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law or by the
Articles of Incorporation, as amended, or by the By-Laws.
17. Any regular or special meeting may be adjourned to any time or
place by a majority of the directors present at the meeting, whether or not a
quorum shall be present at such meeting, and no notice of the adjourned meeting
shall be required other than announcement at the meeting.
Committees
18. The Board of Directors may, by the vote of a majority of the
directors in office, create an Executive Committee, consisting of three or more
members, of whom one shall be the chief executive officer of the Corporation.
The other members of the Executive Committee shall be designated by the Board of
Directors from their number, shall hold office for such period as the Board of
Directors shall determine and may be removed at any time by the Board of
Directors. When a member of the Executive Committee ceases to be a director, he
shall cease to be a member
10
<PAGE>
of the Executive Committee. The Executive Committee shall have all the powers
specifically granted to it by the By-Laws and, between meetings of the Board of
Directors, may also exercise all the powers of the Board of Directors except
such powers as the Board of Directors may exercise by virtue of Section 11 of
the By-Laws. The Executive Committee shall have no power to revoke any action
taken by the Board, and shall be subject to any restriction imposed by law, by
the By-Laws, or by the Board of Directors.
19. The Executive Committee shall cause to be kept regular minutes of
its proceedings, which may be transcribed in the regular minute book of the
Corporation, and all such proceedings shall be reported to the Board of
Directors at its next succeeding meeting, and the action of the Executive
Committee shall be subject to revision or alteration by the Board of Directors,
provided that no rights which, in the absence of such revision or alteration,
third persons would have had shall be affected by such revision or alteration. A
majority of the Executive Committee shall constitute a quorum at any meeting.
The Board of Directors may by vote of a majority of the directors in office fill
any vacancies in the Executive Committee. The Executive Committee shall
designate one of its number as Chairman of the Executive Committee and may, from
time to time, prescribe rules and regulations for the calling and conduct of
meetings of the Committee, and other matters relating to its procedure and the
exercise of its powers.
20. From time to time the Board of Directors may appoint any other
committee or committees for any purpose or purposes, which committee or
committees shall have such powers and such tenure of office as shall be
specified in the resolution of appointment. The chief executive officer of the
Corporation shall be a member ex officio of all committees of the Board.
Compensation and Reimbursement of Directors and
Members of the Executive Committee
21. Directors, other than salaried officers, shall receive
compensation and benefits for their services as directors, at such rate or under
such conditions as shall be fixed from time to time by the Board, and all
directors shall be reimbursed for their reasonable expenses, if any, of
attendance at each regular or special meeting of the Board of Directors.
11
<PAGE>
22. Directors who are members of any Committee of the Board shall
receive compensation for their services as such members as shall be fixed from
time to time by the Board and shall be reimbursed for their reasonable expenses,
if any, in attending meetings of such Committee or otherwise performing their
duties as members of such Committee.
Officers
23. The officers of the Corporation shall be chosen by vote of a
majority of the directors in office and shall be a President, one or more Vice
Presidents, a Secretary, a Treasurer, and a Comptroller, and may include a
Chairman, one or more Assistant Secretaries, one or more Assistant Treasurers,
and one or more Assistant Comptrollers. If a Chairman shall be chosen, the Board
of Directors shall designate either the Chairman or the President as chief
executive officer of the Corporation. If a Chairman shall not be chosen, the
President shall be the chief executive officer of the Corporation. The Chairman
and a President who is designated chief executive officer of the Corporation
shall be chosen from among the directors. A President who is not chief executive
officer of the Corporation and none of the other officers need be a director.
Any two offices may be occupied and the duties thereof may be performed by one
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity.
24. The officers of the Corporation shall receive such salaries as
shall be determined from time to time by the Board of Directors. Pending action
by the Board of Directors, the Executive Committee, or, if there be none, the
chief executive officer may choose, and determine the salaries of, persons who
may temporarily fill the offices of Assistant Secretary or Assistant Treasurer.
25. The Board of Directors or the Executive Committee may appoint such
officers and such representatives or agents as shall be deemed necessary, who
shall hold office for such terms, exercise such powers, perform such duties, and
receive such salaries or other compensation, as shall be determined from time to
time by action of the Board of Directors, or, pending action of the Board of
Directors, by the Executive Committee.
12
<PAGE>
26. The salary or other compensation of all other employees shall, in
the absence of any action by the Board of Directors, be fixed by the chief
executive officer of the Corporation or by such other officer as shall be
designated for that purpose by the Board of Directors.
27. The officers of the Corporation shall hold office until the first
meeting of the Board of Directors after the next succeeding annual meeting of
stockholders and until their respective successors are chosen and qualify. Any
officer elected pursuant to Section 23 of the By-Laws may be removed at any
time, with or without cause, by the vote of a majority of the directors in
office. Any other officer and any representative, employee or agent of the
Corporation may be removed at any time, with or without cause, by action of the
Board of Directors, or, in the absence of action by the Board of Directors, by
the Executive Committee, or the chief executive officer of the Corporation, or
such other officer as shall have been designated for that purpose by the chief
executive officer of the Corporation.
The Chairman
28. (a) If a Chairman shall be chosen by the Board of Directors, he
shall preside at all meetings of the Board at which he shall be present.
(b) If a Chairman shall be chosen by the Board of Directors
and if he shall be designated by the Board as chief executive officer of the
Corporation,
(i) he shall have supervision, direction and control of
the conduct of the business of the Corporation, subject,
however, to the control of the Board of Directors and
the Executive Committee, if there be one;
(ii) he may sign in the name and on behalf of the
Corporation any and all contracts, agreements or other
instruments pertaining to matters which arise in the
ordinary course of business of the Corporation, and,
when authorized by the Board of Directors or the
Executive Committee, if there be one, may sign in the
name and on behalf of the Corporation any and all
contracts, agreements or
13
<PAGE>
other instruments of any nature pertaining to the
business of the Corporation;
(iii) he may, unless otherwise directed by the Board of
Directors pursuant to Section 38 of the By-Laws, attend
in person or by substitute or proxy appointed by him and
act and vote on behalf of the Corporation at all
meetings of stockholders of any corporation in which the
Corporation holds stock and grant any consent, waiver,
or power of attorney in respect of such stock;
(iv) he shall, whenever it may in his opinion be
necessary or appropriate, prescribe the duties of
officers and employees of the Corporation whose duties
are not otherwise defined; and
(v) he shall have such other powers and perform such
other duties as may be prescribed from time to time by
law, by the By-Laws, or by the Board of Directors.
(c) If a Chairman shall be chosen by the Board of Directors
and if he shall not be designated by the Board as chief
executive officer of the Corporation,
(i) he may sign in the name and on behalf of the
Corporation any and all contracts, agreements or other
instruments pertaining to matters which arise in the
ordinary course of business of the Corporation and, when
authorized by the Board of Directors or the Executive
Committee, if there be one, may sign in the name and on
behalf of the Corporation any and all contracts,
agreements or other instruments of any nature pertaining
to the business of the Corporation;
(ii) he shall have such other powers and perform such
other duties as may be prescribed from time to time by
law, by the By-Laws, or by the Board of Directors.
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The President
29. (a) If a Chairman shall not be chosen by the Board of Directors,
the President shall preside at all meetings of the Board at which he shall be
present.
(b) If the President shall be designated by the Board of Directors
as chief executive officer of the Corporation,
(i) he shall have supervision, direction and control of
the conduct of the business of the Corporation, subject,
however, to the control of the Board of Directors and
the Executive Committee, if there be one;
(ii) he may sign in the name and on behalf of the
Corporation any and all contracts, agreements or other
instruments pertaining to matters which arise in the
ordinary course of business of the Corporation, and,
when authorized by the Board of Directors or the
Executive Committee, if there be one, may sign in the
name and on behalf of the Corporation any and all
contracts, agreements, or other instruments of any
nature pertaining to the business of the Corporation;
(iii) he may, unless otherwise directed by the Board of
Directors pursuant to Section 38 of the By-Laws, attend
in person or by substitute or proxy appointed by him and
act and vote on behalf of the Corporation at all
meetings of the stockholders of any corporation in which
the Corporation holds stock and grant any consent,
waiver, or power of attorney in respect of such stock;
(iv) he shall, whenever it may in his opinion be
necessary or appropriate, prescribe the duties of
officers and employees of the Corporation whose duties
are not otherwise defined; and
(v) he shall have such other powers and perform such
other duties as may be prescribed from time to time by
law, by the By-Laws, or by the Board of Directors.
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(c) If the Chairman shall be designated by the Board of Directors as
chief executive officer of the Corporation, the President,
(i) shall be the chief operating officer of the Corporation;
(ii) shall have supervision, direction and control of the conduct
of the business of the Corporation or in the absence or
disability of the Chairman, subject, however, to the control of
the Board of Directors and the Executive Committee, if there be
one;
(iii) may sign in the name and on behalf of the Corporation any
and all contracts, agreements or other instruments pertaining to
matters which arise in the ordinary course of business of the
Corporation, and, when authorized by the Board of Directors or the
Executive Committee, if there be one, may sign in the name and on
behalf of the Corporation any and all contracts, agreements or
other instruments of any nature pertaining to the business of the
Corporation;
(iv) at the request or in the absence or disability of the
Chairman, may, unless otherwise directed by the Board of Directors
pursuant to Section 38 of the By-Laws, attend in person or by
substitute or proxy appointed by him and act and vote on behalf of
the Corporation at all meetings of the stockholders of any
corporation in which the Corporation holds stock and grant any
consent, waiver, or power of attorney in respect of such stock;
(v) at the request or in the absence or disability of the
Chairman, whenever in his opinion it may be necessary or
appropriate, shall prescribe the duties of officers and employees
of the Corporation whose duties are not otherwise defined; and
(vi) shall have such other powers and perform such other duties as
may be prescribed from time to time by law, by the By-Laws, or by
the Board of Directors.
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Vice President
30. (a) The Vice President shall, in the absence or disability of the
President, if the President has been designated chief executive officer of the
Corporation or if the President is acting pursuant to the provisions of
Subsection 29 (c) (ii) of the By-Laws, have supervision, direction and control
of the conduct of the business of the Corporation, subject, however, to the
control of the Directors and the Executive Committee, if there be one.
(b) He may sign in the name of and on behalf of the Corporation
any and all contracts, agreements or other instruments pertaining to matters
which arise in the ordinary course of business of the Corporation, and, when
authorized by the Board of Directors or the Executive Committee, if there be
one, except in cases where the signing thereof shall be expressly delegated by
the Board of Directors or the Executive Committee to some other officer or agent
of the Corporation.
(c) He may, if the President has been designated chief executive
officer of the Corporation or if the President is acting pursuant to the
provisions of Subsection 29 (c) (ii) of the By-Laws, at the request or in the
absence or disability of the President or in case of the failure of the
President to appoint a substitute or proxy as provided in Subsections 29 (b)
(iii) and 29 (c) (iv) of the By-Laws, unless otherwise directed by the Board of
Directors pursuant to Section 38 of the By-Laws, attend in person or by
substitute or proxy appointed by him and act and vote on behalf of the
Corporation at all meetings of the stockholders of any corporation in which the
Corporation holds stock and grant any consent, waiver or power of attorney in
respect of such stock.
(d) He shall have such other powers and perform such other duties
as may be prescribed from time to time by law, by the By-Laws, or by the Board
of Directors.
(e) If there be more than one Vice President, the Board of
Directors may designate one or more of such Vice Presidents as a Senior Vice
President. The Board of Directors may assign to such Vice Presidents their
respective duties and may, if the President has been designated chief executive
officer of the Corporation or if the President is acting pursuant to the
provisions of Subsection 29 (c) (ii) of the By-Laws, designate
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the order in which the respective Vice Presidents shall have supervision,
direction and control of the business of the Corporation in the absence or
disability of the President.
The Secretary
31. (a) The Secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all votes and the minutes of all
proceedings in books to be kept for that purpose; and he shall perform like
duties for the Executive Committee and any other committees created by the Board
of Directors.
(b) He shall give, or cause to be given, notice of all meetings of
the stockholders, the Board of Directors, or the Executive Committee of which
notice is required to be given by law or by the By-Laws.
(c) He shall have such other powers and perform such other duties
as may be prescribed from time to time by law, by the By-Laws, or the Board of
Directors.
(d) Any records kept by the Secretary shall be the property of the
Corporation and shall be restored to the Corporation in case of his death,
resignation, retirement or removal from office.
(e) He shall be the custodian of the seal of the Corporation and,
pursuant to Section 45 of the By-Laws and in other instances where the execution
of documents in behalf of the Corporation is authorized by the By-Laws or by the
Board of Directors, may affix the seal to all instruments requiring it and
attest the ensealing and the execution of such instruments.
(f) He shall have control of the stock ledger, stock certificate
book and all books containing minutes of any meeting of the stockholders, Board
of Directors, or Executive Committee or other committee created by the Board of
Directors, and of all formal records and documents relating to the corporate
affairs of the Corporation.
(g) Any Assistant Secretary or Assistant Secretaries shall assist
the Secretary in the performance of his duties, shall exercise his powers and
duties at his request or in his
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absence or disability, and shall exercise such other powers and duties as may be
prescribed by the Board of Directors.
The Treasurer
32. (a) The Treasurer shall be responsible for the safekeeping of the
corporate funds and securities of the Corporation, and shall maintain and keep
in his custody full and accurate accounts of receipts and disbursements in books
belonging to the Corporation, and shall deposit all moneys and other funds of
the Corporation in the name and to the credit of the Corporation, in such
depositories as may be designated by the Board of Directors.
(b)He shall disburse the funds of the Corporation in such manner
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements.
(c)Pursuant to Section 45 of the By-Laws, he may, when authorized
by the Board of Directors, affix the seal to all instruments requiring it and
shall attest the ensealing and execution of said instruments.
(d)He shall exhibit at all reasonable times his accounts and
records to any director of the Corporation upon application during business
hours at the office of the Corporation where such accounts and records are kept.
(e)He shall render an account of all his transactions as
Treasurer at all regular meetings of the Board of Directors, or whenever the
Board may require it, and at such other times as may be requested by the Board
or by any director of the Corporation.
(f)If required by the Board of Directors, he shall give the
Corporation a bond, the premium on which shall be paid by the Corporation, in
such form and amount and with such surety or sureties as shall be satisfactory
to the Board, for the faithful performance of the duties of his office, and for
the restoration to the Corporation in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to the
Corporation.
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(g)He shall perform all duties generally incident to the office of
Treasurer, and shall have other powers and duties as from time to time may be
prescribed by law, by the By-Laws, or by the Board of Directors.
(h)Any Assistant Treasurer or Assistant Treasurers shall assist
the Treasurer in the performance of his duties, shall exercise his powers and
duties at his request or in his absence or disability, and shall exercise such
other powers and duties as may be prescribed by the Board of Directors. If
required by the Board of Directors, any Assistant Treasurer shall give the
Corporation a bond, the premium on which shall be paid by the Corporation,
similar to that which may be required to be given by the Treasurer.
Comptroller
33. (a) The Comptroller of the Corporation shall be the principal
accounting officer of the Corporation and shall be accountable and report
directly to the Board of Directors. If required by the Board of Directors, the
Comptroller shall give the Corporation a bond, the premium on which shall be
paid by the Corporation in such form and amount and with such surety or sureties
as shall be satisfactory to the Board, for the faithful performance of the
duties of his office.
(b)He shall keep or cause to be kept full and complete books of
account of all operations of the Corporation and of its assets and liabilities.
(c) He shall have custody of all accounting records of the
Corporation other than the record of receipts and disbursements and those
relating to the deposit or custody of money or securities of the Corporation,
which shall be in the custody of the Treasurer.
(d) He shall exhibit at all reasonable times his books of account
and records to any director of the Corporation upon application during business
hours at the office of the Corporation where such books of account and records
are kept.
(e) He shall render reports of the operations and business and of
the condition of the finances of the Corporation at regular meetings of the
Board of Directors, and at such other times as he may be requested by the Board
or by any director of
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the Corporation, and shall render a full financial report at the annual meeting
of the stockholders, if called upon to do so.
(f) He shall receive and keep in his custody an original copy of
each written contract made by or on behalf of the Corporation.
(g) He shall receive periodic reports from the Treasurer of the
Corporation of all receipts and disbursements, and shall see that correct
vouchers are taken for all disbursements for any purpose.
(h) He shall perform all duties generally incident to the office
of Comptroller, and shall have such other powers and duties as from time to time
may be prescribed by law, by the By-Laws, or by the Board of Directors.
(i) Any Assistant Comptroller or Assistant Comptrollers shall
assist the Comptroller in the performance of his duties, shall exercise his
powers and duties at his request or in his absence or disability and shall
exercise such other powers and duties as may be conferred or required by the
Board of Directors. If required by the Board of Directors, any Assistant
Comptroller shall give the Corporation a bond, the premium on which shall be
paid by the Corporation, similar to that which may be required to be given by
the Comptroller.
Vacancies
34. If the office of any director becomes vacant by reason of death,
resignation, retirement, disqualification, increase in the number of directors,
or otherwise, the remaining directors, by the vote of a majority of those then
in office, at a meeting, the notice of which shall have specified the filling of
such vacancy as one of its purposes, may choose a successor, who shall hold
office until the next succeeding annual meeting of stockholders of the
Corporation and until his successor shall have been elected and qualified. If
the office of any officer of the Corporation shall become vacant for any reason,
the Board of Directors, at a meeting, the notice of which shall have specified
the filling of such vacancy as one of its purposes, may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. Pending action by the Board of Directors at such meeting, the Board of
Directors or the Executive Committee may choose a successor temporarily to serve
as an officer of the Corporation.
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Resignations
35. Any officer or any director of the Corporation may resign at any time,
such resignation to be made in writing and transmitted to the Secretary. Such
resignation shall take effect from the time of its acceptance, unless some time
be fixed in the resignation, and then from that time. Nothing herein shall be
deemed to relieve any officer from liability for breach of any contract of
employment resulting from any such resignation.
Duties of Officers May be Delegated
36. In case of the absence or disability of any officer of the
Corporation, or for any other reason the Board of Directors may deem sufficient,
the Board, by vote of a majority of directors then in office may,
notwithstanding any other provisions of the By-Laws, delegate or assign, for the
time being, the powers or duties, or any of them, of such officer to any other
officer or to any director.
Indemnification of Directors, Officers and Employees
37. (a) A director shall not be personally liable for monetary damages as
such for any action taken, or any failure to take any action, on or after
January 27, 1987 unless the director has breached or failed to perform the
duties of his office under Section 1721 of the Business Corporation Law as the
same may be amended from time to time, and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The provisions of
this subsection (a) shall not apply to the responsibility or liability of a
director pursuant to any criminal statute, or the liability of a director for
the payment of taxes pursuant to local, state or Federal law.
(b)The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Corporation or otherwise, by reason of the fact that he was a
director, officer or employee of the Corporation (and may indemnify any person
who was an agent of the Corporation), or a person serving at the request of the
Corporation as a director, officer, partner, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
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enterprise, to the fullest extent permitted by law, including without limitation
indemnification against expenses (including attorneys' fees and disbursements),
damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such proceeding unless the act or failure to act giving rise to the claim for
indemnification is finally determined by a court to have constituted willful
misconduct or recklessness.
(c)The Corporation shall pay the expenses (including attorneys'
fees and disbursements) actually and reasonably incurred in defending a civil or
criminal action, suit or proceeding on behalf of any person entitled to
indemnification under subsection (b) in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation, and may pay such expenses in advance on
behalf of any agent on receipt of a similar undertaking. The financial ability
of such person to make such repayment shall not be a prerequisite to the making
of an advance.
(d)For purposes of this Section: (i) the Corporation shall be
deemed to have requested an officer, director, employee or agent to serve as
fiduciary with respect to an employee benefit plan where the performance by such
person of duties to the Corporation also imposes duties on, or otherwise
involves services by, such person as a fiduciary with respect to the plan; (ii)
excise taxes assessed with respect to any transaction with an employee benefit
plan shall be deemed "fines"; and (iii) action taken or omitted by such person
with respect to an employee benefit plan in the performance of duties for a
purpose reasonably believed to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
(e)To further effect, satisfy or secure the indemnification
obligations provided herein or otherwise, the Corporation may maintain
insurance, obtain a letter of credit, act as self-insurer, create a reserve,
trust, escrow, cash collateral or other fund or account, enter into
indemnification agreements, pledge or grant a security interest in any assets or
properties of the Corporation, or use any other mechanism or arrangement
whatsoever in such amounts, at such costs, and upon such other terms and
conditions as the Board of Directors shall deem appropriate.
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(f)All rights of indemnification under this Section shall be deemed a contract
between the Corporation and the person entitled to indemnification under this
Section pursuant to which the Corporation and each such person intend to be
legally bound. Any repeal, amendment or modification hereof shall be prospective
only and shall not limit, but may expand, any rights or obligations in respect
of any proceeding whether commenced prior to or after such change to the extent
such proceeding pertains to actions or failures to act occurring prior to such
change.
(g)The indemnification, as authorized by this Section, shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any statute, agreement, vote of
shareholders, or disinterested directors or otherwise, both as to action in an
official capacity and as to action in any other capacity while holding such
office. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section shall continue as to a person who has ceased to be an
officer, director, employee or agent in respect of matters arising prior to such
time, and shall inure to the benefit of the heirs, executors and administrators
of such person.
Stock of Other Corporations
38. The Board of Directors may authorize any director, officer or other
person on behalf of the Corporation to attend, act and vote at meetings of the
stockholders of any corporation in which the Corporation shall hold stock, and
to exercise thereat any and all of the rights and powers incident to the
ownership of such stock and to execute waivers of notice of such meetings and
calls therefor.
Certificates of Stock
39. (a) Shares of the Corporation shall be represented by certificates or,
except as limited by law, uncertificated shares.
(b) The certificates of stock of the Corporation shall be numbered and
shall be entered in the books of the Corporation as they are issued. They shall
exhibit the holder's name and number of shares and may include his address. No
fractional shares of stock shall be issued. Certificates of stock shall be
signed by the Chairman, President or a Vice President and by the
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Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
and shall be sealed with the seal of the Corporation. Where certificate of stock
is signed by a transfer agent (who may but not need be an officer or employee of
the Corporation) and registrar, the signature of any such Chairman, President,
Vice President, Secretary, Assistant Secretary, Treasurer, or Assistant
Treasurer upon such certificate may be facsimiles, engraved or printed. In case
any such officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such before such certificate of
stock is issued, it may be issued by the Corporation with the same effect as if
such officer had not ceased to be such at the date of its issue.
(c) Uncertificated shares may be issued upon initial issuance of
shares or upon transfer of certificated shares after surrender thereof to the
Corporation. Within a reasonable time after issuance or transfer of
uncertificated shares, the Corporation shall send to the registered owner the
information required to be set forth on the face of the certificate by Section
39(b) above.
Transfer of Stock
40. Transfers of stock shall be made on the books of the Corporation only
by the person named in the certificate or by attorney, lawfully constituted in
writing, and upon surrender of the certificate therefor.
Fixing of Record Date
41 The Board of Directors is hereby authorized to fix a time, not
exceeding ninety (90) days preceding the date of any meeting of stockholders or
the date fixed for the payment of any dividend or the making of any
distribution, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of capital stock, as
a record time for the determination of the stockholders entitled to notice of
and to vote at such meeting or entitled to receive any such dividend,
distribution, rights or interests, as the case may be; and all persons who are
holders of record of capital stock at the time so fixed and no others, shall be
entitled to notice of and to vote at such meeting, and only stockholders of
record at such time shall be entitled to receive any such notice, dividend,
distribution, rights or interests.
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Registered Stockholders
42. The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly shall not
be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by statutes of the Commonwealth
of Pennsylvania.
Lost Certificates
43. Any person claiming a certificate of stock to be lost or destroyed
shall make an affidavit or affirmation of that fact, whereupon a new certificate
may be issued of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed; provided, however, that the Board of Directors
may require, as a condition to the issuance of a new certificate, the payment of
the reasonable expenses of such issuance or the furnishing of a bond of
indemnity in such form and amount and with such surety or sureties, or without
surety, as the Board of Directors shall determine or both the payment of such
expenses and the furnishing of a bond of indemnity in such form and amount and
with such surety expenses and the furnishings of such bond, and may also require
the advertisement of such loss in such manner as the Board of Directors may
prescribe.
Inspection of Books
44. The Board of Directors may determine whether and to what extent, and
at what time and places and under what conditions and regulations, the accounts
and books of the Corporation (other than the books required by statute to be
open to the inspection of stockholders), or any of them, shall be open to the
inspection of stockholders, and no stockholder shall have any right to inspect
any account or book or document of the Corporation, except as such right may be
conferred by statutes of the Commonwealth of Pennsylvania or by the By-Laws or
by resolution of the Board of Directors or of the stockholders.
Checks, Notes, Bonds and Other Instruments
45. (a) All checks or demands for money and notes of the Corporation shall
be signed by such person or persons (who may but need not be an officer or
officers of the Corporation) as the
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Board of Directors may from time to time designate, either directly or through
such officers of the Corporation as shall, by resolution of the Board of
Directors, be authorized to designate such person or persons. If authorized by
the Board of Directors, the signatures of such persons, or any of them, upon any
checks for the payment of money may be made by engraving, lithographing or
printing thereon a facsimile of such signatures, in lieu of actual signatures,
and such facsimile signatures so engraved, lithographed or printed thereon shall
have the same force and effect as if such persons had actually signed the same.
(b) All bonds, mortgages and other instruments requiring a seal,
when required in connection with matters which arise in the ordinary course of
business or when authorized by the Board of Directors, shall be executed on
behalf of the Corporation by the Chairman, or the President or a Vice President,
and the seal of the Corporation shall be thereupon affixed by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer, who shall,
when required, attest the ensealing and execution of said instrument. If
authorized by the Board of Directors, a facsimile of the seal may be employed
and such facsimile of the seal may be engraved, lithographed or printed and
shall have the same force and effect as an impressed seal. If authorized by the
Board of Directors, the signatures of the Chairman, or the President, or a Vice
President and the Secretary, or an Assistant Secretary, or the Treasurer, or an
Assistant Treasurer upon any engraved, lithographed or printed bonds,
debentures, notes or other instruments may be made by engraving, lithographing
or printing thereon a facsimile of such signatures, in lieu of actual
signatures, and such facsimile signatures so engraved, lithographed or printed
thereon shall have the same force and effect as if such officers had actually
signed the same. In case any officer who has signed, or whose facsimile
signature appears on, any such bonds, debentures, notes or other instruments
shall cease to be such officer before such bonds, debentures, notes or other
instruments shall have been delivered by the Corporation, such bonds,
debentures, notes or other instruments may nevertheless be adopted by the
Corporation and be issued and delivered as though the person who signed the
same, or whose facsimile signature appears thereon, had not ceased to be such
officer of the Corporation.
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Receipts for Securities
46. All receipts for stocks, bonds or other securities received by the
Corporation shall be signed by the Treasurer or an Assistant Treasurer, or by
such other person or persons as the Board of Directors or Executive Committee
shall designate.
Fiscal Year
47. The fiscal year shall begin the first day of January in each year.
Dividends
48. (a) Dividends in the form of cash or securities, upon the capital
stock of the Corporation, to the extent permitted by law, may be declared by the
Board of Directors at any regular or special meeting.
(b) The Board of Directors shall have power to fix and determine,
and from time to time to vary, the amount to be reserved as working capital; to
determine whether any, and if any, what part of any, surplus of the Corporation
shall be declared as dividends; to determine the date or dates for the
declaration and payment or distribution of dividends; and, before payment of any
dividend or the making of any distribution to set aside out of the surplus of
the Corporation such amount or amounts as the Board of Directors from time to
time, in its absolute discretion, may think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for such other purpose as it
shall deem to be in the interests of the Corporation.
Directors' Annual Statement
49. The Board of Directors shall present or cause to be presented at each
annual meeting of stockholders, and when called for by vote of the stockholders
at any special meeting of the stockholders, a full and clear statement of the
business and condition of the Corporation.
Notices
50. (a) Whenever under the provisions of the By-Laws notice is required to
be given to any director, officer or stockholder,
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it shall not be construed to require personal notice, but, except as otherwise
specifically provided, such notice may be given in writing, by mail, by
depositing a copy of the same in a post office, letter box or mail chute,
maintained by the United States Postal Service, postage prepaid, addressed to
such stockholder, officer or director, at his address as the same appears on the
books of the Corporation.
(b) A stockholder, director or officer may waive in writing any
notice required to be given to him by law or by the By-Laws.
Participation in Meetings by Telephone
51. At any meeting of the Board of Directors or the Executive Committee or
any other committee designated by the Board of Directors, one or more directors
may participate in such meeting in lieu of attendance in person by means of the
conference telephone or similar communications equipment by means of which all
persons participating in the meeting will be able to hear and speak.
Oath of Judges of Election
52. The judges of election appointed to act at any meeting of the
stockholders shall, before entering upon the discharge of their duties, be sworn
faithfully to execute the duties of judge at such meeting with strict
impartiality and according to the best of their ability.
Amendments
53. The By-Laws may be altered or amended by the affirmative vote of the
holders of a majority of the capital stock represented and entitled to vote at a
meeting of the stockholders duly held, provided that the notice of such meeting
shall have included notice of such proposed amendment. Any amendment of the
By-Laws proposed by an officer or the Board of Directors of the Corporation for
consideration at a meeting of stockholders, or any amendment proposed for such
consideration in writing to the Secretary by a stockholder consistently with the
then applicable rules and regulations of the Securities and Exchange Commission
relating to proxy solicitation, shall be included in the notice of the meeting.
The By-Laws may also be altered or amended by the affirmative vote of a majority
of the directors in office at
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a meeting of the Board of Directors, the notice of which shall have included
notice of the proposed amendment. In the event of the adoption, amendment, or
repeal of any By-Law by the Board of Directors pursuant to this Section, there
shall be set forth in the notice of the next meeting of stockholders for the
election of directors the By-Law so adopted, amended or repealed together with a
concise statement of the changes made. By the affirmative vote of the holders of
a majority of the capital stock represented and entitled to vote at such
meeting, the By-Laws may, without further notice, be altered or amended by
amending or repealing such action by the Board of Directors.
54. Subchapter G of the Business Corporation Law of 1988 (relating to
control-share acquisitions) shall not be applicable to the Corporation.
55. Subchapter H of the Business Corporation Law of 1988 (relating to
disgorgement by certain controlling shareholders following attempts to acquire
control) shall not be applicable to the Corporation.
30
EXHIBIT 4-B-36
METROPOLITAN EDISON COMPANY
TO
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee.
SUPPLEMENTAL INDENTURE
Dated as of May 1, 1997
UNITED STATES TRUST COMPANY OF NEW YORK
hereby certifies that its Residence
and Post Office Address is
114 West 47th Street
New York, New York 10036-1532
UNITED STATES TRUST COMPANY OF NEW YORK
By
<PAGE>
THIS SUPPLEMENTAL INDENTURE, made as of the 1st day of May, 1997, between
METROPOLITAN EDISON COMPANY, a corporation of the Commonwealth of Pennsylvania,
hereinafter sometimes referred to as the "Company", party of the first part, and
UNITED STATES TRUST COMPANY OF NEW YORK, a national banking association
organized and existing under the laws of the United States of America, having
its principal place of business in New York, New York, as Trustee under the
Mortgage hereinafter referred to, hereinafter sometimes referred to as the
"Trustee", party of the second part;
WHEREAS, the Company has heretofore executed and delivered to Guaranty
Trust Company of New York, as Trustee, its Indenture dated November 1, 1944
(hereinafter sometimes referred to as the "Original Indenture"), which was duly
amended and supplemented by various indentures supplemental thereto, and which
is hereby further supplemented by this Supplemental Indenture, all of which are
herein collectively referred to as the "Mortgage"; and
WHEREAS, United States Trust Company of New York is the successor
Trustee under the Mortgage; and
WHEREAS, the Company has entered into a Pollution Control Facilities Loan
Agreement (hereinafter sometimes referred to as the "Agreement") dated as of May
1, 1997 with Indiana County Industrial Development Authority (hereinafter
sometimes referred to as the "Authority"), a public instrumentality of the
Commonwealth of Pennsylvania and a body corporate and politic,
<PAGE>
organized by the County of Indiana, Pennsylvania and duly existing under the
Pennsylvania Economic Development Financing Law (formerly known as the
Pennsylvania Industrial and Commercial Development Authority Law, as amended),
pursuant to which the proceeds of the issuance by the Authority of its Pollution
Control Revenue Bonds, 1997 Series A (Metropolitan Edison Company
Project)(hereinafter sometimes referred to as the "Authority Bonds") under a
Trust Indenture dated as of May 1, 1997 (hereinafter sometimes referred to as
the "Authority Indenture") between the Authority and United States Trust Company
of New York, as Trustee (hereinafter sometimes referred to as the "Authority
Trustee") are to be used to provide funds to pay the costs of refunding the
$13,690,000 aggregate principal amount of the Authority's Promissory Revenue
Notes (Metropolitan Edison Company Project) which provided financing for a
portion of the Company's share of a project consisting of the acquisition and
construction of certain solid waste disposal facilities (hereinafter sometimes
referred to as the "Project Facilities") at the Conemaugh Generating Station in
Indiana County, Pennsylvania which are owned as tenants-in-common by various
utilities, including the Company; and
WHEREAS, to satisfy its obligations under the Agreement, the Company
desires by this Supplemental Indenture to create, and to define, in so far as
the same is permitted by the Original Indenture, the form of and certain other
matters with respect to
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<PAGE>
the series of bonds to be issued under the Mortgage, to be designated "First
Mortgage Bonds, 5.95% Series A due May 1, 2027" (hereinafter sometimes referred
to as the "bonds of the New Series"), and to provide for the issuance thereof
only as fully registered bonds; and
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument, in accordance with
its terms, and for the purposes herein expressed, have been done, performed and
fulfilled, and the execution and delivery hereof, in the form and terms hereof,
have been in all respects duly authorized:
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That in
consideration of the premises, and of the sum of One Dollar ($1.00) to the
Company duly paid by the Trustee at or before the ensealing and delivery of
these presents, and for other valuable considerations, the receipt whereof is
hereby acknowledged, the Company hereby covenants and agrees to and with the
Trustee and its successors in the trusts under the Mortgage, as follows:
ARTICLE I.
Creation of First Mortgage Bonds,
5.95% Series A due 2027, and
Specification of Certain Matters with Respect Thereto
SECTION 1. The Company hereby creates a series of bonds, limited in
principal amount, as herein provided, to be issued under and secured by the
Mortgage, and to be designated and to be distinguished from bonds of all other
series by the title "First Mortgage Bonds, 5.95% Series A due May 1, 2027".
3
<PAGE>
SECTION 2. Bonds of the New Series for the aggregate principal amount of
Thirteen Million Six Hundred Ninety Thousand Dollars ($13,690,000) may forthwith
be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered to or upon the order of the Company
upon receipt by the Trustee of the consideration and supporting documentation
required to be delivered to the Trustee in connection with the issuance of bonds
as provided in the Mortgage.
SECTION 3. Each bond of the New Series shall be dated the date of its
authentication, and shall bear interest from the interest payment date to which
interest has been paid or duly provided for with respect to bonds of the New
Series next preceding the date of its authentication, unless its authentication
date is (i) an interest payment date to which interest has been paid, in which
case it shall bear interest from such date, (ii) prior to November 1, 1997 in
which case it shall bear interest from May 1, 1997, or (iii) after the fifteenth
day of the calendar month next preceding an interest payment date, in which
event it shall be dated and bear interest from the next interest payment date.
Unless previously redeemed or repurchased pursuant to the provisions hereof and
of the Mortgage, each bond of the New Series shall be payable on May 1, 2027, in
such coin or currency of the United States of America as at the time of payment
is legal tender for the payment of public and private
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<PAGE>
debts, and shall bear interest payable in like coin or currency at the rate of
5.95% per annum and from the respective dates specified in the form of the bonds
of the New Series, payable semi-annually on May 1 and November 1 of each year
(commencing November 1, 1997) until maturity, and at maturity at the highest
rate of interest borne by any of the bonds outstanding under the Mortgage from
such date of maturity until they shall be paid or payment thereof shall have
been duly provided for, and (to the extent that payment of such interest is
enforceable under applicable law) interest on any overdue installment of
interest shall be payable at the highest rate of interest borne by any of the
bonds outstanding under said Mortgage. Except as otherwise provided in any
agreement entered into as hereinafter provided, principal of and interest on the
bonds of the New Series shall be payable at the office or agency of the Company
in the Borough of Manhattan, The City of New York.
The Company and the Trustee may enter into a written agreement with an
institutional holder of any bond of the New Series providing, so long as such
holder or any nominee of such holder is the holder of any such bond, for payment
of principal thereof and interest thereon to be made by the Company directly to
such holder by check mailed to an address specified therefor or by bank wire or
interbank transfer of immediately available funds for credit to a bank account
specified therefor, or at such
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other address as such holder shall have designated to the Company and the
Trustee in writing for such purpose, in each case without surrender or
presentation of such bond to the Company or the Trustee or the making of any
notation thereon, except that any bond to be paid or redeemed in full shall be
surrendered at the office or agency of the Company in the Borough of Manhattan,
The City of New York for cancellation in order to receive payment, provided that
under such agreement such holder shall agree that (a) before disposing of any
such bond, such holder will make a notation thereon of all principal payments
previously made thereon and of the date to which interest thereon has been paid
and (b) such holder will indemnify the Company and the Trustee against any and
all costs, expenses and liabilities arising out of any payment of principal of
any such holder's bonds without presentment thereof to the Trustee. Any such
agreement shall also provide that the holder of the bonds shall, within three
business days of the payment of principal thereof or of interest thereon or
default therein, give to the Trustee written notice of the receipt of the
payment of such principal or interest or of a default in such payment, as the
case may be. The Company hereby authorizes the Trustee (and any paying agent for
the bonds of the New Series) to comply with each such agreement so delivered to
the Trustee, notwithstanding the provisions of the Mortgage and of the bonds of
the New Series, to place a legend on any bonds of the New Series which are
subject to any such agreement describing
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<PAGE>
the terms thereof. The Trustee shall be entitled to presume, without any
obligation to verify independently, that the Company has made all payments
related to principal (other than payment or redemption in full or repurchase of
any bonds of the New Series) and interest on bonds of the New Series directly to
the holder thereof who has entered into such agreement unless such holder shall
otherwise notify the Trustee.
Bonds of the New Series shall be issuable only as fully registered bonds
in the denominations of $5,000 and any integral multiple thereof, and may be
exchanged, in the manner and subject to the limitations provided in the
Mortgage, for a like aggregate principal amount of bonds of the New Series of
other authorized denominations without charge except for any tax or taxes or
other governmental charges incident to such exchange.
Bonds of the New Series are subject to redemption at the option of the
Company on any date on or after May 1, 2007, in whole or in part by lot at the
applicable optional redemption price shown below as a percentage of the
principal amount, plus interest accrued to the redemption date:
Redemption Periods Optional Redemption
(both dates inclusive) Price
- ---------------------- ---------------------
May 1, 2007 through April 30, 2008 102%
May 1, 2008 through April 30, 2009 101%
May 1, 2009 and thereafter 100%
Bonds of the New Series shall be redeemable at the option of the Company
in whole, at any time prior to maturity, at 100% of the principal amount
thereof, together with accrued interest to
7
<PAGE>
the redemption date if any one or more of the following events shall have
occurred, as evidenced in each case by a certificate of the Company delivered to
the Trustee to the effect that one of such events has occurred, and describing
the same: (i) the Company shall have determined that the continued operation of
the Project Facilities is impracticable, uneconomical or undesirable for any
reason; or (ii) all or substantially all of the Project Facilities shall have
been condemned or taken by a competent authority; or (iii) the operation of the
Project Facilities shall have been enjoined or shall have been otherwise
prohibited by, or shall conflict with, any order or rule of any court of
competent jurisdiction or any federal, state or local regulatory body,
administrative agency or other governmental body having jurisdiction over the
Project Facilities.
Bonds of the New Series shall be subject to redemption as a whole, as
more fully provided in Section 8.08 of the Mortgage, at 100% of the principal
amount thereof, together with accrued interest to the redemption date, in the
event (a) that all the outstanding common stock of the Company shall be acquired
by some governmental body or instrumentality and the Company elects to redeem
all the bonds of all series, the redemption date in any such event to be not
more than one hundred twenty (120) days after the date on which all said stock
is so acquired, or (b) that all or substantially all of the mortgaged property
constituting bondable property which at the time shall be subject
8
<PAGE>
to the lien of the Mortgage as a first lien shall be released from the lien of
the Mortgage pursuant to the provisions thereof, and available moneys in the
hands of the Trustee, including any moneys deposited by the Company for the
purpose, are sufficient to redeem all the bonds of all series at the redemption
prices (together with accrued interest to the date of redemption) specified
therein applicable to the redemption thereof upon the happening of such event.
Notice with respect to any redemption of the bonds of the New Series
shall be mailed by the Company to the Authority, the Authority Trustee and the
Trustee not less than forty-five (45) days and not more than ninety (90) days
prior to the redemption date and shall specify the matters set forth in the
penultimate sentence of the first paragraph and, if applicable, the second
sentence of the third paragraph of Section 8.02 of the Original Indenture. Each
holder of bonds of the New Series by the acceptance of such bonds waives the
right to any publication of a notice of such redemption in any newspaper as
specified in Section 8.02 of the Original Indenture.
Any redemption of the bonds of the New Series may be effected out of
cash deposited pursuant to Sections 5.06, 5.07 and 5.08 or Article IX of the
Original Indenture, the premium, if any, and accrued interest in case of any
such redemption to be provided for by the Company pursuant to the provisions of
Section 8.07 of the Original Indenture.
9
<PAGE>
Bonds of the New Series are subject to mandatory redemption in whole, or, if
less than all of the Authority Bonds are then subject to mandatory redemption
pursuant to Section 6.05 of the Authority Indenture, in part in an amount equal
to the Authority Bonds then subject to redemption, upon a redemption date (which
date shall be fixed by the Company, after receipt by the Trustee and the Company
of a written demand for redemption by the Authority Trustee, in a written notice
mailed by the Company to the Trustee and to the Authority Trustee at least
forty-five (45) days prior to the date so fixed) which shall be within 120 days
(or, in the absence of a written notice mailed by the Company, as aforesaid, on
the 120th day) after a final determination by a court of competent jurisdiction
or an administrative agency, to the effect that, as a result of a failure by the
Company to perform or observe any covenant, condition or agreement on its part
to be observed or performed under the Agreement or the inaccuracy of any
representation by the Company under the Agreement, the interest payable on the
Authority Bonds is includable for Federal income tax purposes in the holder's
gross income, other than any holder of the Authority Bonds who is a substantial
user of the Project Facilities or a "related person" within the meaning of
Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code") to
the extent necessary in order to redeem the Authority Bonds so that interest
payable on the Authority Bonds remaining outstanding after such redemption of
10
<PAGE>
the Authority Bonds would not, in the opinion of recognized bond counsel, be
included in the gross income of any holders, other than a holder of an Authority
Bond who is a Asubstantial user@ of the Project Facilities or a Arelated person@
within the meaning of Section 147(a) of the Code. No determination by any court
or administrative agency shall be considered final unless the Company shall have
been given timely notice of the proceeding which resulted in such determination
and an opportunity to participate in such proceeding, either directly or through
a holder of an Authority Bond, to a degree it deems sufficient and until the
conclusion of any appellate review or rehearing sought by any party to such
proceeding or the expiration of the time for seeking such review or hearing. The
Company shall not redeem bonds of the New Series if it receives a written
cancellation of the written demand from the Authority Trustee. Any such written
demand from the Authority Trustee or a cancellation of such written demand shall
be executed on behalf of such Authority Trustee by its President or a Vice
President or a trust officer and shall be deemed received by the Trustee when
delivered at its corporate trust office in the Borough of Manhattan, The City of
New York. The Trustee may conclusively rely as to the truth of the statements
contained therein, upon any such demand or cancellation.
Bonds of the New Series are subject to mandatory repurchase by the
Company prior to maturity at 100% of the principal amount thereof, plus interest
accrued to the repurchase date, in whole,
11
<PAGE>
upon a repurchase date (which date shall be fixed by the Company in a written
notice mailed by the Company to the Trustee and to the Authority Trustee) which
shall be within ten (10) days after receipt by the Trustee and the Company of a
written demand for repurchase by the Authority Trustee, stating that the
principal of all Authority Bonds then outstanding under the Authority Indenture
has been declared to be immediately due and payable pursuant to the provisions
of Section 8.02 thereof due to an event of default under Section 8.01 A, B, or C
thereof.
SECTION 4. So long as any of the bonds of the New Series shall be
secured by the lien of the Mortgage, the term "minimum provision for
depreciation" when used for any purposes under the Mortgage and with reference
to any period of time shall mean an amount computed pursuant to the provisions
of Article I, Section 5 of the Supplemental Indenture dated March 1, 1952.
SECTION 5. So long as any of the bonds of the New Series shall be
secured by the lien of the Mortgage, clause (A)(II) of Section 1.06 of the
Original Indenture shall be deemed amended as set forth in the quotation
contained in Article I, Section 4 of the Supplemental Indenture dated May 1,
1960.
SECTION 6. So long as any of the bonds of the New Series shall be
secured by the lien of the Mortgage, the first sentence of Section 5.20 of the
Original Indenture shall be deemed amended as set forth in the quotation
contained in Article I, Section 6 of the Supplemental Indenture dated December
1, 1950.
12
<PAGE>
SECTION 7. So long as any of the bonds of the New Series shall be secured
by the lien of the Mortgage, the Company will keep and perform the covenants and
agreements set forth in Article I, Section 7 of the Supplemental Indenture dated
June 1, 1957, irrespective of whether any of the bonds of the series created by
such Supplemental Indenture shall be then outstanding.
SECTION 8. So long as any of the bonds of the New Series shall be secured
by the lien of the Mortgage, the Company will keep and perform the covenants set
forth in Article I, Section 4 of the Supplemental Indenture dated March 1, 1952,
irrespective of whether any of the bonds of the series created by such
Supplemental Indenture shall be then outstanding.
SECTION 9. The Company covenants and agrees that, notwithstanding Section
2.03 of the Original Indenture, it will not charge any sum for or in connection
with any exchange or registration of transfer of any bond of the New Series, but
may require the payment of a sum sufficient to cover any tax or taxes or other
governmental charges incident to any exchange or registration of transfer
thereof.
13
<PAGE>
ARTICLE II.
Form of the Bonds of the New Series
The form of the bonds of the New Series and the Trustee's authentication
certificate to be endorsed thereupon shall be substantially as follows, the
denominations and numbers thereof to be appropriately inserted:
[FORM OF FACE OF BONDS OF THE NEW SERIES]
METROPOLITAN EDISON COMPANY
(Incorporated under the laws
of the
Commonwealth of Pennsylvania)
FIRST MORTGAGE BOND, 5.95% SERIES A
DUE May 1, 2027
$ No.
METROPOLITAN EDISON COMPANY, a corporation of the Commonwealth of
Pennsylvania (hereinafter called the "Company"), for value received, hereby
promises to pay to
, as Trustee, or registered assigns,
DOLLARS on , , at the office or
agency of the Company in the Borough of Manhattan, The City of New York, in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public or private debts, and to pay interest
thereon semi-annually on May 1 and November 1 of each year (commencing November
1, 1997), at the rate of 5.95% per annum, at said office or agency in like coin
or currency, from May 1, 1997, or from the most recent interest payment date to
which interest has been paid
14
<PAGE>
or duly provided for with respect to bonds of the aforesaid series (subject to
certain exceptions provided in the Mortgage hereinafter mentioned), until this
bond shall mature, according to its terms or on prior redemption or by
declaration or otherwise, and at the highest rate of interest borne by any of
the bonds outstanding under the Mortgage hereinafter mentioned from such date of
maturity until this bond shall be paid or the payment hereof shall have been
duly provided for, and (to the extent that payment of such interest is
enforceable under applicable law) to pay interest on any overdue installment of
interest at the highest rate of interest borne by any of the bonds outstanding
under said Mortgage.
Reference is hereby made to the further provisions of this bond set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This bond shall not become valid or obligatory for any purpose until
United States Trust Company of New York, or its successor, as Trustee under the
Mortgage, shall have signed the certificate of authentication endorsed hereon.
IN WITNESS WHEREOF, METROPOLITAN EDISON COMPANY has caused this bond to
be signed in its name by its President or one of its Vice Presidents and its
corporate seal, or a facsimile thereof, to be affixed hereto and attested by its
Secretary or one of its Assistant Secretaries.
15
<PAGE>
DATED: METROPOLITAN EDISON COMPANY
By__________________________
Vice President
ATTEST:
- --------------------------
Assistant Secretary
16
<PAGE>
[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE
ON BONDS OF THE NEW SERIES]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This bond is one of the bonds, of the series herein designated, provided
for in the within-mentioned Mortgage.
UNITED STATES TRUST COMPANY OF NEW YORK, Trustee
By ______________________
Authorized Officer
FORM OF REVERSE OF BONDS OF THE NEW SERIES]
METROPOLITAN EDISON COMPANY
(Incorporated under the laws
of the
Commonwealth of Pennsylvania)
FIRST MORTGAGE BOND, 5.95% SERIES A DUE May 1, 2027
This bond is one of an issue of bonds of the Company (herein referred to
as the "bonds"), not limited in principal amount except as in the Mortgage
hereinafter mentioned provided, issuable in series, which different series and
bonds of the same series may mature at different times, may bear interest at
different rates, and may otherwise vary as in the Mortgage hereinafter mentioned
provided, and is one of a series known as its First Mortgage Bonds, 5.95% Series
A due May 1, 2027 (herein referred to as "bonds of the New Series"), all bonds
of all series issued and to be issued under and equally and ratably
17
<PAGE>
secured (except in so far as any sinking or analogous fund, established in
accordance with the provisions of the Mortgage hereinafter mentioned, may afford
additional security for the bonds of any particular series) by an Indenture
dated November 1, 1944 (sometimes referred to as the "Original Indenture" and
together with all indentures supplemental thereto, called the "Mortgage"), under
which United States Trust Company of New York is successor trustee (herein
called the "Trustee"), and to which Mortgage reference is made for a description
of the property mortgaged, the nature and extent of the security, the rights of
the holders of the bonds and of the Company in respect thereof, the rights,
duties and immunities of the Trustee, and the terms and conditions upon which
the bonds are, and are to be, issued and secured.
The Mortgage contains provisions permitting the holders of not less than
seventy-five per centum (75%) in principal amount of all the bonds at the time
outstanding, determined and evidenced as provided in the Mortgage, or in case
the rights under the Mortgage of the holders of bonds of one or more, but less
than all, of the series of bonds outstanding shall be affected, then with the
consent of the holders of not less than seventy-five per centum (75%) in
principal amount of the outstanding bonds of such one or more series affected,
except that if any such action would affect the bonds of two or more series, the
holders of not less than seventy-five per centum
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<PAGE>
(75%) in principal amount of outstanding bonds of such two or more series, which
need not include seventy-five per centum (75%) in principal amount of
outstanding bonds of each of such series, determined and evidenced as provided
in the Mortgage, on behalf of the holders of all the bonds, to waive any past
default under the Mortgage and its consequences except a completed default, as
defined in the Mortgage, in respect of the payment of the principal of or
interest on any bond or default arising from the creation of any lien ranking
prior to or equal with the lien of the Mortgage on any of the mortgaged
property, subject to the condition that, in the case the rights of the holders
of less than all of the series of bonds outstanding shall be affected, no waiver
of any past default or its consequences shall be effective unless approved by
the holders of not less than a majority of all the bonds at the time
outstanding. The Mortgage also contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than seventy-five per
centum (75%) in principal amount of all the bonds at the time outstanding,
determined and evidenced as provided in the Mortgage, or in case the rights
under the Mortgage of the holders of bonds of one or more, but less than all, of
the series of bonds outstanding shall be affected, then with the consent of the
holders of not less than seventy-five per centum (75%) in principal amount of
the outstanding bonds of such one or more series affected, except that if any
such action would affect the
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<PAGE>
bonds of two or more series, the holders of not less than seventy-five per
centum (75%) in principal amount of outstanding bonds of such two or more
series, which need not include seventy-five per centum (75%) in principal amount
of outstanding bonds of each of such series, determined and evidenced as
provided in the Mortgage, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Mortgage or modifying in any manner the rights of the holders of the bonds
and coupons; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any bonds, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof, without the
consent of the holder of each bond so affected, or (ii) reduce the aforesaid
percentage of bonds, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all bonds then
outstanding, or (iii) permit the creation of any lien ranking prior to or equal
with the lien of the Mortgage on any of the mortgaged property, or (iv) deprive
the holder of any outstanding bond of the lien of the Mortgage on any of the
mortgaged property. Any such waiver or consent by the holder of this bond
(unless effectively revoked as provided in the Mortgage) shall be conclusive and
binding upon such holder and upon all future holders of this bond, irrespective
of whether or not any notation of such waiver or consent is made upon this bond.
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<PAGE>
No reference herein to the Mortgage and no provision of this bond or of the
Mortgage shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and interest on this bond at the time
and place and at the rate and in the coin or currency herein prescribed.
Bonds of the New Series are issuable only in fully registered form and
in denominations of $5,000, and any integral multiple of $5,000.
In the manner and subject to the limitations provided in the Mortgage,
bonds of the New Series may be exchanged for a like aggregate principal amount
of bonds of the New Series of other authorized denominations without charge
except for any tax or taxes or governmental charges incident to such exchange.
Bonds of the New Series are subject to redemption at the option of the
Company on any date on or after May 1, 2007, in whole or in part by lot at the
applicable optional redemption price shown below as a percentage of the
principal amount, plus interest accrued to the redemption date:
Redemption Periods Optional Redemption
(both dates inclusive) Price
---------------------- --------------------
May 1, 2007 through April 30, 2008 102%
May 1, 2008 through April 30, 2009 101%
May 1, 2009 and thereafter 100%
Bonds of the New Series shall be redeemable at the option of the Company
in whole, at any time prior to maturity at 100% of the principal amount thereof,
together with accrued interest to the redemption date if any one or more of the
following events shall have occurred, as evidenced in each case by a certificate
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<PAGE>
of the Company delivered to the Trustee to the effect that one of such events
has occurred, and describing the same: (i) the Company shall have determined
that the continued operation of certain solid waste disposal facilities (the
"Project Facilities") which are the subject of a Pollution Control Facilities
Loan Agreement (the "Agreement") dated as of May 1, 1997 entered into by the
Company with Indiana County Industrial Development Authority (the "Authority")
is impracticable, uneconomical or undesirable for any reason; or (ii) all or
substantially all of the Project Facilities shall have been condemned or taken
by a competent authority; or (iii) the operation of the Project Facilities shall
have been enjoined or shall have been otherwise prohibited by, or shall conflict
with, any order or rule of any court of competent jurisdiction or of any
federal, state or local regulatory body, administrative agency or other
governmental body having jurisdiction over the Project Facilities.
Bonds of the New Series shall be subject to redemption as a whole, as
more fully provided in Section 8.08 of the Mortgage, at 100% of the principal
amount thereof, together with accrued interest to the redemption date, in the
event (a) that all the outstanding common stock of the Company shall be acquired
by some governmental body or instrumentality and the Company elects to redeem
all the bonds of all series, the redemption date in any such event to be not
more than one hundred twenty days after the date on which all said stock is so
acquired, or (b) that all or
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<PAGE>
substantially all of the mortgaged property (constituting bondable property as
defined in the Mortgage) which at the time shall be subject to the lien of the
Mortgage as a first lien shall be released from the lien of the Mortgage
pursuant to the provisions thereof, and available moneys in the hands of United
States Trust Company of New York, or its successor, as Trustee, including any
moneys deposited by the Company for the purpose, are sufficient to redeem all
the bonds of all series at the redemption prices (together with accrued interest
to the date of redemption) specified therein applicable to the redemption
thereof upon the happening of such event.
Notice with respect to any redemption of the bonds of the New Series
shall be mailed by the Company to the Authority, the Authority Trustee (as
defined hereinbelow) and the Trustee not less than forty-five (45) days and not
more than ninety (90) days prior to the redemption date and shall specify the
matters set forth in the penultimate sentence of the first paragraph and, if
applicable, the second sentence of the third paragraph of Section 8.02 of the
Original Indenture. Each holder of bonds of the New Series by the acceptance of
such bonds waives the right to any publication of a notice of such redemption in
any newspaper as specified in Section 8.02 of the Original Indenture.
Redemption of the bonds of the New Series may be effected, out of cash
deposited pursuant to Sections 5.06, 5.07 and 5.08, and Article IX of the
Mortgage, the premium, if any, and accrued
23
<PAGE>
interest in case of any such redemption to be paid out of cash deposited by the
Company for the purpose.
The Mortgage provides that any notice of redemption of bonds may state that
it is subject to the receipt of the redemption moneys by the Trustee before the
date fixed for redemption and such notice shall be of no effect unless such
moneys are received before such date.
The Mortgage provides that if the Company shall deposit with the Trustee
in trust for the purpose, funds sufficient to pay the principal of all of the
bonds of any series, or such of the bonds of any series as have been or are to
be called for redemption and premium, if any, thereon, and all interest payable
on such bonds (or portions) to the date on which they become due and payable at
maturity or upon redemption or otherwise, and complies with the other provisions
of the Mortgage in respect thereof, then from the date of such deposit such
bonds (or portions) shall no longer be secured by the lien of the Mortgage.
The Mortgage provides that, upon any partial redemption of a fully
registered bond, upon surrender thereof endorsed for transfer, new bonds of the
same series and of authorized denominations in principal amount equal to the
unredeemed portion of such fully registered bond will be delivered without
charge in exchange therefor.
The principal hereof may be declared or may become due prior to the express
date of the maturity hereof on the conditions, in
24
<PAGE>
the manner and at the time set forth in the Mortgage, upon the occurrence of a
completed default as in the Mortgage provided.
Bonds of the New Series are subject to mandatory redemption in whole,
or, if less than all of the Authority's Pollution Control Revenue Bonds, 1997
Series A (Metropolitan Edison Company Project) (hereinafter sometimes referred
to as the "Authority Bonds") under a Trust Indenture dated as of May 1, 1997
(hereinafter sometimes referred to as the "Authority Indenture") between the
Authority and United States Trust Company of New York, as trustee (hereinafter
sometimes referred to as the "Authority Trustee") are then subject to mandatory
redemption pursuant to Section 6.05 of the Authority Indenture, in part in an
amount equal to the Authority Bonds then subject to redemption, upon a
redemption date (which date shall be fixed by the Company, after receipt by the
Trustee and the Company of a written demand for redemption by the Authority
Trustee, in a written notice mailed by the Company to the Trustee and to the
Authority Trustee at least forty-five (45) days prior to the date so fixed)
which shall be within 120 days (or, in the absence of a written notice mailed by
the Company, as aforesaid, on the 120th day) after a final determination by a
court of competent jurisdiction or an administrative agency, to the effect that,
as a result of a failure by the Company to perform or observe any covenant,
condition or agreement on its part to be observed or performed under the
Agreement or the inaccuracy of any
25
<PAGE>
representation by the Company under the Agreement, the interest payable on the
Authority Bonds is includable for Federal income tax purposes in the holder's
gross income, other than any holder of the Authority Bonds who is a "substantial
user" of the Project Facilities or a "related person" within the meaning of
Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code") to
the extent necessary in order to redeem the Authority Bonds so that interest
payable on the Authority Bonds remaining outstanding after such redemption of
the Authority Bonds would not, in the opinion of recognized bond counsel, be
included in the gross income of any holders, other than a holder of an Authority
Bond who is a "substantial user" of the Project Facilities or a "related person"
within the meaning of Section 147(a) of the Code. No determination by any court
or administrative agency shall be considered final unless the Company shall have
been given timely notice of the proceeding which resulted in such determination
and an opportunity to participate in such proceeding, either directly or through
a holder of an Authority Bond, to a degree it deems sufficient and until the
conclusion of any appellate review or rehearing sought by any party to such
proceeding or the expiration of the time for seeking such review or hearing. The
Company shall not redeem bonds of the New Series if it receives a written
cancellation of the written demand from the Authority Trustee. Any such written
demand from the Authority Trustee or a cancellation of such
26
<PAGE>
written demand shall be executed on behalf of such Authority Trustee by its
President or a Vice President or a trust officer and shall be deemed received by
the Trustee when delivered at its corporate trust office in the Borough of
Manhattan, The City of New York. The Trustee may conclusively rely as to the
truth of the statements contained therein, upon any such demand or cancellation.
Bonds of the New Series are subject to mandatory repurchase by the
Company prior to maturity at 100% of the principal amount thereof, plus interest
accrued to the repurchase date, in whole, upon a repurchase date (which date
shall be fixed by the Company in a written notice mailed by the Company to the
Trustee and to the Authority Trustee) which shall be within ten (10) days after
receipt by the Trustee and the Company of a written demand for repurchase by the
Authority Trustee, stating that the principal of all Authority Bonds then
outstanding under the Authority Indenture has been declared to be immediately
due and payable pursuant to the provisions of Section 8.02 thereof due to an
event of default under Section 8.01 A, B, or C thereof.
No recourse shall be had for the payment of the principal or interest on
this bond, or for any claim based hereon, or otherwise in respect hereof, or
based on or in respect of the Mortgage or under or upon any obligation, covenant
or agreement contained in the Mortgage, against any incorporator, or any past,
present or future subscriber to the capital stock, stockholder,
27
<PAGE>
officer or director, as such, of the Company or of any predecessor or successor
corporation, either directly or through the Company or any predecessor or
successor corporation, under any present or future rule of law, statute or
constitution or by the enforcement of any assessment or otherwise, all such
liability of incorporators, subscribers, stockholders, officers and directors,
as such, being waived and released by the holder and owner hereof by the
acceptance of this bond and being likewise waived and released by the terms of
the Mortgage.
ARTICLE III.
Subjecting Certain Property Specifically
to the Lien of the Mortgage
AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH: That in
consideration of the premises, and of the sum of One Dollar ($1.00) to the
Company duly paid by the Trustee at or before the ensealing and delivery of
these presents, Metropolitan Edison Company has granted, bargained, sold,
aliened, enfeoffed, released, conveyed, assigned, transferred, pledged, set over
and confirmed, and by these presents does grant, bargain, sell, alien, enfeoff,
release, convey, assign, transfer, pledge, set over and confirm, unto United
States Trust Company of New York, as Trustee, and to its successors and assigns
forever, all of the following described property, to wit:
All property, real, personal and mixed, tangible and intangible, owned
by the Company, or in which it owns an
28
<PAGE>
interest, on the date of the execution hereof, or (subject to the provisions of
Article XIII of the Mortgage) which may hereafter be acquired by it, wheresoever
situate, and necessary or appropriate to the public utility plant and business
of the Company and to its operation as a going concern, except such property as
is hereinafter expressly excepted and excluded from the lien and operation of
the Mortgage. The property covered by the lien of the Mortgage shall include
particularly, among other property, without prejudice to the generality of the
language hereinbefore or hereinafter contained, the following described
property:
FIRST.
PARCEL NUMBER ONE
ADDITION TO SUBSTATION PROPERTY
-------------------------------
ALL THAT CERTAIN tract of land in the City of Reading, County of Berks
and Commonwealth of Pennsylvania, containing approximately 11,500 square feet
and granted and conveyed unto Metropolitan Edison Company by Consolidated Rail
Corporation by deed dated October 31, 1996, and recorded in the Office for the
Recording of Deeds in and for said County in Book 2804, Page 1338.
SECOND.
Also all power houses, plants, buildings, distributing stations,
substations, transforming stations and other structures for or used for or
intended for use in connection with the
29
<PAGE>
manufacture, generation, transmission or furnishing of electricity, and the
machinery, fixtures, fittings and equipment thereof or appurtenant thereto,
including, without limiting the generality of the foregoing, all dynamos,
engines, turbines, boilers, pumps, generators, transformers, converters,
regulators, exciters, meters, shafting and belting and all other apparatus and
appliances for generating or producing electricity, which are owned by the
Company, or in which it owns an interest, on the date of the execution hereof or
(subject to the provisions of Article XIII of the Mortgage) which may be
hereafter acquired by it, wheresoever situate, and necessary or appropriate to
the public utility plant and business of the Company and to its operation as a
going concern, except such property as is hereinafter expressly excepted and
excluded from the lien and operation of the Mortgage.
THIRD.
Also all transmission and distribution lines and systems, whether
underground, surface or overhead, for or used for or intended for use in
connection with the transmission and distribution of electricity, and the
conduits, poles, cross arms, insulators, transformers, cables, wires, meters,
fixtures, tools, supplies and all other apparatus and appliances connected
therewith or appurtenant thereto which are owned by the Company, or in which it
owns an interest, on the date of the execution hereof or (subject to the
provisions of Article XIII of the Mortgage) which may be hereafter acquired by
it.
30
<PAGE>
FOURTH.
Also all franchises, immunities, privileges, permits, licenses,
easements and rights of way authorizing, permitting or facilitating the
erection, maintenance or operation upon, over or under any streets, avenues,
highways, alleys, lanes, walks, parks and other public places in any county,
city, borough, town, township or village, or upon, over or under any private
property of poles, towers, wires, conduits, mains, pipes or other structures or
apparatus for the transmission or distribution of electricity or otherwise
relating to the business of producing, transmitting and distributing
electricity, which are owned by the Company, or in which it owns an interest, on
the date of the execution hereof or (subject to the provisions of Article XIII
of the Mortgage) which may be hereafter acquired by it.
31
<PAGE>
GENERAL SUBJECT CLAUSES.
SUBJECT, HOWEVER, to the reservations, mining rights, exceptions,
conditions, limitations and restrictions contained in the several deeds,
franchises and contracts or other instruments through which the Company acquired
or claims title to or enjoys the use of said properties; to statutory and
municipal requirements relating to land and buildings; to the rights of the
public and others in streets, roads and highways, opened, or laid out but
unopened, crossing or bounding any of the said parcels; to the rights of owners
abutting thereon in any stream, drain or ditch crossing or bounding any of the
said parcels; to the rights of the Commonwealth of Pennsylvania in and to any of
the lands located in any streams or rivers abutting any of the said parcels; and
to the rights of electric, gas, telephone, telegraph and pipeline companies to
maintain and operate pole lines and gas and petroleum products mains and pipes
over or through any of the said parcels or on or in the streets, roads or
highways abutting thereon as the same existed at the time of acquisition of said
parcels by the Company; and to any easements visible on the ground at the time
of such acquisition, but not evidenced by recorded agreements or grants.
32
<PAGE>
EXCEPTED PROPERTY.
EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, from this Supplemental
Indenture and from the lien and operation hereof, all property of every kind and
type excepted and excluded from the Mortgage by subdivisions II (to the extent
that such real estate is still owned by the Company) and III under the heading
"Excepted Property" therein to the extent there indicated and reference is
hereby made to said Mortgage for a description thereof.
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the property covered by
this Supplemental Indenture or intended so to be, or any part thereof, with the
reversion and reversions, remainder and remainders and (subject to the
provisions of Section 9.01 of the Mortgage) the tolls, rents, revenues, issues,
earnings, income, product and profits thereof, and all the estate, right, title
and interest and claim whatsoever, at law as well as in equity, which the
Company now has or may hereafter acquire in and to the property covered by this
Supplemental Indenture or intended so to be and every part and parcel thereof.
TO HAVE AND TO HOLD the property covered by this Supplemental Indenture
or intended so to be to the Trustee, its successors and assigns, forever, upon
and subject to the trusts, uses, conditions, covenants and provisions of the
Mortgage.
33
<PAGE>
ARTICLE IV.
Miscellaneous
SECTION 1. The Trustee, for itself and its successors in said trusts,
hereby accepts the conveyance, transfer and assignment of the property included
in this Supplemental Indenture upon the trusts, terms and conditions expressed
in the Mortgage.
SECTION 2. This Supplemental Indenture shall be simultaneously executed
in several counterparts, and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 3. The recitals of fact contained herein and in the bonds of the
New Series (other than the Trustee's certificate of authentication) shall be
taken as the statements of the Company and the Trustee assumes no responsibility
for the correctness of the same.
IN WITNESS WHEREOF, METROPOLITAN EDISON COMPANY, party of the first
part, has caused this instrument to be signed in its name and behalf by a Vice
President and its corporate seal to be hereunto affixed and attested by its
Secretary, and UNITED STATES TRUST COMPANY OF NEW YORK, party of the second
part, in token of its acceptance of the trust hereby created, has caused this
instrument to be signed in its name and behalf by an Assistant Vice President
and its corporate seal to be hereunto affixed and attested by its Secretary, all
as of the day and year first above written.
34
<PAGE>
METROPOLITAN EDISON COMPANY
By
Vice President
Attest:
, Assistant Secretary
Signed, sealed and delivered by said Metropolitan Edison Company in the presence
of:
<PAGE>
UNITED STATES TRUST COMPANY OF NEW YORK
By
Louis P. Young, Vice President
Attest:
Robert F. Lee, Assistant Secretary
Signed, sealed and delivered by said
United States Trust Company of New York
in the presence of:
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
: ss.
COUNTY OF BERKS )
On the 19th day of May, 1997, before me, a Notary Public of the State
and County aforesaid, the undersigned officer, personally appeared , who
acknowledged himself to be a Vice President of Metropolitan Edison Company, a
corporation, and that he as such Vice President of the said corporation, being
duly authorized to do so, executed the foregoing Supplemental Indenture for the
purposes therein contained by signing the name of the corporation by himself as
Vice President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
Sworn to and subscribed before me the day and year aforesaid.
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On the 19th day of May, 1997, before me, a Notary Public of the State
and County aforesaid, the undersigned officer, personally appeared Louis P.
Young, who acknowledged himself to be a Vice President of UNITED STATES TRUST
COMPANY OF NEW YORK, a corporation, and that as such Vice President of the said
corporation, being duly authorized to do so, executed the foregoing Supplemental
Indenture for the purposes therein contained by signing the name of the
corporation by himself as Vice President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
Sworn to and subscribed before me the day and year aforesaid.
EXHIBIT 10-A
GPU COMPANIES
DEFERRED COMPENSATION PLAN
(as amended through June 5, 1997)
<PAGE>
TABLE OF CONTENTS
1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definition of Terms . . . . . . . . . . . . . . . . . . . 1
3. Administration . . . . . . . . . . . . . . . . . . . . . 7
4. Deferral Election . . . . . . . . . . . . . . . . . . . . 8
5. Supplemental Savings Plan Benefits . . . . . . . . . . .10
6. Interest . . . . . . . . . . . . . . . . . . . . . . . .11
7. Distribution of Deferred Compensation . . . . . . . . . .12
8. Non-Assignment of Deferred Compensation . . . . . . . . .17
9. Termination of Participation or Employment . . . . . . .18
10. Transfer of Employment . . . . . . . . . . . . . . . . .18
i
<PAGE>
GPU COMPANIES
DEFERRED COMPENSATION PLAN
(as amended through June 5, 1997)
1. Purpose
This document sets forth the GPU Companies Deferred Compensation Plan,
as amended and restated, effective June 5, 1997.
The Plan provides Elected Officers of each Company, as defined herein,
with an opportunity to defer part or all of their Compensation, pursuant to
their elections made in accordance with the provisions hereof. The Plan also
provides Elected Officers and Other Eligible Employees with an opportunity to be
credited with additional deferred amounts that are intended to approximate the
Company Matching Contributions that otherwise might have been made on their
behalf to the GPU, Inc. and Subsidiary System Companies Employee Savings Plan
for Nonbargaining Employees (the "Savings Plan") but for the limitation on the
amount of compensation that can be taken into account under the Savings Plan
pursuant to section 401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Compensation Limit").
The Plan is intended to constitute an unfunded plan of deferred
compensation for "a select group of management or highly compensated employees"
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Each Company has adopted this Plan as its own Plan. Accordingly, each
Company shall be obligated hereunder only with respect to amounts distributable
from the Accounts it maintains for Participants who are its own employees; and
the right to receive any amount distributable hereunder with respect to any
Participant shall be enforceable only against the Company with which such
Participant is or was last employed.
2. Definition of Terms
2.1 Account - refers, as the context may require, to the Retirement
Account, or the Pre-Retirement Account or Accounts, or to the Retirement Account
and all Pre-Retirement Accounts, established for a Participant hereunder.
2.2 Board - refers to the Board of Directors of a Company.
<PAGE>
2.3 Chairman - refers to the Chairman of the Board or the Chairman, as
appropriate for each Company that has adopted the Plan.
2.4 Change in Control - A "Change in Control" shall mean the occurrence
during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation") of any common stock of the Corporation ("Common Stock") or other
voting securities of the Corporation entitled to vote generally for the election
of directors (the "Voting Securities") by any "Person" (as the term person is
used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the then outstanding shares of
Common Stock or the combined voting power of the Corporation's then outstanding
Voting Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) the Corporation or (ii) any corporation or other Person of
which a majority of its voting power or its voting equity securities or equity
interest is owned, directly or indirectly, by the Corporation (for purposes of
this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or
(C) any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who, as of August 1, 1996, are members of the board
of directors of the Corporation (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the board of
directors of the Corporation; provided, however, that if the election, or
nomination for election by the Corporation's shareholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the board of directors of the Corporation (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
2
<PAGE>
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued, unless such
merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Corporation or in which securities of the Corporation are
issued where:
(i) the shareholders of the Corporation, immediately before
such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving
Corporation, or a corporation, directly or indirectly, beneficially
owning a majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than (w) the Corporation, (x) any
Subsidiary, (y) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or
(z) any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of twenty percent (20%) or more
of the then outstanding Voting Securities or common stock of the
Corporation, has Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or substantially all
of the assets of the Corporation to any Person (other than a transfer to a
Subsidiary).
3
<PAGE>
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Common Stock or Voting Securities as a result of the acquisition of Common Stock
or Voting Securities by the Corporation which, by reducing the number of shares
of Common Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of shares of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any additional
shares of Common Stock or Voting Securities which increases the percentage of
the then outstanding shares of Common Stock or Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
2.5 Committee - refers to the Personnel, Compensation and Nominating
Committee of the Board of Directors of GPU, Inc.
2.6 Company - refers, as the context may require, singularly and not
jointly, to any Company, a majority of the outstanding common stock of which is
owned, directly or indirectly, by GPU, Inc., that has adopted the Plan. When
used in reference to a Participant, the term "Company" shall mean the Company
with which such Participant is or was last employed unless the context otherwise
requires.
2.7 Compensation - refers to all amounts which, but for an election
hereunder, would be paid in cash during a Plan Year to a Participant for
services performed on behalf of the Company, but does not include reimbursement
for travel or other expenses, Company contributions to retirement programs or
other employee benefit plans, payments under the Company's Short-Term or
Long-Term Disability Income Plans, any amounts distributed to the Elected
Officer from any Pre-Retirement Account. A Participant's Compensation for any
Plan Year includes any Performance Award that becomes payable to the Participant
during such year, but does not include any other amounts that are paid or that
become payable to the Participant under the 1990 Stock Plan for Employees of
GPU, Inc. and Subsidiaries (the "Stock Plan"). A Participant's Compensation for
any Plan Year beginning on or after April 1, 1991, shall not include any
severance payments made to the Participant in connection with his or her
termination of employment.
4
<PAGE>
2.8 Disability - refers to entitlement to benefits under the Company's
Long-Term Disability Income Plan or Employee Pension Plan as a result of a
disability which, in the opinion of the Board, is considered to be a permanent
disability.
2.9 Elected Officer - refers to an individual who, pursuant to election
by the Board, is serving as an officer of the Company other than as an Assistant
Controller, an Assistant Secretary, or an Assistant Treasurer; provided,
however, that the Board of any Company may limit participation in the Plan to
such of that Company's elected officers as the Board may designate, and in such
case, the term "Elected Officer" shall refer only to any elected officer of such
Company so designated by the Board.
2.10 "Excess Compensation" - refers, in the case of any Participant for
any month beginning on or after January 1, 1995, to the amount by which (i) the
aggregate amount of the Participant's Regular Compensation and Incentive
Compensation for such month and for all prior months within the Plan Year of the
Savings Plan ("ESP Plan Year" ) that includes such month exceeds the sum of (ii)
the Compensation Limit in effect for such ESP Plan Year and (iii) the aggregate
amount of the Participant's "Excess Compensation" (as determined under clause
(i) and (ii) hereof) for all prior months within such Plan Year.
2.11 Incentive Compensation - refers to the portion of a Participant's
Compensation for a Plan Year that consists of amounts awarded to the Participant
during such year under the Company's Incentive Compensation Plan for Elected
Officers, Employee Incentive Compensation Plan, or Annual Performance Award
Plan.
2.12 Other Eligible Employee - refers, with respect to any Plan Year,
to any employee of a Company who is not an Elected Officer of such Company but
who is expected to have "Excess Compensation" for any one or more months during
such Plan Year and who has been designated by the Chairman of such Company as
eligible to make a deferral election for such Plan Year under Section 4.3.
2.13 Participant - refers to any Elected Officer or Other Eligible
Employee who has made a deferral election for any Plan Year under Section 4.1 or
4.3. For all purposes of the Plan other than for purposes of continuing
entitlement to make deferral elections under Section 4.1 or 4.3, an Elected
Officer who at any time ceases to be such, or a Participant whose employment is
terminated or whose participation in the Plan is terminated pursuant to Section
9, shall, notwithstanding such cessation or termination, continue to be treated
as a
5
<PAGE>
"Participant" until all amounts credited to his or her Accounts under the Plan
have been distributed pursuant to Section 7, or transferred pursuant to Section
10.1.
2.14 Performance Award - refers to the portion of a Participant's
Compensation for a Plan Year that consists of any Performance Cash Incentive
Award that becomes payable to the Elected Officer during such year under the
Stock Plan. For this purpose, a Performance Award shall be treated as becoming
payable to a Participant on the "Vesting Date" for the restricted shares or
restricted units with respect to which the Performance Award becomes payable;
and the "Vesting Date" shall mean the date on which such restricted shares or
restricted units become vested under the terms of the written agreement between
the Elected Officer and GPU, Inc. evidencing the award of such shares or units
to the Elected Officer.
2.15 Plan - refers to the GPU Companies Deferred Compensation Plan as
set forth in this document and as it may be amended in the future.
2.16 Plan Year - refers to each 12-month period from April 1 through
March 31. In the case of any Company that adopts the Plan as of a date after the
start of a Plan Year, as so defined, the initial "Plan Year," with respect to
such Company's Elected Officers and Other Eligible Employees, shall be the
period commencing on the date as of which the Plan is so adopted and ending on
the next following March 31.
2.17 Pre-Retirement Account - refers to the memorandum account which
shall be established and maintained for a Participant who elects, pursuant to
Section 4.5, to have payment of any portion of his or her Compensation for any
Plan Year deferred to a date which is expected to occur prior to his or her
Retirement or Disability. A separate Pre-Retirement Account shall be established
and maintained for the Compensation for each Plan Year which the Participant so
elects to defer.
2.18 Regular Compensation - refers to a Participant's Compensation for
a Plan Year, exclusive of any Incentive Compensation awarded to the Participant
during such Plan Year, and exclusive of any Performance Award that becomes
payable to the Participant during such Plan Year.
2.19 Retirement - refers to termination of service with the Company on
account of retirement under the Company's Employee Pension Plan, resignation,
death or any other reason other than employment by any other Company. A
Participant will not be deemed to have retired until he or she ceases to be
employed with any Company.
6
<PAGE>
2.20 Retirement Account - refers to the memorandum account which shall
be established and maintained for a Participant who elects, pursuant to Section
4.5, to have payment of any portion of his or her Compensation for any Plan Year
deferred to a date after his or her Retirement or Disability. The term
Retirement Account shall also refer to the memorandum account that shall be
established and maintained for a Participant pursuant to Section 5.3.
3. Administration
3.1 Subject to the concurrence of the Committee, the Company may modify
the provisions of the Plan from time-to-time, or, may terminate the entire Plan
at any time; provided, however, that Section 2.4, this Section 3.1, Section 3.4,
Paragraph (d) of Section 6 and Section 7.5 may not be amended or modified, and
the Plan may not be terminated, (i) at the request of a third party who has
indicated an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) within six (6) months prior to, or
otherwise in connection with, or in anticipation of, a Change in Control which
has been threatened or proposed and which actually occurs, or (iii) following a
Change in Control, if the amendment, modification or termination adversely
affects the rights of any Participant under the Plan. Action to amend the Plan
may be taken by the Company either by resolution duly adopted by the Company's
Board, or by an instrument in writing executed by an officer of the Company to
whom authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board. No modification or
termination of the Plan shall adversely affect the rights of any Participant
with respect to any amounts standing to the Participant's credit in any Account
immediately prior to the date of the adoption of such modification or
termination, including without limitation any rights with respect to the time
and method of payment of, or the crediting of interest equivalents with respect
to, any such amounts.
3.2 Responsibility for the ongoing administration of this Plan rests
with the Board.
3.3 The Board may delegate the day-to-day administration of this Plan,
including the maintenance of appropriate records, receiving notifications,
making filings, and maintaining related documentation, to the officer or other
employee of the Company in charge of the Company's Human Resources division or
function, and to his or her staff, or to any one or more other officers or
employees of any Company as the Board may determine in its discretion.
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3.4 The Board shall have exclusive authority to resolve all questions
concerning the Plan, including any dispute over accounting or administrative
procedures or interpretation of the Plan.
Notwithstanding the foregoing, any determination made by the Board
after the occurrence of a Change in Control that denies in whole or in part any
claim made by any individual for benefits under the Plan shall be subject to
judicial review, under a "de novo", rather than a deferential, standard.
3.5 A Participant's election to defer Compensation, selection of a
distribution commencement date and distribution option, or designation of a
beneficiary and contingent beneficiary, made pursuant to this Plan, shall be
made in writing, on a form that is furnished to the Participant for such purpose
by the Committee and that is signed by the Participant and delivered to the
Committee. Any such election, selection, designation, or any change therein,
shall not become effective unless and until received by the Committee.
Except as provided in Section 7.4 or Section 7.5, a change in the
selection of a distribution commencement date or distribution option shall not
be effective unless made at least twenty-four (24) months prior to the
Participant's Retirement or Disability.
4. Deferral Election
4.1 For each Plan Year beginning on and after April 1, 1991, an Elected
Officer may elect, separately, to defer (a) any part or all of his or her
Regular Compensation for such year, (b) any part or all of his or her Incentive
Compensation for such year, and/or (c) any part or all of any Performance Award
that becomes payable to the Elected Officer during such year; subject, however,
in each case to the limitations set forth in Section 4.4.
4.2 An election to defer Regular Compensation for any Plan Year
beginning on and after April 1, 1991, shall be made on or prior to October 31 of
the year preceding such Plan Year. An election to defer Incentive Compensation
for any Plan Year beginning on or after April 1, 1991, shall be made on or prior
to October 31 of such Plan Year. Notwithstanding the foregoing, (a) Elected
Officers who are initially elected prior to November 1st of any Plan Year may,
within 30 days of such initial election, or, if later, the date the Elected
Officer's Regular Compensation is fixed by the Board, make a deferral election
for his or her Regular Compensation for the then current Plan Year, and (b)
Elected Officers who are initially elected after November 1st of
8
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any Plan Year may, within 30 days of such initial election, or, if later, the
date the Elected Officer's Regular Compensation is fixed by the Board, make a
deferral election for both his or her Regular Compensation and Incentive
Compensation (if any) for the then current Plan Year, as well as for his or her
Regular Compensation for the immediately succeeding Plan Year; provided,
however, that any deferral election made pursuant to clause (a) or (b) hereof
shall be effective only with respect to Compensation earned after such deferral
election has become effective. An election to defer any part of a Performance
Award shall be made at least one year prior to the Vesting Date for the
restricted shares or restricted units with respect to which such Performance
Award is payable. All deferral elections made under Section 4.1 or 4.3 shall be
irrevocable.
4.3 For each Plan Year beginning on or after April 1, 1996, any Other
Eligible Employee may elect to defer any part or all of any "Excess
Compensation" that may become payable to such Other Eligible Employee for any
month during such Plan Year, subject to the limitations set forth in Section
4.4. Such election shall be made on or prior to October 31 of the year preceding
such Plan Year.
4.4 Deferral elections otherwise permitted to be made under the Plan
for Plan Years beginning on or after April 1, 1995 shall be subject to the
following limitations:
(a) No amount may be deferred pursuant to a Participant's election
under this Plan for a period of 12 months following the Participant's receipt of
a hardship withdrawal under Section 7.2(e) of the Savings Plan.
(b) No Incentive Compensation for a Plan Year may be deferred pursuant
to a Participant's election hereunder if the Participant's Retirement or
Disability occurs after the date on which he or she made such election but prior
to the first day of the calendar year next following the date on which the
Participant made the election for such Plan Year.
(c) No portion of a Participant's Compensation for a Plan Year may be
deferred pursuant to the Participant's election hereunder to the extent such
portion is required to be applied to payment of any tax or other obligation of
the Participant.
4.5 In any election to defer Regular Compensation or Incentive
Compensation for any Plan Year, in any election to defer any Performance Award
that becomes payable during a Plan Year, and in any election by any Other
Eligible Employee to defer any Excess Compensation for any Plan Year, the
Participant shall specify the amount or portion of such Compensation to be
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deferred, and shall indicate whether the Compensation so deferred is to be
credited to a Pre-Retirement Account, or to a Retirement Account. If an Elected
Officer elects to defer Incentive Compensation for any Plan Year to a
Pre-Retirement Account, the Compensation so deferred shall be credited to the
Elected Officer's Pre-Retirement Account for the Plan Year next following the
Plan Year in which such Incentive Compensation is awarded to the Elected
Officer.
4.6 With respect to Compensation deferred hereunder for a Plan Year
which a Participant elects to have credited to his or her Pre-Retirement
Account, he or she shall specify in his or her election form the date on which
distribution of such account shall be made or commence. The date so selected
shall be no earlier than January 15 of the third calendar year beginning after
the close of such Plan Year, and may be the January 15 of any subsequent
calendar year. Notwithstanding the foregoing, a Participant may elect to have
distribution of any Pre-Retirement Account made or commence on the earlier of
any date selected by the Participant in accordance with the preceding sentence,
or January 15 of the calendar year following the Participant's Retirement or
Disability. In his or her election form for the Plan Year, the Participant shall
also select an option under Section 7.2 for the distribution of the
Pre-Retirement Account. Except as provided in Section 7.4 or Section 7.5, the
date so specified, and the option so selected, may not thereafter be changed by
the Participant.
4.7 With respect to any Compensation deferred hereunder which a
Participant elects to have credited to his or her Retirement Account, he or she
shall, at the time he or she first elects to have an amount credited to such
account, also elect a distribution commencement date and a distribution option
under Section 7.2 for the distribution of such account. A Participant may,
subject to the provisions of Section 3.5, change any election as to the
distribution commencement date and distribution option for the Retirement
Account previously made by him or her. The distribution commencement date so
elected shall be either January 15 of the calendar year following the
Participant's Retirement or Disability, or January 15 of any subsequent calendar
year.
5. Supplemental Savings Plan Benefits
5.1 Beginning on or after April 1, 1992, for each month for which an
Elected Officer has Excess Compensation, and beginning on or after April 1,
1996, for each month for which any Other Eligible Employee has Excess
Compensation, there shall be credited to such Participant's Retirement Account
an amount
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determined by multiplying the Participant's Excess Compensation for such month
by his or her Matching Percentage for such month.
5.2 For purposes of Section 5.1, the following definitions and rules
shall apply beginning on or after January 1, 1995:
(a) In determining the amount of a Participant's "Excess Compensation"
for any month, only the Participant's Regular Compensation for those months
during which he or she is eligible to participate in the Savings Plan shall be
taken into account.
(b) A Participant's Regular Compensation for any month shall include
the total amount of Regular Compensation that would have been paid to the
Participant in such month but for any deferral election made by the Participant
hereunder. A Participant's Incentive Compensation for any month shall include
the total amount of Incentive Compensation awarded to the Participant during
such month whether or not paid to the Participant in such month.
(c) A Participant's "Matching Percentage" for any month shall mean the
percentage, not in excess of 4%, determined by dividing the aggregate amount of
the Participant's Regular Compensation and Incentive Compensation for such
month, and for all prior months within the ESP Plan Year that includes such
month, that is deferred pursuant to elections made by the Participant hereunder,
by (ii) the aggregate amount of the Participant's Excess Compensation for such
month and for all prior months within the ESP Plan Year that includes such
month.
5.3 If, on the first date as of which an amount is to be credited to a
Participant's Retirement Account under Section 5.1, a Retirement Account had not
previously been established for such Participant pursuant to Section 4.5, a
Retirement Account shall be established for such Participant as of such date. By
no later than 30 days after such date, such Participant shall elect a
distribution commencement date and a distribution option for his Retirement
Account, and may thereafter change any such election, in accordance with the
provisions set forth in Section 4.7.
6. Interest
Interest equivalents will be calculated and credited to Accounts at the
end of each quarter in the calendar year. Such interest equivalents shall be
determined in accordance with the following rules:
(a) The amount of Regular Compensation deferred each month pursuant to
an Elected Officer's election hereunder, the amount of Excess Compensation for
any month that is deferred pursuant to
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any Other Eligible Employee's election hereunder, and any amount credited to a
Participant's Retirement Account for any month under Section 5.1, shall be
treated as having been credited to the Participant's Account in two equal
installments during such month, one at mid-month, and the other at month's end;
and interest equivalents thereon shall be compounded monthly on each quarter's
beginning balance with proportionate monthly compounding for any amounts so
deferred or credited during any calendar quarter.
(b) The amount of Incentive Compensation deferred pursuant to an
Elected Officer's election hereunder shall be treated as having been credited to
the Elected Officer's Account as of the 15th day, or the last day of the month
(whichever is earlier), following the date on which such amount would have been
paid to the Elected Officer in the absence of such election, and interest
equivalents thereon shall be compounded monthly.
(c) Any part of a Performance Award deferred pursuant to an Elected
Officer's election hereunder shall be treated as having been credited to the
Elected Officer's Account as of the 15th day, or the last day of the month
(whichever is earlier), following the Vesting Date for the restricted shares or
restricted units with respect to which such Performance Award became payable.
(d) The rate used in calculation of interest equivalents will be the
rate equal to the simple average of Citibank N.A. of New York Prime Rates for
the last business day of each of the three months in the calendar quarter or, if
greater, such other rate as established from time to time by the Committee.
Interest equivalents will be credited to the balance of each Account
maintained for a Participant hereunder, including the undistributed balance of
any such Account from which payments are being made in installments. However, if
a Participant elects Option (c) under Section 7.2 below, no interest equivalents
will be credited to the Participant's Account for any period after the date on
which distribution under such Option is to commence.
7. Distribution of Deferred Funds
7.1 Subject to Sections 7.4 and 7.5, a Participant's Pre-Retirement
Accounts shall be distributed to him or her, or distributions from such
Pre-Retirement Accounts shall commence, on the date or dates specified in the
elections made by the Participant pursuant to Section 4.6 with respect to such
accounts. Subject to Sections 7.4 and 7.5, a Participant's Retirement Account
shall be distributed to him or her, or distributions from such Retirement
Account shall commence, on the
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date specified in the most recent effective election made by the Participant
pursuant to Section 4.7 with respect to such Account.
7.2 The options available for distribution are:
(a) A single lump sum payment.
(b) Annual installments over any fixed number of years selected by the
Participant, with a minimum of five annual installments required for the
Retirement Account.
(c) With the prior consent of the Committee and subject to such terms
and conditions as it may require, a lifetime annuity payable in annual or more
frequent installments, the amount of which shall be determined by reference to
mortality tables and interest and dividend rates applicable under individual
whole life insurance policies being issued at the time of the Committee's
approval by such life insurance companies as the Committee may designate.
(d) Any other form of distribution, in equal or unequal payments, as
specifically approved by the Committee.
If distribution of any of a Participant's Accounts is to be made in
annual installments under Option (b) of this Section 7.2, the amount of each
installment will equal the total amount in said Account on the date the
installment is payable, divided by the number of installments remaining to be
paid. In addition, if the distributions are made in installments under Option
(b) of this Section 7.2, the interest equivalent accrued on each Account each
year after the date the first installment is payable will be distributed on each
anniversary of such date.
7.3 Except as the Board may otherwise determine based on the
circumstances at the time the distribution to the beneficiary is to commence:
(a) If a Participant should die after distribution of any Account
maintained for him or her hereunder has commenced, but before the entire balance
of such Account has been fully distributed, distributions will continue to be
made from such Account to the Participant's designated beneficiary or contingent
beneficiary, in accordance with the distribution option in effect for such
Account at the time of the Participant's death.
(b) If a Participant should die before any distribution from an Account
maintained for him or her hereunder has been made to him or her, distribution of
such Account to the Participant's designated beneficiary or contingent
beneficiary shall be made,
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or shall commence, as soon as practicable after the Participant's death, in
accordance with the distribution option in effect for such Account at the time
of the Participant's death.
Any amounts remaining to be paid to a Participant's designated
beneficiary at the time of the designated beneficiary's death shall be paid to
the Participant's contingent beneficiary or, if such contingent beneficiary has
predeceased the Participant's designated beneficiary, to the estate of the
designated beneficiary. Any amounts remaining to be paid to a Participant's
contingent beneficiary at the time of such contingent beneficiary's death shall
be paid to the estate of the contingent beneficiary. If the Participant's
designated beneficiary and contingent beneficiary have both predeceased the
Participant, any amounts remaining to be paid to the Participant at the time of
his or her death shall be paid to the Participant's estate.
7.4 Notwithstanding anything herein to the contrary, any Account
maintained for a Participant hereunder may be distributed, in whole or in part,
to such Participant on any date earlier than the date on which distribution from
such Account is to be made or commence pursuant to the Participant's election
with respect to such Account, if (a) the Participant requests such early
distribution, and (b) the Board, in its sole discretion, determines that such
early distribution is necessary to help the Participant meet some severe
financial need arising from circumstances which were beyond the Participant's
control and which were not foreseen by him or her at the time he or she made his
or her election as to the date or dates for distribution from such Account. A
request by a Participant for an early distribution shall be made in writing,
shall set forth sufficient information as to the Participant's need for such
distribution to enable the Board to take action on his or her request, and shall
be mailed or delivered to the Company's Corporate Secretary.
7.5 Notwithstanding any other provision of the Plan to the contrary or
any other optional form of distribution otherwise elected, each Participant
shall be permitted to make a special distribution election under (a), (b) or (c)
below, in accordance with the provisions of (d) below.
(a) A Participant may elect under this Section 7.5(a) to have the
entire balance of each of his or her Accounts distributed in the form of a
single lump sum payment upon the occurrence of a Change in Control prior to the
Participant's "Termination of Employment", as defined in (e) below. Such payment
shall be made by no later than thirty (30) days after the date on which such
Change in Control occurs.
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(b) A Participant may elect under this Section 7.5(b) to have the
entire balance of each of his or her Accounts distributed in the form of a
single lump sum payment in the event of the Participant's Termination of
Employment for any reason within the two (2) year period following a Change in
Control. Such payment shall be made by no later than thirty (30) days after the
date of the Participant's Termination of Employment.
(c) Under this Section 7.5(c) a Participant may elect, in the event a
Change in Control occurs after the Participant's Termination of Employment but
before all payments with respect to the Participant's Accounts have been made
pursuant to the Participant's elections under Section 4.6 and/or Section 4.7, to
have the entire unpaid balance of his or her Accounts at the time of such Change
in Control distributed in the form of a single lump sum payment. Such payment
shall be made by no later than thirty (30) days after the date on which the
Change in Control occurs.
(d) An election under Section 7.5(a) shall be effective only if it is
made at least one year prior to the Change in Control referred to in Section
7.5(a). An election under Section 7.5 (b) shall be effective only if it is made
either (i) at least twenty-four (24) months prior to the Participant's
Termination of Employment, or (ii) if such Termination of Employment constitutes
an "Involuntary Termination", as defined in (e) below, at least one year prior
to the Change in Control referred to in Section 7.5(b). An election under
Section 7.5(c) shall be effective only if it is made prior to the Participant's
Termination of Employment and at least one year prior to the occurrence of the
Change in Control referred to in Section 7.5(c). Any special election made under
Section 7.5(a), (b) or (c) may be revoked, and a new special election may be
made thereunder at any time; provided, however, that any such revocation or new
election shall be effective only if it is made within the applicable election
period specified herein. Any special election, or revocation of a special
election, that may be made under Section 7.5(a), (b) or (c) shall be made in the
manner set forth in Section 3.5
(e) For purposes of this Section 7.5, the following terms shall have
the following meanings:
(i) "Termination of Employment" shall mean the termination of
a Participant's employment with the Company other than as a result of
the transfer of the Participant's employment to any other Company.
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(ii) "Involuntary Termination" shall mean a Participant's
Termination of Employment (A) as a result of the Participant's death, (B) by
the Company, for any reason, or (C) by the Participant for "Good
Reason" as defined in (iii) below.
(iii) "Good Reason" shall mean the occurrence after a Change
in Control of any of the following events or conditions:
(A) a change in the Participant's status, title,
position or responsibilities (including reporting
responsibilities) which, in the Participant's reasonable
judgment, represents an adverse change from his or her status,
title, position or responsibilities as in effect immediately
prior thereto; the assignment to the Participant of any duties
or responsibilities which, in the Participant's reasonable
judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the
Participant from or failure to reappoint or reelect him or her
to any of such offices or positions, other than in connection
with the termination of his or her employment for disability,
for cause, or by the Participant other than for Good Reason;
(B) any reduction in the rate of the Participant's
annual base salary;
(C) the relocation of the offices of the Company at
which the Participant is principally employed to a location
more than twenty-five (25) miles from the location of such
offices immediately prior to such relocation, or the Company
requiring the Participant to be based anywhere other than at
such offices, except to the extent the Participant was not
previously assigned to a principal place of duty and except
for required travel on the Company's business to an extent
substantially consistent with the Participant's previous
business travel obligations;
(D) the failure by the Company to pay to the
Participant any amount of the Participant's current
compensation, or any amount payable under this Plan, within
seven (7) days of the date on which payment of such amount is
due; or
(E) the failure by the Company (1) to continue in
effect (without reduction in benefit level, and/or reward
opportunities) any material compensation or
16
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employee benefit plan in which the Participant was
participating immediately prior to such failure by the Company
unless a substitute or replacement plan has been implemented
which provides substantially identical compensation or
benefits to the Participant or (2) to continue to provide the
Participant with compensation and benefits, in the aggregate,
at least equal (in terms of benefit levels and/or reward
opportunities) to those provided for under all other
compensation or employee benefit plans, programs and practices
in which the Participant was participating immediately prior
to such failure by the Company.
Any event or condition described in clause (A) through (E)
above which occurs (1) within twelve (12) months prior to a Change in
Control or (2) prior to a Change in Control but which (x) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates
a Change in Control, or (y) otherwise arose in connection with, or in
anticipation of, a Change in Control which has been threatened or
proposed and which actually occurs, shall constitute Good Reason for
purposes of this Section 7.5 notwithstanding that it occurred prior to
a Change in Control.
7.6 The Company may, but shall not be required to, purchase a life
insurance policy, or policies, to assist in funding any of its payment
obligations under the Plan. If any policy is so purchased, it shall, at all
times, remain the exclusive property of the Company and subject to the claims of
its creditors. Neither the Participant nor any beneficiary or contingent
beneficiary designated by him or her shall have any interest in, or rights with
respect to, such policy.
7.7 A Participant shall have the status of a mere unsecured creditor of
the Company with respect to his or her right to receive any payment under the
Plan. The Plan shall constitute a mere promise by the Company to make payments
in the future of the benefits provided for herein. It is intended that the
arrangements reflected in this Plan be treated as unfunded for tax purposes and
for purposes of Title I of ERISA.
8. Non-Assignment of Deferred Compensation
A Participant's rights to payments under this Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer (other than transfer
by will or by the laws of descent and distribution, in the absence of a
beneficiary designation), assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Participant or his or her spouse or other
beneficiary.
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9. Termination of Participation or Employment
A Participant's participation in the Plan may be terminated by the
Board at any time. No promise or representation, either express or implied, is
made with respect to continued employment, transfer or promotion because of
participation in the Plan, and the employment of a Participant may be terminated
at any time.
10. Transfer of Employment
10.1 If a Participant transfers employment to any other Company that
maintains this Plan for such Company's Elected Officers and Other Eligible
Employees and the Participant is or becomes an Elected Officer or Other Eligible
Employee of such other Company, the balance to the Participant's credit in each
Account maintained for the Participant under this Plan shall be transferred to
the comparable account established for the Participant under the Plan maintained
by such other Company, effective as of the date on which the Participant's
employment is so transferred or, if later, the date on which the Participant
first becomes an Elected Officer or Other Eligible Employee of such other
Company. Upon the transfer of the Participant's Account balances, the Company
making the transfer shall have no further obligation to the Participant or his
or her designated beneficiaries with respect to payment of the Account balances
so transferred.
10.2 If an Elected Officer or Other Eligible Employee of any other
Company that maintains this Plan for its Elected Officers or Other Eligible
Employee transfers employment to the Company and is or becomes an Elected
Officer or Other Eligible Employee of the Company, as of the date on which such
Elected Officer's or Other Eligible Employee's employment is so transferred or,
if later, the date on which such Elected Officer or Other Eligible Employee
first becomes an Elected Officer or Other Eligible Employee of the Company,
there shall be established for the Elected Officer or Other Eligible Employee
under this Plan an Account or Accounts comparable to each account maintained for
such Elected Officer or Other Eligible Employee under such other Company's Plan,
and there shall be transferred to each Account so established an amount equal to
the balance to such Elected Officer's or Other Eligible Employee's credit in the
comparable account maintained for the Elected Officer or Other Eligible Employee
under such other Company's Plan.
In addition, on and after the date on which an Elected Officer's or
Other Eligible Employee's Account balances are so transferred, any election to
defer Compensation, any election as
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to the date of commencement or form of distribution of Account balances, and any
designation of a beneficiary, made by the Participant under such other Company's
Plan shall be treated as having been made under this Plan.
19
EXHIBIT 10-B
GPU SYSTEM COMPANIES
MASTER DIRECTORS' BENEFITS PROTECTION TRUST
As Amended and Restated Effective February 6, 1997
<PAGE>
TABLE OF CONTENTS
Article Title Page No.
ARTICLE 1 Definitions 2
ARTICLE 2 Establishment of the Trusts 5
ARTICLE 3 Contributions and Accounts 7
ARTICLE 4 Payments to Participants
and Beneficiaries 10
ARTICLE 5 Legal Defense Fund 15
ARTICLE 6 Insolvency 18
ARTICLE 7 Payments to Company 19
ARTICLE 8 Investment Authority and Disposition
of Income 20
ARTICLE 9 General Powers and Duties of Trustee 21
ARTICLE 10 Taxes, Expenses, and Compensation
of Trustee 25
ARTICLE 11 Accounting by Trustee 26
ARTICLE 12 Communications 27
ARTICLE 13 Resignation or Removal of Trustee 28
ARTICLE 14 Amendments and Termination 29
ARTICLE 15 Miscellaneous 30
<PAGE>
THIS TRUST AGREEMENT, Amended and Restated as of February 6, 1997,
by and between GPU, INC., a Pennsylvania corporation (the "Corporation"), JERSEY
CENTRAL POWER & LIGHT COMPANY, a New Jersey corporation, and GPU NUCLEAR, INC.,
a New Jersey corporation (each such corporation is hereinafter referred to
individually as a "Company", and all such corporations are hereinafter referred
to collectively as the "Companies"), and SUMMIT BANK (formerly UNITED JERSEY
BANK), a New Jersey state chartered bank (hereinafter referred to as the
"Trustee").
W I T N E S S E T H :
WHEREAS, each Company has adopted one or more Plans (as
hereinafter defined) under which it has incurred or expects to incur liability
under the terms of such Plans with respect to Benefits (as hereinafter defined)
payable to individuals participating in such Plans; and
WHEREAS, pursuant to a Trust Agreement dated as of September 1,
1995 between the Companies and the Trustee (the "Prior Agreement"), each of the
Companies has established a trust (hereinafter called the "Trust") and has
contributed to the Trust assets that shall be held therein, subject to the
claims of the Company's creditors in the event of the Company's Insolvency (as
hereinafter defined) until paid to Plan participants and their beneficiaries in
such manner and at such times as specified in the Plans; and
WHEREAS, it is the intention of the parties that each Trust shall
constitute an unfunded arrangement and shall not affect the status of each of
the Plans as unfunded for federal income tax purposes; and
WHEREAS, it is the intention of each Company to make contributions
to its Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under its Plans; and
WHEREAS, the Trustee is not a party to any of the Plans and makes
no representations with respect thereto; and
WHEREAS, the parties hereto wish to amend and restate the Prior
Agreement to make certain changes thereto; and
NOW, THEREFORE, the Prior Agreement is hereby amended and restated
to read in its entirety as follows:
1
<PAGE>
ARTICLE 1
Definitions
As used herein, the following terms shall have the following
meanings, unless the context clearly indicates a contrary meaning:
(a) "Agreement" shall mean this instrument, as the same may
be amended from time to time as permitted herein.
(b) "Applicable Company" shall mean, with respect to any
Trust established hereunder, or any Plan, the Company that
established such Trust, or that has adopted or maintains such
Plan.
(c) "Beneficiary", with respect to a Participant, shall mean
the person or entity designated by such Participant under a Plan,
or such other person or entity with respect to such Participant as
may be designated under the terms of such Plan, to receive the
Benefits, if any, payable from such Plan following such
Participant's death.
(d) "Benefits" shall mean those amounts specified in Exhibit
B that are payable under a Plan to (or with respect to) a
Participant, or, upon his death, to his Beneficiary.
(e) "Benefit Valuation Date" shall mean the first day of
each calendar year.
(f) "Board" shall mean the board of directors of the
Corporation.
(g) "Change in Control" shall mean the occurrence of any of
the following:
(1) An acquisition (other than directly from the
Corporation) of any common stock of the Corporation ("Common
Stock") or other voting securities of the Corporation entitled to
vote generally for the election of directors (the "Voting
Securities") by any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), immediately after which
such Person has "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act)
2
<PAGE>
of twenty percent (20%) or more of the then outstanding shares of
Common Stock or the combined voting power of the Corporation's
then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall
mean an acquisition by (A) an employee benefit plan (or a trust
forming a part thereof) maintained by (i) the Corporation or (ii)
any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Corporation (for purposes of this
definition, a "Subsidiary"), (B) the Corporation or its
Subsidiaries, or (C) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are
members of the Board (the "Incumbent Board"), cease for any reason
to constitute at least seventy percent (70%) of the members of the
Board; provided, however, that if the election, or nomination for
election by the Corporation's shareholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Trust, be
considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued
where:
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(i) the stockholders of the Corporation, immediately before
such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
seventy percent (70%) of the members of the board of directors of
the Surviving Corporation, or a corporation, directly or
indirectly, beneficially owning a majority of the Voting
Securities of the Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x) any
Subsidiary, (y)any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the Corporation
or any Subsidiary, or (z) any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then outstanding
Voting Securities or common stock of the Corporation, has
Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock;
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or
substantially all of the assets of the Corporation to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock or Voting Securities
as a result of the acquisition of Common Stock or Voting
Securities by the Corporation which, by reducing the number of
shares of Common Stock or Voting Securities then outstanding,
increases the proportional number of shares Beneficially
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Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result
of the acquisition of shares of Common Stock or Voting Securities
by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of
any additional shares of Common Stock or Voting Securities which
increases the percentage of the then outstanding shares of Common
Stock or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
(h) "Code" shall mean the Internal Revenue Code of 1986 as
the same may be amended from time to time.
(i) "Insolvent"--A Company shall be considered "Insolvent"
for purposes of this Agreement if (i) the Company is unable to pay
its debts as they become due, or (ii) the Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy
Code.
(j) "Participant" shall mean any person who is or may become
entitled to receive Benefits under a Plan and who is included in
the list of persons who are to be treated as Participants for
purposes of this Agreement, as set forth in Exhibit A hereto.
(k) "Permitted Investments" shall mean direct obligations of
the United States of America or agencies or instrumentalities
thereof or obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America
("Obligations"), and certificates of deposit and bankers'
acceptances of a bank organized and existing under the laws of the
United States of America or any State thereof that has a combined
capital and surplus of at least $100,000,000, all having
respective maturities of not more than one year when purchased.
The term "Permitted Investments" shall also mean any fund or
portfolio maintained by any open-end investment company registered
under the Investment Company Act of 1940, the assets of which are
invested exclusively in Obligations, certificates of deposit
and/or bankers' acceptances of the kind described in the preceding
sentence including, without limitation, any such fund or portfolio
for which the Trustee or any affiliate of the Trustee serves as
investment adviser.
(l) "Plan" or "Plans" shall mean, with respect to any
Company, any (or if the context requires, all) of the plans,
programs or policies maintained by such Company,
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and agreements entered into by such Company, that are included in
the list set forth in Exhibit B hereto.
(m) "Present Value" shall mean, with respect to any Benefit,
the single sum actuarial present value of such Benefit, as
determined by an enrolled actuary on the basis of the actuarial
assumptions most recently adopted by the Applicable Company for
use in connection with this Agreement. Notwithstanding the
foregoing, any determination of the Present Value of Benefits to
be made hereunder at any time after a Change in Control or during
a Threatened Change in Control Period shall be made on the basis
of the actuarial assumptions that were used in determining the
Present Value of such Benefits as of the most recent Benefit
Valuation Date preceding the Change in Control or Threatened
Change in Control Period, unless the Applicable Company has
notified the Trustee in writing prior to the Change in Control or
the Threatened Change in Control Period of its adoption of
different actuarial assumptions for use hereunder after the Change
in Control or during the Threatened Change in Control Period;
provided, however, that if any Plan specifies (either expressly or
by reference) the actuarial assumptions that are to be used to
calculate the Benefits provided under such Plan, the actuarial
assumptions so specified shall be used to determine the Present
Value of Benefits under that Plan for purposes of this Agreement.
(n) "Threatened Change in Control" shall mean the
occurrence of any of the following events (but no event other than
the following events), except as otherwise provided below: Any
Person
(1) becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing fifteen
percent (15%) or more of the then-outstanding Common Stock or of
the combined voting power of the Corporation's then-outstanding
voting securities, or
(2) initiates a tender offer or exchange offer to
acquire securities of the Corporation representing twenty percent
(20%) or more of the then-outstanding Common Stock or of the
combined voting power of the Corporation's then-outstanding voting
securities, or
(3) solicits proxies for the election within any
single twelve (12)-month period of three or more directors, whose
election or nomination is not approved by a majority of the
Incumbent Board then serving as members of the Board, to serve on
the Board.
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Notwithstanding the foregoing, a Threatened Change in
Control shall not be deemed to occur pursuant to this Section
1.1(n) solely because of an acquisition or tender offer made or
effected in connection with a Non-Control Acquisition.
(o) "Threatened Change in Control Period" shall mean the
period commencing on the date on which a Threatened Change in
Control has occurred and ending (i) on the date on which a Change
in Control has occurred, or (ii), if earlier, on whichever of the
following dates is applicable:
(1) in the case of a Threatened Change in Control
described in Section 1.1(n)(1), the date as of which any Person
described in Section 1.l(n)(1) ceases to be the Beneficial Owner,
directly or indirectly, of securities of the Corporation
representing fifteen percent (15%) or more of the Common Stock or
of the combined voting power of the Corporation's then-outstanding
voting securities, or
(2) in the case of a Threatened Change in Control
described in Section 1.l(n)(2), the date as of which the tender
offer or exchange offer described in Section 1.1(n)(2) is
terminated without any securities described therein of the
Corporation being purchased thereunder, or
(3) in the case of a Threatened Change in Control
described in Section 1.l(n)(3), the date as of which any Person
described in Section 1.1(n)(3) fails to effect the election within
any single twelve (12)-month period of three or more directors,
whose election or nomination is not approved by a majority of the
Incumbent Board then serving as members of the Board, to serve on
the Board.
(p) "Valuation Date" shall mean the last business day of
each calendar quarter.
ARTICLE 2
Establishment of the Trusts
---------------------------
2.1 Each Company hereby establishes with the Trustee, and the
Trustee hereby accepts, a Trust consisting of such sums of money and other
property acceptable to the Trustee as such
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Company shall pay or deliver to the Trustee from time to time. All
such money and other property, all investments and reinvestments made therewith
or proceeds thereof and all earnings and profits thereon, less all payments
therefrom and charges thereto as authorized herein, are hereinafter referred to
as the "Trust Fund" for such Trust. Each Trust Fund shall be held, administered
and disposed of by the Trustee as provided in this Agreement.
2.2 Prior to a Change in Control, each Trust established hereunder
may be revoked, in whole or in part, by the Applicable Company giving to the
Trustee written notice of such revocation; provided, however, that no Trust
established hereunder may be revoked (i) at the request of a third party who has
indicated an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) in connection with, or in anticipation of,
a Change in Control which has been threatened or proposed and which actually
occurs or (iii) during a Threatened Change in Control Period, any such attempted
revocation being null and void. If a Trust is so revoked in its entirety, all of
the assets of the Trust (after payment of any unpaid fees and expenses of the
Trustee properly chargeable to such Trust) shall be transferred by the Trustee
to the Applicable Company or to such other person or entity as the Applicable
Company may direct in writing. If a Trust is so revoked in part, the Trustee
shall transfer to the Applicable Company such of the assets of the Trust as the
Applicable Company shall have specified in its written notice to the Trustee of
the partial revocation of such Trust. Upon a Change in Control, each Trust shall
become irrevocable.
2.3 Each Trust established hereunder is intended to constitute a
"grantor trust", of which the Company is the grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall be
construed accordingly.
2.4 The principal of each Trust, and any earnings thereon, shall
be held separate and apart from other funds of the Applicable Company, and shall
be used exclusively for the uses and purposes of Participants under such
Company's Plans and general creditors of such Company, as herein set forth.
Participants and their Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of any Trust. Any rights created
under the Plans and this Agreement shall be mere unsecured contractual rights of
Participants and their Beneficiaries against the Applicable Company. Any assets
held by each Trust will be subject to the claims of the
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Applicable Company's general creditors under federal and state law in the event
of the Applicable Company's Insolvency, as defined in Section 1.1(h) herein.
2.5 Each Trust established hereunder shall be maintained by the
Trustee as a separate trust. However, the assets of any Trust may be commingled
with the assets of any other Trust, solely for investment purposes.
ARTICLE 3
Contributions and Accounts
--------------------------
3.1 Prior to a Change in Control, each Company may make
contributions to its Trust in such amounts, and at such times, as such Company
may determine in its sole discretion. Such contributions may be in the form of
cash, or such other property as may be determined by the Company and as may be
acceptable to the Trustee.
3.2 Required Contributions.
-----------------------
3.2.1 Upon the occurrence of a Change in Control, each
Company shall be required to make contributions to its Trust as follows:
(a) Upon a Change in Control, the Company shall,
as soon as possible but in no event later than 30 days following the Change in
Control, make an irrevocable contribution to its Trust in an amount that, when
added to the value of the Trust Fund for such Trust (exclusive of the value of
the Legal Defense Fund, if any, maintained within such Trust Fund) determined as
of the most recent Valuation Date preceding such contribution, will equal the
sum of (i) the aggregate Present Value of all Benefits accrued for all
Participants under all of such Company's Plans determined as of the most recent
Benefit Valuation Date preceding the date on which the Change in Control
occurred; and (ii) the aggregate Present Value of all other Benefits for all
Participants under all of such Company's Plans that accrue as a result of the
occurrence of the Change in Control, determined as of the first day of the month
coincident with or immediately following the date on which the Change in Control
occurred.
(b) Within 60 days after each Benefit Valuation
Date following the occurrence of a Change in Control, each Company shall make an
irrevocable contribution to its Trust in an amount that, when added to the value
of the Trust Fund for such Trust (exclusive of the value of the Legal Defense
Fund, if any,
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maintained within such Trust Fund) determined as of the most recent Valuation
Date preceding such contribution, will equal the aggregate Present Value of all
Benefits accrued for all Participants under all of such Company's Plans
determined as of such Benefit Valuation Date.
3.2.2 Upon the occurrence of a Threatened Change in Control,
each Company shall be required to make contributions to its Trust as follows:
(a) Upon a Threatened Change in Control,
the Company shall, as soon as practicable but in no event later than 30 days
following the Threatened Change in Control, make a contribution to its Trust in
an amount that, when added to the value of the Trust Fund for such Trust
(exclusive of the value of the Legal Defense Fund, if any, maintained within
such Trust Fund) determined as of the most recent Valuation Date preceding such
contribution, will equal the sum of (i) the aggregate Present Value of all
Benefits accrued for all Participants under all of such Company's Plans,
determined as of the most recent Benefit Valuation Date preceding the date on
which the Threatened Change in Control occurred; and (ii) the aggregate Present
Value, determined as of the first day of the month coincident with or
immediately following the date on which the Threatened Change in Control
occurred, of all other Benefits for all Participants under all of such Company's
Plans that would have accrued as a result of a Change in Control if such Change
in Control had occurred on the date on which the Threatened Change in Control
occurs.
(b) Within 60 days after each Benefit Valuation Date during a
Threatened Change in Control Period, each Company shall make a contribution to
its Trust in an amount that, when added to the value of the Trust Fund for such
Trust (exclusive of the value of the Legal Defense Fund, if any, maintained
within such Trust Fund) determined as of the most recent Valuation Date
preceding such contribution, will equal the sum of (i) the aggregate Present
Value of all Benefits accrued for all Participants under all of such Company's
Plans, determined as of such Benefit Valuation Date and (ii) the aggregate
Present Value, determined as of such Benefit Valuation Date, of all other
Benefits for all Participants under all of such Company's Plans that would have
accrued as a result of a Change in Control, if such Change in Control had
occurred on such Benefit Valuation Date.
3.3 Within the Trust Fund for each Trust, the Trustee shall
establish and maintain a separate account (hereinafter referred to as a "Plan
Account") for each of the Applicable Company's Plans. The Trustee also shall
establish within each
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Plan Account a separate sub-account (hereinafter referred to as a "Participant
Account") for each Participant of such Plan. The Trustee shall hold all Plan
Accounts and Participant Accounts maintained within the Trust Fund for any Trust
as a single consolidated fund.
3.4 With respect to each contribution that is made to a Trust
prior to a Change in Control but not during any Threatened Change in Control
Period, the amount, or property, so contributed to such Trust shall be allocated
by the Trustee to the Plan Accounts, and to the Participant Accounts, maintained
within such Trust in such manner as the Applicable Company directs in written
instructions delivered by the Applicable Company to the Trustee at the time of
the contribution.
3.5 As of each Valuation Date, the Trust Fund for each Trust
shall be revalued by the Trustee at its then current fair market value, as
determined by the Trustee. The net investment gains and losses of each Trust
Fund for each calendar year that ends prior to a Change in Control but not
during a Threatened Change in Control shall be allocated by the Trustee, as of
the last Valuation Date occurring in such year, among the Plan Accounts and
Participant Accounts maintained within such Trust, in such manner as the
Applicable Company shall specify in written instructions furnished by it to the
Trustee. As of each Valuation Date following the occurrence of a Change in
Control, or that falls within a Threatened Change in Control Period, the net
investment gains and losses of each Trust Fund for the calendar year ending on
such Valuation Date shall be allocated by the Trustee proportionately among the
Plan Accounts and Participant Accounts maintained within such Trust, based on
the value of such Accounts as of the immediately preceding Valuation Date. In
making the foregoing allocation, the value of Plan Accounts and Participant
Accounts in existence on the immediately preceding Valuation Date but not in
existence on the current Valuation Date shall be disregarded.
3.6 Notwithstanding the provisions of Sections 3.4 and 3.5, as
of each Benefit Valuation Date occurring prior to a Change in Control, but not
during any Threatened Change in Control Period, the Trustee shall, in accordance
with such written instructions as it has received from the Applicable Companies,
record adjustments to the balance of each Participant Account maintained within
a Plan Account to the extent necessary for such balance to equal the amount
determined by multiplying (a) the balance of such Plan Account determined as of
the most recent Valuation Date preceding such Benefit Valuation Date, by (b) a
fraction the numerator of which is the Present Value of the Benefits accrued for
the applicable Participant under the Plan
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in question, determined as of such Benefit Valuation Date, and the denominator
of which is the aggregate Present Value of all of the Benefits accrued for all
Participants under such Plan, determined as of such Benefit Valuation Date.
3.7 Any contribution made by a Company to its Trust pursuant to
Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b) shall be allocated to the Plan
Accounts maintained under such Trust in proportion to the respective amounts by
which the aggregate Present Value of all Benefits accrued (or, in the case of
contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to
have accrued) for all Participants under each of the Plans in question,
determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or
3.2.2(b), exceeds the balance of the Plan Account maintained hereunder with
respect to each such Plan, determined as of the Valuation Date immediately
preceding such contribution. The amount so allocated to any Plan Account shall
be further allocated to the Participant Accounts maintained within such Plan
Account in proportion to the respective amounts by which the Present Value of
the Benefits accrued (or, in the case of contributions made under clause (ii) of
Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for each Participant under
the Plan in question, determined as of the dates specified in Sections 3.2.1(a),
3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the Participant Account
maintained for such Participant, determined as of the Valuation Date immediately
preceding such contribution.
3.8 The determinations of the Present Value of Benefits required
to be made hereunder as of any Benefit Valuation Date, or other date, occurring
prior to a Change in Control shall be made by an enrolled actuary selected by
the Applicable Companies. As soon as practicable after each such determination
has been made, each Company shall furnish the Trustee with a schedule setting
forth the Present Value so determined of the Benefits accrued (or, if
applicable, deemed to have accrued) for each Participant under each of the
Company's Plans. The determinations of the Present Value of Benefits required to
be made hereunder as of any Benefit Valuation Date, or other date, occurring
after a Change in Control shall be made by an enrolled actuary selected by the
Trustee. In making any allocation of contributions the Trustee is required to
make under Section 3.7, the Trustee shall be entitled to rely, and shall be
fully protected in relying, on any written determination of the Present Value of
any Benefit furnished to it in accordance with the provisions of this Section
3.8. In making any allocation of net investment gains and losses pursuant to the
second sentence of Section 3.5, and in recording any adjustments to the balance
of any Participant Account pursuant to Section 3.6, the Trustee
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shall be entitled to rely, and shall be fully protected in relying, on any
written instructions furnished to it by the Applicable Companies.
ARTICLE 4
Payments to Participants and Beneficiaries
------------------------------------------
4.1 Prior to a Change in Control, the Trustee shall make
payments from the Trust Fund for any Trust to such Participants and
Beneficiaries, in such manner, at such times, and in such amounts, as the
Applicable Company shall direct in written instructions delivered to the
Trustee.
4.2. After a Change in Control, the Trustee shall make payments
from the Trust Fund of any Trust to Participants and Beneficiaries in accordance
with the following provisions:
(a) Prior to a Change in Control, each Company shall
deliver to the Trustee a schedule ("Payment Schedule") substantially in the
form annexed hereto as Exhibit C for each Participant of each Plan whose
Benefits under such Plan may be paid from such Company's Trust after a Change in
Control. The Payment Schedule shall
(i) describe the events that must occur in order
for the Participant's Benefits to become payable under the terms of the
Plan;
(ii) specify the amount of the Participant's
Benefits accrued under the Plan, as of the date on which the Payment
Schedule is furnished to the Trustee, and provide a formula or such
other instructions as will enable the Trustee to determine the amount
of the Participant's Benefits as of the time they become payable under
the terms of the Plan;
(iii) specify the form in which the Participant's
Benefits are to be paid, as provided for or available under the Plan;
(iv) specify the time of commencement for payment
of the Participant's Benefits under the Plan; and
(v) specify the address and social security number
of the Participant as well as the name, address, social security number
and relation to the Participant of the Participant's Beneficiary.
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Prior to a Change in Control the Applicable Company may from
time to time substitute a new Payment Schedule for, or amend, an existing
Payment Schedule by delivering a new or amended Payment Schedule to the Trustee.
Upon receipt of such new or amended Payment Schedule, the previous Payment
Schedule shall be deemed revoked. Prior to a Change in Control, any Payment
Schedule previously filed with the Trustee may be revoked by the Applicable
Company by filing written notice of such revocation with the Trustee without
delivering a new or amended Payment Schedule to the Trustee. Notwithstanding the
foregoing, no Payment Schedule may be amended or revoked after a Change in
Control or during a Threatened Change in Control Period; provided, however, that
during a Threatened Change in Control Period, a Payment Schedule with respect to
a Participant's Benefits under any Plan may be amended so as to reflect any
amendment to the Plan made during such Threatened Change in Control Period that
has the effect of increasing the amount of the Benefits payable under the Plan
with respect to the Participant, or that permits payment of such Benefits to be
made in a form, or to commence at a time, more favorable to the Participant or
his or her Beneficiary than as provided under the Plan prior to such amendment.
Except as otherwise provided herein, after a Change in Control the Trustee shall
make payments with respect to a Participant's Benefits under any Plan only in
accordance with the Payment Schedule with respect to such Participant's Benefits
under such Plan that is on file with the Trustee, and that has not been revoked,
at the time such payments are to be made.
(b) Any Participant or Beneficiary seeking to obtain payments
from the Trust Fund for any Trust after a Change in Control shall first file
with the Trustee a written request for payment in substantially the form annexed
hereto as Exhibit D ("Payment Request Form"). In the Payment Request Form so
filed, the Participant or Beneficiary shall
(i) identify the Plan or Plans under which the Participant
or Beneficiary has become entitled to payment of Benefits;
(ii) describe the events that entitle the Participant or
Beneficiary to receive payment of Benefits under the terms of the Plan
or Plans, and affirm under oath that such events have occurred;
(iii) affirm under oath that no amount of the Benefits with
respect to which payment from the Trust Fund is sought was previously
paid by the Applicable Company; and
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(iv) provide such information (including, without limitation,
information as to the Participant's period of service, compensation and
conditions of employment after a Change in Control) as will enable the
Trustee to determine the amount of the Benefits that the Participant or
Beneficiary is entitled to receive in accordance with the Payment
Schedules furnished to the Trustee with respect to the Participant's
Benefits under the Plan or Plans.
In the case of any Beneficiary seeking payments from a Trust
Fund, the Beneficiary shall furnish to the Trustee, along with the Payment
Request Form, a certified copy of the death certificate of the Participant, an
inheritance tax waiver and such other documents as the Trustee may reasonably
require, including, without limitation, certified copies of letters
testamentary. For all purposes under this Agreement, the Trustee may rely, and
shall be fully protected in relying, on the information contained in any Payment
Request Form (and in any documents accompanying such form) filed with it by any
Participant or Beneficiary.
(c) As soon as practicable after a Payment Request Form has been
filed with it by a Participant or Beneficiary, the Trustee, solely out of the
applicable Trust Fund and with no obligation otherwise to make any payments,
shall make payments to such Participant or Beneficiary in such manner, and at
such times, and in such amounts, as the Trustee shall determine to be payable to
such Participant or Beneficiary under the relevant Plan or Plans based on the
most recent Payment Schedules applicable to the Participant or Beneficiary that
were furnished to the Trustee by the Applicable Company prior to a Change in
Control, and on the information contained in the Payment Request Form (and in
any documents accompanying such Form) filed by the Participant or Beneficiary.
The Trustee is authorized to retain an enrolled actuary to assist it in
determining the amount of any Benefits payable to any Participant or Beneficiary
pursuant to any Payment Request Form or Payment Schedules filed by or for such
Participant or Beneficiary and, in any case in which a Participant or
Beneficiary has filed a Payment Request Form with respect to Benefits under any
Plan for which an unrevoked Payment Schedule is not on file with the Trustee, to
assist it in determining such Participant's or Beneficiary's entitlement to
Benefits under such Plan. For all purposes under this Agreement, the Trustee may
rely, and shall be fully protected in relying, on any advice given to it by such
actuary as to the amount of Benefits payable hereunder to any Participant or
Beneficiary.
(d) Following the occurrence of a Change in Control, the Trustee
shall make provision for the reporting and withholding
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of any federal, state or local taxes that may be required to be withheld with
respect to the payment of Benefits to be made from any Trust pursuant to the
terms of this Agreement, and shall pay amounts withheld by it to the appropriate
taxing authorities or determine that the amounts required to be withheld with
respect to such payments have been reported, withheld and paid by the Applicable
Company. Prior to a Change in Control, the Trustee shall report and withhold any
federal, state or local taxes that may be required to be withheld with respect
to any payment of Benefits to be made from any Trust pursuant to Section 4.1,
but only to the extent that the Applicable Company has furnished to the Trustee,
in the written instructions delivered to the Trustee pursuant to Section 4.1
directing it to make such payment, the amount of the federal, state or local
taxes required to be withheld with respect to such payment. The Trustee shall be
entitled to rely, and shall be fully protected in relying, upon the information
so furnished to it as to the amount of taxes to be withheld.
4.3. The entitlement of a Participant or Beneficiary to Benefits
under any Plan shall be determined by the Applicable Company or such other party
as may have been designated under the Plan, and any claim for such Benefits
shall be considered and reviewed under the procedures set out in the Plan.
Notwithstanding the foregoing, after a Change in Control, any Participant or
Beneficiary for whom any unrevoked Payment Schedule is on file with the Trustee
at the time of the Change in Control shall be presumed conclusively, for all
purposes of this Agreement, to be entitled to any Benefit that the Trustee
determines to be payable to such Participant or Beneficiary on the basis of the
information contained in such Payment Schedule and in any Payment Request Form
filed by the Participant or Beneficiary; and in such case, the provisions set
forth in the immediately preceding sentence shall apply only with respect to any
claim by the Participant or Beneficiary for Benefits that are in addition to, or
in excess of, the Benefits that the Trustee has so determined to be payable to
the Participant or Beneficiary.
4.4. Each payment made from the Trust Fund for any Trust with
respect to a Participant's Benefits under any Plan shall be payable only from,
and shall be charged against, the Plan Account maintained within such Trust Fund
with respect to such Plan and the Participant Account established within such
Plan Account for the applicable Participant. Notwithstanding any other provision
herein to the contrary, the Trustee shall not make a payment with respect to a
Participant's Benefits under any Plan to the extent that the amount of the
payment otherwise required to be made exceeds the amount then held in the Plan
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Account for such Plan or the amount then held in the Participant Account
established within such Plan Account for the applicable Participant.
If, because of the provisions of this Section 4.4, any amount
otherwise required to be paid by the Trustee to a Participant or Beneficiary
with respect to a Participant's Benefits under any Plan cannot be paid by the
Trustee, such amount shall be paid to the Participant or Beneficiary by the
Applicable Company.
4.5. At such time after a Change in Control as the aggregate
amount of the payments made hereunder from the Participant Account maintained
within any Plan Account for any Participant shall equal the maximum amount that
may be paid from such Participant Account pursuant to the most recent Payment
Schedule filed with respect to such Participant's Benefits under the Plan in
question, the balance then remaining in such Participant Account shall be
allocated and credited, on a pro rata basis, to all other Participant Accounts
maintained within such Plan Account, based on the respective values of such
other Participant Accounts determined as of the most recent Valuation Date.
At such time after a Change in Control as the aggregate amount
of the payments made from any Plan Account shall equal the maximum amount that
may be paid from such Plan Account pursuant to the most recent Payment Schedules
filed with respect to Participants' Benefits under the Plan for which such Plan
Account was established, the balance then remaining in such Plan Account shall
be allocated and credited, on a pro rata basis, to all other Plan Accounts and
Participant Accounts maintained within the same Trust Fund, based on the
respective values of such other Plan Accounts and Participant Accounts
determined as of the most recent Valuation Date.
4.6 Notwithstanding any other provision of this Agreement to the
contrary, if at any time any Trust is finally determined by the Internal Revenue
Service (the "IRS") not to be a "grantor trust," with the result that the income
of such Trust is not treated as income of the Applicable Company pursuant to
Sections 671 through 679 of the Code, such Trust shall immediately terminate and
the amounts allocated to each Plan Account and Participant Account within such
Trust shall be paid in a cash lump sum as soon as practicable by the Trustee to
the Participants for whom such Accounts were maintained. If any Company should
receive notice of such final determination from the IRS, such Company shall
promptly furnish written notice of such final determination to the Trustee.
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4.7 Notwithstanding any other provision of this Agreement to the
contrary, if the IRS should finally determine that any amounts held in any Trust
are includible in the gross income of any Participant or Beneficiary prior to
payment of such amounts from the Trust, the Trustee shall, as soon as
practicable, pay such amounts to such Participant or Beneficiary from such
Trust. For purposes of this Section 4.7, the Trustee shall be entitled to rely
on an affidavit by a Participant or Beneficiary to the effect that such a
determination has occurred.
4.8 Each Company may make payment of Benefits directly to
Participants or their Beneficiaries as they become due under the terms of the
Applicable Plans. After a Change in Control, a Company that decides to make
payment of Benefits directly shall notify the Trustee in writing of its decision
prior to the time amounts are payable to the Participants or their
Beneficiaries. In addition, each Company shall remain primarily liable to pay
all of the Benefits provided for under its Plans, to the extent such Benefits
are not payable from such Company's Trust pursuant to this Agreement.
Accordingly, if the principal of the Applicable Company's Trust, and any
earnings thereon, are not sufficient to make payments of Benefits in accordance
with the terms of such Company's Plans, the Company shall make the balance of
each such payment as it falls due. The Trustee shall notify the Applicable
Company in writing where principal and earnings of the Company's Trust are not
sufficient.
ARTICLE 5
Legal Defense Fund
------------------
5.1. On the written direction of a Company, the Trustee shall
establish within the Trust Fund for such Company's Trust a separate fund,
hereinafter referred to as a "Legal Defense Fund". A Company's Legal Defense
Fund shall consist of such portions of its contributions to its Trust as the
Company shall specify in writing at the time of contribution, together with all
income, gains and losses and proceeds from the investment, reinvestment and sale
thereof, less all payments therefrom and expenses charged thereto in accordance
with the provisions of this Article 5. Subject to Article 6, a Company's Legal
Defense Fund shall be held and administered by the Trustee exclusively for the
purpose of defraying the costs and expenses incurred by the Trustee in
performing its duties under Sections 5.3 and 5.4.
5.2. A Company's Legal Defense Fund shall be maintained and
administered as a separate segregated account,
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provided, however, that the assets of any Legal Defense Fund may be commingled
with all other assets of the same Trust, and with the assets of any other Trust,
solely for investment purposes.
5.3. If, at any time after a Change in Control, a Participant or
Beneficiary notifies the Trustee in writing that a Company has refused to pay a
claim asserted by such Participant or Beneficiary under any of such Company's
Plans, the Trustee shall promptly review such claim and determine whether it has
any basis in law and fact. If the Trustee determines that the claim has no basis
in law and fact, the Trustee shall notify the Participant or Beneficiary of such
determination, and thereafter shall take no further action with respect to the
claim. If the Trustee determines that there is a basis in law and fact for the
Participant's or Beneficiary's claim, the Trustee shall take the following
actions to assist the Participant or Beneficiary (hereafter referred to as the
"Claimant") to recover on such claim:
(a) The Trustee shall promptly attempt to negotiate with
the Applicable Company to obtain payment, settlement or other
disposition of the claim, subject to the Claimant's consent.
(b) If (i) negotiations fail after 60 days of their
commencement to result in a payment, settlement or other disposition
acceptable to the Claimant, (ii) the Trustee at any time reasonably
believes that further negotiations would not be in the Claimant's best
interest or (iii) any applicable statute of limitations would otherwise
expire within 60 days, the Trustee shall advise the Claimant of such
fact. Thereupon, the Claimant may, by filing with the Trustee a written
authorization in substantially the form attached hereto as Exhibit E,
direct the Trustee to institute and maintain legal proceedings (the
"Litigation") against the Applicable Company to recover on the claim on
behalf of the Claimant.
(c) The Trustee shall direct the course of any Litigation
and shall keep the Claimant informed of the progress thereof at such
intervals as the Trustee deems appropriate, but no less frequently than
quarterly. The Trustee shall have the discretion to determine the form
and nature that any Litigation shall take, and the procedural rules and
laws applicable to such Litigation shall supersede any inconsistent
provision of this Agreement.
(d) If the Claimant directs in writing that the Litigation
be settled or discontinued, the Trustee shall
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take all appropriate action to follow such direction, provided that
such written direction specifies the terms and conditions of the
settlement or discontinuance and provided further that the Claimant, if
requested to do so by the Trustee, executes and delivers to the Trustee
a document in a form acceptable to the Trustee releasing the Trustee
and holding it harmless from any liability resulting from its following
such direction. If the Claimant refuses to consent to a settlement or
other disposition of the Litigation on terms recommended in writing by
the Trustee, the Trustee may proceed, in its sole and absolute
discretion, to take such action as it deems appropriate in the
Litigation, including settlement or discontinuance of the Litigation;
provided, however, that the Trustee shall afford the Claimant at least
14 days' advance notice in writing of any decision by the Trustee to
settle or otherwise discontinue the Litigation.
(e) A Claimant may at any time revoke the authorization of
the Trustee to continue any Litigation on his behalf by delivering to
the Trustee a written revocation in substantially the form attached as
Exhibit F hereto, and notifying the Trustee in writing that the
Claimant has appointed his own counsel (whose fees and expenses shall
not be paid from any Legal Defense Fund) to represent the Claimant in
the Litigation in lieu of counsel retained by the Trustee. Upon the
Trustee's receipt of such revocation and notice, the Trustee shall have
no obligation to proceed further on behalf of the Claimant in the
Litigation, or to pay any costs or expenses incurred in the Litigation
after the date on which such revocation and notice is delivered to the
Trustee.
(f) The Trustee shall be empowered to retain counsel and
other appropriate experts, including actuaries and accountants, to
assist it in making any determination under this Section 5.3, in
determining whether to pursue, settle or discontinue any Litigation,
and to prosecute and maintain any such Litigation on behalf of any
Claimant. Notwith-standing the foregoing, each Company, prior to a
Change in Control, may designate in writing the counsel to be retained
by the Trustee after a Change in Control to assist in enforcing the
rights of Claimants under such Company's Plans in accordance with the
provisions of this Section 5.3. If the counsel so designated declines
to provide representation, or if such counsel's representation would
involve a conflict of interest with the Trustee, or if the Trustee is
not satisfied with the quality of representation provided, the Trustee
may dismiss such counsel and engage
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another qualified law firm for this purpose; provided, however, that
any law firm so engaged may not be the same law firm that represents
any Company after a Change in Control. No Company may dismiss or engage
such counsel, or cause the Trustee to engage or dismiss such counsel,
after a Change in Control.
(g) All costs and expenses incurred by the Trustee in
connection with the performance of its duties under this Section 5.3,
including, without limitation, the payment of reasonable fees, costs
and disbursements of any counsel, actuaries, accountants or other
experts retained by the Trustee pursuant to Section 5.3(f), shall be
charged to and paid from the Applicable Company's Legal Defense Fund.
(h) Notwithstanding any provision herein to the contrary,
the Trustee shall be required to act under this Section 5.3, including,
without limitation, instituting or continuing any Litigation, only to
the extent there are sufficient amounts available in the Applicable
Company's Legal Defense Fund to defray the costs and expenses the
Trustee reasonably anticipates will be incurred in connection with such
action. If, at any time after a Claimant has filed a written notice
with the Trustee under Section 5.3(a) the Trustee determines that there
will not be sufficient amounts in the Applicable Company's Legal
Defense Fund to defray such costs and expenses, the Trustee shall
promptly advise the Claimant of such fact. Unless within 30 days after
it has given such notice to the Claimant the Trustee receives from the
Claimant assurances, in such form as may be satisfactory to the
Trustee, that any costs and expenses in excess of amounts available in
the Applicable Company's Legal Defense Fund will be paid by the
Claimant, the Trustee shall have no obligation to take any further
action on behalf of the Claimant pursuant to this Section 5.3; and, if
a Litigation on behalf of the Claimant is then pending, the Trustee may
discontinue such Litigation on such terms and conditions as it deems
appropriate in its sole discretion.
5.4. If, at any time after a Change in Control or during a
Threatened Change in Control Period, legal proceedings are brought against the
Trustee by a Company or other party seeking to invalidate any of the provisions
of this Agreement as they relate to a Company's Trust, or seeking to enjoin the
Trustee from paying any amounts from any Trust or from taking any other action
otherwise required or permitted to be taken by the Trustee under this Agreement
with respect to any Trust, the Trustee shall take all steps that may be
necessary in such
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proceeding to uphold the validity and enforceability of the provisions of this
Agreement as they relate to such Trust. All costs and expenses incurred by the
Trustee in connection with any such proceeding (including, without limitation,
the payment of reasonable fees, costs and disbursements of any counsel,
actuaries, accountants or other experts retained by the Trustee in connection
with such proceeding) shall be charged to and paid from the Applicable Company's
Legal Defense Fund. Any costs and expenses so incurred by the Trustee in excess
of amounts available in the Applicable Company's Legal Defense Fund shall be
charged to and paid from the other assets of such Company's Trust. Any such
excess costs and expenses so charged shall be allocated to the Plan Accounts
maintained within such Trust, and to the Participant Accounts maintained within
such Plan Accounts, on a pro rata basis.
5.5. Each Company's Legal Defense Fund shall continue to be held
and administered by the Trustee for the purposes described in Section 5.1 until
such time as all Benefits to which all Participants are entitled under all of
such Company's Plans shall have been paid in full to such Participants or their
Beneficiaries. Any balance then remaining in a Company's Legal Defense Fund
shall be distributed to such Company.
ARTICLE 6
Insolvency
----------
6.1. The Trustee shall cease making payment hereunder of
Benefits payable to Participants and their Beneficiaries pursuant to a Company's
Plans if the Company is Insolvent.
6.2. At all times during the continuance of each Trust, as
provided in Section 2.4 hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Applicable Company under federal
and state law as set forth below:
(a) The Board of Directors and Chief Executive Officer of
each Company shall have the duty to inform the Trustee in writing of
such Company's Insolvency. If a person claiming to be a creditor of a
Company alleges in writing to the Trustee that such Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue making
payment from such Company's Trust to Participants and Beneficiaries.
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(b) Unless the Trustee has actual knowledge of a Company's
Insolvency, or has received notice from a Company or a person claiming
to be a creditor of such Company alleging that the Company is
Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such
evidence concerning a Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
(c) If at any time the Trustee has determined that a
Company is Insolvent, the Trustee shall discontinue making payments
from such Company's Trust to Participants and their Beneficiaries and
shall hold the assets of such Trust for the benefit of the Company's
general creditors. Nothing in this Agreement shall in any way diminish
any rights of Participants or their Beneficiaries to pursue their
rights as general creditors of the Applicable Company with respect to
Benefits due under the Company's Plans or otherwise.
(d) The Trustee shall resume making payment from a
Company's Trust of Benefits to Participants or their Beneficiaries in
accordance with Article 4 of this Trust Agreement only after the
Trustee has determined that the Company is not Insolvent, or is no
longer Insolvent.
6.3 Provided that there are sufficient assets, if the Trustee
discontinues the payment of Benefits from any Trust pursuant to Section 6.2
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the Applicable Company's
Plan for the period of such discontinuance, less the aggregate amount of any
payments made to Participants or their Beneficiaries by the Company in lieu of
the payments provided for hereunder during any such period of discontinuance.
ARTICLE 7
Payments to Company
-------------------
7.1 Prior to a Change in Control (but not during a Threatened
Change in Control Period), a Company may, by written notice to the Trustee,
direct the Trustee to pay to such Company, out of the Trust Fund for such
Company's Trust, such amount as is specified in the notice. Any such notice
shall specify the Plan Accounts and the Participant Accounts, if any, which
shall be debited with respect to such payment. If the amount that would
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remain in the Trust Fund after any such payment would be less than the unpaid
fees and expenses of the Trustee properly chargeable to such Trust Fund, the
Trustee may deduct such fees and expenses from the payment that otherwise would
be made to the Company.
7.2 Except as provided in Article 6 hereof, during such time as
the Trust is irrevocable, the Applicable Company shall have no right or power to
direct the Trustee to return to the Company or to divert to others any of the
Trust assets before all payment of Benefits have been made to Participants and
their Beneficiaries pursuant to the terms of the Company's Plans.
ARTICLE 8
Investment Authority and Disposition of Income
----------------------------------------------
8.1 Except as otherwise provided in Sections 8.2, 8.4, and 8.5,
the Trustee, prior to a Change in Control, shall invest and reinvest the assets
of each Trust, in its sole discretion, in such investments as may be permitted
in accordance with any written investment guidelines that may be delivered to
the Trustee from time to time by the Applicable Company and that are acceptable
to the Trustee or, at any time when no such investment guidelines are in effect,
in Permitted Investments.
8.2 Prior to a Change in Control, the Applicable Company may in
its sole discretion appoint an investment manager to manage the investment of
any part or all of the Trust Fund for any Trust. The Applicable Company shall
promptly inform the Trustee in writing of any such appointment, shall furnish
the Trustee with a copy of the instrument pursuant to which any investment
manager is so appointed, and shall inform the Trustee in writing as to the
specific portions of the Trust Fund for its Trust that will be subject to the
management of such investment manager. During the term of any such appointment,
the investment manager shall have the sole responsibility for the investment and
reinvestment of that portion of any Trust Fund subject to its investment
management, and the Trustee shall have no responsibility for, or liability with
respect to, the investment of such portion of such Trust Fund.
In exercising the powers granted to it hereunder, the Trustee
shall follow the directions of any investment manager with respect to the
portion of any Trust Fund subject to management by such investment manager. All
directions given by an investment manager to the Trustee shall be in writing,
signed by an officer (or a partner) of the investment manager, or by
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such other person or persons as may be designated by an officer (or a partner)
of the investment manager. The investment manager may directly place orders for
the purchase or sale of securities, subject to such conditions as may be
approved by the Applicable Company in authorizing the investment manager to
effect transactions directly with respect to the portion of the Trust Fund for
any Trust subject to its management, provided that the Trustee shall
nevertheless retain custody of the assets comprising such portion of the Trust
Fund.
The Applicable Company, by written notice to the Trustee, may at
any time terminate its appointment of any investment manager. In such event, the
Applicable Company shall either appoint a successor investment manager for the
portion of the Trust Fund in question, or direct that such portion of the Trust
Fund thereafter be invested and reinvested by the Trustee in accordance with the
provisions of Section 8.1. Until receipt of such written notice, the Trustee
shall be fully protected in relying upon the most recent prior written notice of
appointment of an investment manager.
8.3 After a Change in Control, the Trustee shall have exclusive
authority and discretion to manage and control the investment and reinvestment
of the Trust Fund for each Trust; provided, however, that the Trust Fund for
each Trust shall be so invested and reinvested only in Permitted Investments.
8.4 In no event may the assets of any Trust be invested in
securities (including stock or rights to acquire stock) or obligations issued by
any Company, other than a de minimis amount held in common investment vehicles
in which the Trustee invests. All rights associated with assets of each Trust
shall be exercised by the Trustee or an Investment Manager appointed under
Section 8.2, and shall in no event be exercisable by or rest with Participants.
8.5 During the term of each Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
ARTICLE 9
General Powers and Duties of Trustee
------------------------------------
9.1 In addition to the other powers granted to it under this
Agreement, the Trustee shall have the following administrative powers and
authority with respect to the property comprising the Trust Fund for each Trust:
(a) To sell, exchange or transfer any such property at
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public or private sale for cash or on credit and grant options for the
purchase or exchange thereof, including call options for property held
in the Trust Fund and put options for the purchase of such property,
including, without limitation, at any time to sell any asset other than
cash held in the Trust Fund to pay Benefits if there is not sufficient
cash in the Trust Fund to pay Benefits.
(b) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan relating to any
such property, and to consent to or oppose any such plan or any action
thereunder, or any contract, lease, mortgage, purchase, sale or other
action by any corporation or other entity.
(c) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary power to
any such committee; and to pay part of the expenses and compensation of
any such committee and any assessments levied with respect to any
property so deposited.
(d) To exercise any conversion privilege or subscription right
available in connection with any such property; to oppose or to consent
to the reorganization, consolidation, merger or readjustment of the
finances of any corporation, company or association, or to the sale,
mortgage, pledge or lease of the property of any corporation, company
or association of any of the securities of which may at any time be
held in the Trust Fund and to do any act with reference thereto,
including the exercise of options, the making of agreements or
subscriptions and the payment of expenses, assessments or
subscriptions, which may be deemed necessary or advisable in connection
therewith, and to hold and retain any securities or other property
which it may so acquire.
(e) To commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings; to settle,
compromise or submit to arbitration, any claims, debts or damages, due
or owing to or from the Trust.
(f) To exercise, personally or by general or limited power of
attorney, any right, including the right to vote, appurtenant to any
securities or other such property.
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(g) To borrow money from any lender in such amounts and upon
such terms and conditions as shall be deemed advisable or proper to
carry out the purposes of the Trust and to pledge any securities or
other property for the repayment of any such loan.
(h) To engage any legal counsel, including (except after the
occurrence of a Change in Control) counsel to any Company, any enrolled
actuary, any accountant or any other suitable agents, to consult with
such counsel, enrolled actuary, accountant or agents with respect to
the construction hereof, the duties of the Trustee hereunder, the
transactions contemplated by this Agreement or any act which the
Trustee proposes to take or omit, to rely upon the advice of such
counsel, enrolled actuary, accountant or agents, and to pay its
reasonable fees, expenses and compensation from the Trust Fund.
(i) To register any securities held by it in its own name or in
the name of any custodian of such property or of its nominee, including
the nominee of any system for the central handling of securities, with
or without the addition of words indicating that such securities are
held in a fiduciary capacity, to deposit or arrange for the deposit of
any such securities with such a system and to hold any securities in
bearer form; provided, however, that no such holding shall relieve the
Trustee of its responsibility for the safe custody and disposition of
the Trust Fund in accordance with the provisions of this Agreement, the
Trustee's books and records shall at all times show that such property
is part of the Trust Fund, and the Trustee shall be absolutely liable
for any loss occasioned by the acts of its nominee or nominees with
respect to securities registered in the name of the nominee or
nominees.
(j) To make, execute and deliver, as Trustee, any and all deeds,
leases, notes, bonds, guarantees, mortgages, conveyances, contracts,
waivers, releases or other instruments in writing necessary or proper
for the accomplishment of any of the powers granted herein.
(k) To transfer assets of the Trust Fund to a successor trustee
as provided in Section 13.4 hereof.
(l) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either
real, personal or mixed held in the Trust Fund, and to do all other
acts that the Trustee may deem necessary or
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proper to carry out any of the powers granted to it hereunder or that
otherwise may be in the best interests of the Trust Fund.
(m) To hold any portion of the Trust Fund in cash pending
investment, or for the payment of expenses and Benefits, without
liability for interest.
(n) To vote personally or by proxy and to delegate power and
discretion over such proxy on account of securities held in the Trust
Fund.
(o) To hold assets in time or demand deposits (including
deposits with the Trustee in its individual capacity that pay a
reasonable rate of interest).
(p) To invest and reinvest all or any specified portion of any
Trust Fund through the medium of any common, collective, or commingled
trust fund that has been or may hereafter be established and maintained
by the Trustee.
(q) To invest in mutual funds registered with the Securities
Exchange Commission under the Investment Company Act of 1940.
The Trustee also shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein; provided, however, that if an insurance policy is held as an asset of
any Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor trustee, or to loan to any
person the proceeds of any borrowing against such policy.
Prior to a Change in Control, the Trustee shall exercise the
powers referred to in Section 9.1(h) only as directed by the Applicable Company;
and, with respect to the portion of any Trust Fund for which an investment
manager has been appointed under Section 8.2, the Trustee shall exercise any
power referred to in this Section 9.1, as it relates to the investment
management of such portion of the Trust Fund, only as directed by such
investment manager. After a Change in Control, the Trustee may exercise such
powers in its sole and absolute discretion, except as otherwise provided in
Article 8.
Notwithstanding any powers granted to the Trustee pursuant to
this Agreement or to applicable law, the Trustee shall not have any power that
could give any Trust the objective of carrying on a business and dividing the
gains therefrom,
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within the meaning of section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Code.
9.2 After a Change in Control, the Trustee shall, subject to
Article 6 hereof, discharge its duties under this Agreement solely in the
interest of the beneficiaries of each Trust and (i) for the exclusive purpose of
providing Benefits to such beneficiaries and defraying reasonable expenses of
administering such Trust; (ii) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; and (iii) by diversifying the
investments of the Trust Fund for each Trust so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so.
9.3 The Trustee shall not be required to give any bond or any
other security for the faithful performance of its duties under this Agreement,
except as required by law.
9.4 Except as otherwise expressly provided herein, the Trustee
shall not be responsible in any respect for administering any Plan; nor shall
the Trustee be responsible for the adequacy of the Trust Fund for any Trust to
meet and discharge all payments and liabilities under any Plan.
9.5 The Trustee shall be under no duties whatsoever except such
duties as are specifically set forth as such in this Agreement, and no implied
covenant or obligation shall be read into this Agreement against the Trustee.
Except as otherwise provided in Article 5, the Trustee shall not be required to
take any action toward the execution or performance of any Trust created
hereunder or to prosecute or defend any suit or claim in respect thereof, unless
indemnified to its satisfaction against loss, liability, and reasonable costs
and expenses. The Trustee shall be under no liability or obligation to anyone
with respect to any failure on the part of any Company to perform any of its
obligations under any Plan or under this Agreement.
9.6 The Applicable Company shall pay and shall protect,
indemnify and save harmless the Trustee and its officers, directors or trustees,
employees and agents from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, damages,
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) of any nature arising from or relating to any
action or failure to act by the Trustee, its officers, directors or trustees,
employees and agents with respect to any Trust, or arising from or relating to
the
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transactions contemplated by this Agreement that pertain to or affect such
Trust, except to the extent that any such loss, liability, action, suit, demand,
damage, cost or expense is the result of the negligence or willful misconduct of
the Trustee, its officers, directors or trustees, employees or agents.
If the Trustee shall become entitled to indemnification by any
Company pursuant to this Section 9.6 and such Company fails to provide such
indemnification to the Trustee within 30 days of the Company's receipt of a
written request from the Trustee for such indemnification, the Trustee may apply
assets of such Company's Trust in full satisfaction of the Company's obligation
to make such indemnification. Promptly after any assets of any Trust are so
applied, the Trustee shall institute legal proceedings on behalf of the Trust to
recover from the Applicable Company an amount equal to the amount of any Trust
assets so applied.
ARTICLE 10
Taxes, Expenses, and Compensation of Trustee
--------------------------------------------
10.1 Each Company shall pay any federal, state, local or other
taxes imposed or levied with respect to the corpus and/or income of its Trust or
any part thereof under existing or future laws and such Company in its
discretion, or the Trustee in its discretion, may contest the validity or amount
of any tax, assessment, claim or demand respecting such Trust or any part
thereof.
10.2 Each Company shall pay to the Trustee its allocable share
of the compensation that is payable to the Trustee for its services hereunder
pursuant to the schedule of fees annexed hereto as Exhibit G. Each Company shall
also pay its allocable share of the reasonable and necessary expenses incurred
by the Trustee in the performance of its duties under this Agreement, including
reasonable fees of any counsel, actuary, accountant or other agent engaged by
the Trustee pursuant to this Agreement. Any such compensation or expenses shall
be allocated among the Companies as follows: in the case of any such
compensation that is specifically chargeable to, or any such expenses that were
specifically incurred with respect to, a particular Trust, the amount of such
compensation or expenses shall be allocated solely to the Applicable Company; in
the case of any such compensation that is not specifically chargeable to, or any
such expenses that were not specifically incurred with respect to, a particular
Trust, the amount of such compensation or expenses shall be allocated to the
Companies in proportion to the respective values of the Trust Funds for the
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Companies' Trusts as of the Valuation Date immediately preceding the date as of
which the Trustee bills the Companies for such compensation or expenses. Each
Company's allocable share of such compensation and expenses shall be charged
against and paid from the Trust Fund for such Company's Trust, to the extent not
paid by such Company within 45 days after the date on which the Trustee bills
the Company for such compensation and expenses. Any amount so charged against
and paid from the Trust Fund for any Company's Trust shall be further allocated
to and charged against the Plan Accounts and Participant Accounts maintained
within such Trust (a) in such manner as the Applicable Company directs in
written instructions delivered by it to the Trustee, in the case of any amount
so charged and paid prior to a Change in Control; and (b) in proportion to the
respective balances of such Accounts as determined as of the most recent
Valuation Date, in the case of any amount so charged and paid after a Change in
Control.
ARTICLE 11
Accounting by Trustee
---------------------
11.1 For each Trust, the Trustee shall keep accurate and
detailed accounts of all its investments, receipts, and disbursements under this
Agreement. Such person or persons as the Applicable Company shall designate
shall be allowed to inspect the books of account relating to such Company's
Trust upon request at any reasonable time during the business hours of the
Trustee.
11.2 Within 90 days after the close of each calendar year, the
Trustee shall transmit to each Company, and certify the accuracy of, a written
statement of the assets and liabilities of the Trust Fund for such Company's
Trust at the close of that year, showing the current value of each asset at that
date, and a written account of all the Trustee's transactions relating to such
Trust Fund during the period from the last previous accounting to the close of
that year. For the purposes of this Section 11.2, the date of the Trustee's
resignation or removal as provided in Article 13 hereof shall be deemed to be
the close of a calendar year.
11.3 Unless a Company shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days after
receipt thereof, such Company shall be deemed to have approved such statement
and account; and in such case or upon the written approval by such Company of
any such statement and account, the Trustee shall be forever released and
discharged with respect to all matters and things embraced in
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<PAGE>
such statement and account as though it had been settled by decree of a court of
competent jurisdiction in an action or proceeding to which the Company and all
persons having any beneficial interest in its Trust were parties.
11.4 Nothing contained in this Agreement or in any Plan shall
deprive the Trustee of the right to have a judicial
32
<PAGE>
settlement of its accounts with respect to any Trust. In any proceeding for a
judicial settlement of the Trustee's accounts or for instructions in connection
with any Trust, the only other necessary party thereto in addition to the
Trustee shall be the Applicable Company. If the Trustee so elects, it may bring
in as a party or parties defendant any other person or persons. No person
interested in any Trust, other than the Applicable Company, shall have a right
to compel an accounting, judicial or otherwise, by the Trustee, and each such
person shall be bound by all accounting by the Trustee to such Company, as
herein provided, as if the account had been settled by decree of a court of
competent jurisdiction in an action or proceeding to which such person was a
party.
ARTICLE 12
Communications
--------------
12.1 With respect to any Trust, the Trustee shall be fully
protected in relying upon any written notice, instruction, direction or other
communication signed by an officer of the Applicable Company. Each Company from
time to time shall furnish the Trustee with the names and specimen signatures of
the officers of the Company authorized to act or give directions hereunder and
shall promptly notify the Trustee of the termination of office of any such
officer of the Company and the appointment of a successor thereto. Until
notified in writing to the contrary, the Trustee shall be fully protected in
relying upon the most recent list of the officers of the Company furnished to it
by the Company.
12.2 Any action required by any provision of this Agreement to
be taken by the board of directors of a Company shall be evidenced by a
resolution of such board of directors certified to the Trustee by the Secretary
or an Assistant Secretary of the Company under its corporate seal, and the
Trustee shall be fully protected in relying upon any resolution so certified to
it. Unless other evidence with respect thereto has been specifically prescribed
in this Agreement, any other action of a Company under any provision of this
Agreement,
33
<PAGE>
including any approval of or exceptions to the Trustee's accounts, shall be
evidenced by a certificate signed by an officer of the Company, and the Trustee
shall be fully protected in relying upon such certificate. The Trustee may
accept a certificate signed by an authorized officer of a Company as proof of
any fact or matter that it deems necessary or desirable to have established in
the administration of such Company's Trust (unless other evidence of such fact
or matter is expressly prescribed herein) and the Trustee shall be fully
protected in relying upon the statements in the certificate.
12.3 The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
believed by it to be genuine and to be signed by the proper person or persons,
and the Trustee shall be under no duty to make investigation or inquiry as to
the truth or accuracy of any statement contained therein.
12.4 Until notice be given to the contrary, communications to
the Trustee shall be sent to it at its office at 210 Main Street, Hackensack,
New Jersey 07601, Attention: Corporate Agency Administration, Investment
Management Division; and communications to any Company shall be sent to it c/o
GPU Service, Inc., 100 Interpace Parkway, Parsippany, New Jersey 07054-1149,
Attention:
Treasurer.
ARTICLE 13
Resignation or Removal of Trustee
---------------------------------
13.1 The Trustee may resign as trustee of any Trust at any time
by written notice to the Applicable Company, which resignation shall be
effective 60 days after the Company's receipt of such notice unless the Company
and the Trustee agree otherwise. The Trustee may be removed as trustee of any
Trust by action of the board of directors of the Applicable Company, at any time
upon 60 days' written notice to the Trustee, or upon shorter notice if
acceptable to the Trustee. In the event it resigns or is removed, the Trustee
shall have a right to have its accounts settled as provided in Article 11
hereof.
13.2 Notwithstanding the provisions of Section 13.1, the Trustee
may not be removed as trustee of any Trust after a Change in Control or during a
Threatened Change in Control Period without the written consent of at least
two-thirds in number of the Participants who are, or who may become, entitled to
receive payments from such Trust. The Applicable Company shall furnish
34
<PAGE>
the Trustee with evidence to establish that such majority in number of such
Participants has granted written consent to such removal.
13.3 If the Trustee resigns or is removed as trustee of any
Trust, a successor shall be appointed by the Applicable Company, by action of
its board of directors, by the effective date of such resignation or removal.
Any successor trustee so appointed shall be a bank as defined under the
Investment Advisers Act of 1940, having a net worth in excess of $100,000,000 or
having assets in excess of $2,000,000,000. After a Change in Control or during a
Threatened Change in Control Period, such appointment of a successor trustee
shall be approved in writing by at least two-thirds in number of the
Participants who are or may become entitled to receive payments from such Trust.
Notwithstanding the foregoing, if no such appointment of a successor trustee has
been made by the effective date of such resignation or removal, the Trustee may
apply to a court of competent jurisdiction for appointment of a successor
trustee or for instructions. All expenses of the Trustee in connection with such
proceeding shall be allowed as administrative expenses of the Trust and shall be
paid by the Applicable Company.
13.4 Each successor trustee shall have the powers and duties
conferred upon the Trustee in this Agreement, and the term "Trustee" as used in
this Agreement, except where the context otherwise requires, shall be deemed to
include any successor trustee. Upon designation or appointment of a successor
trustee for any Trust, the Trustee shall transfer and deliver the Trust Fund for
such Trust to the successor trustee, reserving such sums as the Trustee shall
deem necessary to defray its expenses in settling its accounts with respect to
such Trust, to pay any of its compensation with respect to such Trust that is
due and unpaid, and to discharge any obligation of such Trust for which the
Trustee may be liable. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from either the Applicable Company or the successor trustee, or both. When the
Trust Fund for such Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee for such Trust have been
settled as provided in Article 11 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust Fund for
such Trust and shall not be responsible in any way for the further disposition
of such Trust Fund or any part thereof.
35
<PAGE>
ARTICLE 14
Amendments and Termination
--------------------------
14.1 Subject to Section 14.2, any or all of the provisions of
this Agreement and any Exhibits annexed hereto, as they relate to any Company's
Trust, may be amended at any time, without the consent of any Participant or
Beneficiary, by a written instrument of amendment, duly executed by the
Applicable Company and the Trustee. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Applicable Company's Plans or
shall make the Applicable Company's Trust revocable after it has become
irrevocable in accordance with Section 2.2 hereof.
14.2 No amendment may be made to delete a Participant from
Exhibit A or to delete a Plan from Exhibit B and no other provision of this
Agreement may be amended (i) during a Threatened Change in Control Period, (ii)
after a Change in Control, (iii) at the request of a third party who has
indicated an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control or (iv) otherwise in connection with, or in
anticipation of, a Change in Control which has been threatened or proposed and
which actually occurs unless in any such case the written consent of at least
two-thirds in number of the Participants who are or may become entitled to
payments from each Trust affected by such amendment is obtained, in which case
such amendment may be made. The Trustee may request that the Applicable Company
or Companies furnish evidence to establish that at least two-thirds of the
Participants have granted written consent to such an amendment.
14.3 Unless sooner revoked in accordance with Section 2.2
hereof, each Trust shall terminate on the date on which Participants and their
Beneficiaries are no longer entitled to receive Benefits pursuant to the terms
of the Applicable Company's Plans. Upon termination of any Trust, any assets
remaining in the Trust Fund for such Trust shall be paid by the Trustee to the
Applicable Company.
ARTICLE 15
Miscellaneous
-------------
15.1 Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
36
<PAGE>
15.2 Benefits payable to Participants and their Beneficiaries
under this Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
15.3 This Agreement shall be governed by, and shall be construed
in accordance with, and each Trust hereby created shall be administered in
accordance with, the laws of the State of New Jersey.
15.4 The titles to Articles of this Agreement are placed herein
for convenience of reference only, and this Agreement is not to be construed by
reference thereto.
15.5 This Agreement shall bind and inure to the benefit of the
successors and assigns of each Company and the Trustee, respectively, and all
Participants and Beneficiaries under the Companies' Plans.
15.6 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by any counterpart.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their respective names by their duly
authorized officers under their corporate seals as of the day and year
first above written.
GPU INC.
By: _____________________________
J. R. Leva, Chairman and
Chief Executive Officer
ATTEST:
JERSEY CENTRAL POWER & LIGHT
COMPANY
By: ______________________________
J. R. Leva, Chairman of the
Board and Chief Executive Officer
ATTEST:
GPU NUCLEAR, INC.
By: ______________________________
T.G. Broughton, President
and Chief Executive Officer
ATTEST:
SUMMIT BANK, Trustee
By: ______________________________
ATTEST:
38
<PAGE>
EXHIBIT A
List of Participants
--------------------
Set forth below is a list, for each Company, of the persons who are to
be treated as Participants for purposes of the annexed Agreement.
Company Participants
- ------- ------------
GPU Inc. L. J. Appell, Jr.
D. J. Bainton
T. H. Black
J. F. Burditt
D. L. Grove
T. B. Hagen
H. F. Henderson, Jr.
H. R. O'Leary
J. W. Oswald
J. M. Pietruski
C. A. Rein
P. R. Roedel
C. A. Trost
P. K. Woolf
Jersey Central Power & Light Company G. E. Persson
S. C. Van Ness
S. B. Wiley
GPU Nuclear, Inc. L. L. Humphreys
R. V. Laney
J. D. Townsend
C. A. Trost
W. A. Wilson
W. F. Witzig
<PAGE>
EXHIBIT B
Covered Plans and Benefits
--------------------------
Set forth below is a list, for each Company, of the plans, programs,
policies or agreements that are to be treated as "Plans", and the amounts
payable under the Plans that are to be treated as "Benefits", for purposes of
the annexed Agreement.
GPU, Inc.
---------
1. All benefit amounts payable under the Deferred Remuneration Plan for
Outside Directors of GPU, Inc.
2. All benefit amounts payable under the Retirement Plan for Outside
Directors of GPU Inc.
Jersey Central Power & Light Company
------------------------------------
1. All benefit amounts payable under the Deferred Remuneration Plan for
Outside Directors of Jersey Central Power & Light Company.
GPU Nuclear, Inc.
-----------------
1. All benefit amounts payable under the Deferred Remuneration Plan for
Outside Directors of GPU Nuclear, Inc.
<PAGE>
EXHIBIT C
Payment Schedule
[Material To Be Added.]
<PAGE>
EXHIBIT D
PARTICIPANT'S PAYMENT REQUEST FORM
----------------------------------
I, _______________________________________________, a Participant [or
Beneficiary] in the GPU System Companies Master Directors' Benefits Protection
Trust (the "Trust"), adopted September 1, 1995 and amended November 7, 1996 and
February 6, 1997, pursuant to Section 4.3 thereof, hereby request that [Name of
Bank], as Trustee thereunder, make payment to me of the Benefits to which I am
entitled as [Participant or Beneficiary] in accordance with the terms of the
Trust Agreement and the following [Company Name] Plans:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
I hereby attest, certify and affirm that to the best of my knowledge
and belief the following events, upon which entitlement to and payment of
Benefits under said Plans is conditioned, have occurred:
[Insert Description of events that have occurred]
-------------------------------------------------
I further attest, certify and affirm that [Name of Company] has not
paid any of the Benefits claimed herein under said plans.
I am [or The Participant was] ____ years of age, having been born on
[Date of Birth]. I have been/was [or the Participant was] employed by [Name of
Company] from [Date] to [Date]. The [Name of Company] records detailing my
[his/her] compensation and the terms and conditions of employment, if any, are
attached hereto and made a part hereof.
Dated:_________________ _________________________
[Name of Participant]
-------------------------
-------------------------
[Address & Telephone No.]
<PAGE>
EXHIBIT E
AUTHORIZATION TO TRUSTEE
------------------------
TO COMMENCE LITIGATION
----------------------
I, _______________________________________________, a Participant in the GPU
System Companies Master Directors' Benefits Protection Trust (the "Trust"),
adopted September 1, 1995 and amended November 7, 1996 and February 6, 1997,
pursuant to Section 5.3(b) thereof, hereby request and authorize [Name of Bank],
as Trustee thereunder, to institute and prosecute legal proceedings (the
"Litigation"), on my behalf, against [Name of GPU System Company] to recover
upon my claim against said company for unpaid benefits under [Name of Plan under
which claim is asserted].
It is understood that, pursuant to Section 5.3(e) of the Trust Agreement, I may
revoke this authorization to prosecute or continue to prosecute such Litigation,
at any time, upon written notification to the Trustee in the appropriate form.
Dated:_________________ __________________________
[Name of Participant]
---------------------------
---------------------------
---------------------------
[Address & Telephone No.]
<PAGE>
EXHIBIT F
REVOCATION OF TRUSTEE'S AUTHORITY
---------------------------------
TO MAINTAIN LITIGATION
----------------------
I, _______________________________________________, a Participant in
the GPU System Companies Master Directors' Benefits Protection Trust (the
"Trust"), adopted September 1, 1995 and amended November 7, 1996 and February
6,1997, pursuant to Section 5.3(e) thereof, hereby revoke the authorization
previously granted by me to [Name of Bank], as Trustee thereunder, to institute
and prosecute legal proceedings (the "Litigation), on my behalf, against [Name
of GPU System Company] for unpaid Benefits under [Name of Plan under which claim
is asserted].
I hereby notify the Trustee that I have appointed and retained [Name
Attorney ______________________] of [Address__________________________________ ]
- --------------------------------------------------------------------------------
________________________ to represent me and my interests in such Litigation. I
understand that the fees and expenses of my attorney in connection with the
Litigation or otherwise shall be my sole responsibility and that neither me nor
my attorney will be entitled to direct payment for any such fees or expenses out
of the Trust fund or any portion thereof.
Dated:_________________ _______________________
[Name of Participant]
-----------------------
-----------------------
-----------------------
[Address & Telephone No.]
<PAGE>
EXHIBIT G
Trustee's Fee Schedule
[Material to be added, including provision
for automatic annual COLA adjustments after a Change in Control.]
<PAGE>
EXHIBIT C
(Page 1 of 2)
GPU RABBI TRUST
PARTICIPANT INFORMATION
SOCIAL SECURITY
NAME ADDRESS NUMBER
- ---- ------- ------
Appell, L.J., 1700 Powder Mill Road ###-##-####
Jr. York, PA 17403
Bainton, D.J. 39 West Brother Drive ###-##-####
Greenwich, CT 06830
Black, T.H. 543 Carter Street ###-##-####
New Canaan, CT 06840
Burditt, J.F. P. O. Box 1327 ###-##-####
Manchester Center, VT 05255
Grove, D.L. 5 The Knoll ###-##-####
Armonk, NY 10504
Hagen, T.B. 5727 Grubb Road ###-##-####
Erie, PA 16505
Henderson, 315 Rifle Camp Road ###-##-####
H.F., Jr. West Paterson, NJ 07424
Humphreys, L.L. 217 Lasiandra Court ###-##-####
Richland, WA 99352
Laney, R.V. 24 Trout Farm Road ###-##-####
Duxburn, MD 02332
O'Leary, H.R. 5610 Wisconsin Avenue PH20C ###-##-####
O'Leary, J. Chevy Chase, MD 20815
(deceased)
Oswald, R.O. 600 E. Cathedral Road, ###-##-####
Oswald, J.W. Apt. J-304
Philadelphia, PA 19128
(deceased)
Persson, G.E. 27 Greenfields Drive ###-##-####
Lakewood, NJ 08701
<PAGE>
EXHIBIT C
(Page 2 of 2)
GPU RABBI TRUST
PARTICIPANT INFORMATION
SOCIAL SECURITY
NAME ADDRESS NUMBER
- ---- ------- ------
Pietruski, J.M. 27 Paddock Lane ###-##-####
Colts Neck, NJ 07722
Roedel, P. R. 416 Wheatland Avenue ###-##-####
Shillington, PA 19607
Townsend, J. D. 190 Red Rock Cove Drive ###-##-####
Sedona, AZ 86351
Trost, C. A. H. 10405 Windsor View Drive ###-##-####
Potomac, MD 20854
Van Ness, S. C. 503 South Street ###-##-####
Brielle, NJ 08730
Wiley, S. B. Canfield Road ###-##-####
Covenant Station, NJ 07961
Wilson, W. A. 115 Wilton Woods Lane ###-##-####
Media, PA 19063
Witzig, W. F. 1330 Park Hills Avenue East ###-##-####
State College, PA 16801
Woolf, P. K. 506 Quaker Road ###-##-####
Princeton, NJ 08540
EXHIBIT 10-C
GPU SYSTEM COMPANIES
MASTER EXECUTIVES' BENEFITS PROTECTION TRUST
As Amended and Restated Effective February 6, 1997
<PAGE>
TABLE OF CONTENTS
Article Title Page No.
- ------- ----- --------
ARTICLE 1 Definitions 2
ARTICLE 2 Establishment of the Trusts 7
ARTICLE 3 Contributions and Accounts 9
ARTICLE 4 Payments to Participants and Beneficiaries 14
ARTICLE 5 Legal Defense Fund 21
ARTICLE 6 Insolvency 25
ARTICLE 7 Payments to Company 26
ARTICLE 8 Investment Authority and Disposition of Income 27
ARTICLE 9 General Powers and Duties of Trustee 29
ARTICLE 10 Taxes, Expenses, and Compensation of Trustee 34
ARTICLE 11 Accounting by Trustee 35
ARTICLE 12 Communications 37
ARTICLE 13 Resignation or Removal of Trustee 38
ARTICLE 14 Amendments and Termination 40
ARTICLE 15 Miscellaneous 41
<PAGE>
THIS TRUST AGREEMENT, Amended and Restated as of February 6,
1997, by and between GPU, INC., a Pennsylvania corporation (the "Corporation"),
JERSEY CENTRAL POWER & LIGHT COMPANY, a New Jersey corporation, METROPOLITAN
EDISON COMPANY, a Pennsylvania corporation, PENNSYLVANIA ELECTRIC COMPANY, a
Pennsylvania corporation, GPU SERVICE, INC., a Pennsylvania corporation, GPU
NUCLEAR, INC., a New Jersey corporation, GPU GENERATION, INC., a Pennsylvania
corporation ("Genco"), and GPU INTERNATIONAL, INC., a Delaware Corporation (each
such corporation is hereinafter referred to individually as a "Company", and all
such corporations are hereinafter referred to collectively as the "Companies"),
and SUMMIT BANK (formerly UNITED JERSEY BANK), a New Jersey state chartered bank
(hereinafter referred to as the "Trustee").
W I T N E S S E T H :
WHEREAS each Company has adopted one or more Plans (as
hereinafter defined) under which it has incurred or expects to incur liability
under the terms of such Plans with respect to Benefits (as hereinafter defined)
payable to individuals participating in such Plans; and
WHEREAS, pursuant to a Trust Agreement dated as of September
1, 1995 between the Corporation, each of the Companies other than Genco, and the
Trustee (the "Prior Agreement"), each of such Companies has established a trust
(hereinafter called the "Trust") and has contributed to the Trust assets that
shall be held therein, subject to the claims of the Company's creditors in the
event of the Company's Insolvency (as hereinafter defined) until paid to Plan
participants and their beneficiaries in such manner and at such times as
specified in the Plans; and
WHEREAS, Genco wishes to establish a Trust hereunder and to
become a party to this Agreement and agrees to be bound by all of its terms and
provisions; and
WHEREAS, it is the intention of the parties that each Trust
established hereunder or under the Prior Agreement shall constitute an unfunded
arrangement and shall not affect the status of each of the Plans as unfunded for
purposes of those provisions of Title I of the Employee Retirement Income
Security Act of 1974 that may apply to such Plan; and
WHEREAS, it is the intention of each Company to make
contributions to its Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under its Plans; and
WHEREAS, the Trustee is not a party to any of the Plans and
makes no representations with respect thereto; and
WHEREAS, the parties hereto wish to amend and restate the
Prior Agreement to permit Genco to become a party hereto and to make certain
other changes in the Prior Agreement;
NOW, THEREFORE, the Prior Agreement is hereby amended and
restated to read in its entirety as follows:
ARTICLE 1
Definitions
1.1 As used herein, the following terms shall have the
following meanings, unless the context clearly indicates a contrary meaning:
(a) "Agreement" shall mean this instrument, as the same may be
amended from time to time as permitted herein.
1
<PAGE>
(b) "Applicable Company" shall mean, with respect to any Trust
established hereunder, or any Plan, the Company that established such
Trust, or that has adopted or maintains such Plan.
(c) "Beneficiary", with respect to a Participant, shall mean
the person or entity designated by such Participant under a Plan, or
such other person or entity with respect to such Participant as may be
designated under the terms of such Plan, to receive the Benefits, if
any, payable from such Plan following such Participant's death.
(d) "Benefits" shall mean those amounts specified in Exhibit B
that are payable under a Plan to (or with respect to) a Participant,
or, upon his death, to his Beneficiary.
(e) "Benefit Valuation Date" shall mean the first day of each
calendar year.
(f) "Board" shall mean the board of directors of the
Corporation.
(g) "Change in Control" shall mean the occurrence of any of
the following:
(1) An acquisition (other than directly from the
Corporation) of any common stock of the Corporation ("Common Stock") or
other voting securities of the Corporation entitled to vote generally
for the election of directors (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of the then outstanding shares of Common Stock or
the combined voting power of the Corporation's then outstanding Voting
Securities; provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute
an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan
(or a trust forming a part thereof) maintained by (i) the Corporation
or (ii) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is
owned, directly or indirectly, by the Corporation (for purposes of this
definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries,
or (C) any Person in connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of August 1, 1996, are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board;
provided, however, that if the election, or nomination for election by
the Corporation's shareholders, of any new director was approved by a
vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Trust, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
2
<PAGE>
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where:
(i) the stockholders of the Corporation, immediately before
such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the
Surviving Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x)any
Subsidiary,(y) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary,
or (z) any Person who, immediately prior to such merger, consolidation
or reorganization had Beneficial Ownership of twenty percent (20%) or
more of the then outstanding Voting Securities or common stock of the
Corporation, has Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or substantially all
of the assets of the Corporation to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by the Corporation which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by the Corporation,
and after such share acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
3
<PAGE>
(h) "Code" shall mean the Internal Revenue Code of 1986 as the
same may be amended from time to time.
(i) "Insolvent"--A Company shall be considered "Insolvent" for
purposes of this Agreement if (i) the Company is unable to pay its
debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(j) "Participant" shall mean any person who is or may become
entitled to receive Benefits under a Plan and who is included in the
list of persons who are to be treated as Participants for purposes of
this Agreement, as set forth in Exhibit A hereto.
(k) "Permitted Investments" shall mean direct obligations of
the United States of America or agencies or instrumentalities thereof
or obligations unconditionally and fully guaranteed as to principal and
interest by the United States of America ("Obligations"), and
certificates of deposit and bankers' acceptances of a bank organized
and existing under the laws of the United States of America or any
State thereof that has a combined capital and surplus of at least
$100,000,000, all having respective maturities of not more than one
year when purchased. The term "Permitted Investments" shall also mean
any fund or portfolio maintained by any open-end investment company
registered under the Investment Company Act of 1940, the assets of
which are invested exclusively in Obligations, certificates of deposit
and/or bankers' acceptances of the kind described in the preceding
sentence including, without limitation, any such fund or portfolio for
which the Trustee or any affiliate of the Trustee serves as investment
adviser.
(l) "Present Value" shall mean, with respect to any Benefit,
the single sum actuarial present value of such Benefit, as determined
by an enrolled actuary on the basis of the actuarial assumptions most
recently adopted by the Applicable Company for use in connection with
this Agreement. Notwithstanding the foregoing, any determination of the
Present Value of Benefits to be made hereunder at any time after a
Change in Control or during a Threatened Change in Control Period shall
be made on the basis of the actuarial assumptions that were used in
determining the Present Value of such Benefits as of the most recent
Benefit Valuation Date preceding the Change in Control or Threatened
Change in Control Period, unless the Applicable Company has notified
the Trustee in writing prior to the Change in Control or the Threatened
Change in Control Period of its adoption of different actuarial
assumptions for use hereunder after the Change in Control or during the
Threatened Change in Control Period; provided, however, that if any
Plan specifies (either expressly or by reference) the actuarial
assumptions that are to be used to calculate the Benefits provided
under such Plan, the actuarial assumptions so specified shall be used
to determine the Present Value of Benefits under that Plan for purposes
of this Agreement.
(m) "Plan" or "Plans" shall mean, with respect to any Company,
any (or if the context requires, all) of the plans, programs or
policies maintained by such Company, and agreements entered into by
such Company, that are included in the list set forth in Exhibit B
hereto.
(n) "Threatened Change in Control" shall mean the occurrence
of any of the following events (but no event other than the following
events), except as otherwise provided below: Any Person
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(1) becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing fifteen
percent (15%) or more of the then-outstanding Common Stock or of the
combined voting power of the Corporation's then-outstanding voting
securities, or
(2) initiates a tender offer or exchange offer to
acquire securities of the Corporation representing twenty percent (20%)
or more of the then-outstanding Common Stock or of the combined voting
power of the Corporation's then-outstanding voting securities, or
(3) solicits proxies for the election within any
single twelve (12)-month period of three or more directors, whose
election or nomination is not approved by a majority of the Incumbent
Board then serving as members of the Board, to serve on the Board.
Notwithstanding the foregoing, a Threatened Change in
Control shall not be deemed to occur pursuant to this Section 1.1(n)
solely because of an acquisition or tender offer made or effected in
connection with a Non-Control Acquisition.
(o) "Threatened Change in Control Period" shall mean the
period commencing on the date on which a Threatened Change in Control
has occurred and ending (i) on the date on which a Change in Control
has occurred, or (ii), if earlier, on whichever of the following dates
is applicable:
(1) in the case of a Threatened Change in Control
described in Section 1.1(n)(1), the date as of which any Person
described in Section 1.l(n)(1) ceases to be the Beneficial Owner,
directly or indirectly, of securities of the Corporation representing
fifteen percent (15%) or more of the Common Stock or of the combined
voting power of the Corporation's then-outstanding voting securities,
or
(2) in the case of a Threatened Change in Control
described in Section 1.l(n)(2), the date as of which the tender offer
or exchange offer described in Section 1.1(n)(2) is terminated without
any securities described therein of the Corporation being purchased
thereunder, or
(3) in the case of a Threatened Change in Control
described in Section 1.l(n)(3), the date as of which any Person
described in Section 1.1(n)(3) fails to effect the election within any
single twelve (12)-month period of three or more directors, whose
election or nomination is not approved by a majority of the Incumbent
Board then serving as members of the Board, to serve on the Board.
(p) "Valuation Date" shall mean the last business day of each
calendar quarter.
ARTICLE 2
Establishment of the Trusts
---------------------------
2.1 Each Company hereby establishes with the Trustee, and the
Trustee hereby accepts, a Trust consisting of such sums of money and other
property acceptable to the Trustee as such Company shall pay or deliver to the
Trustee from time to time. All such money and other property, all investments
and reinvestments made therewith or proceeds thereof and all earnings and
profits thereon, less all payments therefrom and charges thereto as authorized
herein, are hereinafter referred to as the "Trust Fund" for such Trust. Each
Trust Fund shall be held, administered and disposed of by the Trustee as
provided in this Agreement.
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2.2 Prior to a Change in Control, each Trust established
hereunder may be revoked, in whole or in part, by the Applicable Company giving
to the Trustee written notice of such revocation; provided, however, that no
Trust established hereunder may be revoked (i) at the request of a third party
who has indicated an intention or taken steps to effect a Change in Control and
who effectuates a Change in Control, (ii) in connection with, or in anticipation
of, a Change in Control which has been threatened or proposed and which actually
occurs or (iii) during a Threatened Change in Control Period, any such attempted
revocation being null and void. If a Trust is so revoked in its entirety, all of
the assets of the Trust (after payment of any unpaid fees and expenses of the
Trustee properly chargeable to such Trust) shall be transferred by the Trustee
to the Applicable Company or to such other person or entity as the Applicable
Company may direct in writing. If a Trust is so revoked in part, the Trustee
shall transfer to the Applicable Company such of the assets of the Trust as the
Applicable Company shall have specified in its written notice to the Trustee of
the partial revocation of such Trust. Upon a Change in Control, each Trust shall
become irrevocable.
2.3 Each Trust established hereunder is intended to constitute
a "grantor trust", of which the Company is the grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall be
construed accordingly.
2.4 The principal of each Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Applicable Company, and
shall be used exclusively for the uses and purposes of Participants under such
Company's Plans and general creditors of such Company, as herein set forth.
Participants and their Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of any Trust. Any rights created
under the Plans and this Agreement shall be mere unsecured contractual rights of
Participants and their Beneficiaries against the Applicable Company. Any assets
held by each Trust will be subject to the claims of the Applicable Company's
general creditors under federal and state law in the event of the Applicable
Company's Insolvency, as defined in Section 1.1(h) herein.
2.5 Each Trust established hereunder shall be maintained by
the Trustee as a separate trust. However, the assets of any Trust may be
commingled with the assets of any other Trust, solely for investment purposes.
ARTICLE 3
Contributions and Accounts
--------------------------
3.1 Prior to a Change in Control, each Company may make
contributions to its Trust in such amounts, and at such times, as such Company
may determine in its sole discretion. Such contributions may be in the form of
cash, or such other property as may be determined by the Company and as may be
acceptable to the Trustee.
3.2 Required Contributions.
3.2.1 Upon the occurrence of a Change in Control, each
Company shall be required to make contributions to its Trust as follows:
(a) Upon a Change in Control, the Company shall, as soon as
possible but in no event later than 30 days following the Change in Control,
make an irrevocable contribution to its Trust in an amount that, when added to
the value of the Trust Fund for such Trust (exclusive of the value of the Legal
Defense Fund, if any, maintained within such Trust Fund) determined as of the
most recent Valuation Date preceding such contribution, will equal
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the sum of (i) the aggregate Present Value of all Benefits accrued for all
Participants under all of such Company's Plans determined as of the most recent
Benefit Valuation Date preceding the date on which the Change in Control
occurred; and (ii) the aggregate Present Value of all other Benefits for all
Participants under all of such Company's Plans that accrue as a result of the
occurrence of the Change in Control, determined as of the first day of the month
coincident with or immediately following the date on which the Change in Control
occurred.
(b) Within 60 days after each Benefit
Valuation Date following the occurrence of a Change in Control, each Company
shall make an irrevocable contribution to its Trust in an amount that, when
added to the value of the Trust Fund for such Trust (exclusive of the value of
the Legal Defense Fund, if any, maintained within such Trust Fund) determined as
of the most recent Valuation Date preceding such contribution, will equal the
aggregate Present Value of all Benefits accrued for all Participants under all
of such Company's Plans determined as of such Benefit Valuation Date.
3.2.2 Upon the occurrence of a Threatened Change in
Control, each Company shall be required to make contributions to its Trust as
follows:
(a) Upon a Threatened Change in Control, the Company shall, as
soon as practicable but in no event later than 30 days following the Threatened
Change in Control, make a contribution to its Trust in an amount that, when
added to the value of the Trust Fund for such Trust (exclusive of the value of
the Legal Defense Fund, if any, maintained within such Trust Fund) determined as
of the most recent Valuation Date preceding such contribution, will equal the
sum of (i) the aggregate Present Value of all Benefits accrued for all
Participants under all of such Company's Plans, determined as of the most recent
Benefit Valuation Date preceding the date on which the Threatened Change in
Control occurred; and (ii) the aggregate Present Value, determined as of the
first day of the month coincident with or immediately following the date on
which the Threatened Change in Control occurred, of all other Benefits for all
Participants under all of such Company's Plans that would have accrued as a
result of a Change in Control if such Change in Control had occurred on the date
on which the Threatened Change in Control occurs.
(b) Within 60 days after each Benefit
Valuation Date during a Threatened Change in Control Period, each Company shall
make a contribution to its Trust in an amount that, when added to the value of
the Trust Fund for such Trust (exclusive of the value of the Legal Defense Fund,
if any, maintained within such Trust Fund) determined as of the most recent
Valuation Date preceding such contribution, will equal the sum of (i) the
aggregate Present Value of all Benefits accrued for all Participants under all
of such Company's Plans, determined as of such Benefit Valuation Date and (ii)
the aggregate Present Value, determined as of such Benefit Valuation Date, of
all other Benefits for all Participants under all of such Company's Plans that
would have accrued as a result of a Change in Control, if such Change in Control
had occurred on such Benefit Valuation Date.
3.3 Within the Trust Fund for each Trust, the Trustee
shall establish and maintain a separate account (hereinafter referred to as a
"Plan Account") for each of the Applicable Company's Plans. The Trustee also
shall establish within each Plan Account a separate sub-account (hereinafter
referred to as a "Participant Account") for each Participant of such Plan. The
Trustee shall hold all Plan Accounts and Participant Accounts maintained within
the Trust Fund for any Trust as a single consolidated fund.
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3.4 With respect to each contribution that is made to a Trust
prior to a Change in Control but not during any Threatened Change in Control
Period, the amount, or property, so contributed to such Trust shall be allocated
by the Trustee to the Plan Accounts, and to the Participant Accounts, maintained
within such Trust in such manner as the Applicable Company directs in written
instructions delivered by the Applicable Company to the Trustee at the time of
the contribution.
3.5 As of each Valuation Date, the Trust Fund for
each Trust shall be revalued by the Trustee at its then current fair market
value, as determined by the Trustee. The net investment gains and losses of each
Trust Fund for each calendar year that ends prior to a Change in Control but not
during a Threatened Change in Control shall be allocated by the Trustee, as of
the last Valuation Date occurring in such year, among the Plan Accounts and
Participant Accounts maintained within such Trust, in such manner as the
Applicable Company shall specify in written instructions furnished by it to the
Trustee. As of each Valuation Date following the occurrence of a Change in
Control, or that falls within a Threatened Change in Control Period, the net
investment gains and losses of each Trust Fund for the calendar year ending on
such Valuation Date shall be allocated by the Trustee proportionately among the
Plan Accounts and Participant Accounts maintained within such Trust, based on
the value of such Accounts as of the immediately preceding Valuation Date. In
making the foregoing allocation, the value of Plan Accounts and Participant
Accounts in existence on the immediately preceding Valuation Date but not in
existence on the current Valuation Date shall be disregarded.
3.6 Notwithstanding the provisions of Sections 3.4 and 3.5, as of
each Benefit Valuation Date occurring prior to a Change in Control, but not
during any Threatened Change in Control Period, the Trustee shall, in accordance
with such written instructions as it has received from the Applicable Companies,
record adjustments to the balance of each Participant Account maintained within
a Plan Account to the extent necessary for such balance to equal the amount
determined by multiplying (a) the balance of such Plan Account determined as of
the most recent Valuation Date preceding such Benefit Valuation Date, by (b) a
fraction the numerator of which is the Present Value of the Benefits accrued for
the applicable Participant under the Plan in question, determined as of such
Benefit Valuation Date, and the denominator of which is the aggregate Present
Value of all of the Benefits accrued for all Participants under such Plan,
determined as of such Benefit Valuation Date.
3.7 Any contribution made by a Company to its Trust
pursuant to Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b) shall be allocated
to the Plan Accounts maintained under such Trust in proportion to the respective
amounts by which the aggregate Present Value of all Benefits accrued (or, in the
case of contributions made under clause (ii) of Section 3.2.2(a) or 3.2.2(b),
deemed to have accrued) for all Participants under each of the Plans in
question, determined as of the dates specified in Sections 3.2.1(a), 3.2.1(b),
3.2.2(a) or 3.2.2(b), exceeds the balance of the Plan Account maintained
hereunder with respect to each such Plan, determined as of the Valuation Date
immediately preceding such contribution. The amount so allocated to any Plan
Account shall be further allocated to the Participant Accounts maintained within
such Plan Account in proportion to the respective amounts by which the Present
Value of the Benefits accrued (or, in the case of contributions made under
clause (ii) of Section 3.2.2(a) or 3.2.2(b), deemed to have accrued) for each
Participant under the Plan in question, determined as of the dates specified in
Sections 3.2.1(a), 3.2.1(b), 3.2.2(a) or 3.2.2(b), exceeds the balance of the
Participant Account maintained for such Participant, determined as of the
Valuation Date immediately preceding such contribution.
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3.8 The determinations of the Present Value of Benefits
required to be made hereunder as of any Benefit Valuation Date, or other date,
occurring prior to a Change in Control shall be made by an enrolled actuary
selected by the Applicable Companies. As soon as practicable after each such
determination has been made, each Company shall furnish the Trustee with a
schedule setting forth the Present Value so determined of the Benefits accrued
(or, if applicable, deemed to have accrued) for each Participant under each of
the Company's Plans. The determinations of the Present Value of Benefits
required to be made hereunder as of any Benefit Valuation Date, or other date,
occurring after a Change in Control shall be made by an enrolled actuary
selected by the Trustee. In making any allocation of contributions the Trustee
is required to make under Section 3.7, the Trustee shall be entitled to rely,
and shall be fully protected in relying, on any written determination of the
Present Value of any Benefit furnished to it in accordance with the provisions
of this Section 3.8. In making any allocation of net investment gains and losses
pursuant to the second sentence of Section 3.5, and in recording any adjustments
to the balance of any Participant Account pursuant to Section 3.6, the Trustee
shall be entitled to rely, and shall be fully protected in relying, on any
written instructions furnished to it by the Applicable Companies.
ARTICLE 4
Payments to Participants and Beneficiaries
------------------------------------------
4.1 Prior to a Change in Control, the Trustee shall make
payments from the Trust Fund for any Trust to such Participants and
Beneficiaries, in such manner, at such times, and in such amounts, as the
Applicable Company shall direct in written instructions delivered to the
Trustee.
4.2 After a Change in Control, the Trustee shall make payments
from the Trust Fund of any Trust to Participants and Beneficiaries in accordance
with the following provisions:
(a) Prior to a Change in Control, each Company shall deliver
to the Trustee a schedule ("Payment Schedule") substantially in the form annexed
hereto as Exhibit C for each Participant of each Plan whose Benefits under such
Plan may be paid from such Company's Trust after a Change in Control. The
Payment Schedule shall
(i) describe the events that must occur in order for the
Participant's Benefits to become payable under the terms of the Plan;
(ii) specify the amount of the Participant's Benefits accrued
under the Plan, as of the date on which the Payment Schedule is
furnished to the Trustee, and provide a formula or such other
instructions as will enable the Trustee to determine the amount of the
Participant's Benefits as of the time they become payable under the
terms of the Plan;
(iii) specify the form in which the Participant's Benefits are
to be paid, as provided for or available under the Plan;
(iv) specify the time of commencement for payment of the
Participant's Benefits under the Plan; and
(v) specify the address and social security number of the
Participant as well as the name, address, social security number and
relation to the Participant of the Participant's Beneficiary.
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Prior to a Change in Control the Applicable Company may from
time to time substitute a new Payment Schedule for, or amend, an existing
Payment Schedule by delivering a new or amended Payment Schedule to the Trustee.
Upon receipt of such new or amended Payment Schedule, the previous Payment
Schedule shall be deemed revoked. Prior to a Change in Control, any Payment
Schedule previously filed with the Trustee may be revoked by the Applicable
Company by filing written notice of such revocation with the Trustee without
delivering a new or amended Payment Schedule to the Trustee. Notwithstanding the
foregoing, no Payment Schedule may be amended or revoked after a Change in
Control or during a Threatened Change in Control Period; provided, however, that
during a Threatened Change in Control, a Payment Schedule with respect to a
Participant's Benefits under any Plan may be amended so as to reflect any
amendment to the Plan made during such Threatened Change in Control period that
has the effect of increasing the amount of the Benefits payable under the Plan
with respect to the Participant, or that permits payment of such Benefits to be
made in a form, or to commence at a time, more favorable to the Participant or
his or her Beneficiary than as provided under the Plan prior to such amendment.
Except as otherwise provided herein, after a Change in Control, the Trustee
shall make payments with respect to a Participant's Benefits under any Plan only
in accordance with the Payment Schedule with respect to such Participant's
Benefits under such Plan that is on file with the Trustee, and that has not been
revoked, at the time such payments are to be made.
(b) Any Participant or Beneficiary seeking to obtain payments
from the Trust Fund for any Trust after a Change in Control shall first file
with the Trustee a written request for payment in substantially the form annexed
hereto as Exhibit D ("Payment Request Form"). In the Payment Request Form so
filed, the Participant or Beneficiary shall
(i) identify the Plan or Plans under which the Participant or
Beneficiary has become entitled to payment of Benefits;
(ii) describe the events that entitle the Participant or
Beneficiary to receive payment of Benefits under the terms of the Plan
or Plans, and affirm under oath that such events have occurred;
(iii) affirm under oath that no amount of the Benefits with
respect to which payment from the Trust Fund is sought was previously
paid by the Applicable Company; and
(iv) provide such information (including, without limitation,
information as to the Participant's period of service, compensation and
conditions of employment after a Change in Control) as will enable the
Trustee to determine the amount of the Benefits that the Participant or
Beneficiary is entitled to receive in accordance with the Payment
Schedules furnished to the Trustee with respect to the Participant's
Benefits under the Plan or Plans.
In the case of any Beneficiary seeking payments from a Trust Fund, the
Beneficiary shall furnish to the Trustee, along with the Payment Request Form, a
certified copy of the death certificate of the Participant, an inheritance tax
waiver and such other documents as the Trustee may reasonably require,
including, without limitation, certified copies of letters testamentary. For all
purposes under this Agreement, the Trustee may rely, and shall be fully
protected in relying, on the information contained in any Payment Request Form
(and in any documents accompanying such form) filed with it by any Participant
or Beneficiary.
(c) As soon as practicable after a Payment Request Form has
been filed with it by a Participant or Beneficiary, the Trustee, solely out of
the
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applicable Trust Fund and with no obligation otherwise to make any payments,
shall make payments to such Participant or Beneficiary in such manner, and at
such times, and in such amounts, as the Trustee shall determine to be payable to
such Participant or Beneficiary under the relevant Plan or Plans based on the
most recent Payment Schedules applicable to the Participant or Beneficiary that
were furnished to the Trustee by the Applicable Company prior to a Change in
Control, and on the information contained in the Payment Request Form (and in
any documents accompanying such Form) filed by the Participant or Beneficiary.
The Trustee is authorized to retain an enrolled actuary to assist it in
determining the amount of any Benefits payable to any Participant or Beneficiary
pursuant to any Payment Request Form or Payment Schedules filed by or for such
Participant or Beneficiary and, in any case in which a Participant or
Beneficiary has filed a Payment Request Form with respect to Benefits under any
Plan for which an unrevoked Payment Schedule is not on file with the Trustee, to
assist it in determining such Participant's or Beneficiary's entitlement to
Benefits under such Plan. For all purposes under this Agreement, the Trustee may
rely, and shall be fully protected in relying, on any advice given to it by such
actuary as to the amount of Benefits payable hereunder to any Participant or
Beneficiary.
(d) Following the occurrence of a Change in Control, the
Trustee shall make provision for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with respect to the
payment of Benefits to be made from any Trust pursuant to the terms of this
Agreement, and shall pay amounts withheld by it to the appropriate taxing
authorities or determine that the amounts required to be withheld with respect
to such payments have been reported, withheld and paid by the Applicable
Company. Prior to a Change in Control, the Trustee shall report and withhold any
federal, state or local taxes that may be required to be withheld with respect
to any payment of Benefits to be made from any Trust pursuant to Section 4.1,
but only to the extent that the Applicable Company has furnished to the Trustee,
in the written instructions delivered to the Trustee pursuant to Section 4.1
directing it to make such payment, the amount of the federal, state or local
taxes required to be withheld with respect to such payment. The Trustee shall be
entitled to rely, and shall be fully protected in relying, upon the information
so furnished to it as to the amount of taxes to be withheld.
4.3 The entitlement of a Participant or Beneficiary to
Benefits under any Plan shall be determined by the Applicable Company or such
other party as may have been designated under the Plan, and any claim for such
Benefits shall be considered and reviewed under the procedures set out in the
Plan. Notwithstanding the foregoing, after a Change in Control, any Participant
or Beneficiary for whom any unrevoked Payment Schedule is on file with the
Trustee at the time of the Change in Control shall be presumed conclusively, for
all purposes of this Agreement, to be entitled to any Benefit that the Trustee
determines to be payable to such Participant or Beneficiary on the basis of the
information contained in such Payment Schedule and in any Payment Request Form
filed by the Participant or Beneficiary; and in such case, the provisions set
forth in the immediately preceding sentence shall apply only with respect to any
claim by the Participant or Beneficiary for Benefits that are in addition to, or
in excess of, the Benefits that the Trustee has so determined to be payable to
the Participant or Beneficiary.
4.4 Each payment made from the Trust Fund for any Trust with
respect to a Participant's Benefits under any Plan shall be payable only from,
and shall be charged against, the Plan Account maintained within such Trust Fund
with respect to such Plan and the Participant Account established within such
Plan Account for the applicable Participant. Notwithstanding any other provision
herein to the contrary, the Trustee shall not make a payment with respect to a
Participant's Benefits under any Plan to the extent that the
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<PAGE>
amount of the payment otherwise required to be made exceeds the amount then held
in the Plan Account for such Plan or the amount then held in the Participant
Account established within such Plan Account for the applicable Participant.
If, because of the provisions of this Section 4.4, any amount
otherwise required to be paid by the Trustee to a Participant or Beneficiary
with respect to a Participant's Benefits under any Plan cannot be paid by the
Trustee, such amount shall be paid to the Participant or Beneficiary by the
Applicable Company.
4.5. At such time after a Change in Control as the aggregate
amount of the payments made hereunder from the Participant Account maintained
within any Plan Account for any Participant shall equal the maximum amount that
may be paid from such Participant Account pursuant to the most recent Payment
Schedule filed with respect to such Participant's Benefits under the Plan in
question, the balance then remaining in such Participant Account shall be
allocated and credited, on a pro rata basis, to all other Participant Accounts
maintained within such Plan Account, based on the respective values of such
other Participant Accounts determined as of the most recent Valuation Date.
At such time after a Change in Control as the aggregate amount
of the payments made from any Plan Account shall equal the maximum amount that
may be paid from such Plan Account pursuant to the most recent Payment Schedules
filed with respect to Participants' Benefits under the Plan for which such Plan
Account was established, the balance then remaining in such Plan Account shall
be allocated and credited, on a pro rata basis, to all other Plan Accounts and
Participant Accounts maintained within the same Trust Fund, based on the
respective values of such other Plan Accounts and Participant Accounts
determined as of the most recent Valuation Date.
4.6 Notwithstanding any other provision of this Agreement to
the contrary, if at any time any Trust is finally determined by the Internal
Revenue Service (the "IRS") not to be a "grantor trust," with the result that
the income of such Trust is not treated as income of the Applicable Company
pursuant to Sections 671 through 679 of the Code, such Trust shall immediately
terminate and the amounts allocated to each Plan Account and Participant Account
within such Trust shall be paid in a cash lump sum as soon as practicable by the
Trustee to the Participants for whom such Accounts were maintained. If any
Company should receive notice of such final determination from the IRS, such
Company shall promptly furnish written notice of such final determination to the
Trustee.
4.7 Notwithstanding any other provision of this Agreement to
the contrary, if the IRS should finally determine that any amounts held in any
Trust are includible in the gross income of any Participant or Beneficiary prior
to payment of such amounts from the Trust, the Trustee shall, as soon as
practicable, pay such amounts to such Participant or Beneficiary from such
Trust. For purposes of this Section 4.7, the Trustee shall be entitled to rely
on an affidavit by a Participant or Beneficiary to the effect that such a
determination has occurred.
4.8 Each Company may make payment of Benefits directly to
Participants or their Beneficiaries as they become due under the terms of the
Applicable Plans. After a Change in Control, a Company that decides to make
payment of Benefits directly shall notify the Trustee in writing of its decision
prior to the time amounts are payable to the Participants or their
Beneficiaries. In addition, each Company shall remain primarily liable to pay
all of the Benefits provided for under its Plans, to the extent such Benefits
are not payable from such Company's Trust pursuant to this Agreement.
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Accordingly, if the principal of the Applicable Company's Trust, and any
earnings thereon, are not sufficient to make payments of Benefits in accordance
with the terms of such Company's Plans, the Company shall make the balance of
each such payment as it falls due. The Trustee shall notify the Applicable
Company in writing where principal and earnings of the Company's Trust are not
sufficient.
ARTICLE 5
Legal Defense Fund
------------------
5.1 On the written direction of a Company, the Trustee shall
establish within the Trust Fund for such Company's Trust a separate fund,
hereinafter referred to as a "Legal Defense Fund". A Company's Legal Defense
Fund shall consist of such portions of its contributions to its Trust as the
Company shall specify in writing at the time of contribution, together with all
income, gains and losses and proceeds from the investment, reinvestment and sale
thereof, less all payments therefrom and expenses charged thereto in accordance
with the provisions of this Article 5. Subject to Article 6, a Company's Legal
Defense Fund shall be held and administered by the Trustee exclusively for the
purpose of defraying the costs and expenses incurred by the Trustee in
performing its duties under Sections 5.3 and 5.4.
5.2 A Company's Legal Defense Fund shall be maintained and
administered as a separate segregated account, provided, however, that the
assets of any Legal Defense Fund may be commingled with all other assets of the
same Trust, and with the assets of any other Trust, solely for investment
purposes.
5.3 If, at any time after a Change in Control, a Participant
or Beneficiary notifies the Trustee in writing that a Company has refused to pay
a claim asserted by such Participant or Beneficiary under any of such Company's
Plans, the Trustee shall promptly review such claim and determine whether it has
any basis in law and fact. If the Trustee determines that the claim has no basis
in law and fact, the Trustee shall notify the Participant or Beneficiary of such
determination, and thereafter shall take no further action with respect to the
claim. If the Trustee determines that there is a basis in law and fact for the
Participant's or Beneficiary's claim, the Trustee shall take the following
actions to assist the Participant or Beneficiary (hereafter referred to as the
"Claimant") to recover on such claim:
(a) The Trustee shall promptly attempt to negotiate with the Applicable
Company to obtain payment, settlement or other disposition of the
claim, subject to the Claimant's consent.
(b) If (i) negotiations fail after 60 days of their
commencement to result in a payment, settlement or other disposition
acceptable to the Claimant, (ii) the Trustee at any time reasonably
believes that further negotiations would not be in the Claimant's best
interest or (iii) any applicable statute of limitations would otherwise
expire within 60 days, the Trustee shall advise the Claimant of such
fact. Thereupon, the Claimant may, by filing with the Trustee a written
authorization in substantially the form attached hereto as Exhibit E,
direct the Trustee to institute and maintain legal proceedings (the
"Litigation") against the Applicable Company to recover on the claim on
behalf of the Claimant.
(c) The Trustee shall direct the course of any Litigation and
shall keep the Claimant informed of the progress thereof at such
intervals as the Trustee deems appropriate, but no less frequently than
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quarterly. The Trustee shall have the discretion to determine the form
and nature that any Litigation shall take, and the procedural rules and
laws applicable to such Litigation shall supersede any inconsistent
provision of this Agreement.
(d) If the Claimant directs in writing that the Litigation be
settled or discontinued, the Trustee shall take all appropriate action
to follow such direction, provided that such written direction
specifies the terms and conditions of the settlement or discontinuance
and provided further that the Claimant, if requested to do so by the
Trustee, executes and delivers to the Trustee a document in a form
acceptable to the Trustee releasing the Trustee and holding it harmless
from any liability resulting from its following such direction. If the
Claimant refuses to consent to a settlement or other disposition of the
Litigation on terms recommended in writing by the Trustee, the Trustee
may proceed, in its sole and absolute discretion, to take such action
as it deems appropriate in the Litigation, including settlement or
discontinuance of the Litigation; provided, however, that the Trustee
shall afford the Claimant at least 14 days' advance notice in writing
of any decision by the Trustee to settle or otherwise discontinue the
Litigation.
(e) A Claimant may at any time revoke the authorization of the
Trustee to continue any Litigation on his behalf by delivering to the
Trustee a written revocation in substantially the form attached as
Exhibit F hereto, and notifying the Trustee in writing that the
Claimant has appointed his own counsel (whose fees and expenses shall
not be paid from any Legal Defense Fund) to represent the Claimant in
the Litigation in lieu of counsel retained by the Trustee. Upon the
Trustee's receipt of such revocation and notice, the Trustee shall have
no obligation to proceed further on behalf of the Claimant in the
Litigation, or to pay any costs or expenses incurred in the Litigation
after the date on which such revocation and notice is delivered to the
Trustee.
(f) The Trustee shall be empowered to retain counsel and other
appropriate experts, including actuaries and accountants, to assist it
in making any determination under this Section 5.3, in determining
whether to pursue, settle or discontinue any Litigation, and to
prosecute and maintain any such Litigation on behalf of any Claimant.
Notwithstanding the foregoing, each Company, prior to a Change in
Control, may designate in writing the counsel to be retained by the
Trustee after a Change in Control to assist in enforcing the rights of
Claimants under such Company's Plans in accordance with the provisions
of this Section 5.3. If the counsel so designated declines to provide
representation, or if such counsel's representation would involve a
conflict of interest with the Trustee, or if the Trustee is not
satisfied with the quality of representation provided, the Trustee may
dismiss such counsel and engage another qualified law firm for this
purpose; provided, however, that any law firm so engaged may not be the
same law firm that represents any Company after a Change in Control. No
Company may dismiss or engage such counsel, or cause the Trustee to
engage or dismiss such counsel, after a Change in Control.
(g) All costs and expenses incurred by the Trustee in
connection with the performance of its duties under this Section 5.3,
including, without limitation, the payment of reasonable fees, costs
and disbursements of any counsel, actuaries, accountants or other
experts retained by the Trustee pursuant to Section 5.3(f), shall be
charged to and paid from the Applicable Company's Legal Defense Fund.
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(h) Notwithstanding any provision herein to the contrary, the
Trustee shall be required to act under this Section 5.3, including,
without limitation, instituting or continuing any Litigation, only to
the extent there are sufficient amounts available in the Applicable
Company's Legal Defense Fund to defray the costs and expenses the
Trustee reasonably anticipates will be incurred in connection with such
action. If, at any time after a Claimant has filed a written notice
with the Trustee under Section 5.3(a) the Trustee determines that there
will not be sufficient amounts in the Applicable Company's Legal
Defense Fund to defray such costs and expenses, the Trustee shall
promptly advise the Claimant of such fact. Unless within 30 days after
it has given such notice to the Claimant the Trustee receives from the
Claimant assurances, in such form as may be satisfactory to the
Trustee, that any costs and expenses in excess of amounts available in
the Applicable Company's Legal Defense Fund will be paid by the
Claimant, the Trustee shall have no obligation to take any further
action on behalf of the Claimant pursuant to this Section 5.3; and, if
a Litigation on behalf of the Claimant is then pending, the Trustee may
discontinue such Litigation on such terms and conditions as it deems
appropriate in its sole discretion.
5.4. If, at any time after a Change in Control or during a
Threatened Change in Control Period, legal proceedings are brought against the
Trustee by a Company or other party seeking to invalidate any of the provisions
of this Agreement as they relate to a Company's Trust, or seeking to enjoin the
Trustee from paying any amounts from any Trust or from taking any other action
otherwise required or permitted to be taken by the Trustee under this Agreement
with respect to any Trust, the Trustee shall take all steps that may be
necessary in such proceeding to uphold the validity and enforceability of the
provisions of this Agreement as they relate to such Trust. All costs and
expenses incurred by the Trustee in connection with any such proceeding
(including, without limitation, the payment of reasonable fees, costs and
disbursements of any counsel, actuaries, accountants or other experts retained
by the Trustee in connection with such proceeding) shall be charged to and paid
from the Applicable Company's Legal Defense Fund. Any costs and expenses so
incurred by the Trustee in excess of amounts available in the Applicable
Company's Legal Defense Fund shall be charged to and paid from the other assets
of such Company's Trust. Any such excess costs and expenses so charged shall be
allocated to the Plan Accounts maintained within such Trust, and to the
Participant Accounts maintained within such Plan Accounts, on a pro rata basis.
5.5 Each Company's Legal Defense Fund shall continue to be
held and administered by the Trustee for the purposes described in Section 5.1
until such time as all Benefits to which all Participants are entitled under all
of such Company's Plans shall have been paid in full to such Participants or
their Beneficiaries. Any balance then remaining in a Company's Legal Defense
Fund shall be distributed to such Company.
ARTICLE 6
Insolvency
----------
6.1 The Trustee shall cease making payment hereunder of
Benefits payable to Participants and their Beneficiaries pursuant to a Company's
Plans if the Company is Insolvent.
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6.2 At all times during the continuance of each Trust, as
provided in Section 2.4 hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Applicable Company under federal
and state law as set forth below:
(a) The Board of Directors and Chief Executive Officer of each
Company shall have the duty to inform the Trustee in writing of such
Company's Insolvency. If a person claiming to be a creditor of a
Company alleges in writing to the Trustee that such Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue making
payment from such Company's Trust to Participants and Beneficiaries.
(b) Unless the Trustee has actual knowledge of a Company's
Insolvency, or has received notice from a Company or a person claiming
to be a creditor of such Company alleging that the Company is
Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such
evidence concerning a Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
(c) If at any time the Trustee has determined that a Company
is Insolvent, the Trustee shall discontinue making payments from such
Company's Trust to Participants and their Beneficiaries and shall hold
the assets of such Trust for the benefit of the Company's general
creditors. Nothing in this Agreement shall in any way diminish any
rights of Participants or their Beneficiaries to pursue their rights as
general creditors of the Applicable Company with respect to Benefits
due under the Company's Plans or otherwise.
(d) The Trustee shall resume making payment from a Company's
Trust of Benefits to Participants or their Beneficiaries in accordance
with Article 4 of this Trust Agreement only after the Trustee has
determined that the Company is not Insolvent, or is no longer
Insolvent.
6.3 Provided that there are sufficient assets, if the Trustee
discontinues the payment of Benefits from any Trust pursuant to Section 6.2
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the Applicable Company's
Plan for the period of such discontinuance, less the aggregate amount of any
payments made to Participants or their Beneficiaries by the Company in lieu of
the payments provided for hereunder during any such period of discontinuance.
ARTICLE 7
Payments to Company
-------------------
7.1 Prior to a Change in Control (but not during a Threatened
Change in Control Period), a Company may, by written notice to the Trustee,
direct the Trustee to pay to such Company, out of the Trust Fund for such
Company's Trust, such amount as is specified in the notice. Any such notice
shall specify the Plan Accounts and the Participant Accounts, if any, which
shall be debited with respect to such payment. If the amount that would remain
in the Trust Fund after any such payment would be less than the unpaid fees and
expenses of the Trustee properly chargeable to such Trust Fund, the Trustee may
deduct such fees and expenses from the payment that otherwise would be made to
the Company.
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7.2 Except as provided in Article 6 hereof, during such time as the Trust is
irrevocable, the Applicable Company shall have no right or power to direct the
Trustee to return to the Company or to divert to others any of the Trust assets
before all payment of Benefits have been made to Participants and their
Beneficiaries pursuant to the terms of the Company's Plans.
ARTICLE 8
Investment Authority and Disposition of Income
----------------------------------------------
8.1 Except as otherwise provided in Sections 8.2, 8.4, and
8.5, the Trustee, prior to a Change in Control, shall invest and reinvest the
assets of each Trust, in its sole discretion, in such investments as may be
permitted in accordance with any written investment guidelines that may be
delivered to the Trustee from time to time by the Applicable Company and that
are acceptable to the Trustee or, at any time when no such investment guidelines
are in effect, in Permitted Investments.
8.2 Prior to a Change in Control, the Applicable Company may
in its sole discretion appoint an investment manager to manage the investment of
any part or all of the Trust Fund for any Trust. The Applicable Company shall
promptly inform the Trustee in writing of any such appointment, shall furnish
the Trustee with a copy of the instrument pursuant to which any investment
manager is so appointed, and shall inform the Trustee in writing as to the
specific portions of the Trust Fund for its Trust that will be subject to the
management of such investment manager. During the term of any such appointment,
the investment manager shall have the sole responsibility for the investment and
reinvestment of that portion of any Trust Fund subject to its investment
management, and the Trustee shall have no responsibility for, or liability with
respect to, the investment of such portion of such Trust Fund.
In exercising the powers granted to it hereunder, the Trustee
shall follow the directions of any investment manager with respect to the
portion of any Trust Fund subject to management by such investment manager. All
directions given by an investment manager to the Trustee shall be in writing,
signed by an officer (or a partner) of the investment manager, or by such other
person or persons as may be designated by an officer (or a partner) of the
investment manager. The investment manager may directly place orders for the
purchase or sale of securities, subject to such conditions as may be approved by
the Applicable Company in authorizing the investment manager to effect
transactions directly with respect to the portion of the Trust Fund for any
Trust subject to its management, provided that the Trustee shall nevertheless
retain custody of the assets comprising such portion of the Trust Fund.
The Applicable Company, by written notice to the Trustee, may
at any time terminate its appointment of any investment manager. In such event,
the Applicable Company shall either appoint a successor investment manager for
the portion of the Trust Fund in question, or direct that such portion of the
Trust Fund thereafter be invested and reinvested by the Trustee in accordance
with the provisions of Section 8.1. Until receipt of such written notice, the
Trustee shall be fully protected in relying upon the most recent prior written
notice of appointment of an investment manager.
8.3 After a Change in Control, the Trustee shall have
exclusive authority and discretion to manage and control the investment and
reinvestment of the Trust Fund for each Trust; provided, however, that the Trust
Fund for each Trust shall be so invested and reinvested only in Permitted
Investments.
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8.4 In no event may the assets of any Trust be invested in
securities (including stock or rights to acquire stock) or obligations issued by
any Company, other than a de minimis amount held in common investment vehicles
in which the Trustee invests. All rights associated with assets of each Trust
shall be exercised by the Trustee or an Investment Manager appointed under
Section 8.2, and shall in no event be exercisable by or rest with Participants.
8.5 During the term of each Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
ARTICLE 9
General Powers and Duties of Trustee
------------------------------------
9.1 In addition to the other powers granted to it under this
Agreement, the Trustee shall have the following administrative powers and
authority with respect to the property comprising the Trust Fund for each Trust:
(a) To sell, exchange or transfer any such property at
public or private sale for cash or on credit and grant options
for the purchase or exchange thereof, including call options for
property held in the Trust Fund and put options for the purchase
of such property, including, without limitation, at any time to
sell any asset other than cash held in the Trust Fund to pay
Benefits if there is not sufficient cash in the Trust Fund to pay
Benefits.
(b) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan
relating to any such property, and to consent to or oppose any such
plan or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any corporation or other entity.
(c) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary power to
any such committee; and to pay part of the expenses and compensation of
any such committee and any assessments levied with respect to any
property so deposited.
(d) To exercise any conversion privilege or subscription right
available in connection with any such property; to oppose or to consent
to the reorganization, consolidation, merger or readjustment of the
finances of any corporation, company or association, or to the sale,
mortgage, pledge or lease of the property of any corporation, company
or association of any of the securities of which may at any time be
held in the Trust Fund and to do any act with reference thereto,
including the exercise of options, the making of agreements or
subscriptions and the payment of expenses, assessments or
subscriptions, which may be deemed necessary or advisable in connection
therewith, and to hold and retain any securities or other property
which it may so acquire.
(e) To commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings; to settle,
compromise or submit to arbitration, any claims, debts or damages, due
or owing to or from the Trust.
(f) To exercise, personally or by general or limited power of
attorney, any right, including the right to vote, appurtenant to any
securities or other such property.
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(g) To borrow money from any lender in such amounts and upon
such terms and conditions as shall be deemed advisable or proper to
carry out the purposes of the Trust and to pledge any securities or
other property for the repayment of any such loan.
(h) To engage any legal counsel, including (except after the
occurrence of a Change in Control) counsel to any Company, any enrolled
actuary, any accountant or any other suitable agents, to consult with
such counsel, enrolled actuary, accountant or agents with respect to
the construction hereof, the duties of the Trustee hereunder, the
transactions contemplated by this Agreement or any act which the
Trustee proposes to take or omit, to rely upon the advice of such
counsel, enrolled actuary, accountant or agents, and to pay its
reasonable fees, expenses and compensation from the Trust Fund.
(i) To register any securities held by it in its own name or
in the name of any custodian of such property or of its nominee,
including the nominee of any system for the central handling of
securities, with or without the addition of words indicating that such
securities are held in a fiduciary capacity, to deposit or arrange for
the deposit of any such securities with such a system and to hold any
securities in bearer form; provided, however, that no such holding
shall relieve the Trustee of its responsibility for the safe custody
and disposition of the Trust Fund in accordance with the provisions of
this Agreement, the Trustee's books and records shall at all times show
that such property is part of the Trust Fund, and the Trustee shall be
absolutely liable for any loss occasioned by the acts of its nominee or
nominees with respect to securities registered in the name of the
nominee or nominees.
(j) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages, conveyances,
contracts, waivers, releases or other instruments in writing necessary
or proper for the accomplishment of any of the powers granted herein.
(k) To transfer assets of the Trust Fund to a successor
trustee as provided in Section 13.4 hereof.
(l) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either
real, personal or mixed held in the Trust Fund, and to do all other
acts that the Trustee may deem necessary or proper to carry out any of
the powers granted to it hereunder or that otherwise may be in the best
interests of the Trust Fund.
(m) To hold any portion of the Trust Fund in cash pending
investment, or for the payment of expenses and Benefits, without
liability for interest.
(n) To vote personally or by proxy and to delegate power and
discretion over such proxy on account of securities held in the Trust
Fund.
(o) To hold assets in time or demand deposits (including
deposits with the Trustee in its individual capacity that pay a
reasonable rate of interest).
(p) To invest and reinvest all or any specified portion of any
Trust Fund through the medium of any common, collective, or commingled
trust fund that has been or may hereafter be established and maintained
by the Trustee.
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(q) To invest in mutual funds registered with the Securities
Exchange Commission under the Investment Company Act of 1940.
The Trustee also shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein; provided, however, that if an insurance policy is held as an asset of
any Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor trustee, or to loan to any
person the proceeds of any borrowing against such policy.
Prior to a Change in Control, the Trustee shall exercise the
powers referred to in Section 9.1(h) only as directed by the Applicable Company;
and, with respect to the portion of any Trust Fund for which an investment
manager has been appointed under Section 8.2, the Trustee shall exercise any
power referred to in this Section 9.1, as it relates to the investment
management of such portion of the Trust Fund, only as directed by such
investment manager. After a Change in Control, the Trustee may exercise such
powers in its sole and absolute discretion, except as otherwise provided in
Article 8.
Notwithstanding any powers granted to the Trustee pursuant to
this Agreement or to applicable law, the Trustee shall not have any power that
could give any Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
9.2 After a Change in Control, the Trustee shall, subject to
Article 6 hereof, discharge its duties under this Agreement solely in the
interest of the beneficiaries of each Trust and (i) for the exclusive purpose of
providing Benefits to such beneficiaries and defraying reasonable expenses of
administering such Trust; (ii) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; and (iii) by diversifying the
investments of the Trust Fund for each Trust so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so.
9.3 The Trustee shall not be required to give any bond or any
other security for the faithful performance of its duties under this Agreement,
except as required by law.
9.4 Except as otherwise expressly provided herein, the Trustee
shall not be responsible in any respect for administering any Plan; nor shall
the Trustee be responsible for the adequacy of the Trust Fund for any Trust to
meet and discharge all payments and liabilities under any Plan.
9.5 The Trustee shall be under no duties whatsoever except
such duties as are specifically set forth as such in this Agreement, and no
implied covenant or obligation shall be read into this Agreement against the
Trustee. Except as otherwise provided in Article 5, the Trustee shall not be
required to take any action toward the execution or performance of any Trust
created hereunder or to prosecute or defend any suit or claim in respect
thereof, unless indemnified to its satisfaction against loss, liability, and
reasonable costs and expenses. The Trustee shall be under no liability or
obligation to anyone with respect to any failure on the part of any Company to
perform any of its obligations under any Plan or under this Agreement.
9.6 The Applicable Company shall pay and shall protect,
indemnify and save harmless the Trustee and its officers, directors or trustees,
employees and agents from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments,
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demands, damages, reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) of any nature arising from or relating
to any action or failure to act by the Trustee, its officers, directors or
trustees, employees and agents with respect to any Trust, or arising from or
relating to the transactions contemplated by this Agreement that pertain to or
affect such Trust, except to the extent that any such loss, liability, action,
suit, demand, damage, cost or expense is the result of the negligence or willful
misconduct of the Trustee, its officers, directors or trustees, employees or
agents.
If the Trustee shall become entitled to indemnification by any
Company pursuant to this Section 9.6 and such Company fails to provide such
indemnification to the Trustee within 30 days of the Company's receipt of a
written request from the Trustee for such indemnification, the Trustee may apply
assets of such Company's Trust in full satisfaction of the Company's obligation
to make such indemnification. Promptly after any assets of any Trust are so
applied, the Trustee shall institute legal proceedings on behalf of the Trust to
recover from the Applicable Company an amount equal to the amount of any Trust
assets so applied.
ARTICLE 10
Taxes, Expenses, and Compensation of Trustee
--------------------------------------------
10.1 Each Company shall pay any federal, state, local or other
taxes imposed or levied with respect to the corpus and/or income of its Trust or
any part thereof under existing or future laws and such Company in its
discretion, or the Trustee in its discretion, may contest the validity or amount
of any tax, assessment, claim or demand respecting such Trust or any part
thereof.
10.2 Each Company shall pay to the Trustee its allocable share of
the compensation that is payable to the Trustee for its services hereunder
pursuant to the schedule of fees annexed hereto as Exhibit G. Each Company shall
also pay its allocable share of the reasonable and necessary expenses incurred
by the Trustee in the performance of its duties under this Agreement, including
reasonable fees of any counsel, actuary, accountant or other agent engaged by
the Trustee pursuant to this Agreement. Any such compensation or expenses shall
be allocated among the Companies as follows: in the case of any such
compensation that is specifically chargeable to, or any such expenses that were
specifically incurred with respect to, a particular Trust, the amount of such
compensation or expenses shall be allocated solely to the Applicable Company; in
the case of any such compensation that is not specifically chargeable to, or any
such expenses that were not specifically incurred with respect to, a particular
Trust, the amount of such compensation or expenses shall be allocated to the
Companies in proportion to the respective values of the Trust Funds for the
Companies' Trusts as of the Valuation Date immediately preceding the date as of
which the Trustee bills the Companies for such compensation or expenses. Each
Company's allocable share of such compensation and expenses shall be charged
against and paid from the Trust Fund for such Company's Trust, to the extent not
paid by such Company within 45 days after the date on which the Trustee bills
the Company for such compensation and expenses. Any amount so charged against
and paid from the Trust Fund for any Company's Trust shall be further allocated
to and charged against the Plan Accounts and Participant Accounts maintained
within such Trust (a) in such manner as the Applicable Company directs in
written instructions delivered by it to the Trustee, in the case of any amount
so charged and paid prior to a Change in Control; and (b) in proportion to the
respective balances of such Accounts as determined as of the most recent
Valuation Date, in the case of any amount so charged and paid after a Change in
Control.
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ARTICLE 11
Accounting by Trustee
---------------------
11.1 For each Trust, the Trustee shall keep accurate and
detailed accounts of all its investments, receipts, and disbursements under this
Agreement. Such person or persons as the Applicable Company shall designate
shall be allowed to inspect the books of account relating to such Company's
Trust upon request at any reasonable time during the business hours of the
Trustee.
11.2 Within 90 days after the close of each calendar year, the
Trustee shall transmit to each Company, and certify the accuracy of, a written
statement of the assets and liabilities of the Trust Fund for such Company's
Trust at the close of that year, showing the current value of each asset at that
date, and a written account of all the Trustee's transactions relating to such
Trust Fund during the period from the last previous accounting to the close of
that year. For the purposes of this Section 11.2, the date of the Trustee's
resignation or removal as provided in Article 13 hereof shall be deemed to be
the close of a calendar year.
11.3 Unless a Company shall have filed with the Trustee
written exceptions or objections to any such statement and account within 90
days after receipt thereof, such Company shall be deemed to have approved such
statement and account; and in such case or upon the written approval by such
Company of any such statement and account, the Trustee shall be forever released
and discharged with respect to all matters and things embraced in such statement
and account as though it had been settled by decree of a court of competent
jurisdiction in an action or proceeding to which the Company and all persons
having any beneficial interest in its Trust were parties.
11.4 Nothing contained in this Agreement or in any Plan shall
deprive the Trustee of the right to have a judicial settlement of its accounts
with respect to any Trust. In any proceeding for a judicial settlement of the
Trustee's accounts or for instructions in connection with any Trust, the only
other necessary party thereto in addition to the Trustee shall be the Applicable
Company. If the Trustee so elects, it may bring in as a party or parties
defendant any other person or persons. No person interested in any Trust, other
than the Applicable Company, shall have a right to compel an accounting,
judicial or otherwise, by the Trustee, and each such person shall be bound by
all accounting by the Trustee to such Company, as herein provided, as if the
account had been settled by decree of a court of competent jurisdiction in an
action or proceeding to which such person was a party.
ARTICLE 12
Communications
--------------
12.1 With respect to any Trust, the Trustee shall be fully
protected in relying upon any written notice, instruction, direction or other
communication signed by an officer of the Applicable Company. Each Company from
time to time shall furnish the Trustee with the names and specimen signatures of
the officers of the Company authorized to act or give directions hereunder and
shall promptly notify the Trustee of the termination of office of any such
officer of the Company and the appointment of a successor thereto. Until
notified in writing to the contrary, the Trustee shall be fully protected in
relying upon the most recent list of the officers of the Company furnished to it
by the Company.
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12.2 Any action required by any provision of this Agreement to
be taken by the board of directors of a Company shall be evidenced by a
resolution of such board of directors certified to the Trustee by the Secretary
or an Assistant Secretary of the Company under its corporate seal, and the
Trustee shall be fully protected in relying upon any resolution so certified to
it. Unless other evidence with respect thereto has been specifically prescribed
in this Agreement, any other action of a Company under any provision of this
Agreement, including any approval of or exceptions to the Trustee's accounts,
shall be evidenced by a certificate signed by an officer of the Company, and the
Trustee shall be fully protected in relying upon such certificate. The Trustee
may accept a certificate signed by an authorized officer of a Company as proof
of any fact or matter that it deems necessary or desirable to have established
in the administration of such Company's Trust (unless other evidence of such
fact or matter is expressly prescribed herein) and the Trustee shall be fully
protected in relying upon the statements in the certificate.
12.3 The Trustee shall be entitled conclusively to rely upon
any written notice, instruction, direction, certificate or other communication
believed by it to be genuine and to be signed by the proper person or persons,
and the Trustee shall be under no duty to make investigation or inquiry as to
the truth or accuracy of any statement contained therein.
12.4 Until notice be given to the contrary, communications to
the Trustee shall be sent to it at its office at 210 Main Street, Hackensack,
New Jersey 07601, Attention: Corporate Agency Administration, Investment
Management Division; and communications to any Company shall be sent to it c/o
GPU Service Corporation, 100 Interpace Parkway, Parsippany, New Jersey
07054-1149, Attention: Treasurer.
ARTICLE 13
Resignation or Removal of Trustee
---------------------------------
13.1 The Trustee may resign as trustee of any Trust at any
time by written notice to the Applicable Company, which resignation shall be
effective 60 days after the Company's receipt of such notice unless the Company
and the Trustee agree otherwise. The Trustee may be removed as trustee of any
Trust by action of the board of directors of the Applicable Company, at any time
upon 60 days' written notice to the Trustee, or upon shorter notice if
acceptable to the Trustee. In the event it resigns or is removed, the Trustee
shall have a right to have its accounts settled as provided in Article 11
hereof.
13.2 Notwithstanding the provisions of Section 13.1, the
Trustee may not be removed as trustee of any Trust after a Change in Control or
during a Threatened Change in Control Period without the written consent of at
least two-thirds in number of the Participants who are, or who may become,
entitled to receive payments from such Trust. The Applicable Company shall
furnish the Trustee with evidence to establish that such majority in number of
such Participants has granted written consent to such removal.
13.3 If the Trustee resigns or is removed as trustee of any
Trust, a successor shall be appointed by the Applicable Company, by action of
its board of directors, by the effective date of such resignation or removal.
Any successor trustee so appointed shall be a bank as defined under the
Investment Advisers Act of 1940, having a net worth in excess of $100,000,000 or
having assets in excess of $2,000,000,000. After a Change in Control or during a
Threatened Change in Control Period, such appointment of a successor trustee
shall be approved in writing by at least two-thirds in number of the
23
<PAGE>
Participants who are or may become entitled to receive payments from such Trust.
Notwithstanding the foregoing, if no such appointment of a successor trustee has
been made by the effective date of such resignation or removal, the Trustee may
apply to a court of competent jurisdiction for appointment of a successor
trustee or for instructions. All expenses of the Trustee in connection with such
proceeding shall be allowed as administrative expenses of the Trust and shall be
paid by the Applicable Company.
13.4 Each successor trustee shall have the powers and duties
conferred upon the Trustee in this Agreement, and the term "Trustee" as used in
this Agreement, except where the context otherwise requires, shall be deemed to
include any successor trustee. Upon designation or appointment of a successor
trustee for any Trust, the Trustee shall transfer and deliver the Trust Fund for
such Trust to the successor trustee, reserving such sums as the Trustee shall
deem necessary to defray its expenses in settling its accounts with respect to
such Trust, to pay any of its compensation with respect to such Trust that is
due and unpaid, and to discharge any obligation of such Trust for which the
Trustee may be liable. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from either the Applicable Company or the successor trustee, or both. When the
Trust Fund for such Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee for such Trust have been
settled as provided in Article 11 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust Fund for
such Trust and shall not be responsible in any way for the further disposition
of such Trust Fund or any part thereof.
ARTICLE 14
Amendments and Termination
--------------------------
14.1 Subject to Section 14.2, any or all of the provisions of
this Agreement and any Exhibits annexed hereto, as they relate to any Company's
Trust, may be amended at any time, without the consent of any Participant or
Beneficiary, by a written instrument of amendment, duly executed by the
Applicable Company and the Trustee. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Applicable Company's Plans or
shall make the Applicable Company's Trust revocable after it has become
irrevocable in accordance with Section 2.2 hereof.
14.2 No amendment may be made to delete a Participant from
Exhibit A or to delete a Plan from Exhibit B and no other provision of this
Agreement may be amended (i) during a Threatened Change in Control Period, (ii)
after a Change in Control, (iii) at the request of a third party who has
indicated an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control or (iv) otherwise in connection with, or in
anticipation of, a Change in Control which has been threatened or proposed and
which actually occurs unless in any such case the written consent of at least
two-thirds in number of the Participants who are or may become entitled to
payments from each Trust affected by such amendment is obtained, in which case
such amendment may be made. The Trustee may request that the Applicable Company
or Companies furnish evidence to establish that at least two-thirds of the
Participants have granted written consent to such an amendment.
14.3 Unless sooner revoked in accordance with Section 2.2
hereof, each Trust shall terminate on the date on which Participants and their
Beneficiaries are no longer entitled to receive Benefits pursuant to the terms
of the Applicable Company's Plans. Upon termination of any Trust, any assets
remaining in the Trust Fund for such Trust shall be paid by the Trustee to the
Applicable Company.
24
<PAGE>
ARTICLE 15
Miscellaneous
-------------
15.1 Any provision of this Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
15.2 Benefits payable to Participants and their Beneficiaries
under this Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
15.3 This Agreement shall be governed by, and shall be
construed in accordance with, and each Trust hereby created shall be
administered in accordance with, the laws of the State of New Jersey.
15.4 The titles to Articles of this Agreement are placed
herein for convenience of reference only, and this Agreement is not to be
construed by reference thereto.
15.5 This Agreement shall bind and inure to the benefit of the
successors and assigns of each Company and the Trustee, respectively, and all
Participants and Beneficiaries under the Companies' Plans.
15.6 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by any counterpart.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their respective names by their duly authorized officers under their
corporate seals as of the day and year first above written.
GPU, INC.
GPU SERVICE, INC.
GPU GENERATION, INC.
ENERGY INITIATIVES, INC.
By:_________________________________
F. D. Hafer, Chairman, President and
Chief Executive Officer
ATTEST:
- --------------------------
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By:_________________________________
F. D. Hafer, Chairman of the Board and
Chief Executive Officer
ATTEST:
- -------------------------
GPU NUCLEAR, INC.
By:_________________________________
T.G. Broughton, President and
Chief Executive Officer
ATTEST:
- --------------------------
GPU INTERNATIONAL, INC.
By:_________________________________
B. L. Levy, President and
Chief Executive Officer
ATTEST:
- ---------------------------
Summit Bank, Trustee
By: _________________________________
ATTEST:
- --------------------------
<PAGE>
Exhibit A
List of Current Participants
Company Participants
Jersey Central Power
& Light Company Dennis P. Baldassari
Metropolitan Edison Company Dennis P. Baldassari
Pennsylvania Electric Company Dennis P. Baldassari
GPU Service, Inc. Robert C. Arnold (Retired)
Verner M. Condon (Retired)
Herman Dieckamp (Retired)
F. Allen Donofrio
John G. Graham
Fred D. Hafer
Terrance G. Howson
Ira H. Jolles
William G. Kuhns (Retired)
James R. Leva (Retired)
James B. Liberman (Retired)
Philip C. Mezey (Retired)
Mary A. Nalewako
Hazel R. O'Leary (Retired)
Carole B. Snyder
GPU Nuclear, Inc. Philip R. Clark (Retired)
Thomas G. Broughton
GPU International, Inc. Bruce L. Levy
GPU Generation, Inc. Robert L. Wise
<PAGE>
Exhibit B
Covered Plans and Benefits
--------------------------
Set forth below is a list, for each Company, of the plans,
programs, policies or agreements that are to be treated as "Plans", and the
amounts payable under the Plans that are to be treated as "Benefits", for
purposes of the annexed Agreement.
Jersey Central Power & Light Company
------------------------------------
1. The severance payment benefit provided under Jersey Central
Power & Light Company's Severance Procedure.
2. The excess pension benefit payable to James R. Leva
pursuant to the amended Agreement dated August 1, 1996, between Jersey Central
Power & Light Company and Mr. Leva.
3. All benefit amounts payable under the Jersey Central Power
& Light Company Supplemental and Excess Benefits Plan.
4. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan.
5. Awards for Performance Periods preceding and including
Change in Control payable under the Incentive Compensation Plan for Elected
Officers of Jersey Central Power & Light Company.
6. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
7. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by Jersey Central Power & Light
Company pursuant to Split Dollar Agreement with Dennis P. Baldassari.
8. The severance payment benefit payable to Dennis P.
Baldassari provided under the Severance Agreement, dated August 1, 1996, between
Mr. Baldassari, Jersey Central Power & Light Company and GPU, Inc.
Metropolitan Edison Company
---------------------------
1. The severance payment benefit provided under Metropolitan
Edison Company's Severance Procedure.
2. All benefit amounts payable under the Metropolitan Edison
Company Supplemental and Excess Benefits Plan.
3. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan for Elected Officers.
4. Awards for Performance Periods preceding and including
Change in Control payable under the Incentive Compensation Plan for Elected
Officers of Metropolitan Edison Company.
5. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
<PAGE>
6. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by Metropolitan Edison Company
pursuant to Split Dollar Agreement with Fred D. Hafer.
Pennsylvania Electric Company
-----------------------------
1. The severance payment benefit provided under Pennsylvania
Electric Company's Severance Procedure.
2. All benefit amounts payable under the Pennsylvania Electric
Company Supplemental and Excess Benefits Plan.
3. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan for Elected Officers.
4. Awards for Performance Period preceding Change in Control
payable under the Incentive Compensation Plan for Elected Officers of
Pennsylvania Electric Company.
5. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
6. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by Pennsylvania Electric Company
pursuant to Split Dollar Agreement with Robert L. Wise.
GPU Service, Inc.
-----------------
1. The severance payment benefit provided under GPU Service
Corporation's Severance Procedure.
2. The additional retirement pension and the supplemental
pension payable to Ira H. Jolles pursuant to Sections 3 and 4 of the Agreement
among GPU, Inc., GPU Service, Inc. and Mr. Jolles.
3. The additional retirement pension payable to Philip C.
Mezey pursuant to the Agreement among GPU, Inc., GPU Service, Inc.and Mr. Mezey.
4. The pension payable to Hazel R. O'Leary pursuant to the
Agreement among GPU, Inc., GPU Service, Inc. and Mrs. O'Leary.
5. All benefit amounts payable under the GPU Service, Inc.
Supplemental and Excess Benefits Plan.
6. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan.
7. Awards for Performance Periods preceding and including
Change in Control payable under the Incentive Compensation Plan for Elected
Officers of GPU Service, Inc.
8. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
9. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by GPU Service, Inc. pursuant to Split
Dollar Agreements with Messrs. Leva, Jolles, Graham, Arnold, Donofrio and Mezey,
and pursuant to Letter Agreements with Messrs. Kuhns and Dieckamp.
<PAGE>
10. Supplemental pension payable to William G. Kuhns pursuant
to the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Kuhns.
11. The retirement annuity payable to James B. Liberman
pursuant to the Agreement between GPU Service, Inc. and Mr. Liberman.
12. The supplemental pension payable to Herman Dieckamp
pursuant to the Agreement among GPU, Inc., GPU Service, Inc. and Mr. Dieckamp.
13. Annuities payable to Messrs. Kuhns, Dieckamp and Condon
under the Deferred Compensation Plan for Senior Officers of GPU Service, Inc.
14. The supplemental pension payable to Messrs. R. C. Arnold,
J. G. Graham and I. H. Jolles pursuant to Agreements between GPU Service, Inc.
and Messrs. Arnold, Graham and Jolles.
15. The severance payment benefit payable to Messrs. James R.
Leva, R. C. Arnold, J. G. Graham and I. H. Jolles provided under the Severance
Agreements, dated August 1, 1996, between GPU, Inc., GPU Service, Inc. and each
of Messrs. Leva, Arnold, Graham and Jolles.
16. The severance payment benefit payable to Fred D. Hafer
provided under the Severance Agreement, dated August 1, 1996, between Mr. Hafer,
GPU Service, Inc. and GPU, Inc.
GPU Nuclear, Inc.
-----------------
1. The severance payment benefit provided under GPU Nuclear,
Inc.'s Severance Procedure.
2. All benefit amounts payable under the GPU Nuclear, Inc.
Supplemental and Excess Benefits Plan.
3. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan.
4. Awards for Performance Periods preceding and including
Change in Control payable under the Incentive Compensation Plan for Elected
Officers of GPU Nuclear, Inc.
5. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
6. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by GPU Nuclear, Inc. pursuant to Split
Dollar Agreements with Philip R. Clark and Thomas G. Broughton.
7. The supplemental pension payable to Philip R. Clark
pursuant to the Agreement between GPU Nuclear, Inc. and Mr. Clark.
8. The severance payment benefit payable to Thomas G.
Broughton provided under the Severance Agreement, dated August 1, 1996, between
Mr. Broughton, GPU Nuclear, Inc. and GPU, Inc.
<PAGE>
GPU Generation, Inc.
- --------------------
1. The severance payment benefit provided under GPU
Generation, Inc.'s Severance Procedure.
2. All benefit amounts payable under the GPU Generation, Inc.
Supplemental and Excess Benefits Plan.
3. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan.
4. Awards for Performance Periods preceding and including
Change in Control payable under the Incentive Compensation Plan for Elected
Officers of GPU Generation, Inc.
5. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
6. The severance payment benefit payable to Robert L. Wise
provided under the Severance Agreement, dated August 1, 1996, between Mr. Wise,
GPU Generation, Inc. and GPU, Inc.
GPU International, Inc.
- -----------------------
1. All benefit amounts payable under the GPU Service, Inc.
Supplemental and Excess Benefits Plan, as adopted by GPU International, Inc.
2. All benefit amounts payable under the GPU System Companies
Deferred Compensation Plan.
3. Awards for Performance Periods preceding and including
Change in Control payable under the Annual Performance Award Plan of GPU
International, Inc.
4. Cash equivalency payments for Restricted Units and
Performance Units Awards, and non-deferred Performance Cash Incentive Awards,
payable under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
5. Premiums on life insurance policies issued under Senior
Executive Life Insurance Program, payable by GPU International, Inc. pursuant to
Split Dollar Agreement with Bruce L. Levy.
6. The severance payment benefit payable to Bruce L. Levy
provided under the Severance Agreement, dated August 1, 1996, between Mr. Levy,
GPU International, Inc. and GPU, Inc.
<PAGE>
EXHIBIT C-1
GPU RABBI TRUST
PARTICIPANT INFORMATION
SOCIAL
NAME ADDRESS SECURITY NUMBER
---- ------- ---------------
Arnold 7 Fernwood Trail, PO Box 151 ###-##-####
Mountain Lakes, New Jersey 07046
Baldassari 9 Willow Spring Drive ###-##-####
Morristown, New Jersey 07960
Broughton 7 Knoll Top Court ###-##-####
Denville, New Jersey 07834
Clark 297 Morris Avenue ###-##-####
Mountain Lakes, New Jersey 07046
Condon Box 116 Young's Road ###-##-####
Basking Ridge, New Jersey 07920
Dieckamp 29 Crystal Road ###-##-####
Mountain Lakes, New Jersey 07046
Donofrio 40 Longview Avenue ###-##-####
Randolph, New Jersey 07869
Graham 21 Candace Lane ###-##-####
Chatham Township, New Jersey 07928
Hafer 1730 Meadowlark Road ###-##-####
Wyomissing, Pennsylvania 19610
Howson 49 Hillside Avenue ###-##-####
Madison, New Jersey 07940
Jolles 610 West End Avenue ###-##-####
New York, New York 10024
Kuhns 49 Creston Avenue ###-##-####
Tenafly, New Jersey 07670
Leva 2 Ryan Court ###-##-####
Chester, New Jersey 07930
Levy 5 Oak Ridge Court ###-##-####
Pomona, New York 10970
Liberman 205 East 69th Street ###-##-####
New York, New York 10021
Mezey 46 Gatehouse Road ###-##-####
Bedminster, New Jersey 07921
Nalewako 31 Manor Lane ###-##-####
Morris Plains, New Jersey 07950
O'Leary 5610 Wisconsin Avenue PH20C ###-##-####
Chevy Chase, Maryland 20815
Snyder 8 Tudor Court ###-##-####
Mohnton, Pennsylvania 19540
Wise 701 Tioga Street ###-##-####
Johnstown, Pennsylvania 15905
<PAGE>
EXHIBIT C-2
GPU RABBI TRUST
SEVERANCE PLAN - ______
TERMS OF PAYMENT:
- -----------------
AMOUNT OF PAYMENT:
- ------------------
Weeks Base Pay Payment
----- -------- -------
FORM/TIMING OF PAYMENT: Lump sum.
- -----------------------
<PAGE>
EXHIBIT C-3
GPU RABBI TRUST
INCENTIVE COMPENSATION PLAN
TERM OF PAYMENT:
- ----------------
AMOUNT OF PAYMENT:
- ------------------
Payment
-------
FORM/TIMING OF PAYMENT: Lump sum.
- -----------------------
<PAGE>
EXHIBIT C-4
GPU RABBI TRUST
SENIOR EXECUTIVE LIFE INSURANCE PLAN
TERMS OF PAYMENT:
- -----------------
AMOUNT OF PAYMENT:
- ------------------
FORM/TIMING OF PAYMENT: Lump sum payment on or before_________________________
- -----------------------
of indicated year to the Life Insurance Company of Virginia.
<PAGE>
EXHIBIT C-5
GPU RABBI TRUST
DEFERRED COMPENSATION PLAN
TERMS OF PAYMENT:
- -----------------
PAYMENT SCHEDULE:
- -----------------
Balance
-------
FORM/TIMING OF PAYMENT: Lump sum amount on or before ________________________
- -----------------------
of indicated year.
<PAGE>
EXHIBIT C-6
GPU RABBI TRUST
EMPLOYEE STOCK PLAN
TERMS OF PAYMENT:
- -----------------
AMOUNT OF PAYMENT:
- ------------------
Gross-Up
Balance Percentage Payment
------- ---------- -------
FORM/TIMING OF PAYMENT: Lump sum amount on or before _______________________.
- -----------------------
<PAGE>
EXHIBIT C-7
GPU RABBI TRUST
DEFERRED COMPENSATION PENSION PLAN
TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment
- ----------------
for his/her life with continuing payments to his/her beneficiary if he/she has
elected a joint and survivor option.
AMOUNT OF PAYMENT:
- ------------------
AMOUNTS IN PAYMENT STATUS
---------------------------------------------
Monthly Option
Payment Elected Beneficiary
------- ------- -----------
FORM/TIMING OF PAYMENT: On or before ____________________________ of each month
the amount indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT C-8
GPU RABBI TRUST
SPECIAL PENSION PLAN
TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment
for his/her life with continuing payments to his/her beneficiary if he/she has
elected a joint and survivor option.
AMOUNT OF PAYMENT:
- ------------------
AMOUNTS IN PAYMENT STATUS
---------------------------------------------
Monthly Option
Payment Elected Beneficiary
------- ------- -----------
FORM/TIMING OF PAYMENT: On or before __________________________ of each month
the amount indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT C-9
GPU RABBI TRUST
SUPPLEMENTAL AND EXCESS PENSIONS
TERMS OF PAYMENT: Each participant listed below is entitled to a monthly payment
for his/her life with continuing payments to his/her beneficiary if he/she has
elected a joint and survivor option. The determination of amount payable is made
in accordance with the Company's Excess and Supplemental Benefits Plan for
Elected Officers.
AMOUNT OF PAYMENT:
- ------------------
AMOUNTS IN PAYMENT STATUS
---------------------------------------------
Monthly Option
Payment Elected Beneficiary
------- ------- -----------
OTHER AMOUNTS
-------------
FORM/TIMING OF PAYMENT: On or before____________________________ of each month
the amount indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT C-10
GPU RABBI TRUST
SUPPLEMENTAL PENSION AGREEMENT - MEZEY
TERMS OF PAYMENT: Mr. Philip Mezey shall be entitled to a supplemental pension
benefit in accordance with the retirement provisions contained in his
employment agreement with GPU, Inc. (attached, amended 4/20/95, signed 4/20/95).
AMOUNT OF PAYMENT:
- ------------------
FORM/TIMING OF PAYMENT: On or before____________________________of each month
the amount indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT C-11
GPU RABBI TRUST
SUPPLEMENTAL PENSION AGREEMENT - JOLLES
TERMS OF PAYMENT: Mr. Ira Jolles shall be entitled to a supplemental
pension benefit in accordance with the retirement provisions contained in his
employment agreement with GPU, Inc. and GPU Service, Inc. (attached, amended
11/1/96).
AMOUNT OF PAYMENT:
- ------------------
FORM/TIMING OF PAYMENT: On or before _________________________ of each month
the amount indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT C-12
GPU RABBI TRUST
Severance Agreement Payment
TERMS OF PAYMENT: Mr. [Name of Officer] shall be entitled to a severance payment
benefit in accordance with the provisions contained in his severance agreement
with [Company Name] and GPU, Inc. (_________).
AMOUNT OF PAYMENT:
- ------------------
FORM/TIMING OF PAYMENT: On or before __________________________ the amount
indicated above shall be paid to the participant or his beneficiary.
<PAGE>
EXHIBIT D
PARTICIPANT'S PAYMENT REQUEST FORM
I, _______________________________________________, a Participant [or
Beneficiary] in the GPU System Companies Master Executives? Benefits Protection
Trust (the "Trust"), adopted September 1, 1995 and amended August 1, 1996 and
February 6, 1997, pursuant to Section 4.3 thereof, hereby request that [Name of
Bank], as Trustee thereunder, make payment to me of the Benefits to which I am
entitled as [Participant or Beneficiary] in accordance with the terms of the
Trust Agreement and the following [Company Name] Plans:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
I hereby attest, certify and affirm that to the best of my knowledge
and belief the following events, upon which entitlement to and payment of
Benefits under said Plans is conditioned, have occurred:
[Insert Description of events that have occurred]
-------------------------------------------------
I further attest, certify and affirm that [Name of Company] has not
paid any of the Benefits claimed herein under said plans.
I am [or The Participant was] ____ years of age, having been born on
[Date of Birth]. I have been/was [or the Participant was] employed by [Name of
Company] from [Date] to [Date]. The [Name of Company] records detailing my
[his/her] compensation and the terms and conditions of employment, if any, are
attached hereto and made a part hereof.
Dated:_________________ ___________________________
[Name of Participant]
---------------------------
---------------------------
[Address & Telephone No.]
<PAGE>
EXHIBIT E
REQUEST AND AUTHORIZATION FOR LITIGATION
I, _______________________________________________, a Participant in
the GPU System Companies Master Executives? Benefits Protection Trust (the
"Trust"), adopted September 1, 1995 and amended August 1, 1996 and February 6,
1997, pursuant to Section 5.3(b) thereof, hereby request and authorize [Name of
Bank], as Trustee thereunder, to institute and prosecute legal proceedings (the
"Litigation"), on my behalf, against [Name of GPU System Company] to recover
upon my claim against said company for unpaid benefits under [Name of Plan under
which claim is asserted].
It is understood that, pursuant to Section 5.3(e) of the Trust
Agreement, I may revoke this authorization to prosecute or continue to prosecute
such Litigation, at any time, upon written notification to the Trustee in the
appropriate form.
Dated:_________________ ___________________________
[Name of Participant]
---------------------------
---------------------------
---------------------------
[Address & Telephone No.]
<PAGE>
EXHIBIT F
REVOCATION OF AUTHORITY TO CONTINUE LITIGATION
I, _______________________________________________, a Participant in
the GPU System Companies Master Executives? Benefits Protection Trust (the
"Trust"), adopted September 1, 1995 and amended August 1, 1996 and February 6,
1997, pursuant to Section 5.3(e) thereof, hereby revoke the authorization
previously granted by me to [Name of Bank], as Trustee thereunder, to institute
and prosecute legal proceedings (the "Litigation), on my behalf, against [Name
of GPU System Company] for unpaid Benefits under [Name of Plan under which claim
is asserted].
I hereby notify the Trustee that I have appointed and retained [Name
Attorney ] of [Address ] to represent me and my interests in such Litigation. I
understand that the fees and expenses of my attorney in connection with the
Litigation or otherwise shall be my sole responsibility and that neither me nor
my attorney will be entitled to direct payment for any such fees or expenses out
of the Trust fund or any portion thereof.
Dated:_________________ ___________________________
[Name of Participant]
---------------------------
---------------------------
---------------------------
[Address & Telephone No.]
EXHIBIT 10-G
INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF
JERSEY CENTRAL POWER & LIGHT COMPANY
(AS AMENDED AND RESTATED FEBRUARY 6, 1997)
1. Purpose.
The purpose of the Incentive Compensation Plan for Elected
Officers of Jersey Central Power & Light Company (the "Plan") is to attract and
retain highly qualified employees, to obtain from each the best possible
performance, and to underscore the importance to them of achieving particular
business objectives established for Jersey Central Power & Light Company and its
affiliates.
2. Definitions.
For the purposes of the Plan, the following terms shall have the
following meanings:
A. Awards. Incentive Compensation Awards made pursuant
to the Plan.
B. Board. The Board of Directors of GPU, Inc. unless
otherwise specified.
C. Change in Control. A "Change in Control" shall mean
the occurrence of:
(1) An acquisition (other than directly
from the Corporation) of any common stock of the
Corporation ("Common Stock") or other voting securities of
the Corporation entitled to vote generally for the
election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities;
provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a
Change
1
<PAGE>
in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust
forming a part thereof) maintained by (i) the Corporation
or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity
securities or equity interest is owned, directly or
indirectly, by the Corporation (for purposes of this
definition, a "Subsidiary"), (B) the Corporation or its
Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1,
1996, are members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least seventy
percent (70%) of the members of the Board; provided,
however, that if the election, or nomination for election
by the Corporation's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan,
be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or
reorganization with or into the Corporation or in which
securities of the Corporation are issued, unless such
merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are
issued where:
(i) the shareholders of the Corporation,
immediately before such merger, consolidation or
reorganization, own directly or
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indirectly immediately following such merger,
consolidation or reorganization, at least sixty percent
(60%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least seventy percent (70%) of the members
of the board of directors of the Surviving Corporation, or
a corporation, directly or indirectly, beneficially owning
a majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than (w) the Corporation, (x) any
Subsidiary, (y) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such
merger, consolidation or reorganization, was maintained by
the Corporation or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of twenty percent
(20%) or more of the then outstanding Voting Securities or
common stock of the Corporation, has Beneficial Ownership
of twenty percent (20%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities or its common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or
substantially all of the assets of the Corporation to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any
Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result
of the acquisition of Common Stock or Voting Securities by
the Corporation
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which, by reducing the number of shares of Common Stock or
Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the
Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or
Voting Securities by the Corporation, and after such share
acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common
Stock or Voting Securities which increases the percentage
of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
D. Committee. The Personnel, Compensation and
Nominating Committee of the Board or any successor thereto
E. Company. Jersey Central Power & Light Company
F. Corporation. GPU, Inc.
G. Employee. An individual who was on the active
salaried payroll of the Company or an affiliate of the
Company at any time during the period for which an
Award is made.
H. Executive Committee. The Executive Committee
of the Board of Directors of the Company.
I. Officer. An Officer of the Company who is
elected by the Company's Board of Directors and is an
Employee of the Company, but not including Assistant
Comptrollers, Assistant Secretaries and Assistant
Treasurers.
J. Performance Period. The fiscal year (currently
the calendar year) for which Awards are made.
3. Effective Date.
The effective date of the Plan is July 1, 1987.
4
<PAGE>
4. Amounts Available for Awards.
A. The aggregate amount available for Awards for any Performance
Period shall be determined by the Board upon the recommendation of the
Committee.
B. No Awards shall be made for a Performance Period if during
such Performance Period no dividends were declared or paid on shares of Common
Stock.
5. Eligibility for Awards.
A. The Executive Committee shall determine the Officers, if any,
who are eligible for Awards for each Performance Period, subject, in the case of
the President and of Officers who are also Officers of the Corporation, to the
concurrence of the Board.
B. The Executive Committee may include, among Officers eligible
for Awards for a Performance Period, Officers whose employment terminated
(whether by reason of retirement, death, disability or other cause) during such
Performance Period.
6. Determination of Amounts of Awards.
A. The Executive Committee shall determine the amounts of Awards
subject, in the case of Officers who are also Officers of the Corporation, to
the concurrence of the Board, either at or following the end of the Performance
Period to which they relate. The amount of the Awards to be made for any
Performance Period shall be so determined in accordance with the methods and
procedures set forth in the GPU System Officer Incentive Compensation Plan
Administrative Manual as in effect for such Performance Period (the "Manual").
B. Notwithstanding the foregoing or any other provision herein or
in the Manual to the contrary, if a Change in Control occurs, then in respect of
the Performance Period in which the Change in Control occurs (and in respect of
the previous Performance Period if the Change in Control occurs prior to the
time Awards for such Performance Period have been made), the following
provisions shall apply:
(i) each objective of the Company's for each such
Performance Period shall be deemed to have been 100% achieved;
(ii) the Company's Final Pool for each such Performance
Period shall be deemed to be 100%
of the Company's Target Pool for each such Performance Period (or if, as of the
date of the Change in Control, the Target Pool has not been determined for the
Performance Period, the Target Pool for the immediately preceding Performance
Period);
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<PAGE>
(iii) each Officer who, prior to the occurrence of such
Change in Control, was determined to be eligible for an Award for each such
Performance Period ("Eligible Officer") shall be entitled to receive an Award
for each such Performance Period;
(iv) the amount of the Award to be made to each Eligible
Officer shall be determined by multiplying the Company's Final Pool for each
such Performance Period by a fraction the numerator of which is the amount of
the Eligible Officer's annual base salary that was taken into account in
determining the Company's Target Pool for each such Performance Period, and the
denominator of which is the aggregate amount of the Annual Base Salaries of all
Eligible Officers so taken into account; provided, however, that in the event an
Eligible Officer is terminated by the Company without "Cause" (as defined below)
during the Performance Period in which a Change in Control occurs, the amount of
the Award to be made to such Eligible Officer in respect of that Performance
Period shall be the amount determined above multiplied by a fraction, the
numerator of which is the number of days that have elapsed since the end of the
immediately preceding Performance Period through the date of termination and the
denominator of which is 365.
A termination is for Cause if the Eligible Officer is convicted of a felony or
where the Eligible Officer (1) intentionally and continually failed
substantially to perform his or her reasonably assigned duties with the Company
(other than a failure resulting from the Eligible Officer's incapacity due to
physical or mental illness) which failure continued for a period of at least
thirty (30) days after a written notice of demand for substantial performance,
signed by a duly authorized officer, has been delivered to the Eligible Officer
specifying the manner in which he or she has failed substantially to perform, or
(2) intentionally engaged in conduct which is demonstrably and materially
injurious to the Corporation or the Company. No act, nor failure to act, on the
Eligible Officer's part, shall be considered "intentional" unless he or she has
acted, or failed to act, with a lack of good faith and with a lack of reasonable
belief that the Eligible Officer's action or failure to act was in the best
interest of the Corporation and the Company.
7. Form of Awards.
Awards shall be made in cash.
8. Payment of Awards.
Unless it has been deferred pursuant to the GPU System Companies
Deferred Compensation Plan, an Award shall be paid as
6
<PAGE>
soon as practicable after it is made, but in any event by no later than 60 days
after the date on which the Award has been made; provided, however, that if an
Eligible Officer is entitled to a pro-rated Award pursuant to the proviso in
Section 6.B(iv), such pro-rated Award shall be paid within twenty (20) days
after the Eligible Officer's date of termination.
9. Special Awards and Other Plans.
Nothing contained in the Plan shall prohibit the Company from
granting special performance or recognition awards under such conditions, and in
such form and manner as it sees fit, or from establishing other incentive
compensation plans providing for the payment of incentive compensation to
Employees; provided, however, that an Officer who receives an Award under this
Plan shall not receive an award for the same Performance Period under any other
annual incentive plan.
10. Amendment and Interpretation of the Plan.
A. Action to amend, modify, suspend or terminate the Plan may be
taken by the Company either by resolution duly adopted by the Company's Board of
Directors, or by an instrument in writing executed by an Officer of the Company
to whom authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of Directors;
provided, however, that any amendment to Section 4, Section 6 or this Section
10.A shall be subject to the concurrence of the Board; provided further,
however, that Section 2.C, Section 6 and this Section 10 may not be amended or
modified, and the Plan may not be suspended or terminated, (i) at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control, (ii) within six (6) months prior to, or otherwise in connection with,
or in anticipation of, a Change in Control which has been threatened or proposed
and which actually occurs, or (iii) following a Change in Control, if the
amendment, modification, suspension or termination adversely affects the rights
of any Eligible Officer under the Plan. No amendment or termination of the Plan
shall reduce or otherwise adversely affect an Award already made hereunder
without the consent of the Officer affected.
B. The Executive Committee is authorized to determine in its
discretion all questions that may arise as to the construction or interpretation
of the Plan, and to resolve any claims that may arise with respect to any
Officer's rights or entitlement to any payment under the Plan. The decision of
the Executive Committee with respect to any such questions or claims shall be
final, conclusive and binding on all parties.
7
<PAGE>
Notwithstanding the foregoing, any decision made by the Executive Committee
after the occurrence of a Change in Control shall be subject to judicial review
under a "de novo", rather than a deferential, standard.
11. Miscellaneous.
A. All expenses and costs in connection with the operation of
the Plan shall be borne by the Company.
B. All Awards under the Plan are subject to applicable
withholding for federal, state and local taxes.
C. The Participation of any Officer in the Plan may be terminated
at any time. No promise or representation, either express or implied, is made to
any Officer with respect to continued employment, transfer or promotion because
of his or her participation in the Plan.
D. Each Officer who is a participant in the Plan shall have the
status of a general unsecured creditor of the Company with respect to any
amounts payable to the Officer hereunder. The Plan shall constitute a mere
promise by the Company to make payments in the future of the Awards provided for
herein. It is the intention of the Company that the arrangements reflected in
this Plan be treated as unfunded for tax purposes and, if it should be
determined that Title I of ERISA is applicable to such arrangements, for
purposes of Title I of ERISA.
E. An Officer's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of the Officer or
the Officer's beneficiary.
8
EXHIBIT 10-H
INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF
METROPOLITAN EDISON COMPANY
(AS AMENDED AND RESTATED FEBRUARY 6, 1997)
1. Purpose.
The purpose of the Incentive Compensation Plan for Elected
Officers of Metropolitan Edison Company (the "Plan") is to attract and retain
highly qualified employees, to obtain from each the best possible performance,
and to underscore the importance to them of achieving particular business
objectives established for Metropolitan Edison Company and its affiliates.
2. Definitions.
For the purposes of the Plan, the following terms shall have the
following meanings:
A. Awards. Incentive Compensation Awards made
pursuant to the Plan.
B. Board. The Board of Directors of GPU, Inc.
unless otherwise specified.
C. Change in Control. A "Change in Control"
shall mean the occurrence of:
(1) An acquisition (other than directly
from the Corporation) of any common stock of the
Corporation ("Common Stock") or other voting securities of
the Corporation entitled to vote generally for the
election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities;
provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a
Change
1
<PAGE>
in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust
forming a part thereof) maintained by (i) the Corporation
or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity
securities or equity interest is owned, directly or
indirectly, by the Corporation (for purposes of this
definition, a "Subsidiary"), (B) the Corporation or its
Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1,
1996, are members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least seventy
percent (70%) of the members of the Board; provided,
however, that if the election, or nomination for election
by the Corporation's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan,
be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or
reorganization with or into the
Corporation or in which securities of the Corporation are
issued, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are
issued where:
(i) the shareholders of
the Corporation, immediately before such merger,
consolidation or reorganization, own directly or
2
<PAGE>
indirectly immediately following such merger,
consolidation or reorganization, at least sixty percent
(60%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
(ii) the individuals who
were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least seventy percent (70%) of the members
of the board of directors of the Surviving Corporation, or
a corporation, directly or indirectly, beneficially owning
a majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than
(w) the Corporation, (x) any
Subsidiary, (y) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such
merger, consolidation or reorganization, was maintained by
the Corporation or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of twenty percent
(20%) or more of the then outstanding Voting Securities or
common stock of the Corporation, has Beneficial Ownership
of twenty percent (20%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities or its common stock.
(B) A complete liquidation or
dissolution of the Corporation; or
(C) The sale or other
disposition of all or substantially all of the assets of
the Corporation to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any
Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result
of the acquisition of Common Stock or Voting Securities by
the Corporation
3
<PAGE>
which, by reducing the number of shares of Common Stock or
Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the
Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or
Voting Securities by the Corporation, and after such share
acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common
Stock or Voting Securities which increases the percentage
of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
D. Committee. The Personnel, Compensation and
Nominating Committee of the Board or any successor thereto
E. Company. Metropolitan Edison Company
F. Corporation. GPU, Inc.
G. Employee. An individual who was on the
active salaried payroll of the Company or an affiliate
of the Company at any time during the period for which an
Award is made.
H. Executive Committee. The Executive
Committee of the Board of Directors of the Company.
I. Officer. An Officer of the Company who is
elected by the Company's Board of Directors and is an
Employee of the Company, but not including Assistant
Comptrollers, Assistant Secretaries and Assistant
Treasurers.
J. Performance Period. The fiscal year
(currently the calendar year) for which Awards are made.
3. Effective Date.
The effective date of the Plan is July 1, 1987.
4
<PAGE>
4. Amounts Available for Awards.
A. The aggregate amount available for Awards for any Performance
Period shall be determined by the Board upon the recommendation of the
Committee.
B. No Awards shall be made for a Performance Period if during
such Performance Period no dividends were declared or paid on shares of Common
Stock.
5. Eligibility for Awards.
A. The Executive Committee shall determine the Officers, if any,
who are eligible for Awards for each Performance Period, subject, in the case of
the President and of Officers who are also Officers of the Corporation, to the
concurrence of the Board.
B. The Executive Committee may include, among Officers eligible
for Awards for a Performance Period, Officers whose employment terminated
(whether by reason of retirement, death, disability or other cause) during such
Performance Period.
6. Determination of Amounts of Awards.
A. The Executive Committee shall determine the amounts of Awards
subject, in the case of Officers who are also Officers of the Corporation, to
the concurrence of the Board, either at or following the end of the Performance
Period to which they relate. The amount of the Awards to be made for any
Performance Period shall be so determined in accordance with the methods and
procedures set forth in the GPU System Officer Incentive Compensation Plan
Administrative Manual as in effect for such Performance Period (the "Manual").
B. Notwithstanding the foregoing or any other provision herein or
in the Manual to the contrary, if a Change in Control occurs, then in respect of
the Performance Period in which the Change in Control occurs (and in respect of
the previous Performance Period if the Change in Control occurs prior to the
time Awards for such Performance Period have been made), the following
provisions shall apply:
(i) each objective of the Company's for each such
Performance Period shall be deemed to have been 100% achieved;
5
<PAGE>
(ii) the Company's Final Pool for each such Performance
Period shall be deemed to be
100% of the Company's Target Pool for each such Performance Period (or if, as of
the date of the Change in Control, the Target Pool has not been determined for
the Performance Period, the Target Pool for the immediately preceding
Performance Period);
(iii) each Officer who, prior to the occurrence of such
Change in Control, was determined
to be eligible for an Award for each such Performance Period ("Eligible
Officer") shall be entitled to receive an Award for each such Performance
Period;
(iv) the amount of the Award to be made to each Eligible
Officer shall be determined by multiplying the Company's Final Pool for each
such Performance Period by a fraction the numerator of which is the amount of
the Eligible Officer's annual base salary that was taken into account in
determining the Company's Target Pool for each such Performance Period, and the
denominator of which is the aggregate amount of the Annual Base Salaries of all
Eligible Officers so taken into account; provided, however, that in the event an
Eligible Officer is terminated by the Company without "Cause" (as defined below)
during the Performance Period in which a Change in Control occurs, the amount of
the Award to be made to such Eligible Officer in respect of that Performance
Period shall be the amount determined above multiplied by a fraction, the
numerator of which is the number of days that have elapsed since the end of the
immediately preceding Performance Period through the date of termination and the
denominator of which is 365.
A termination is for Cause if the Eligible Officer is convicted of a felony or
where the Eligible Officer (1) intentionally and continually failed
substantially to perform his or her reasonably assigned duties with the Company
(other than a failure resulting from the Eligible Officer's incapacity due to
physical or mental illness) which failure continued for a period of at least
thirty (30) days after a written notice of demand for substantial performance,
signed by a duly authorized officer, has been delivered to the Eligible Officer
specifying the manner in which he or she has failed substantially to perform, or
(2) intentionally engaged in conduct which is demonstrably and materially
injurious to the Corporation or the Company. No act, nor failure to act, on the
Eligible Officer's part, shall be considered "intentional" unless he or she has
acted, or failed to act, with a lack of good faith and with a lack of reasonable
belief that the Eligible Officer's action or failure to act was in the best
interest of the Corporation and the Company.
6
<PAGE>
7. Form of Awards.
Awards shall be made in cash.
8. Payment of Awards.
Unless it has been deferred pursuant to the GPU System Companies
Deferred Compensation Plan, an Award shall be paid as soon as practicable after
it is made, but in any event by no later than 60 days after the date on which
the Award has been made; provided, however, that if an Eligible Officer is
entitled to a pro-rated Award pursuant to the proviso in Section 6.B(iv), such
pro-rated Award shall be paid within twenty (20) days after the Eligible
Officer's date of termination.
9. Special Awards and Other Plans.
Nothing contained in the Plan shall prohibit the Company from
granting special performance or recognition awards under such conditions, and in
such form and manner as it sees fit, or from establishing other incentive
compensation plans providing for the payment of incentive compensation to
Employees; provided, however, that an Officer who receives an Award under this
Plan shall not receive an award for the same Performance Period under any other
annual incentive plan.
10. Amendment and Interpretation of the Plan.
A. Action to amend, modify, suspend or terminate the Plan may be
taken by the Company either by resolution duly adopted by the Company's Board of
Directors, or by an instrument in writing executed by an Officer of the Company
to whom authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of Directors;
provided, however, that any amendment to Section 4, Section 6 or this Section
10.A shall be subject to the concurrence of the Board; provided further,
however, that Section 2.C, Section 6 and this Section 10 may not be amended or
modified, and the Plan may not be suspended or terminated, (i) at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control, (ii) within six (6) months prior to, or otherwise in connection with,
or in anticipation of, a Change in Control which has been threatened or proposed
and which actually occurs, or (iii) following a Change in Control, if the
amendment, modification, suspension or termination adversely affects the rights
of any Eligible Officer under the Plan. No amendment or termination of the Plan
shall reduce or otherwise adversely affect an Award already made hereunder
without the consent of the Officer affected.
7
<PAGE>
B. The Executive Committee is authorized to determine in its
discretion all questions that may arise as to the construction or interpretation
of the Plan, and to resolve any claims that may arise with respect to any
Officer's rights or entitlement to any payment under the Plan. The decision of
the Executive Committee with respect to any such questions or claims shall be
final, conclusive and binding on all parties. Notwithstanding the foregoing, any
decision made by the Executive Committee after the occurrence of a Change in
Control shall be subject to judicial review under a "de novo", rather than a
deferential, standard. 11. Miscellaneous.
A. All expenses and costs in connection with the operation of
the Plan shall be borne by the Company.
B. All Awards under the Plan are subject to applicable
withholding for federal, state and local taxes.
C. The Participation of any Officer in the Plan may be terminated
at any time. No promise or representation, either express or implied, is made to
any Officer with respect to continued employment, transfer or promotion because
of his or her participation in the Plan.
D. Each Officer who is a participant in the Plan shall have the
status of a general unsecured creditor of the Company with respect to any
amounts payable to the Officer hereunder. The Plan shall constitute a mere
promise by the Company to make payments in the future of the Awards provided for
herein. It is the intention of the Company that the arrangements reflected in
this Plan be treated as unfunded for tax purposes and, if it should be
determined that Title I of ERISA is applicable to such arrangements, for
purposes of Title I of ERISA.
E. An Officer's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of the Officer or
the Officer's beneficiary.
8
EXHIBIT 10-I
INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF
PENNSYLVANIA ELECTRIC COMPANY
(AS AMENDED AND RESTATED FEBRUARY 6, 1997)
1. Purpose.
The purpose of the Incentive Compensation Plan for Elected
Officers of Pennsylvania Electric Company (the "Plan") is to attract and retain
highly qualified employees, to obtain from each the best possible performance,
and to underscore the importance to them of achieving particular business
objectives established for Pennsylvania Electric Company and its affiliates.
2. Definitions.
For the purposes of the Plan, the following terms shall have the
following meanings:
A. Awards. Incentive Compensation Awards made
pursuant to the Plan.
B. Board. The Board of Directors of GPU, Inc.
unless otherwise specified.
C. Change in Control. A "Change in Control"
shall mean the occurrence of:
(1) An acquisition (other than directly
from the Corporation) of any common stock of the
Corporation ("Common Stock") or other voting securities of
the Corporation entitled to vote generally for the
election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), immediately after
which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities;
provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a
Change
1
<PAGE>
in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust
forming a part thereof) maintained by (i) the Corporation
or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity
securities or equity interest is owned, directly or
indirectly, by the Corporation (for purposes of this
definition, a "Subsidiary"), (B) the Corporation or its
Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1,
1996, are members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least seventy
percent (70%) of the members of the Board; provided,
however, that if the election, or nomination for election
by the Corporation's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan,
be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or
reorganization with or into the Corporation or in which
securities of the Corporation are issued, unless such
merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are
issued where:
(i) the shareholders of the
Corporation, immediately before such merger, consolidation
or reorganization, own directly or indirectly immediately
following such merger,
2
<PAGE>
consolidation or reorganization, at least sixty percent
(60%) of the combined voting power of the outstanding
voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least seventy percent (70%) of the members
of the board of directors of the Surviving Corporation, or
a corporation, directly or indirectly, beneficially owning
a majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than
(w) the Corporation, (x) any Subsidiary, (y) any employee
benefit plan (or any trust forming a part thereof) that,
immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any
Subsidiary, or (z) any Person who, immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of twenty percent (20%) or more of
the then outstanding Voting Securities or common stock of
the Corporation, has Beneficial Ownership of twenty
percent (20%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities
or its common stock.
(B) A complete liquidation or
dissolution of the Corporation; or
(C) The sale or other
disposition of all or substantially all of
the assets of the Corporation to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely because any
Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result
of the acquisition of Common Stock or Voting Securities by
the Corporation which, by reducing the number of shares of
Common
3
<PAGE>
Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the
Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a
result of the acquisition of shares of Common Stock or
Voting Securities by the Corporation, and after such share
acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common
Stock or Voting Securities which increases the percentage
of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
D. Committee. The Personnel, Compensation and
Nominating Committee of the Board or any successor thereto
E. Company. Pennsylvania Electric Company.
F. Corporation. GPU, Inc.
G. Employee. An individual who was on the
active salaried payroll of the Company or an affiliate of
the Company at any time during the period for which an
Award is made.
H. Executive Committee. The Executive
Committee of the Board of Directors of the Company.
I. Officer. An Officer of the Company who is
elected by the Company's Board of Directors and is an
Employee of the Company, but not including Assistant
Comptrollers, Assistant Secretaries and Assistant
Treasurers.
J. Performance Period. The fiscal year
(currently the calendar year) for which Awards are made.
3. Effective Date.
The effective date of the Plan is July 1, 1987.
4. Amounts Available for Awards.
A. The aggregate amount available for Awards for any Performance
Period shall be determined by the Board upon the recommendation of the
Committee.
4
<PAGE>
B. No Awards shall be made for a Performance Period if during
such Performance Period no dividends were declared or paid on shares of Common
Stock.
5. Eligibility for Awards.
A. The Executive Committee shall determine the Officers, if any,
who are eligible for Awards for each Performance Period, subject, in the case of
the President and of Officers who are also Officers of the Corporation, to the
concurrence of the Board.
B. The Executive Committee may include, among Officers eligible
for Awards for a Performance Period, Officers whose employment terminated
(whether by reason of retirement, death, disability or other cause) during such
Performance Period.
6. Determination of Amounts of Awards.
A. The Executive Committee shall determine the amounts of Awards
subject, in the case of Officers who are also Officers of the Corporation, to
the concurrence of the Board, either at or following the end of the Performance
Period to which they relate. The amount of the Awards to be made for any
Performance Period shall be so determined in accordance with the methods and
procedures set forth in the GPU System Officer Incentive Compensation Plan
Administrative Manual as in effect for such Performance Period (the "Manual").
B. Notwithstanding the foregoing or any other provision herein or
in the Manual to the contrary, if a Change in Control occurs, then in respect of
the Performance Period in which the Change in Control occurs (and in respect of
the previous Performance Period if the Change in Control occurs prior to the
time Awards for such Performance Period have been made), the following
provisions shall apply:
(i) each objective of the Company's for each such
Performance Period shall be deemed to have been 100% achieved;
(ii) the Company's Final Pool for each such Performance
Period shall be deemed to be
100% of the Company's Target Pool for each such Performance Period (or if, as of
the date of the Change in Control, the Target Pool has not been determined for
the Performance Period, the Target Pool for the immediately preceding
Performance Period);
(iii) each Officer who, prior to the occurrence of such
Change in Control, was determined to be eligible for an Award for each such
Performance Period ("Eligible Officer") shall be entitled to receive an Award
for each such Performance Period;
5
<PAGE>
(iv) the amount of the Award to be made to each Eligible
Officer shall be determined by multiplying the Company's Final Pool for each
such Performance Period by a fraction the numerator of which is the amount of
the Eligible Officer's annual base salary that was taken into account in
determining the Company's Target Pool for each such Performance Period, and the
denominator of which is the aggregate amount of the Annual Base Salaries of all
Eligible Officers so taken into account; provided, however, that in the event an
Eligible Officer is terminated by the Company without "Cause" (as defined below)
during the Performance Period in which a Change in Control occurs, the amount of
the Award to be made to such Eligible Officer in respect of that Performance
Period shall be the amount determined above multiplied by a fraction, the
numerator of which is the number of days that have elapsed since the end of the
immediately preceding Performance Period through the date of termination and the
denominator of which is 365.
A termination is for Cause if the Eligible Officer is convicted of a felony or
where the Eligible Officer (1) intentionally and continually failed
substantially to perform his or her reasonably assigned duties with the Company
(other than a failure resulting from the Eligible Officer's incapacity due to
physical or mental illness) which failure continued for a period of at least
thirty (30) days after a written notice of demand for substantial performance,
signed by a duly authorized officer, has been delivered to the Eligible Officer
specifying the manner in which he or she has failed substantially to perform, or
(2) intentionally engaged in conduct which is demonstrably and materially
injurious to the Corporation or the Company. No act, nor failure to act, on the
Eligible Officer's part, shall be considered "intentional" unless he or she has
acted, or failed to act, with a lack of good faith and with a lack of reasonable
belief that the Eligible Officer's action or failure to act was in the best
interest of the Corporation and the Company.
7. Form of Awards.
Awards shall be made in cash.
8. Payment of Awards.
Unless it has been deferred pursuant to the GPU System Companies
Deferred Compensation Plan, an Award shall be paid as soon as practicable after
it is made, but in any event by no later than 60 days after the date on which
the Award has been made; provided, however, that if an Eligible Officer is
entitled to a pro-rated Award pursuant to the proviso in Section 6.B(iv),
6
<PAGE>
such pro-rated Award shall be paid within twenty (20) days after the Eligible
Officer's date of termination.
9. Special Awards and Other Plans.
Nothing contained in the Plan shall prohibit the Company from
granting special performance or recognition awards under such conditions, and in
such form and manner as it sees fit, or from establishing other incentive
compensation plans providing for the payment of incentive compensation to
Employees; provided, however, that an Officer who receives an Award under this
Plan shall not receive an award for the same Performance Period under any other
annual incentive plan.
10. Amendment and Interpretation of the Plan.
A. Action to amend, modify, suspend or terminate the Plan may be
taken by the Company either by resolution duly adopted by the Company's Board of
Directors, or by an instrument in writing executed by an Officer of the Company
to whom authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of Directors;
provided, however, that any amendment to Section 4, Section 6 or this Section
10.A shall be subject to the concurrence of the Board; provided further,
however, that Section 2.C, Section 6 and this Section 10 may not be amended or
modified, and the Plan may not be suspended or terminated, (i) at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control, (ii) within six (6) months prior to, or otherwise in connection with,
or in anticipation of, a Change in Control which has been threatened or proposed
and which actually occurs, or (iii) following a Change in Control, if the
amendment, modification, suspension or termination adversely affects the rights
of any Eligible Officer under the Plan. No amendment or termination of the Plan
shall reduce or otherwise adversely affect an Award already made hereunder
without the consent of the Officer affected.
B. The Executive Committee is authorized to determine in its
discretion all questions that may arise as to the construction or interpretation
of the Plan, and to resolve any claims that may arise with respect to any
Officer's rights or entitlement to any payment under the Plan. The decision of
the Executive Committee with respect to any such questions or claims shall be
final, conclusive and binding on all parties. Notwithstanding the foregoing, any
decision made by the Executive Committee after the occurrence of a Change in
Control shall be subject to judicial review under a "de novo", rather than a
deferential, standard.
7
<PAGE>
11. Miscellaneous.
A. All expenses and costs in connection with the operation of
the Plan shall be borne by the Company.
B. All Awards under the Plan are subject to applicable
withholding for federal, state and local taxes.
C. The Participation of any Officer in the Plan may be terminated
at any time. No promise or representation, either express or implied, is made to
any Officer with respect to continued employment, transfer or promotion because
of his or her participation in the Plan.
D. Each Officer who is a participant in the Plan shall have the
status of a general unsecured creditor of the Company with respect to any
amounts payable to the Officer hereunder. The Plan shall constitute a mere
promise by the Company to make payments in the future of the Awards provided for
herein. It is the intention of the Company that the arrangements reflected in
this Plan be treated as unfunded for tax purposes and, if it should be
determined that Title I of ERISA is applicable to such arrangements, for
purposes of Title I of ERISA.
E. An Officer's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of the Officer or
the Officer's beneficiary.
8
EXHIBIT 10-J
DEFERRED REMUNERATION PLAN FOR OUTSIDE DIRECTORS
OF JERSEY CENTRAL POWER & LIGHT COMPANY
(AS AMENDED AND RESTATED EFFECTIVE JUNE 5, 1997)
1. Purpose
1.1 The purpose of this document is to set forth the Deferred
Remuneration Plan for Outside Directors, as amended and
restated effective June 5, 1997. The Plan will be implemented
by individual elections by each Director.
2. Plan Summary
2.1 This Plan provides for deferral by Directors of all or a
portion of current Remuneration.
2.2 Funds being deferred will be credited with the equivalent of
interest in accordance with Section 6.
2.3 Each component of the deferred funds will be distributed as
follows:
(a) for a Director who elects deferral until a date or
dates following his or her Retirement, to the
Director, in accordance with his or her latest
effective election, and subject to provisions of
Section 4.5;
(b) for a Director who elects deferral until a date or
dates preceding his or her Retirement, to the
Director, in accordance with his or her initial
election; or
(c) if a Director dies before the deferred funds have been
fully distributed, to his or her designated
beneficiary, in accordance with the option selected by
the Director under Section 7.2 for each component
except as the Board may otherwise determine, based on
the circumstances at the time the distribution is to
commence.
<PAGE>
3. Definition of Terms
3.1 Board of Directors refers to the Board of Directors of Jersey
Central Power & Light Company.
3.2 Change in Control - A "Change in Control" shall mean the
occurrence during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation")) of any common stock of the Corporation ("Common Stock")
or other voting securities of the Corporation entitled to vote
generally for the election of directors of the Corporation (the "Voting
Securities") by any "Person" (as the term person is used for purposes
of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the then
outstanding shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change
in Control. A "Non-Control Acquisition" shall mean an acquisition by
(A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) the Corporation or (ii) any corporation or other
Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Corporation (for purposes of this definition, a "Subsidiary"), (B) the
Corporation or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of the board
of directors of the Corporation (the "Incumbent Board"), cease for any
reason to constitute at least seventy percent (70%) of the members of
the board of directors of the Corporation; provided, however, that if
the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
<PAGE>
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the board of directors of the
Corporation (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least seventy percent (70%) of the members of the board of directors
of the Surviving Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x)
any Subsidiary, (y) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or
(z) any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of twenty percent (20%) or more
of the then outstanding Voting Securities or common stock of the
Corporation, has Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock;
<PAGE>
(B) A complete liquidation or dissolution of the Corporation;
or
(C) The sale or other disposition of all or substantially all
of the assets of the Corporation to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Common Stock or Voting
Securities as a result of the acquisition of Common Stock or Voting Securities
by the Corporation which, by reducing the number of shares of Common Stock or
Voting Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by the Corporation,
and after such share acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
3.3 Company - refers to Jersey Central Power & Light Company.
3.4 Director - refers to a member of the Board of Directors who is
not an employee of Jersey Central Power & Light Company or any
of its subsidiaries.
3.5 Plan - refers to this Deferred Remuneration Plan or Outside
Directors as described in this document and as it may be
amended in the future.
3.6 Remuneration - refers to all cash amounts earned during a
calendar year by a Director for services performed as a
Director (including services performed as a member of a
committee of the Board of Directors), but does not include
consulting fees, reimbursement for travel or other expenses or
Company contributions to other benefit plans.
3.7 Pre-Retirement Account refers to the memorandum account which
shall be established and maintained for a Director who elects,
pursuant to Section 5.2, to have payment of any portion of his
or her Remuneration for any Plan Year deferred to a date prior
<PAGE>
to his or her Retirement. A separate Pre-Retirement Account
shall be established and maintained for the Remuneration for
each Plan Year which the Director so elects to defer.
3.8 Retirement Account - refers to the memorandum account which
shall be established and maintained for a Director who elects,
pursuant to Section 5.2, to have payment of any portion of his
or her Remuneration for any Plan Year deferred to a date after
his or her Retirement. All amounts deferred pursuant to
elections made on or before December 31, 1985 under the Plan
by a Director, together with all interest equivalents earned
by such election and credited to such amounts prior to
December 31, 1986, shall be treated, on or after such date, as
part of the Director's Retirement Account.
3.9 Retirement - refers to the retirement from service on the
Board of Directors, on account of resignation, death, or any
other reason, without becoming an employee of Jersey Central
Power & Light Company, the Corporation or any of its
subsidiaries.
3.10 Plan Year - refers to the period October 1, 1986 through
December 31, 1986; and each twelve (12) month period from
January 1 through December 31 thereafter.
4. Administration
4.1 The Board of Directors has established this Plan. The Board of
Directors may in its sole discretion modify the provisions of
the Plan from time-to-time, or, may terminate the entire Plan
at any time; provided, however, that Section 3.2, this Section
4.1, Section 4.3, the last sentence of the first paragraph of
Section 6 and the last paragraph of Section 7.2 may not be
amended or modified, and the Plan may not be terminated, (i)
at the request of a third party who has indicated an intention
or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) within six (6) months
prior to, or otherwise in connection with, or in anticipation
of, a Change in Control which has been threatened or proposed
and which actually occurs, or (iii) following a Change in
Control, if the amendment, modification or termination
adversely affects the rights of any Director under the Plan.
No modification or termination of the Plan shall adversely
affect the rights of any Director with respect to any amounts
standing to the Director's credit in any Account immediately
prior to the date of the adoption of such
<PAGE>
modification or termination, including without limitation any
rights with respect to the time and method of payment of, or
the crediting of interest equivalents with respect to, any
such amounts.
4.2 Responsibility for the ongoing administration of this Plan
rests with the Corporate Secretary's Department.
4.3 All questions concerning the disclosure of information
relating to this Plan, as well as any dispute over accounting
or administrative procedures or interpretation of the Plan,
will be resolved at the sole discretion of the Corporate
Secretary.
The Corporate Secretary will not be liable to any person for
any action taken or omitted in connection with the
interpretation and the administration of the Plan unless
attributable to willful misconduct or lack of good faith.
Notwithstanding the foregoing, any determination made by the
Corporate Secretary after the occurrence of a "Change in
Control" that denies in whole or in part any claim made by any
individual for benefits under the Plan shall be subject to
judicial review, under a "de novo", rather than a deferential,
standard.
4.4 All provisions of this Plan, its administration and
interpretation, are intended to be in compliance with
appropriate Internal Revenue Service Rulings regarding the
construction and operation of a deferred compensation program,
so that deferred Remuneration and interest equivalents thereon
will not constitute income constructively received being
distributed under the terms of this Plan.
4.5 A Director's election to voluntarily defer Remuneration,
selection of a distribution commencement date and distribution
option, and designation of a beneficiary and contingent
beneficiary, made pursuant to this Plan shall be made in
writing, on a form furnished to the Director by the Company
for such purposes, signed and delivered personally or by first
class mail to:
Corporate Secretary
Jersey Central Power & Light Company
300 Madison Avenue
Morristown, New Jersey 07962
<PAGE>
Any such election, selection, designation, or change therein,
shall not become effective unless and until received by the
Corporate Secretary. A distribution election or a change in a
distribution election made after May 31, 1987 will not be
effective unless made at least twenty-four (24) months prior
to his or her Retirement or Disability.
5. Deferral Election
5.1 A Director may elect to defer all or any portion of his or her
Remuneration for any Plan Year, providing such portion is
three thousand dollars ($3,000) or more. A separate deferral
election shall be made with respect to a Director's
Remuneration for each Plan Year. An election to defer
Remuneration for the 1986 amended Plan Year shall be made on
or prior to September 30. In subsequent years, the election
shall be made on or before December 31 of the year preceding
the Plan Year. Notwithstanding, the foregoing, (a) Directors
who are initially elected prior to December 1st of any Plan
Year may, within 30 days of such initial election, make a
deferral election for the then current Plan Year, and (b)
Directors who are initially elected after December 1st of any
Plan Year may immediately make a deferral election for both
the then current Plan Year and for the immediately succeeding
Plan Year; provided, however, that any deferral election made
pursuant to clause (a) or (b) hereof shall be effective only
with respect to Remuneration earned after such election has
become effective. All elections under this Section 5.1 shall
be irrevocable.
5.2 In his or her election to defer Remuneration for any Plan
Year, a Director shall specify the amount or portion of the
Remuneration to be deferred, and shall indicate whether the
Remuneration so deferred is to be credited to a Pre-Retirement
Account, or to a Retirement Account.
5.3 With respect to Remuneration deferred hereunder for a Plan
Year which a Director elects to have credited to his or her
Pre-Retirement Account, the Director shall specify in the
election form the date on which distribution of the
Pre-Retirement Account shall be made or commence. The date so
selected shall be no earlier than 24 months from the close of
the Plan Year. In the election form for the Plan Year, the
Director shall also select an option under Section 7.2 for the
<PAGE>
distribution of the account. Except as provided in Section
7.4, the date so specified, and the option so
selected, may not thereafter be changed by the Director.
5.4 With respect to any Remuneration deferred hereunder which a
Director elects to have credited to his or her Retirement
Account, the Director may elect a distribution commencement
date and a distribution option under Section 7.2 for the
distribution of the account, and may change, subject to the
provisions of Section 4.5, any election as to the distribution
commencement date and distribution option for the account
previously made by the Director, at any time prior to his or
her Retirement. The distribution commencement date so elected
shall be either January 15 of the calendar year following the
Director's Retirement, or January 15 of any subsequent
calendar year.
5.5 In the case of a Director who, prior to January 1, 1986, made
a deferral election under the Plan with respect to his or her
Remuneration for the calendar year 1986, any deferral election
made by the Director hereunder with respect to the period
commencing October 1, 1986 and ending December 31, 1986 shall
be effective, for that period, only with respect to the
excess, if any, of the amount he or she so elects to defer for
said period over the amount of Remuneration for said period
deferred pursuant to the Director's prior election.
5.6 The amounts which are deferred, including interest
equivalents, will be credited to a Director's Account. Prior
to distribution, all amounts deferred including interest
equivalents, will constitute general assets of the Company for
use as it deems necessary, and will be subject to the claims
of the Company's creditors. A Director shall have the status
of a mere unsecured creditor of the Company with respect to
his or her right to receive any payment under the Plan. The
Plan shall constitute a mere promise by the Company to make
payments in the future of the benefits provided for herein. It
is intended that the arrangements reflected in this Plan be
treated as unfunded for tax purposes.
<PAGE>
6. Interest
Interest equivalents, compounded monthly on deposits treated as monthly
transactions, will be credited at the end of each quarter in the
calendar year. Such credit will be made to the balance of each account
maintained for a Director hereunder, including the undistributed
balance of any such account from which payments are being made in
installments. The rate used in calculation of interest equivalents will
be no less than the rate equal to the simple average of Citibank N.A.
of New York Prime Rates for the last business day of each of the three
months in the calendar quarter or, if greater, such other rate as
established from time to time by the Committee.
The Company may, but shall not be required to, purchase a life
insurance policy, or policies, to assist it in funding its payment
obligations under the Plan. If a policy, or policies, is so purchased,
it shall, at all times, remain the exclusive property of the Company
and subject to the claims of its creditors. Neither the Director nor
any beneficiary or contingent beneficiary designated by him or her
shall have any interest in, or rights with respect to such policy.
7. Distribution of Deferred Funds
7.1 A Director's Pre-Retirement Account shall be distributed to
the Director, or distributions from such Pre-Retirement
Accounts shall commence, on the date or dates specified in the
elections made by the Director with respect to such accounts.
A Director's Retirement Account shall be distributed to the
Director, or distributions from such accounts shall commence,
on the date specified in the Director's latest effective
election. In such case a distribution election made after May
31, 1987 will not be effective unless selected at least
twenty-four (24) months prior to his or her Retirement.
7.2 The options for distribution are:
(a) A single lump sum payment.
(b) Annual Installments over any fixed number of years
selected by the Director, with a minimum of five annual
installments required for the Retirement Account.
<PAGE>
If distribution of a Director's Account is to be made in
annual installments under Option (b) of Section 7.2, the
amount of each installment will equal the total amount in such
account on the date the installment is payable, divided by the
number of installments remaining to be paid. In addition, if
the distributions are made in installments under Option (b) of
Section 7.2, the interest equivalent accrued on the Director's
memorandum account each year after the date the first
installment is payable will be distributed on each anniversary
of such date.
Notwithstanding any other provision of the Plan to
the contrary or any other optional form of distribution
otherwise elected, each Director shall be permitted to make
either one or both of the following special distribution
elections; (x) to have the entire balance of his or her
Accounts distributed in the form of a single lump sum payment
in the event of the Director's Retirement following a Change
in Control, or (y) if a Change in Control occurs after the
Director's Retirement but before all payments with respect to
the balances of his or her Accounts have been made in
accordance with the Director's elections under Sections 5.3
and 5.4, to have the entire balance of each of his Accounts
that remains unpaid at the time of such Change in Control
distributed in the form of a single lump sum payment. Any such
election shall be effective only if it is made at least twelve
(12) months prior to such Change in Control and prior to the
Director's Retirement. Any special election made under clause
(x) or (y) above may be revoked and a new special election may
be made thereunder at any time; provided, however, that such
revocation or new election shall be effective only if it is
made within the period specified in the preceding sentence.
Any special election, or revocation of a special election,
that may be made hereunder shall be made in the manner set
forth in Section 4.6. The lump sum payment to be made pursuant
to a Director's special election hereunder shall be made by no
later than thirty (30) days following the date of the
Director's Retirement or, in the case of a special election
under clause (y) above, the date of the Change in Control.
7.3 Except as the Board may otherwise determine based on the
circumstances at the time the distribution to the beneficiary
is to commence:
<PAGE>
(a) If a Director should die after distribution of
any account maintained for the Director has commenced,
but before the entire balance of such account has been
fully distributed, distributions will continue to be
made from such account to the Director's designated
beneficiary or contingent beneficiary, in accordance
with the distribution option in effect for such Account
at the time of the Director's death.
(b) If a Director should die before any distribution from an
account maintained for the Director hereunder has been
made to him or her, distribution of such account to the
Director's designated beneficiary or contingent
beneficiary shall be made, or shall commence, as soon as
practicable after the Director's death, in accordance
with the distribution option in effect for such account
at the time of the Director's death.
Amounts remaining to be paid, after the death of the Director,
to the designated beneficiary and the contingent beneficiary,
will be paid in a lump sum to the estate of the last of such
persons to die.
7.4 Notwithstanding anything herein to the contrary, any account
maintained for a Director hereunder may be distributed, in
whole or in part, to such Director on any date earlier than
the date on which distribution is to be made, or commence,
pursuant to the Director's election if:
(a) the Director requests early distribution, and
(b) the Board, in its sole discretion, determines that
early distribution is necessary to help the Director
meet some severe financial need arising from
circumstances which were beyond the Director's control
and which were not foreseen by the Director at the time
he or she made the election as to the date or dates for
distribution from such account. A request by a Director
for an early distribution shall be made in writing,
shall set forth sufficient information as to the
Director's needs for such distribution to enable the
Board to take action on his or her request, and shall be
mailed or delivered to the Company's Corporate
Secretary.
<PAGE>
8. Non-Assignment of Deferred Remuneration
8.1 A Director's rights to payments under this Plan shall not be
subject to any manner to anticipation, alienation, sale,
transfer (other than transfer by will or by the laws of
descent and distribution, in the absence of a beneficiary
designation), assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Director or his or her spouse
or other beneficiary.
8.2 All amounts paid under the Plan, including the interest
equivalents credited to a Director's memorandum account, are
considered to be Remuneration. The crediting of interest
equivalents is intended to preserve the value of the
Remuneration so deferred for the Director.
EXHIBIT 10-K
JERSEY CENTRAL POWER AND LIGHT COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
As Amended Effective June 5, 1997
<PAGE>
TABLE OF CONTENTS
Page
Foreword 1
Section 1 - Definitions 3
Section 2 - Application and Basis of the Plan 7
Section 3 - Payment of Benefits 8
Section 4 - Administration 15
Section 5 - Amendment and Termination 16
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JERSEY CENTRAL POWER AND LIGHT COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
(As amended effective June 5, 1997)
Foreword
Effective as of January l, 1988, Jersey Central Power and Light Company
(referred to in this document as the "Company") established a supplemental
pension plan for the benefit of certain of its employees. This Jersey Central
Power and Light Company Supplemental and Excess Benefits Plan (the "Plan") is a
continuation of that plan as adopted effective January 1, 1988.
The Plan, as set forth herein, is applicable to all employees of the Company who
meet the requirements described in this Plan and who are actively employed by
the Company after August 1, 1996. The benefits of any employee who ceased
employment with the Company, by retirement, death, or otherwise, prior to August
1, 1996 are determined in accordance with the terms of the applicable
predecessor to this Plan as in effect at the time of such cessation of
employment, except that the provisions of Section 1.11 are retroactive and apply
to any employee who ceased employment on or after January 1, 1989.
It is intended that the "excess benefits" provided under the Plan be an "excess
benefits plan" as that term is defined in Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and that the
"supplemental benefits" provided under the Plan be a deferred compensation plan
for "a select group of management or highly compensated employees" as that term
is used in ERISA.
One purpose of the Plan is to provide participants of the Jersey Central Power
and Light Company Employee Pension Plan ("Pension Plan") and their surviving
spouses with the amount of company-provided benefits that would have been
provided to them under the Pension Plan but for the limitation on benefits
imposed under Section 415 of the Internal Revenue Code, as amended.
The second purpose of the Plan is to provide elected officers and certain other
highly compensated employees of the Company and their surviving spouses with the
amount of company-provided benefits that would have been provided to them under
the Pension Plan but for the following:
(a) the limitation on Earnings for purposes of the Pension Plan imposed by
Section 401(a)(17) of such Code, as amended, and
<PAGE>
(b) the exclusion, from Earnings under the Pension Plan, of any compensation
deferred under the Deferred Compensation Plan.
Except to the extent otherwise indicated or inappropriate, the Pension Plan is
incorporated by reference.
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SECTION 1
Definitions
1.1 Except to the extent otherwise indicated, the definitions contained in
Section l of the Pension Plan are applicable under the Plan.
1.2 Board of Directors: The term Board of Directors shall mean the Board of
Directors of the Company.
1.3 Change in Control: The term Change in Control shall mean the occurrence
during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation")) of any common stock of the Corporation ("Common Stock")
or other voting securities of the Corporation entitled to vote
generally for the election of directors (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change
in Control. A "Non-Control Acquisition" shall mean an acquisition by
(A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) the Corporation or (ii) any corporation or other
Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Corporation (for purposes of this definition, a "Subsidiary"), (B) the
Corporation or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of the board
of directors of the Corporation (the "Incumbent Board"), cease for any
reason to constitute at least seventy percent (70%) of the members of
the board of directors of the Corporation; provided, however, that if
the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
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<PAGE>
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the board of directors of the
Corporation (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least seventy percent (70%) of the members of the board of directors
of the Surviving Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x)
any Subsidiary, (y) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or
(z) any Person who, immediately prior to such merger, consolidation or
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<PAGE>
reorganization had Beneficial Ownership of twenty percent (20%) or more
of the then outstanding Voting Securities or common stock of the
Corporation, has Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or substantially all
of the assets of the Corporation to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result of the
acquisition of Common Stock or Voting Securities by the Corporation
which, by reducing the number of shares of Common Stock or Voting
Securities then outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of shares of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
1.4 Company: The word Company shall have the meaning indicated in the
Foreword.
1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall
mean the GPU System Companies Deferred Compensation Plan, as adopted by
the Company.
1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as
defined in the Pension Plan.
1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any,
of (i) each pension benefit which would be payable to an Employee or to
the Employee's surviving spouse under the Pension Plan if the
limitations on benefits imposed by Section 18.1 of the Pension Plan
were not applicable over (ii) each pension benefit payable under the
Pension Plan.
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1.8 Incentive Compensation Plan: The term Incentive Compensation Plan
shall mean the Company's Employee Incentive Compensation Plan or its
Incentive Compensation Plan for Elected Officers or Annual Performance
Award Plan.
1.9 Pension Plan: The term Pension Plan shall have the meaning indicated
in the Foreword.
1.10 Plan: The term Plan shall have the meaning indicated in the Foreword.
1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the
excess, if any, of (i) each pension benefit that would be payable to an
Employee or to an Employee's surviving spouse under the Pension Plan if
all amounts of base compensation or Incentive Compensation Plan awards
deferred under the Deferred Compensation Plan were included in Earnings
(and if the limitations on benefits imposed by Section 18.1 of the
Pension Plan and on Earnings imposed by Section 401(a)(17) of the
Internal Revenue Code were not applicable) over (ii) the sum of (a)
each pension benefit payable under the Pension Plan and (b) any Excess
Benefit payable under this Plan.
For purposes of clause (i) of this Section 1.11, any amount of base
compensation deferred under the Deferred Compensation Plan shall be
treated as Earnings for the period in which such amount would have been
paid to the Employee in cash if the Employee had not elected to defer
such amount, and the amount of any award made to an Employee under the
Incentive Compensation Plan and deferred under the Deferred
Compensation Plan shall be treated as Earnings for the period
corresponding to the Performance Period for which such award is made to
the Employee. No amount of base compensation so deferred, and no amount
awarded under the Incentive Compensation Plan, shall be treated as
Earnings for any period other than the period determined under the
preceding sentence.
For purposes of clause (i) of this Section 1.11, the amount of any
additional years of Creditable Service determined in accordance with
Section 5.9 of the Pension Plan will be recalculated by replacing the
Employee's annual base salary rate of Earnings as of April 1, 1989 by
(a) for purposes of calculating projected Basic Pensions, the product
of (i) such rate before any reductions on account of the Deferred
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<PAGE>
Compensation Plan times (ii) 1.0 plus the target award percentage as
described under the Incentive Compensation Plan and (b) for purposes of
calculating the accumulation of contributions of 2.25% or 2.10% of
compensation, such rate before any reductions on account of the
Deferred Compensation Plan.
7
<PAGE>
SECTION 2
Application and Basis of the Plan
2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to
each Employee described in Section 2.1 of the Pension Plan and (ii) in
the case of the Supplemental Benefit, to each Employee described in
clause (i) who is an elected officer of the Company and to each other
Employee described in clause (i) who for any calendar year has Earnings
(plus any Incentive Compensation Plan awards deferred) in excess of the
amount of compensation for such year that can be taken into account for
purposes of the Pension Plan pursuant to Section 401(a)(17) of the
Code.
8
<PAGE>
SECTION 3
Payment of Benefits
3.1 The Company shall pay to each Employee to whom this Plan is applicable,
or to the surviving spouse of any such Employee, the Excess Benefit
and/or the Supplemental Benefit determined for such Employee or
surviving spouse under Sections 1.7 and 1.11 hereof.
3.2 (a) The Excess Benefit and/or Supplemental Benefit payable
hereunder to an Employee or the Employee's surviving spouse
shall be paid or commence to be paid:
(i) on the first of the month following the Employee's
retirement, if the Employee retires in accordance with
Section 3.1, 3.2, 3.3 or 3.4 of the Pension Plan,
(ii) on Normal Retirement Date, if the Employee becomes
entitled to benefits in accordance with Section 3.5 of
the Pension Plan, or
(iii) in the case of a Benefit which becomes payable
hereunder to an Employee's surviving spouse on account
of the Employee's death before the Employee has
received any Benefit payment hereunder, on the earliest
date as of which payment of such spouse's Basic Pension
under the applicable provisions of Section 9 of the
Pension Plan could commence, without regard to any
election by such spouse to defer the commencement of
payment of such Basic Pension.
(b) The Excess and/or Supplemental Benefit payable hereunder to
the Employee shall be paid in the form of a single life
annuity, unless the Employee is married on the date on which
payment of such Benefit is to be made or commence under
Section 3.2(a) above, in which event it shall be paid in the
same form as Option 2, as described in Section 10.1 of the
Pension Plan, with the Employee's spouse as the beneficiary
thereunder.
(c) Notwithstanding the preceding provisions of this Section 3.2,
an Employee may elect (i) to delay payment, or commencement of
payment, of his or her Excess and Supplemental Benefits to a
specified date after the date applicable under Section 3.2(a)
but not later than the Employee's Normal Retirement Date, or
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<PAGE>
(ii) in the case of any Employee who becomes
entitled to benefits in accordance with Section 3.5 of the
Pension Plan, to accelerate payment, or commencement of
payment, of his or her Excess and Supplemental Benefits to a
specified date before the date applicable under Section 3.2(a)
but not earlier than the first day of the month immediately
following his or her 55th birthday, and/or (iii) to have
payment of his or her Excess and Supplemental Benefits made
(A) in any form permitted (without regard to any requirements
for spousal consent) under the Pension Plan other than the
form applicable under Section 3.2(b), or (B) in the form of a
single lump sum payment. The amount of the lump sum payment
payable to an Employee, or to his or her surviving spouse,
pursuant to an election by the Employee under clause (iii)(B)
of the preceding sentence shall be determined in the same
manner as the amount of the lump sum payment payable pursuant
to an Employee's election under clause (i) of the first
paragraph of Section 3.2(h) would be determined, as provided
in the third paragraph of Section 3.2(h), except that for
purposes of determining the amount of the lump sum payment so
payable to the Employee, the actuarial equivalence of such
payment to the Excess and/or Supplemental Benefit that
otherwise would be payable hereunder to the Employee shall be
determined as of the date on which such lump sum payment is to
be made to the Employee.
Any election under this Section 3.2(c) shall be effective only
if it is made at least twenty-four (24) months (twelve (12)
months, if the election is made on or before August 31, 1997)
prior to the Employee's retirement or other termination of
employment. Any election made under this Section 3.2(c) may be
revoked, and a new election may be made hereunder, at any
time; provided, however, that any such revocation or new
election shall be effective only if it is made within the
period specified in the preceding sentence. Any election, or
revocation of an election, that may be made under this Section
3.2(c) shall be made in writing, on a form that is furnished
to the Employee for such purpose by the Administrative
Committee and that is signed by the Employee and delivered to
the Administrative Committee.
(d) If payment of Excess and/or Supplemental Benefits commences
earlier or later than payment of Pension Plan benefits, the
amount of the Excess and/or Supplemental
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<PAGE>
Benefits to be paid hereunder shall be determined as though
payment of Pension Plan benefits commenced on the same date as
payment of such Benefits commences, except that no increase in
the dollar limitation of section 415(b)(1)(A) of the Code
occurring after payment of Pension Plan benefits commences
shall be taken into account.
(e) If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form commence on or after the date Pension Plan benefits
commence to be paid, the amount of Excess and/or Supplemental
Benefits to be paid hereunder shall be determined in
accordance with the following additional rules:
(i) determine the Employee's Excess and/or Supplemental
Benefits as though such Benefits were payable in the
same form, and with the same beneficiary, if any, as
Pension Plan benefits, and disregarding any change in
marital status occurring subsequent to the date on
which payment of Pension Plan benefits commence,
(ii) if the Employee's Pension Plan benefits are payable
in accordance with Option 1 or 2, as described in
Section 10.1 of the Pension Plan, divide the amount
determined in (i) by the complement of the reduction
percentage applied to Pension Plan benefits in
accordance with such Section 10.1, to convert such
amount into a benefit payable in the form of a single
life annuity, and
iii) if payment of the Employee's Excess and/or
Supplemental Benefits is to be made in a form
other than as a single life annuity, reduce the
amount determined in (ii) by the reduction
percentage that would be applicable under
Section 10.1 of the Pension Plan to an annuity
payable thereunder to the Employee in the same form
as the form in which payment of the Employee's
Excess and/or Supplemental Benefits is to be
made hereunder and with the same beneficiary.
If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form are to commence before Pension Plan benefits
commence to be paid, the amount of such
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Benefits to be paid hereunder shall be determined as though
Pension Plan benefits were being paid at the same time and in
the same form as Excess and/or Supplemental Benefits, until
such time as Pension Plan benefits commence to be paid, at
which time the amount of Excess and/or Supplemental Benefits
thereafter to be paid hereunder shall be adjusted, in a manner
consistent with the foregoing paragraph, to the extent
necessary to reflect any difference in the form of payment for
the Employee's Pension Plan benefits and the form of payment
for his or her Excess and/or Supplemental Benefits.
(f) In determining the amount of the Excess and/or Supplemental
Benefit payable hereunder to an Employee or the Employee's
surviving spouse, there shall be taken into account any
increase in the amount of the pension benefit that is payable,
pursuant to Section 6 or Section 9 of the Pension Plan, to the
Employee or his or her surviving spouse for the first 12
months during which such pension benefit is payable.
(g) If, pursuant to Section 3.2(b) or (c) above, an Employee's
Excess and/or Supplemental Benefit is otherwise required to
be paid in the same form as Option 1 or Option 2 as
described in Section 10.1 of the Pension Plan, and if the
person designated by the Employee as his or her beneficiary
for purposes of such payment form should die at any time
prior to the fifth anniversary of the date on which the
Employee's Benefits hereunder commence to be paid (the
Employee's Benefit Starting Date"), the Benefit amounts
payable to the Employee hereunder after the date of such
beneficiary's death shall be equal to the Benefit amounts
that would have been payable to the Employee hereunder after
such date if such Benefit amounts had been payable to the
Employee, from his or her Benefit Starting Date, in the form
of a single life annuity.
(h) Notwithstanding any other provision of the Plan to the
contrary or any other optional form of distribution otherwise
elected or provided for hereunder, each Employee shall be
permitted to make either one, or both, of the following
special distribution elections: (i) to have his or her Excess
and/or Supplemental Benefit distributed in the form of a
single lump sum payment in the event of the Employee's
termination of employment for any reason within the two (2)
year period following a Change in Control, or (ii) if a
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Change in Control occurs after the Employee's termination of
employment but before all payments required to be made
hereunder with respect to his or her Excess and/or
Supplemental Benefits have been made, to have the Excess
and/or Supplemental Benefit payments that otherwise would be
made hereunder after the date of such Change in Control paid
in the form of a single lump sum payment.
An election under clause (i) of the preceding paragraph shall
be effective only if it is made either at least twenty-four
(24) months prior to such termination of the Employee's
employment, or if such termination of employment constitutes
an "Involuntary Termination" as defined below, at least one
year prior to such Change in Control. An election under clause
(ii) of the preceding paragraph shall be effective only if it
is made at least one year prior to the Change in Control, and
prior to the Employee's termination of employment. Any special
election made under clause (i) or (ii) of the preceding
paragraph may be revoked, and a new special election may be
made thereunder, at any time; provided, however, that any such
revocation or new election shall be effective only if it is
made within the election period specified in this paragraph.
Any special election, or revocation of a special election,
that may be made hereunder shall be made in the manner set
forth in Section 3.2(c).
The lump sum payment to be made to an Employee pursuant to his
or her election under clause (i) of the second preceding
paragraph shall be in an amount that is Actuarially Equivalent
(as defined in the Pension Plan and determined as of the first
day of the month following the date of the Employee's
termination of employment) to the Excess and/or Supplemental
Benefit that otherwise would be payable hereunder to the
Employee if (x) payment of the Employee's Excess and/or
Supplemental Benefit and the benefits payable to the Employee
under the Pension Plan were to commence on the Employee's
Normal Retirement Date (as defined in the Pension Plan) or, if
earlier, on the earliest date as of which the Employee could
elect to have payment of his or her benefits under the Pension
Plan commence, (y) the Employee's Excess and/or Supplemental
Benefit were payable in the form of a single life annuity, and
(z) the Employee's benefits under the Pension Plan were
payable either (1) in the same form as Option 2 as described
in Section 10.1 of the Pension Plan with the
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Employee's spouse as the beneficiary thereunder, if the
Employee is married on the date of his or her termination of
employment, or (2) in the form of a single life annuity, if
the Employee is not married on such date. The lump sum payment
to be made to the surviving spouse of an Employee pursuant to
the Employee's election under clause (i) of the second
preceding paragraph shall be in an amount that is Actuarially
Equivalent (as defined in the Pension Plan and determined as
of the first day of the month following the date of the
Employee's death) to the Excess and/or Supplemental Benefit
that otherwise would be payable hereunder to such spouse by
reason of the Employee's death. The lump sum payment to be
made with respect to any Employee pursuant to his or her
election under clause (i) of the second preceding paragraph
shall be made by no later than thirty (30) days following the
date of the Employee's termination of employment.
The lump sum payment to be made pursuant to an Employee's
election under clause (ii) of the third preceding paragraph
shall be in an amount that is Actuarially Equivalent (as
defined in the Pension Plan and determined as of the first day
of the month coincident with or next following the date on
which the Change in Control occurs) to the payments that
otherwise would be made hereunder with respect to the
Employee's Excess and/or Supplemental Benefits after the date
of such Change in Control. Such lump sum payment shall be made
by no later than thirty (30) days following the date on which
such Change in Control occurs. If, as of the date on which
such Change in Control occurs, payments with respect to the
Employee's benefits under the Pension Plan, or with respect to
his or her Excess and/or Supplemental Benefit hereunder, have
not yet commenced, the Actuarially Equivalent amount of the
lump sum payment to be made to the Employee pursuant to his or
her election under clause (ii) of the third preceding
paragraph shall be determined using the same assumptions as to
the form and time of commencement of such payments as are
specified in clause (x), (y) or (z) of the preceding
paragraph.
For purposes of this Section 3.2(h), an "Involuntary
Termination" shall mean the termination of an Employee's
employment (A) as a result of the Employee's death, (B) by the
Company, for any reason, or (C) by the Employee, for "Good
Reason" as defined below.
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For purposes of the clause (C) of the preceding paragraph,
"Good Reason" shall mean the occurrence after a Change in
Control of any of the following events or conditions:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgement, represents an adverse change from his or
her status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgement, are
inconsistent with his or her status, title, position
or responsibilities; or any removal of the Employee
from or failure to reappoint or reelect him or her to
any of such offices or positions, other than in
connection with the termination of his or her
employment for disability, for cause, or by the
Employee other than for Good Reason;
(2) any reduction in the rate of the Employee's annual
base salary;
(3) the relocation of the offices of the Company at which
the Employee is principally employed to a location
more than twenty-five (25) miles from the location of
such offices immediately prior to such relocation, or
the Company's requiring the Employee to be based
anywhere other than at such offices, except to the
extent the Employee was not previously assigned to a
principal place of duty and except for required
travel on the Company's business to an extent
substantially consistent with the Employee's previous
business travel obligations;
(4) the failure by the Company to pay to the Employee any
amount of the Employee's current compensation, or any
amount payable under any deferred compensation
program of the Company in which the Employee
participated, within seven (7) days of the date on
which payment of such amount is due; or
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(5) the failure by the Company (A) to continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to such failure by the Company
unless a substitute or replacement plan has been
implemented which provides substantially identical
compensation or benefits to the Employee or (B) to
continue to provide the Employee with compensation and
benefits, in the aggregate, at least equal (in terms
of benefit levels and/or reward opportunities) to
those provided for under all other compensation or
employee benefit plans, programs and practices in
which the Employee was participating immediately prior
to such failure by the Company.
Any event or condition described in clauses (1) through (5)
above which occurs (A) within twelve (12) months prior to a
Change in Control or (B) prior to a Change in Control but
which (x) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in
Control, or (y) otherwise arose in connection with, or in
anticipation of, a Change in Control which has been threatened
or proposed and which actually occurs, shall constitute Good
Reason for purposes of this Section 3.2(h) notwithstanding
that it occurred prior to a Change in Control.
3.3 Each Employee entitled to benefits under the Plan shall have the status
of a mere unsecured creditor of the Company. The Plan shall constitute
a mere promise by the Company to make payments in the future of the
benefits provided for herein. It is intended that the arrangements
reflected in this Plan be treated as unfunded for tax purposes and for
purposes of Title I of ERISA.
3.4 An Employee's rights to benefit payments under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of the Employee or his or her spouse or other beneficiary.
16
<PAGE>
SECTION 4
Administration
4.1 The Plan shall be administered by an Administrative Committee. The
Administrative Committee shall consist of such persons as the Company
from time to time may appoint to serve thereon. Action to appoint or
remove members of the Committee may be taken by the Company either by
resolution duly adopted by its Board of Directors, or by an instrument
in writing executed by an officer of the Company to whom authority to
appoint or remove members of the Committee has been delegated pursuant
to a resolution duly adopted by the Company's Board of Directors.
4.2 The Administrative Committee shall have the power to interpret the
Plan, to decide all questions that may arise as to the construction or
application of any of its provisions, and make all determinations as to
the rights of Employees or other persons to benefits under the Plan.
Any determination made by the Administrative Committee prior to a
Change in Control as to the interpretation, construction or application
of the Plan, or as to the rights of any Employee or other persons to
benefits under the Plan, shall be conclusive and binding on all
parties. Any such determination made by the Administrative Committee
after the occurrence of a Change in Control that denies, in whole or in
part, any claim made by any individual for benefits hereunder shall be
subject to judicial review, under a "de novo", rather than a
deferential, standard.
4.3 Each member of the Administrative Committee shall be indemnified and
held harmless by the Company for any liability or loss (including legal
fees or other expenses of litigation) arising out of or in connection
with his or her services to the Plan in such capacity, to the extent
that such liability or loss (a) is not insured against under any
applicable policy of insurance (whether or not maintained by the
Company) and (b) is not determined to be due to the gross negligence or
willful misconduct of such member or other person.
17
<PAGE>
SECTION 5
Amendment and Termination
5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any
such amendment may be made with retroactive effect to the extent not
prohibited by law.
Action to amend the Plan may be taken by the Company either by
resolution duly adopted by the Company's Board of Directors, or by an
instrument in writing executed by an officer of the Company to whom
authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of
Directors.
5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at
any time by the Board of Directors.
5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no
amendment to or termination of the Plan shall impair any rights to
benefits which have accrued hereunder and (b) no amendment to Section
3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the
Plan, effectuated (i) at the request of a third party who has indicated
an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) within six (6) months prior to,
or otherwise in connection with, or in anticipation of, a Change in
Control which has been threatened or proposed and which actually
occurs, or (iii) following a Change in Control, shall be effective if
the amendment or termination adversely affects the rights of any
Employee under the Plan.
18
EXHIBIT 10-L
METROPOLITAN EDISON COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
As Amended Effective June 5, 1997
<PAGE>
TABLE OF CONTENTS
Page
Foreword 1
Section 1 - Definitions 3
Section 2 - Application and Basis of the Plan 7
Section 3 - Payment of Benefits 8
Section 4 - Administration 15
Section 5 - Amendment and Termination 16
i
<PAGE>
METROPOLITAN EDISON COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
(As amended effective June 5, 1997)
Foreword
Effective as of January l, 1988, Metropolitan Edison Company (referred to in
this document as the "Company") established a supplemental pension plan for the
benefit of certain of its employees. This Metropolitan Edison Company
Supplemental and Excess Benefits Plan (the "Plan") is a continuation of that
plan as adopted effective January 1, 1988.
The Plan, as set forth herein, is applicable to all employees of the Company who
meet the requirements described in this Plan and who are actively employed by
the Company after August 1, 1996. The benefits of any employee who ceased
employment with the Company, by retirement, death, or otherwise, prior to August
1, 1996 are determined in accordance with the terms of the applicable
predecessor to this Plan as in effect at the time of such cessation of
employment, except that the provisions of Section 1.11 are retroactive and apply
to any employee who ceased employment on or after January 1, 1989.
It is intended that the "excess benefits" provided under the Plan be an "excess
benefits plan" as that term is defined in Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and that the
"supplemental benefits" provided under the Plan be a deferred compensation plan
for "a select group of management or highly compensated employees" as that term
is used in ERISA.
One purpose of the Plan is to provide participants of the Metropolitan Edison
Company Employee Pension Plan ("Pension Plan") and their surviving spouses with
the amount of company-provided benefits that would have been provided to them
under the Pension Plan but for the limitation on benefits imposed under Section
415 of the Internal Revenue Code, as amended.
The second purpose of the Plan is to provide elected officers and certain other
highly compensated employees of the Company and their surviving spouses with the
amount of company-provided benefits that would have been provided to them under
the Pension Plan but for the following:
(a) the limitation on Earnings for purposes of the Pension Plan imposed by
Section 401(a)(17) of such Code, as amended, and
(b) the exclusion, from Earnings under the Pension Plan, of any
compensation deferred under the Deferred Compensation Plan.
<PAGE>
Except to the extent otherwise indicated or inappropriate, the Pension Plan is
incorporated by reference.
2
<PAGE>
SECTION 1
Definitions
1.1 Except to the extent otherwise indicated, the definitions contained in
Section l of the Pension Plan are applicable under the Plan.
1.2 Board of Directors: The term Board of Directors shall mean the Board of
Directors of the Company.
1.3 Change in Control: The term Change in Control shall mean the occurrence
during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation")) of any common stock of the Corporation ("Common Stock")
or other voting securities of the Corporation entitled to vote
generally for the election of directors (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change
in Control. A "Non-Control Acquisition" shall mean an acquisition by
(A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) the Corporation or (ii) any corporation or other
Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Corporation (for purposes of this definition, a "Subsidiary"), (B) the
Corporation or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of the board
of directors of the Corporation (the "Incumbent Board"), cease for any
reason to constitute at least seventy percent (70%) of the members of
the board of directors of the Corporation; provided, however, that if
the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
3
<PAGE>
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the board of directors of the
Corporation (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least seventy percent (70%) of the members of the board of directors
of the Surviving Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x)
any Subsidiary, (y) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or
(z) any Person who, immediately prior to such merger, consolidation or
4
<PAGE>
reorganization had Beneficial Ownership of twenty percent (20%) or more
of the then outstanding Voting Securities or common stock of the
Corporation, has Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(B) A complete liquidation or dissolution of the Corporation;
or
(C) The sale or other disposition of all or substantially all
of the assets of the Corporation to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result of the
acquisition of Common Stock or Voting Securities by the Corporation
which, by reducing the number of shares of Common Stock or Voting
Securities then outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of shares of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
1.4 Company: The word Company shall have the meaning indicated in the
Foreword.
1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall
mean the GPU System Companies Deferred Compensation Plan, as adopted by
the Company.
1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as
defined in the Pension Plan.
1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any,
of (i) each pension benefit which would be payable to an Employee or to
the Employee's surviving spouse under the Pension Plan if the
limitations on benefits imposed by Section 18.1 of the Pension Plan
were not applicable over (ii) each pension benefit payable under the
Pension Plan.
5
<PAGE>
1.8 Incentive Compensation Plan: The term Incentive Compensation Plan
shall mean the Company's Employee Incentive Compensation Plan or its
Incentive Compensation Plan for Elected Officers or Annual Performance
Award Plan.
1.9 Pension Plan: The term Pension Plan shall have the meaning indicated
in the Foreword.
1.10 Plan: The term Plan shall have the meaning indicated in the Foreword.
1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the
excess, if any, of (i) each pension benefit that would be payable to an
Employee or to an Employee's surviving spouse under the Pension Plan if
all amounts of base compensation or Incentive Compensation Plan awards
deferred under the Deferred Compensation Plan were included in Earnings
(and if the limitations on benefits imposed by Section 18.1 of the
Pension Plan and on Earnings imposed by Section 401(a)(17) of the
Internal Revenue Code were not applicable) over (ii) the sum of (a)
each pension benefit payable under the Pension Plan and (b) any Excess
Benefit payable under this Plan.
For purposes of clause (i) of this Section 1.11, any amount of base
compensation deferred under the Deferred Compensation Plan shall be
treated as Earnings for the period in which such amount would have been
paid to the Employee in cash if the Employee had not elected to defer
such amount, and the amount of any award made to an Employee under the
Incentive Compensation Plan and deferred under the Deferred
Compensation Plan shall be treated as Earnings for the period
corresponding to the Performance Period for which such award is made to
the Employee. No amount of base compensation so deferred, and no amount
awarded under the Incentive Compensation Plan, shall be treated as
Earnings for any period other than the period determined under the
preceding sentence.
For purposes of clause (i) of this Section 1.11, the amount of any
additional years of Creditable Service determined in accordance with
Section 5.9 of the Pension Plan will be recalculated by replacing the
Employee's annual base salary rate of Earnings as of April 1, 1989 by
(a) for purposes of calculating projected Basic Pensions, the product
of (i) such rate before any reductions on account of the Deferred
Compensation Plan times (ii) 1.0 plus the target award percentage as
described under the Incentive Compensation
6
<PAGE>
Plan and (b) for purposes of calculating the accumulation of
contributions of 2.25% or 2.10% of compensation, such rate before any
reductions on account of the Deferred Compensation Plan.
7
<PAGE>
SECTION 2
Application and Basis of the Plan
2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to
each Employee described in Section 2.1 of the Pension Plan and (ii) in
the case of the Supplemental Benefit, to each Employee described in
clause (i) who is an elected officer of the Company and to each other
Employee described in clause (i) who for any calendar year has Earnings
(plus any Incentive Compensation Plan awards deferred) in excess of the
amount of compensation for such year that can be taken into account for
purposes of the Pension Plan pursuant to Section 401(a)(17) of the
Code.
8
<PAGE>
SECTION 3
Payment of Benefits
3.1 The Company shall pay to each Employee to whom this Plan is applicable,
or to the surviving spouse of any such Employee, the Excess Benefit
and/or the Supplemental Benefit determined for such Employee or
surviving spouse under Sections 1.7 and 1.11 hereof.
3.2 (a) The Excess Benefit and/or Supplemental Benefit payable
hereunder to an Employee or the Employee's surviving spouse
shall be paid or commence to be paid:
(i) on the first of the month following the Employee's
retirement, if the Employee retires in accordance with
Section 3.1, 3.2, 3.3 or 3.4 of the Pension Plan,
(ii) on Normal Retirement Date, if the Employee becomes
entitled to benefits in accordance with Section 3.5 of
the Pension Plan, or
(iii) in the case of a Benefit which becomes payable hereunder
to an Employee's surviving spouse on account of the
Employee's death before the Employee has received any
Benefit payment hereunder, on the earliest date as of
which payment of such spouse's Basic Pension under the
applicable provisions of Section 9 of the Pension Plan
could commence, without regard to any election by such
spouse to defer the commencement of payment of such
Basic Pension.
(b) The Excess and/or Supplemental Benefit payable hereunder to
the Employee shall be paid in the form of a single life
annuity, unless the Employee is married on the date on which
payment of such Benefit is to be made or commence under
Section 3.2(a) above, in which event it shall be paid in the
same form as Option 2, as described in Section 10.1 of the
Pension Plan, with the Employee's spouse as the beneficiary
thereunder.
(c) Notwithstanding the preceding provisions of this Section 3.2,
an Employee may elect (i) to delay payment, or commencement of
payment, of his or her Excess and Supplemental Benefits to a
specified date after the date applicable under Section 3.2(a)
but not later than the Employee's Normal Retirement Date, or
9
<PAGE>
(ii) in the case of any Employee who becomes entitled to
benefits in accordance with Section 3.5 of the Pension Plan,
to accelerate payment, or commencement of payment, of his or
her Excess and Supplemental Benefits to a specified date
before the date applicable under Section 3.2(a) but not
earlier than the first day of the month immediately following
his or her 55th birthday, and/or (iii) to have payment of his
or her Excess and Supplemental Benefits made (A) in any form
permitted (without regard to any requirements for spousal
consent) under the Pension Plan other than the form applicable
under Section 3.2(b), or (B) in the form of a single lump sum
payment. The amount of the lump sum payment payable to an
Employee, or to his or her surviving spouse, pursuant to an
election by the Employee under clause (iii)(B) of the
preceding sentence shall be determined in the same manner as
the amount of the lump sum payment payable pursuant to an
Employee's election under clause (i) of the first paragraph of
Section 3.2(h) would be determined, as provided in the third
paragraph of Section 3.2(h), except that for purposes of
determining the amount of the lump sum payment so payable to
the Employee, the actuarial equivalence of such payment to the
Excess and/or Supplemental Benefit that otherwise would be
payable hereunder to the Employee shall be determined as of
the date on which such lump sum payment is to be made to the
Employee.
Any election under this Section 3.2(c) shall be effective only
if it is made at least twenty-four (24) months (twelve (12)
months, if the election is made on or before August 31, 1997)
prior to the Employee's retirement or other termination of
employment. Any election made under this Section 3.2(c) may be
revoked, and a new election may be made hereunder, at any
time; provided, however, that any such revocation or new
election shall be effective only if it is made within the
period specified in the preceding sentence. Any election, or
revocation of an election, that may be made under this Section
3.2(c) shall be made in writing, on a form that is furnished
to the Employee for such purpose by the Administrative
Committee and that is signed by the Employee and delivered to
the Administrative Committee.
(d) If payment of Excess and/or Supplemental Benefits commences
earlier or later than payment of Pension Plan benefits, the
amount of the Excess and/or Supplemental
10
<PAGE>
Benefits to be paid hereunder shall be determined as though
payment of Pension Plan benefits commenced on the same date as
payment of such Benefits commences, except that no increase in
the dollar limitation of section 415(b)(1)(A) of the Code
occurring after payment of Pension Plan benefits commences
shall be taken into account.
(e) If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form commence on or after the date Pension Plan benefits
commence to be paid, the amount of Excess and/or Supplemental
Benefits to be paid hereunder shall be determined in
accordance with the following additional rules:
(i) determine the Employee's Excess and/or Supplemental
Benefits as though such Benefits were payable in the
same form, and with the same beneficiary, if any, as
Pension Plan benefits, and disregarding any change in
marital status occurring subsequent to the date on
which payment of Pension Plan benefits commence,
(ii) if the Employee's Pension Plan benefits are payable
in accordance with Option 1 or 2, as described in
Section 10.1 of the Pension Plan, divide the amount
determined in (i) by the complement of the reduction
percentage applied to Pension Plan benefits in
accordance with such Section 10.1, to convert such
amount into a benefit payable in the form of a single
life annuity, and
(iii)if payment of the Employee's Excess and/or Supplemental
Benefits is to be made in a form other than as a
single life annuity, reduce the amount determined in
(ii) by the reduction percentage that would be
applicable under Section 10.1 of the Pension Plan to
an annuity payable thereunder to the Employee in the
same form as the form in which payment of the
Employee's Excess and/or Supplemental Benefits is to
be made hereunder and with the same beneficiary.
If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form are to commence before Pension Plan benefits
commence to be paid, the amount of such
11
<PAGE>
Benefits to be paid hereunder shall be determined as though
Pension Plan benefits were being paid at the same time and in
the same form as Excess and/or Supplemental Benefits, until
such time as Pension Plan benefits commence to be paid, at
which time the amount of Excess and/or Supplemental Benefits
thereafter to be paid hereunder shall be adjusted, in a manner
consistent with the foregoing paragraph, to the extent
necessary to reflect any difference in the form of payment for
the Employee's Pension Plan benefits and the form of payment
for his or her Excess and/or Supplemental Benefits.
(f) In determining the amount of the Excess and/or Supplemental
Benefit payable hereunder to an Employee or the Employee's
surviving spouse, there shall be taken into account any
increase in the amount of the pension benefit that is payable,
pursuant to Section 6 or Section 9 of the Pension Plan, to the
Employee or his or her surviving spouse for the first 12
months during which such pension benefit is payable.
(g) If, pursuant to Section 3.2(b) or (c) above, an Employee's
Excess and/or Supplemental Benefit is otherwise required to
be paid in the same form as Option 1 or Option 2 as
described in Section 10.1 of the Pension Plan, and if the
person designated by the Employee as his or her beneficiary
for purposes of such payment form should die at any time
prior to the fifth anniversary of the date on which the
Employee's Benefits hereunder commence to be paid (the
Employee's Benefit Starting Date"), the Benefit amounts
payable to the Employee hereunder after the date of such
beneficiary's death shall be equal to the Benefit amounts
that would have been payable to the Employee hereunder after
such date if such Benefit amounts had been payable to the
Employee, from his or her Benefit Starting Date, in the form
of a single life annuity.
(h) Notwithstanding any other provision of the Plan to the
contrary or any other optional form of distribution otherwise
elected or provided for hereunder, each Employee shall be
permitted to make either one, or both, of the following
special distribution elections: (i) to have his or her Excess
and/or Supplemental Benefit distributed in the form of a
single lump sum payment in the event of the Employee's
termination of employment for any reason within the two (2)
year period following a Change in Control, or (ii) if a
12
<PAGE>
Change in Control occurs after the Employee's termination of
employment but before all payments required to be made
hereunder with respect to his or her Excess and/or
Supplemental Benefits have been made, to have the Excess
and/or Supplemental Benefit payments that otherwise would be
made hereunder after the date of such Change in Control paid
in the form of a single lump sum payment.
An election under clause (i) of the preceding paragraph shall
be effective only if it is made either at least twenty-four
(24) months prior to such termination of the Employee's
employment, or if such termination of employment constitutes
an "Involuntary Termination" as defined below, at least one
year prior to such Change in Control. An election under clause
(ii) of the preceding paragraph shall be effective only if it
is made at least one year prior to the Change in Control, and
prior to the Employee's termination of employment. Any special
election made under clause (i) or (ii) of the preceding
paragraph may be revoked, and a new special election may be
made thereunder, at any time; provided, however, that any such
revocation or new election shall be effective only if it is
made within the election period specified in this paragraph.
Any special election, or revocation of a special election,
that may be made hereunder shall be made in the manner set
forth in Section 3.2(c).
The lump sum payment to be made to an Employee pursuant to his
or her election under clause (i) of the second preceding
paragraph shall be in an amount that is Actuarially Equivalent
(as defined in the Pension Plan and determined as of the first
day of the month following the date of the Employee's
termination of employment) to the Excess and/or Supplemental
Benefit that otherwise would be payable hereunder to the
Employee if (x) payment of the Employee's Excess and/or
Supplemental Benefit and the benefits payable to the Employee
under the Pension Plan were to commence on the Employee's
Normal Retirement Date (as defined in the Pension Plan) or, if
earlier, on the earliest date as of which the Employee could
elect to have payment of his or her benefits under the Pension
Plan commence, (y) the Employee's Excess and/or Supplemental
Benefit were payable in the form of a single life annuity, and
(z) the Employee's benefits under the Pension Plan were
payable either (1) in the same form as Option 2 as described
in Section 10.1 of the Pension Plan with the Employee's spouse
as the beneficiary thereunder, if the
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<PAGE>
Employee is married on the date of his or her termination of
employment, or (2) in the form of a single life annuity, if
the Employee is not married on such date. The lump sum payment
to be made to the surviving spouse of an Employee pursuant to
the Employee's election under clause (i) of the second
preceding paragraph shall be in an amount that is Actuarially
Equivalent (as defined in the Pension Plan and determined as
of the first day of the month following the date of the
Employee's death) to the Excess and/or Supplemental Benefit
that otherwise would be payable hereunder to such spouse by
reason of the Employee's death. The lump sum payment to be
made with respect to any Employee pursuant to his or her
election under clause (i) of the second preceding paragraph
shall be made by no later than thirty (30) days following the
date of the Employee's termination of employment.
The lump sum payment to be made pursuant to an Employee's
election under clause (ii) of the third preceding paragraph
shall be in an amount that is Actuarially Equivalent (as
defined in the Pension Plan and determined as of the first day
of the month coincident with or next following the date on
which the Change in Control occurs) to the payments that
otherwise would be made hereunder with respect to the
Employee's Excess and/or Supplemental Benefits after the date
of such Change in Control. Such lump sum payment shall be made
by no later than thirty (30) days following the date on which
such Change in Control occurs. If, as of the date on which
such Change in Control occurs, payments with respect to the
Employee's benefits under the Pension Plan, or with respect to
his or her Excess and/or Supplemental Benefit hereunder, have
not yet commenced, the Actuarially Equivalent amount of the
lump sum payment to be made to the Employee pursuant to his or
her election under clause (ii) of the third preceding
paragraph shall be determined using the same assumptions as to
the form and time of commencement of such payments as are
specified in clause (x), (y) or (z) of the preceding
paragraph.
For purposes of this Section 3.2(h), an "Involuntary
Termination" shall mean the termination of an Employee's
employment (A) as a result of the Employee's death, (B) by the
Company, for any reason, or (C) by
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<PAGE>
the Employee, for "Good Reason" as defined below. For purposes
of the clause (C) of the preceding paragraph, "Good Reason"
shall mean the occurrence after a Change in Control of any of
the following events or conditions:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgement, represents an adverse change from his or
her status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgement, are
inconsistent with his or her status, title, position
or responsibilities; or any removal of the Employee
from or failure to reappoint or reelect him or her to
any of such offices or positions, other than in
connection with the termination of his or her
employment for disability, for cause, or by the
Employee other than for Good Reason;
(2) any reduction in the rate of the Employee's annual
base salary;
(3) the relocation of the offices of the Company at which
the Employee is principally employed to a location
more than twenty-five (25) miles from the location of
such offices immediately prior to such relocation, or
the Company's requiring the Employee to be based
anywhere other than at such offices, except to the
extent the Employee was not previously assigned to a
principal place of duty and except for required
travel on the Company's business to an extent
substantially consistent with the Employee's previous
business travel obligations;
(4) the failure by the Company to pay to the Employee any
amount of the Employee's current compensation, or any
amount payable under any deferred compensation
program of the Company in which the Employee
participated, within seven (7) days of the date on
which payment of such amount is due; or
15
<PAGE>
(5) the failure by the Company (A) to continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to such failure by the Company
unless a substitute or replacement plan has been
implemented which provides substantially identical
compensation or benefits to the Employee or (B) to
continue to provide the Employee with compensation
and benefits, in the aggregate, at least equal (in
terms of benefit levels and/or reward opportunities)
to those provided for under all other compensation or
employee benefit plans, programs and practices in
which the Employee was participating immediately
prior to such failure by the Company.
Any event or condition described in clauses (1) through (5)
above which occurs (A) within twelve (12) months prior to a
Change in Control or (B) prior to a Change in Control but
which (x) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in
Control, or (y) otherwise arose in connection with, or in
anticipation of, a Change in Control which has been threatened
or proposed and which actually occurs, shall constitute Good
Reason for purposes of this Section 3.2(h) notwithstanding
that it occurred prior to a Change in Control.
3.3 Each Employee entitled to benefits under the Plan shall have the status
of a mere unsecured creditor of the Company. The Plan shall constitute
a mere promise by the Company to make payments in the future of the
benefits provided for herein. It is intended that the arrangements
reflected in this Plan be treated as unfunded for tax purposes and for
purposes of Title I of ERISA.
3.4 An Employee's rights to benefit payments under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of the Employee or his or her spouse or other beneficiary.
16
<PAGE>
SECTION 4
Administration
4.1 The Plan shall be administered by an Administrative Committee. The
Administrative Committee shall consist of such persons as the Company
from time to time may appoint to serve thereon. Action to appoint or
remove members of the Committee may be taken by the Company either by
resolution duly adopted by its Board of Directors, or by an instrument
in writing executed by an officer of the Company to whom authority to
appoint or remove members of the Committee has been delegated pursuant
to a resolution duly adopted by the Company's Board of Directors.
4.2 The Administrative Committee shall have the power to interpret the
Plan, to decide all questions that may arise as to the construction or
application of any of its provisions, and make all determinations as to
the rights of Employees or other persons to benefits under the Plan.
Any determination made by the Administrative Committee prior to a
Change in Control as to the interpretation, construction or application
of the Plan, or as to the rights of any Employee or other persons to
benefits under the Plan, shall be conclusive and binding on all
parties. Any such determination made by the Administrative Committee
after the occurrence of a Change in Control that denies, in whole or in
part, any claim made by any individual for benefits hereunder shall be
subject to judicial review, under a "de novo", rather than a
deferential, standard.
4.3 Each member of the Administrative Committee shall be indemnified and
held harmless by the Company for any liability or loss (including legal
fees or other expenses of litigation) arising out of or in connection
with his or her services to the Plan in such capacity, to the extent
that such liability or loss (a) is not insured against under any
applicable policy of insurance (whether or not maintained by the
Company) and (b) is not determined to be due to the gross negligence or
willful misconduct of such member or other person.
17
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SECTION 5
Amendment and Termination
5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any
such amendment may be made with retroactive effect to the extent not
prohibited by law.
Action to amend the Plan may be taken by the Company either by
resolution duly adopted by the Company's Board of Directors, or by an
instrument in writing executed by an officer of the Company to whom
authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of
Directors.
5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at
any time by the Board of Directors.
5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no
amendment to or termination of the Plan shall impair any rights to
benefits which have accrued hereunder and (b) no amendment to Section
3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the
Plan, effectuated (i) at the request of a third party who has indicated
an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) within six (6) months prior to,
or otherwise in connection with, or in anticipation of, a Change in
Control which has been threatened or proposed and which actually
occurs, or (iii) following a Change in Control, shall be effective if
the amendment or termination adversely affects the rights of any
Employee under the Plan.
18
EXHIBIT 10-M
PENNSYLVANIA ELECTRIC COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
As Amended Effective June 5, 1997
<PAGE>
TABLE OF CONTENTS
Page
Foreword 1
Section 1 - Definitions 3
Section 2 - Application and Basis of the Plan 7
Section 3 - Payment of Benefits 8
Section 4 - Administration 15
Section 5 - Amendment and Termination 16
i
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY
SUPPLEMENTAL AND EXCESS BENEFITS PLAN
(As amended effective June 5, 1997)
Foreword
Effective as of January l, 1988, Pennsylvania Electric Company (referred to in
this document as the "Company") established a supplemental pension plan for the
benefit of certain of its employees. This Pennsylvania Electric Company
Supplemental and Excess Benefits Plan (the "Plan") is a continuation of that
plan as adopted effective January 1, 1988.
The Plan, as set forth herein, is applicable to all employees of the Company who
meet the requirements described in this Plan and who are actively employed by
the Company after August 1, 1996. The benefits of any employee who ceased
employment with the Company, by retirement, death, or otherwise, prior to August
1, 1996 are determined in accordance with the terms of the applicable
predecessor to this Plan as in effect at the time of such cessation of
employment, except that the provisions of Section 1.11 are retroactive and apply
to any employee who ceased employment on or after January 1, 1989.
It is intended that the "excess benefits" provided under the Plan be an "excess
benefits plan" as that term is defined in Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and that the
"supplemental benefits" provided under the Plan be a deferred compensation plan
for "a select group of management or highly compensated employees" as that term
is used in ERISA.
One purpose of the Plan is to provide participants of the Pennsylvania Electric
Company Employee Pension Plan ("Pension Plan") and their surviving spouses with
the amount of company-provided benefits that would have been provided to them
under the Pension Plan but for the limitation on benefits imposed under Section
415 of the Internal Revenue Code, as amended.
The second purpose of the Plan is to provide elected officers and certain other
highly compensated employees of the Company and their surviving spouses with the
amount of company-provided benefits that would have been provided to them under
the Pension Plan but for the following:
(a) the limitation on Earnings for purposes of the Pension Plan imposed by
Section 401(a)(17) of such Code, as amended, and
<PAGE>
(b) the exclusion, from Earnings under the Pension Plan, of any compensation
deferred under the Deferred Compensation Plan.
Except to the extent otherwise indicated or inappropriate, the Pension Plan is
incorporated by reference.
2
<PAGE>
SECTION 1
Definitions
1.1 Except to the extent otherwise indicated, the definitions contained in
Section l of the Pension Plan are applicable under the Plan.
1.2 Board of Directors: The term Board of Directors shall mean the Board of
Directors of the Company.
1.3 Change in Control: The term Change in Control shall mean the occurrence
during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation")) of any common stock of the Corporation ("Common Stock")
or other voting securities of the Corporation entitled to vote
generally for the election of directors (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change
in Control. A "Non-Control Acquisition" shall mean an acquisition by
(A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) the Corporation or (ii) any corporation or other
Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Corporation (for purposes of this definition, a "Subsidiary"), (B) the
Corporation or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of the board
of directors of the Corporation (the "Incumbent Board"), cease for any
reason to constitute at least seventy percent (70%) of the members of
the board of directors of the Corporation; provided, however, that if
the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
3
<PAGE>
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the board of directors of the
Corporation (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Corporation or in
which securities of the Corporation are issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined voting
power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation
or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least seventy percent (70%) of the members of the board of directors
of the Surviving Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation, (x)
any Subsidiary, (y) any employee benefit plan (or any trust forming a
part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or
(z) any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of twenty percent
4
<PAGE>
(20%) or more of the then outstanding Voting Securities or common stock
of the Corporation, has Beneficial Ownership of twenty percent (20%) or
more of the combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock.
(B) A complete liquidation or dissolution of the Corporation; or
(C) The sale or other disposition of all or substantially all of
the assets of the Corporation to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Common Stock or Voting Securities as a result of the
acquisition of Common Stock or Voting Securities by the Corporation
which, by reducing the number of shares of Common Stock or Voting
Securities then outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Persons, provided that if a
Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of shares of Common Stock or Voting
Securities by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of any
additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
1.4 Company: The word Company shall have the meaning indicated in the
Foreword.
1.5 Deferred Compensation Plan: The term Deferred Compensation Plan shall
mean the GPU System Companies Deferred Compensation Plan, as adopted by
the Company.
1.6 Earnings: The term Earnings shall mean an Employee's "Earnings" as
defined in the Pension Plan.
1.7 Excess Benefit: The term Excess Benefit shall mean the excess, if any,
of (i) each pension benefit which would be payable to an Employee or to
the Employee's surviving spouse under the Pension Plan if the
limitations on benefits imposed by Section 18.1 of the Pension Plan
were not applicable over (ii) each pension benefit payable under the
Pension Plan.
5
<PAGE>
1.8 Incentive Compensation Plan: The term Incentive Compensation Plan
shall mean the Company's Employee Incentive Compensation Plan or its
Incentive Compensation Plan for Elected Officers or Annual Performance
Award Plan.
1.9 Pension Plan: The term Pension Plan shall have the meaning indicated
in the Foreword.
1.10 Plan: The term Plan shall have the meaning indicated in the Foreword.
1.11 Supplemental Benefit: The term Supplemental Benefit shall mean the
excess, if any, of (i) each pension benefit that would be payable to an
Employee or to an Employee's surviving spouse under the Pension Plan if
all amounts of base compensation or Incentive Compensation Plan awards
deferred under the Deferred Compensation Plan were included in Earnings
(and if the limitations on benefits imposed by Section 18.1 of the
Pension Plan and on Earnings imposed by Section 401(a)(17) of the
Internal Revenue Code were not applicable) over (ii) the sum of (a)
each pension benefit payable under the Pension Plan and (b) any Excess
Benefit payable under this Plan.
For purposes of clause (i) of this Section 1.11, any amount of base
compensation deferred under the Deferred Compensation Plan shall be
treated as Earnings for the period in which such amount would have been
paid to the Employee in cash if the Employee had not elected to defer
such amount, and the amount of any award made to an Employee under the
Incentive Compensation Plan and deferred under the Deferred
Compensation Plan shall be treated as Earnings for the period
corresponding to the Performance Period for which such award is made to
the Employee. No amount of base compensation so deferred, and no amount
awarded under the Incentive Compensation Plan, shall be treated as
Earnings for any period other than the period determined under the
preceding sentence.
For purposes of clause (i) of this Section 1.11, the amount of any
additional years of Creditable Service determined in accordance with
Section 5.9 of the Pension Plan will be recalculated by replacing the
Employee's annual base salary rate of Earnings as of April 1, 1989 by
(a) for purposes of calculating projected Basic Pensions, the product
of (i) such rate before any reductions on account of the Deferred
Compensation Plan times (ii) 1.0 plus the target award percentage as
described under the Incentive Compensation
6
<PAGE>
Plan and (b) for purposes of calculating the accumulation of
contributions of 2.25% or 2.10% of compensation, such rate before any
reductions on account of the Deferred Compensation Plan.
7
<PAGE>
SECTION 2
Application and Basis of the Plan
2.1 The Plan shall be applicable (i) in the case of the Excess Benefit, to
each Employee described in Section 2.1 of the Pension Plan and (ii) in
the case of the Supplemental Benefit, to each Employee described in
clause (i) who is an elected officer of the Company and to each other
Employee described in clause (i) who for any calendar year has Earnings
(plus any Incentive Compensation Plan awards deferred) in excess of the
amount of compensation for such year that can be taken into account for
purposes of the Pension Plan pursuant to Section 401(a)(17) of the
Code.
8
<PAGE>
SECTION 3
Payment of Benefits
3.1 The Company shall pay to each Employee to whom this Plan is applicable,
or to the surviving spouse of any such Employee, the Excess Benefit
and/or the Supplemental Benefit determined for such Employee or
surviving spouse under Sections 1.7 and 1.11 hereof.
3.2 (a) The Excess Benefit and/or Supplemental Benefit payable
hereunder to an Employee or the Employee's surviving spouse
shall be paid or commence to be paid:
(i) on the first of the month following the Employee's
retirement, if the Employee retires in accordance
with Section 3.1, 3.2, 3.3 or 3.4 of the Pension
Plan,
(ii) on Normal Retirement Date, if the Employee becomes
entitled to benefits in accordance with Section 3.5
of the Pension Plan, or
(iii) in the case of a Benefit which becomes payable
hereunder to an Employee's surviving spouse on
account of the Employee's death before the Employee
has received any Benefit payment hereunder, on the
earliest date as of which payment of such spouse's
Basic Pension under the applicable provisions of
Section 9 of the Pension Plan could commence,
without regard to any election by such spouse to
defer the commencement of payment of such Basic
Pension.
(b) The Excess and/or Supplemental Benefit payable hereunder to
the Employee shall be paid in the form of a single life
annuity, unless the Employee is married on the date on which
payment of such Benefit is to be made or commence under
Section 3.2(a) above, in which event it shall be paid in the
same form as Option 2, as described in Section 10.1 of the
Pension Plan, with the Employee's spouse as the beneficiary
thereunder.
(c) Notwithstanding the preceding provisions of this Section 3.2,
an Employee may elect (i) to delay payment, or commencement of
payment, of his or her Excess and Supplemental Benefits to a
specified date after the date applicable under Section 3.2(a)
but not later than the Employee's Normal Retirement Date, or
9
<PAGE>
(ii) in the case of any Employee who becomes entitled to
benefits in accordance with Section 3.5 of the Pension Plan,
to accelerate payment, or commencement of payment, of his or
her Excess and Supplemental Benefits to a specified date
before the date applicable under Section 3.2(a) but not
earlier than the first day of the month immediately following
his or her 55th birthday, and/or (iii) to have payment of his
or her Excess and Supplemental Benefits made (A) in any form
permitted (without regard to any requirements for spousal
consent) under the Pension Plan other than the form applicable
under Section 3.2(b), or (B) in the form of a single lump sum
payment. The amount of the lump sum payment payable to an
Employee, or to his or her surviving spouse, pursuant to an
election by the Employee under clause (iii)(B) of the
preceding sentence shall be determined in the same manner as
the amount of the lump sum payment payable pursuant to an
Employee's election under clause (i) of the first paragraph of
Section 3.2(h) would be determined, as provided in the third
paragraph of Section 3.2(h), except that for purposes of
determining the amount of the lump sum payment so payable to
the Employee, the actuarial equivalence of such payment to the
Excess and/or Supplemental Benefit that otherwise would be
payable hereunder to the Employee shall be determined as of
the date on which such lump sum payment is to be made to the
Employee.
Any election under this Section 3.2(c) shall be effective only
if it is made at least twenty-four (24) months (twelve (12)
months, if the election is made on or before August 31, 1997)
prior to the Employee's retirement or other termination of
employment. Any election made under this Section 3.2(c) may be
revoked, and a new election may be made hereunder, at any
time; provided, however, that any such revocation or new
election shall be effective only if it is made within the
period specified in the preceding sentence. Any election, or
revocation of an election, that may be made under this Section
3.2(c) shall be made in writing, on a form that is furnished
to the Employee for such purpose by the Administrative
Committee and that is signed by the Employee and delivered to
the Administrative Committee.
(d) If payment of Excess and/or Supplemental Benefits commences
earlier or later than payment of Pension Plan benefits, the
amount of the Excess and/or Supplemental
10
<PAGE>
Benefits to be paid hereunder shall be determined as though
payment of Pension Plan benefits commenced on the same date as
payment of such Benefits commences, except that no increase in
the dollar limitation of section 415(b)(1)(A) of the Code
occurring after payment of Pension Plan benefits commences
shall be taken into account.
(e) If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form commence on or after the date Pension Plan benefits
commence to be paid, the amount of Excess and/or Supplemental
Benefits to be paid hereunder shall be determined in
accordance with the following additional rules:
(i) determine the Employee's Excess and/or Supplemental
Benefits as though such Benefits were payable in the
same form, and with the same beneficiary, if any, as
Pension Plan benefits, and disregarding any change in
marital status occurring subsequent to the date on
which payment of Pension Plan benefits commence,
(ii) if the Employee's Pension Plan benefits are payable
in accordance with Option 1 or 2, as described in
Section 10.1 of the Pension Plan, divide the amount
determined in (i) by the complement of the reduction
percentage applied to Pension Plan benefits in
accordance with such Section 10.1, to convert such
amount into a benefit payable in the form of a single
life annuity, and
(iii) if payment of the Employee's Excess and/or Supplemental
Benefits is to be made in a form other than as a single
life annuity, reduce the amount determined in (ii) by
the reduction percentage that would be applicable under
Section 10.1 of the Pension Plan to an annuity payable
thereunder to the Employee in the same form as the form
in which payment of the Employee's Excess and/or
Supplemental Benefits is to be made hereunder and with
the same beneficiary.
If Excess and/or Supplemental Benefits are payable in any form
other than as a single lump sum payment and if payments under
such form are to commence before Pension Plan benefits
commence to be paid, the amount of such
11
<PAGE>
Benefits to be paid hereunder shall be determined as though
Pension Plan benefits were being paid at the same time and in
the same form as Excess and/or Supplemental Benefits, until
such time as Pension Plan benefits commence to be paid, at
which time the amount of Excess and/or Supplemental Benefits
thereafter to be paid hereunder shall be adjusted, in a manner
consistent with the foregoing paragraph, to the extent
necessary to reflect any difference in the form of payment for
the Employee's Pension Plan benefits and the form of payment
for his or her Excess and/or Supplemental Benefits.
(f) In determining the amount of the Excess and/or Supplemental
Benefit payable hereunder to an Employee or the Employee's
surviving spouse, there shall be taken into account any
increase in the amount of the pension benefit that is payable,
pursuant to Section 6 or Section 9 of the Pension Plan, to the
Employee or his or her surviving spouse for the first 12
months during which such pension benefit is payable.
(g) If, pursuant to Section 3.2(b) or (c) above, an Employee's
Excess and/or Supplemental Benefit is otherwise required to
be paid in the same form as Option 1 or Option 2 as
described in Section 10.1 of the Pension Plan, and if the
person designated by the Employee as his or her beneficiary
for purposes of such payment form should die at any time
prior to the fifth anniversary of the date on which the
Employee's Benefits hereunder commence to be paid (the
Employee's Benefit Starting Date"), the Benefit amounts
payable to the Employee hereunder after the date of such
beneficiary's death shall be equal to the Benefit amounts
that would have been payable to the Employee hereunder after
such date if such Benefit amounts had been payable to the
Employee, from his or her Benefit Starting Date, in the form
of a single life annuity.
(h) Notwithstanding any other provision of the Plan to the
contrary or any other optional form of distribution otherwise
elected or provided for hereunder, each Employee shall be
permitted to make either one, or both, of the following
special distribution elections: (i) to have his or her Excess
and/or Supplemental Benefit distributed in the form of a
single lump sum payment in the event of the Employee's
termination of employment for any reason within the two (2)
year period following a Change in Control, or (ii) if a
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<PAGE>
Change in Control occurs after the Employee's termination of
employment but before all payments required to be made
hereunder with respect to his or her Excess and/or
Supplemental Benefits have been made, to have the Excess
and/or Supplemental Benefit payments that otherwise would be
made hereunder after the date of such Change in Control paid
in the form of a single lump sum payment.
An election under clause (i) of the preceding paragraph shall
be effective only if it is made either at least twenty-four
(24) months prior to such termination of the Employee's
employment, or if such termination of employment constitutes
an "Involuntary Termination" as defined below, at least one
year prior to such Change in Control. An election under clause
(ii) of the preceding paragraph shall be effective only if it
is made at least one year prior to the Change in Control, and
prior to the Employee's termination of employment. Any special
election made under clause (i) or (ii) of the preceding
paragraph may be revoked, and a new special election may be
made thereunder, at any time; provided, however, that any such
revocation or new election shall be effective only if it is
made within the election period specified in this paragraph.
Any special election, or revocation of a special election,
that may be made hereunder shall be made in the manner set
forth in Section 3.2(c).
The lump sum payment to be made to an Employee pursuant to his
or her election under clause (i) of the second preceding
paragraph shall be in an amount that is Actuarially Equivalent
(as defined in the Pension Plan and determined as of the first
day of the month following the date of the Employee's
termination of employment) to the Excess and/or Supplemental
Benefit that otherwise would be payable hereunder to the
Employee if (x) payment of the Employee's Excess and/or
Supplemental Benefit and the benefits payable to the Employee
under the Pension Plan were to commence on the Employee's
Normal Retirement Date (as defined in the Pension Plan) or, if
earlier, on the earliest date as of which the Employee could
elect to have payment of his or her benefits under the Pension
Plan commence, (y) the Employee's Excess and/or Supplemental
Benefit were payable in the form of a single life annuity, and
(z) the Employee's benefits under the Pension Plan were
payable either (1) in the same form as Option 2 as described
in Section 10.1 of the Pension Plan with the
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<PAGE>
Employee's spouse as the beneficiary thereunder, if the
Employee is married on the date of his or her termination of
employment, or (2) in the form of a single life annuity, if
the Employee is not married on such date. The lump sum payment
to be made to the surviving spouse of an Employee pursuant to
the Employee's election under clause (i) of the second
preceding paragraph shall be in an amount that is Actuarially
Equivalent (as defined in the Pension Plan and determined as
of the first day of the month following the date of the
Employee's death) to the Excess and/or Supplemental Benefit
that otherwise would be payable hereunder to such spouse by
reason of the Employee's death. The lump sum payment to be
made with respect to any Employee pursuant to his or her
election under clause (i) of the second preceding paragraph
shall be made by no later than thirty (30) days following the
date of the Employee's termination of employment.
The lump sum payment to be made pursuant to an Employee's
election under clause (ii) of the third preceding paragraph
shall be in an amount that is Actuarially Equivalent (as
defined in the Pension Plan and determined as of the first day
of the month coincident with or next following the date on
which the Change in Control occurs) to the payments that
otherwise would be made hereunder with respect to the
Employee's Excess and/or Supplemental Benefits after the date
of such Change in Control. Such lump sum payment shall be made
by no later than thirty (30) days following the date on which
such Change in Control occurs. If, as of the date on which
such Change in Control occurs, payments with respect to the
Employee's benefits under the Pension Plan, or with respect to
his or her Excess and/or Supplemental Benefit hereunder, have
not yet commenced, the Actuarially Equivalent amount of the
lump sum payment to be made to the Employee pursuant to his or
her election under clause (ii) of the third preceding
paragraph shall be determined using the same assumptions as to
the form and time of commencement of such payments as are
specified in clause (x), (y) or (z) of the preceding
paragraph.
For purposes of this Section 3.2(h), an "Involuntary
Termination" shall mean the termination of an Employee's
employment (A) as a result of the Employee's
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<PAGE>
death, (B) by the Company, for any reason, or (C) by the
Employee, for "Good Reason" as defined below. For purposes of
the clause (C) of the preceding paragraph, "Good Reason" shall
mean the occurrence after a Change in Control of any of the
following events or conditions:
(1) a change in the Employee's status, title, position or
responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgement, represents an adverse change from his or
her status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to
the Employee of any duties or responsibilities which,
in the Employee's reasonable judgement, are
inconsistent with his or her status, title, position
or responsibilities; or any removal of the Employee
from or failure to reappoint or reelect him or her to
any of such offices or positions, other than in
connection with the termination of his or her
employment for disability, for cause, or by the
Employee other than for Good Reason;
(2) any reduction in the rate of the Employee's annual
base salary;
(3) the relocation of the offices of the Company at which
the Employee is principally employed to a location
more than twenty-five (25) miles from the location of
such offices immediately prior to such relocation, or
the Company's requiring the Employee to be based
anywhere other than at such offices, except to the
extent the Employee was not previously assigned to a
principal place of duty and except for required
travel on the Company's business to an extent
substantially consistent with the Employee's previous
business travel obligations;
(4) the failure by the Company to pay to the Employee any
amount of the Employee's current compensation, or any
amount payable under any deferred compensation
program of the Company in which the Employee
participated, within seven (7) days of the date on
which payment of such amount is due; or
15
<PAGE>
(5) the failure by the Company (A) to continue in effect
(without reduction in benefit level, and/or reward
opportunities) any material compensation or employee
benefit plan in which the Employee was participating
immediately prior to such failure by the Company
unless a substitute or replacement plan has been
implemented which provides substantially identical
compensation or benefits to the Employee or (B) to
continue to provide the Employee with compensation
and benefits, in the aggregate, at least equal (in
terms of benefit levels and/or reward opportunities)
to those provided for under all other compensation or
employee benefit plans, programs and practices in
which the Employee was participating immediately
prior to such failure by the Company.
Any event or condition described in clauses (1) through (5)
above which occurs (A) within twelve (12) months prior to a
Change in Control or (B) prior to a Change in Control but
which (x) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in
Control, or (y) otherwise arose in connection with, or in
anticipation of, a Change in Control which has been threatened
or proposed and which actually occurs, shall constitute Good
Reason for purposes of this Section 3.2(h) notwithstanding
that it occurred prior to a Change in Control.
3.3 Each Employee entitled to benefits under the Plan shall have the status
of a mere unsecured creditor of the Company. The Plan shall constitute
a mere promise by the Company to make payments in the future of the
benefits provided for herein. It is intended that the arrangements
reflected in this Plan be treated as unfunded for tax purposes and for
purposes of Title I of ERISA.
3.4 An Employee's rights to benefit payments under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of the Employee or his or her spouse or other beneficiary.
16
<PAGE>
SECTION 4
Administration
4.1 The Plan shall be administered by an Administrative Committee. The
Administrative Committee shall consist of such persons as the Company
from time to time may appoint to serve thereon. Action to appoint or
remove members of the Committee may be taken by the Company either by
resolution duly adopted by its Board of Directors, or by an instrument
in writing executed by an officer of the Company to whom authority to
appoint or remove members of the Committee has been delegated pursuant
to a resolution duly adopted by the Company's Board of Directors.
4.2 The Administrative Committee shall have the power to interpret the
Plan, to decide all questions that may arise as to the construction or
application of any of its provisions, and make all determinations as to
the rights of Employees or other persons to benefits under the Plan.
Any determination made by the Administrative Committee prior to a
Change in Control as to the interpretation, construction or application
of the Plan, or as to the rights of any Employee or other persons to
benefits under the Plan, shall be conclusive and binding on all
parties. Any such determination made by the Administrative Committee
after the occurrence of a Change in Control that denies, in whole or in
part, any claim made by any individual for benefits hereunder shall be
subject to judicial review, under a "de novo", rather than a
deferential, standard.
4.3 Each member of the Administrative Committee shall be indemnified and
held harmless by the Company for any liability or loss (including legal
fees or other expenses of litigation) arising out of or in connection
with his or her services to the Plan in such capacity, to the extent
that such liability or loss (a) is not insured against under any
applicable policy of insurance (whether or not maintained by the
Company) and (b) is not determined to be due to the gross negligence or
willful misconduct of such member or other person.
17
<PAGE>
SECTION 5
Amendment and Termination
5.1 Subject to Section 5.3, the Company may amend the Plan at any time. Any
such amendment may be made with retroactive effect to the extent not
prohibited by law.
Action to amend the Plan may be taken by the Company either by
resolution duly adopted by the Company's Board of Directors, or by an
instrument in writing executed by an officer of the Company to whom
authority to adopt or approve amendments to the Plan has been delegated
pursuant to a resolution duly adopted by the Company's Board of
Directors.
5.2 Subject to the provisions of Section 5.3, the Plan may be terminated at
any time by the Board of Directors.
5.3 Notwithstanding the provisions of Sections 5.1 and 5.2, (a) no
amendment to or termination of the Plan shall impair any rights to
benefits which have accrued hereunder and (b) no amendment to Section
3.2(h), Section 4.2 or to this Section 5.3, nor any termination of the
Plan, effectuated (i) at the request of a third party who has indicated
an intention or taken steps to effect a Change in Control and who
effectuates a Change in Control, (ii) within six (6) months prior to,
or otherwise in connection with, or in anticipation of, a Change in
Control which has been threatened or proposed and which actually
occurs, or (iii) following a Change in Control, shall be effective if
the amendment or termination adversely affects the rights of any
Employee under the Plan.
18
EXHIBIT 10-N
February 6, 1997
Mr. James R. Leva
2 Ryan Court
Chester, New Jersey 07930
Dear Jim:
The purpose of this letter is to amend and restate the letter agreement
dated November 1, 1996 between you and GPU, Inc. ("GPU") (the "Prior
Agreement"). That letter amended and restated a letter agreement dated November
22, 1995 between you and GPU, Inc. which set forth the terms and conditions of
the supplemental pension that GPU has agreed to provide to you upon your
retirement. Upon your agreement to this amendment and restatement as provided on
the last page of this letter agreement (the "Agreement"), the Prior Agreement
shall be superseded and replaced in its entirety by the terms and conditions set
forth below.
1. Upon your retirement on any date subsequent to the date of this
letter (the date as of which you so retire is referred to herein as your
"Retirement Date") you shall be entitled to receive from GPU a supplemental
pension (your "Supplemental Pension"), which shall be in addition to the pension
amounts payable to you under the GPU Service Corporation Employee Pension Plan
(the "EPP"), the GPU Service Corporation Supplemental and Excess Benefits Plan
(the "SEBP"), and the amended and restated letter agreement (the "JCP&L Letter
Agreement") between you and Jersey Central Power & Light Company dated August 1,
1996 (together, the "Retirement Plans").
2. The Supplemental Pension payable to you hereunder, when expressed as
a single life annuity, shall be an annual amount of income equal to (a) 65% of
your Final Average Compensation (as defined in Section 3 hereof), reduced by (b)
the aggregate annual pension amount payable to you under the Retirement Plans,
determined for this purpose without taking into account the 20% increase in the
pension amounts payable to you under the EPP and the SEBP during the first 12
months following your Retirement Date. If any pension amount included in the
aggregate pension amount referred to in clause (b) of the preceding sentence is
not payable in the form of a single life annuity commencing on the first day of
the month following your Retirement Date, it shall be converted into a pension
amount that would be of equivalent actuarial value to such pension amount if it
were so payable.
<PAGE>
Mr. James R. Leva
February 6, 1997
Page 2
3. For purposes of Section 2 hereof, your "Final Average Compensation"
shall mean the quotient resulting from dividing by three the sum of (a) the
aggregate amount of base salary payable to you during the 36-month period ending
on your Retirement Date and (b) the aggregate amount of the awards made to you
under the Incentive Compensation Plan for Elected Officers of GPU Service, Inc.
(the "ICP") that are attributable to such 36-month period.
The amounts referred to in clauses (a) and (b) of the
preceding paragraph shall be determined without taking into account any deferral
election made by you under the GPU, Inc. and Subsidiary System Companies
Employee Savings Plan for Non-bargaining Employees or under the GPU System
Companies Deferred Compensation Plan, and without taking into account any salary
reduction election made by you under the GPU Service, Inc. Flexible Benefit
Plan.
For purposes of clause (b) of the first paragraph of this
section 3, the portion of an award made to you under the ICP for any year that
is attributable to each of the calendar months within such year shall be
determined by dividing the total amount of such award by twelve (12) or, in the
case of the year in which you retire, the number of months in the portion of
such year ending on your Retirement Date.
4. The Supplemental Pension shall be paid to you in the form of a
single life annuity unless you are married on your Retirement Date, in which
case it shall be paid in the form described as Option 2 in Section 10.1 of the
EPP, with your spouse as beneficiary.
5. If you should die before you start to receive your Supplemental
Pension, your surviving spouse, if any, shall be entitled to receive from GPU an
annuity (the "Survivor's Annuity") payable to her for her lifetime in an annual
amount equal to 50% of the Supplemental Pension that would have been payable to
you hereunder if you had not died, if you had retired on the last day of the
month in which your death occurs, and if you had not been married on such last
day.
6. Although expressed as annual amounts, the Supplemental Pension and
the Survivor's Annuity shall be paid in equal monthly installments. Payment of
your Supplemental Pension shall commence on the first day of the month following
your Retirement Date and shall end with the installment payable for the month in
which your death occurs or, if the Supplemental Pension is payable in the form
described as Option 2 in Section 10.1 of the
<PAGE>
Mr. James R. Leva
February 6, 1997
Page 2
EPP, the month in which your death or your spouse's death occurs, whichever is
the later. Payment of the Survivor's Annuity shall commence on the first day of
the month following the date of your death and shall end with the installment
payable for the month in which your surviving spouse's death occurs.
7. With each monthly installment of the Supplemental Pension payable to
you during the first 12 months following your Retirement Date, you shall be
entitled to receive an additional amount equal to 20% of the sum of (a) the
amount of such monthly installment, and (b) the supplemental pension amount
payable to you for such month under the JCP&L Letter Agreement. Such additional
amount shall not be taken into account in determining the amount of the
Survivor's Annuity payable pursuant to Section 5 hereof.
8. Notwithstanding any other provision of this Agreement or the
Retirement Plans to the contrary, or any other form of distribution provided for
or optional form of distribution otherwise elected under this Agreement or the
Retirement Plans, you shall be permitted to make a special distribution election
to have the Supplemental Pension payable to you hereunder, or the Survivors
Annuity payable hereunder to your surviving spouse, distributed in the form of a
single lump sum payment in the event of your termination of employment within
the GPU System (a) by any GPU System Company (1) within twelve (12) months prior
to a Change in Control (as defined in Appendix A hereto) or (2) prior to a
Change in Control but which you reasonably demonstrate (A) was at the request of
a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in Control
or (B) otherwise arose in connection with, or in anticipation of, a Change in
Control which has been threatened or proposed and which actually occurs, or (b)
for any reason within the two (2) year period following the occurrence of a
Change in Control; provided, however, that such election shall be effective only
if it is made either (y) at least twenty-four (24) months prior to such
termination of your employment, or (z) if such termination of your employment is
the result of an "Involuntary Termination" (as defined in Appendix A hereto) at
least one year prior to such Change in Control. Any special election made
hereunder may be revoked, and a new special election may be made, at any time;
provided, however, that any such revocation or new election shall be effective
only if it is made within the election period specified in clause (y) or (z) of
the preceding sentence.
<PAGE>
Mr. James R. Leva
February 6, 1997
Page 3
Any special election, or revocation of a special election, that may be made
hereunder shall be made in writing, on a form furnished to you for such purpose
by the Administrative Committee of the EPP. The lump sum payment to be made to
you hereunder shall be in an amount that is "Actuarially Equivalent" (as defined
below) to the Supplemental Pension that otherwise would be payable to you
hereunder if payment of your Supplemental Pension and the pension payable to you
under the Retirement Plans (i) were to commence on your Retirement Date, and
(ii) were to be made in the form of a single life annuity. The lump sum payment
to be made hereunder to your surviving spouse shall be in an amount that is
Actuarially Equivalent (as defined below) to the Survivor's Annuity that
otherwise would be payable to such spouse pursuant to Section 4 hereof.
The lump sum payment to be made hereunder to you or your
surviving spouse shall be made by no later than 30 days following the date of
your termination of employment or, if your employment terminates prior to the
Change in Control, thirty (30) days after the date on which the Change in
Control occurs; provided, however, that if any payment with respect to your
Supplemental Pension would have been made on any date prior to the Change in
Control pursuant to Sections 6 and 7 of this Agreement if you had not made a
special election under this Section 8, such payment shall be made on such prior
date notwithstanding your special election hereunder and, in such case, the
payment otherwise required to be made pursuant to your special election
hereunder shall be reduced by the actuarial value of all such prior payments.
For purposes of this Section 8, "Actuarially Equivalent" shall
mean, with respect to any distribution or payment, an actuarially equivalent
amount, calculated by using the annual interest rate on 30-year Treasury
securities for the second month preceding the calendar year in which such
distribution is made or commences, and the mortality table prescribed for
purposes of section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as
amended (the "Code"). Such annual interest rate and mortality table shall be as
specified or prescribed by the Commissioner of the Internal Revenue Service for
purposes of Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or
other guidance.
9. You and your surviving spouse shall have the status of a general
unsecured creditor of GPU with respect to your, and her, right to receive any
payment under this Agreement. This Agreement shall constitute a mere promise by
GPU to make payments
<PAGE>
Mr. James R. Leva
February 6, 1997
Page 4
in the future of the benefits provided for herein. It is intended that the
arrangements reflected in this Agreement be treated as unfunded for tax
purposes, as well as for purposes of Title I of ERISA.
10. Your rights and your surviving spouse's rights to payments under
this Agreement shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by
your creditors or the creditors of your spouse or any other beneficiary.
If the foregoing correctly reflects your understanding of the agreement
between you and GPU relating to your Supplemental Pension, will you please so
indicate on the enclosed duplicate copy of this letter which will then
constitute a binding agreement between GPU and you.
GPU, INC.
By: _______________________________________
Ira H. Jolles
Senior Vice President and General Counsel
<PAGE>
Mr. James R. Leva
February 6, 1997
Page 5
The foregoing correctly reflects my understanding and is agreed to by me as of
the date of this letter.
- -----------------------------
James R. Leva
<PAGE>
APPENDIX A
"Change in Control" shall mean:
(1) An acquisition (other than directly from GPU) of any
common stock of GPU ("Common Stock") or other voting securities of GPU entitled
to vote generally for the election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of the then outstanding shares of common stock or the combined
voting power of GPU's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or
other Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by GPU (for
purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or
(C) any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board of Directors of GPU (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board of
Directors of GPU (the "Board"); provided, however, that if the election, or
nomination for election by GPU's shareholders, of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
<PAGE>
(3) The consummation of:
(A) A merger, consolidation or reorganization with or
into GPU or in which securities of GPU are issued, unless such
merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into GPU or in which
securities of GPU are issued where:
(i) the shareholders of GPU, immediately
before such merger, consolidation or reorganization,
own directly or indirectly immediately following such
merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of
the outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
seventy percent (70%) of the members of the board of
directors of the Surviving Corporation, or a
corporation, directly or indirectly, beneficially
owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) GPU, (x) any
Subsidiary, (y) any employee benefit plan (or any
trust forming a part thereof) that, immediately prior
to such merger, consolidation or reorganization, was
maintained by GPU or any Subsidiary, or (z) any
Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then
outstanding Voting Securities or common stock of GPU,
has
A-2
<PAGE>
Beneficial Ownership of twenty percent (20%) or more
of the combined voting power of the Surviving
Corporation's then outstanding voting securities or
its common stock.
(B) A complete liquidation or dissolution of GPU; or
(C) The sale or other disposition of all or
substantially all of the assets of GPU to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by GPU which, by reducing the number of shares of Common Stock or
Voting Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by GPU, and after
such share acquisition by GPU, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
"Involuntary Termination" shall mean the termination of your employment
within the GPU System (A) as a result of your death, (B) by GPU or GPU Service,
Inc., for any reason, or (C) by you, for "Good Reason."
"Good Reason" shall mean the occurrence after a Change in Control of
any of the following events or conditions:
(1) a change in your status, title, position or
responsibilities (including reporting responsibilities) which, in your
reasonable judgment, represents an adverse change from your status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to you of any duties or responsibilities which, in your reasonable
judgment, are inconsistent with your status, title, position or
responsibilities; or any removal of you from or failure to reappoint or reelect
you to any of such offices or positions,
A-3
<PAGE>
except in connection with the termination of your employment for disability,
cause, as a result of your death or by you other than for Good Reason;
(2) a reduction in your annual base salary;
(3) any change in location of your place of employment to a
location other than Parsippany, New Jersey without your consent,
(4) the failure by GPU to pay to you any portion of your
current compensation or to pay to you any portion of an installment of deferred
compensation under any deferred compensation program of GPU in which you
participated, within seven (7) days of the date such compensation is due;
(5) the failure by GPU to (A) continue in effect (without
reduction in benefit level, and/or reward opportunities) any material
compensation or employee benefit plan in which you were participating
immediately prior to the Change in Control, unless a substitute or replacement
plan has been implemented which provides substantially identical compensation or
benefits to you or (B) provide you with compensation and benefits, in the
aggregate, at least equal (in terms of benefit levels and/or reward
opportunities) to those provided for under each other compensation or employee
benefit plan, program and practice in which you were participating immediately
prior to the Change in Control;
(6) the failure of GPU to obtain a satisfactory agreement from
any successors or assigns to assume and agree to honor and perform GPU's
obligations under this Agreement; or
Any event or condition described in clauses (1) through (6) which
occurs (1) within twelve (12) months prior to a Change in Control or (2) prior
to a Change in Control but which you reasonably demonstrate (A) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates a Change
in Control or (B) otherwise arose in connection with, or in anticipation of a
Change in Control which has been threatened or proposed, shall constitute Good
Reason for purposes of this Agreement notwithstanding that it occurred prior to
a Change in Control.
A-4
EXHIBIT 10-O
August 7, 1997
Mr. Ira H. Jolles
610 West End Avenue
New York, New York 10024
Dear Ira:
The purpose of this letter is to amend and restate the letter agreement
dated February 6, 1997 between you, GPU, Inc. (GPU) and GPU Service, Inc.
(GPUS). That letter (the "Prior Agreement") amended and restated a letter
agreement dated November 1, 1996 between you, GPU and GPUS that in turn amended
and restated a letter agreement dated September 18, 1995 between you, GPU and
GPUS that in turn amended and restated a letter agreement dated September 8,
1994 between you, GPU and GPUS that in turn amended and restated a letter
agreement dated March 24, 1992 between you, GPU and GPUS that in turn amended
and restated a letter agreement dated December 13, 1989 between you, GPU and
GPUS that set forth the terms of your employment, effective January 1, 1990, as
Senior Vice President and General Counsel of GPU and as Executive Vice President
and General Counsel of GPUS, as well as the agreement between you, GPU and GPUS
with respect to your pension arrangements.
Upon your agreement to this amendment and restatement as provided on the
last page hereof, this letter agreement (the "Agreement") shall supersede and
replace, in its entirety, the Prior Agreement.
Section 1. Election to Other GPU Offices and Source of Your Compensation.
You will be a director of GPUS.
Your compensation and other benefits from GPU and its subsidiaries (the
"GPU Companies") will be paid to you by GPUS. You will not receive separate or
additional compensation for serving as a director or officer of GPU or any GPU
Company other than GPUS. Payment of your compensation and the other benefits
payable to you pursuant to this Agreement shall be obligations of both GPU and
GPUS. Your other unfunded employee benefits payable
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 2
by GPUS will be guaranteed by GPU to the extent covered under the latter's
guarantee of unfunded benefits for all GPUS officers.
Section 2. Base Salary.
Your Base Salary will be determined from time to time by the GPU Board
of Directors. As of the date of this amendment and restatement, your Base Salary
is $331,000.00.
Section 3. Retirement Provisions.
(a) You will be a participant in the GPUS Employee Pension Plan and the
GPUS Supplemental and Excess Benefits Plan (the "Retirement Plans") and, by
reason of the services rendered by you in accordance with this Agreement, you
will accrue benefits, commencing as of January 1, 1990, in accordance with the
terms of such Retirement Plans, as the Retirement Plans may be in effect from
time to time.
(b) Under the terms of the present Retirement Plans, your Normal
Retirement Date under those plans is the last day of the month in which you
reach your sixty-fifth birthday (December 12, 2003). It is anticipated that you
will retire on your Normal Retirement Date. If you do retire on or after that
date, you will receive an additional retirement pension from the GPU Companies
equal to the additional pension which would have been paid under the Retirement
Plans if, in addition to your actual years of creditable service, you had an
additional 20 years of past creditable service. Payment of the additional
retirement pension will commence on the first day of the month following the
month in which you so retire.
(c) GPUS has in effect Short-Term and Long-Term Disability Income Plans
that provide coverage, up to your Normal Retirement Date, for employees meeting
the requirements of such Plans. If you are receiving Disability Income under
either such Plan at the time you reach your Normal Retirement Date, you will
thereafter receive an additional retirement pension from the GPU Companies equal
to the additional pension which would have been paid under the Retirement Plans
if, in addition to your actual years of creditable service, you had an
additional 20 years of past creditable service.
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 3
(d) If your employment with the GPU Companies shall be terminated (i)
as a result of an "Involuntary Termination" (as defined below) at any time
within two (2)years following the occurrence of a "Change in Control" (as
defined in Appendix A hereto), or (ii) by any GPU Company without "Cause" (as
defined in Appendix A hereto), then you will receive from the GPU Companies an
additional retirement pension, equal to the additional pension which would have
been paid under the Retirement Plans if, in addition to your actual years of
creditable service, you had an additional twenty (20) years of past creditable
service. Payment of the additional retirement pension will commence on the first
day of the month following the month in which your employment is so terminated.
For purposes of clause (i) above, "Involuntary Termination" shall mean
(A) the termination of your employment with the GPU Companies by any GPU
Company, or (B) a termination by you (x) for "Good Reason" (as defined in
Appendix A hereto) or (y) as the result of any other material adverse change in
the conditions of your employment with the GPU Companies. If the termination of
your employment by any GPU Company is (1) within twelve (12) months prior to a
Change in Control or (2) prior to the date of a Change in Control but you
reasonably demonstrate that the termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in Control or (B)
otherwise arose in connection with, or in anticipation of, a Change in Control
which has been threatened or proposed and which actually occurs, such
termination shall be deemed to have occurred after a Change in Control.
(e) If your employment with the GPU Companies shall terminate for any
reason, other than by death or retirement or termination in accordance with
paragraphs (b), (c) or (d) above, you will receive from the GPU Companies an
additional retirement pension equal to the additional pension which would have
been paid under the Retirement Plans if, in addition to your actual years of
creditable service, you had an additional number of years of past creditable
service determined in accordance with the following table (employing
straight-line interpolation for fractional years of actual employment with the
GPU Companies):
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 4
Years of Actual Additional Number of Years
GPU Employment of Past Creditable Service
-------------- --------------------------
1 2.0
2 3.5
3 5.0
4 6.0
5 7.0
6 8.0
7 8.5
8 9.0
9 9.5
10 10.0
11 12.5
12 15.0
13 17.5
14 20.0
Payment of the additional retirement pension payable to you under this
paragraph (e) shall commence on the first day of the month following the month
in which your employment so terminates.
(f) For purposes of determining the amount of the additional retirement
pension payable to you under paragraphs (b), (c), (d) or (e) above, it shall be
assumed that the pension payable to you under the Retirement Plans is payable in
the form of a single life annuity, and that payment of such pension will
commence on the same date as payment of your additional retirement pension
hereunder will commence.
The additional retirement pension payable to you hereunder shall be
paid to you in the form of a single life annuity unless you are married on the
date as of which payment of such pension is to commence, in which event it shall
be paid in the form described as Option 2 in Section 10.1 of the GPUS Employee
Pension Plan, with your spouse as your beneficiary.
(g) If you should die before you start to receive the additional
pension payable to you under paragraph (b), (c), (d) or (e), your surviving
spouse, if any, will receive, for the rest of her life from the GPU System
Companies, 100% of the pension which would have been payable to you under the
Retirement Plans
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 5
and 100% of the additional retirement pension which would have been payable to
you in accordance with paragraph (e), had you terminated employment on the date
of your death. Such payments to your surviving spouse shall commence on the
first day of the month following the month of your death.
To the extent your surviving spouse does not receive such pension from
the Retirement Plans, she will receive it from the GPU Companies.
(h) Retirement or pension benefits from prior employers to which you
are now, or may in the future be, entitled will not be applied against the
pension benefits payable to you pursuant to this Section and you are free to
elect to receive such other pension benefits when, and in such manner as, you
choose.
Section 4. Supplemental Pension.
Upon your retirement on any date subsequent to the date of this letter
(the date as of which you so retire is referred to herein as your "Retirement
Date") you shall be entitled to receive from the GPU Companies, in addition to
the additional retirement pension payable to you pursuant to Section 3 hereof, a
supplemental pension, which shall be payable upon the following terms and
conditions:
(a) The supplemental pension payable to you hereunder, when expressed
as a single life annuity, shall be a monthly amount of income equal to the
amount, if any, by which either (i) $10,825.75 for each month beginning after
your Retirement Date and before the month beginning after your 62nd birthday, or
(ii) $10,325.75 for each month beginning after the later of your Retirement Date
or your 62nd birthday, exceeds (iii) the aggregate pension amount payable to you
for such month under the Retirement Plans and Section 3 hereof, determined for
this purpose without taking into account (x) any Additional Pension amount
payable to you under the GPUS Employee Pension Plan, and (y) the 20% increase in
the pension amounts payable to you under the Retirement Plans and Section 3
hereof during the first 12 months following your retirement. For purposes of the
foregoing,if any part of the aggregate pension amount payable to you under the
Retirement Plans or Section 3 hereof is not payable in the form of a single life
annuity commencing on the first day of the month following your Retirement Date,
the pension amount
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 6
referred to in (iii) above shall be determined as if such part were so payable.
(b) The supplemental pension shall be paid to you in the same form, and
payments shall commence at the same time, as payment of the additional
retirement pension provided for under Section 3 hereof.
(c) If you should die before you start to receive your supplemental
pension, your surviving spouse, if any, shall be entitled to receive from GPU
System sources an annuity payable to her for her lifetime in a monthly amount
equal to 100% of the supplemental pension that would have been payable to you
hereunder if you had not died, if you had retired on the last day of the month
in which your death occurs, and if you had not been married on such last day.
(d) With each monthly payment of the supplemental pension payable to
you during the first 12 months following your Retirement Date, you shall be
entitled to receive an additional amount equal to 20% of the amount of such
monthly payment; provided, however, that if clause (i) of paragraph (a) above
applies in calculating the supplemental pension amount payable for such month,
the additional amount payable to you for such month under this paragraph (d)
shall be equal to 20% of the supplemental pension amount that would be payable
to you for such month if clause (ii) instead of clause (i) of paragraph (a) were
applicable in calculating the amount of your supplemental pension payment for
such month.
Section 5. Regular Benefit Payment Election.
Notwithstanding any other provision of Section 3 or 4 to the contrary,
you may elect to have the additional retirement pension and the supplemental
pension that become payable to you or your surviving spouse thereunder paid in
the form of a single lump sum payment. The amount of such lump sum payment shall
be determined in the same manner as the amount of the lump sum payment payable
pursuant to an election by you under clause (a) of the first paragraph of
Section 6 would be determined, as provided in the third paragraph of Section 6.
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 7
Any election under this Section 5 shall be effective only if it is made
at least twenty-four (24) months (twelve (12) months, if the election is made on
or before August 31, 1997) prior to the termination of your employment with the
GPU Companies. Any election so made may be revoked, and a new election may be
made under this Section 5, at any time; provided, however, that any such
revocation or new election shall be effective only if it is made within the
period specified in the preceding sentence. Any election, or revocation of an
election, that may be made by you under this Section 5 shall be made in writing,
on a form that is furnished to you for such purpose by the Administrative
Committee of the GPUS Employee Pension Plan (the "Administrative Committee") and
that is signed by you and delivered to the Administrative Committee.
Section 6. Special Benefit Payment Election.
Notwithstanding any other provision of this Agreement or the Retirement
Plans to the contrary, or any other form of distribution or payment provided for
or optional form of distribution or payment otherwise elected under this
Agreement or the Retirement Plans, you shall be permitted to make either one, or
both, of the following special payment elections: (a) to have the additional
retirement pension payable pursuant to Section 3 hereof and the supplemental
pension payable pursuant to Section 4 hereof paid in the form of a single lump
sum payment in the event of your termination of employment with the GPU
Companies for any reason within the two (2) year period following the occurrence
of a Change in Control, or (b) if a Change in Control occurs after the
termination of your employment with the GPU Companies but before all payments
required to be made hereunder with respect to your additional retirement pension
and supplemental pension have been made, to have the additional retirement
pension and supplemental pension payments that otherwise would be made hereunder
after the date of such Change in Control paid in the form of a single lump sum
payment.
An election under clause (a) of the preceding paragraph shall be
effective only if it is made either at least twenty-four (24) months prior to
such termination of your employment, or if such termination of your employment
is due to your death or is the result of an Involuntary Termination as defined
in Section 3(d) hereof, at least one year prior to such Change in Control. An
election under clause (b) of the preceding paragraph shall be
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 8
effective only if it is made at least one year prior to the Change in Control,
and prior to the termination of your employment. Any special election made under
clause (a) or (b) of the preceding paragraph may be revoked, and a new special
election may be made thereunder, at any time; provided, however, that any such
revocation or new election shall be effective only if it is made within the
election period specified in this paragraph. Any special election, or revocation
of a special election, that may be made hereunder shall be made in the same
manner as provided in the last sentence of the second paragraph of Section 5.
The lump sum payment to be made to you pursuant to your election under
clause (a) of the second preceding paragraph shall be in an amount that is
"Actuarially Equivalent" (as defined below and determined as of the first day of
the month following the date of your termination of employment) to the
additional retirement pension and supplemental pension that otherwise would be
payable to you hereunder if payment of your additional retirement pension and
supplemental pension and the pension payable to you under the Retirement Plans
(i) were to commence on your Normal Retirement Date or, if earlier, on the
earliest date as of which you could elect to have payment of your pension under
the Retirement Plans commence and (ii) were to be made in the form of a single
life annuity. The lump sum payment to be made to your surviving spouse pursuant
to your election under clause (a) of the second preceding paragraph shall be in
an amount that is "Actuarially Equivalent" (as defined below and determined as
of the first day of the month following the date of your death) to the pension
and the annuity that otherwise would be payable to your surviving spouse
pursuant to Section 3(g) and Section 4(c) hereof. The lump sum payment to be
made to you or your surviving spouse pursuant to your election under clause (a)
of the second preceding paragraph shall be made by no later than thirty (30)
days following the date of your termination of employment.
The lump sum payment to be made pursuant to your election under clause
(b) of the third preceding paragraph shall be in an amount that is Actuarially
Equivalent (as defined below and determined as of the first day of the month
coincident with or next following the date on which the Change in Control
occurs) to the payments that otherwise would be made hereunder with respect to
your additional retirement pension and supplemental pension after the date of
such Change in Control. Such lump sum payment
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 9
shall be made by no later than thirty (30) days following the date on which such
Change in Control occurs.
For purposes of this Section 6, "Actuarially Equivalent" shall mean,
with respect to any distribution or payment, an actuarially equivalent amount,
calculated by using the annual interest rate on 30-year Treasury securities for
the second month preceding the calendar year in which such distribution is made
or commences, and the mortality table prescribed for purposes of section
417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the
"Code"). Such annual interest rate and mortality table shall be as specified or
prescribed by the Commissioner of the Internal Revenue Service for purposes of
Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other
guidance.
Section 7. Other Benefits.
To the extent permitted by such plans without requiring prior evidence
of insurability or eligibility, you will participate in all of the benefit plans
maintained by any of the GPU Companies in which senior GPU executives are
eligible to participate, as such plans shall be in effect from time to time. In
the case of each such plan that provides a benefit the amount of which depends,
directly or indirectly, on the number of years of a participant's service with
the GPU Companies, you shall receive the same benefit amount that would be
payable to you under such plan if you were treated as having, in addition to
your actual years of services, the number of years of service determined under
the table in Section 3(e). The number of additional years of service so
determined shall also be taken into account in determining your eligibility to
participate in any benefit plan maintained by any of the GPU Companies in which
senior GPU executives are eligible to participate that requires, as a condition
for eligibility, the completion of a specified number of years of service with
the GPU Companies.
In addition to the supplemental pension described above, you will also
receive (i) an extension of coverage in your and your family's health care
benefits under the Supplemental and Excess Medical Plan to the third anniversary
of the date of your retirement, or your attainment of age 62, whichever is
later; and (ii) an amended Split-Dollar Agreement with respect to your Senior
Executive Life Insurance policy to provide for eligibility
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 10
to receive full benefits under your policy at age 55 with 10 years of service.
Section 8. Nature of Your Rights.
With respect to your right to receive an additional retirement pension
pursuant to Section 3 hereof and the supplemental pension provided for under
Section 4 hereof, or to receive a lump sum payment with respect to such pensions
under Section 5 or 6 hereof, you shall have the status of a mere unsecured
creditor of GPUS and GPU; and this letter agreement shall constitute a mere
promise by GPUS and GPU to make payments in the future of such pensions in
accordance with the provisions of Sections 3, 4, 5 and 6. It is the intention of
the parties hereto that the arrangements set forth in Sections 3, 4, 5 and 6 of
this letter agreement regarding your additional retirement pension and
supplemental pension shall be treated as unfunded for tax purposes and, if it
should be determined that Title I of ERISA is applicable to such arrangements,
for purposes of Title I of ERISA.
Section 8. Nonassignability.
Your rights to receive payments with respect to the additional
retirement pension and supplemental pension provided for under Sections 3 and 4
of this letter agreement shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by your creditors or creditors of your spouse or any other
beneficiary.
If the foregoing correctly reflects your understanding of the agreement
between you and GPU and GPUS, will you please so indicate on the enclosed
duplicate copy of this letter which will then constitute a binding agreement
between GPU and GPUS, on the one hand, and you, on the other.
<PAGE>
Mr. Ira H. Jolles
August 7, 1997
Page 10
GPU, INC.
By: _________________________________
Fred D. Hafer, Chairman,
President and Chief Executive
Officer
GPU SERVICE, INC.
By: _________________________________
Fred D. Hafer, Chairman,
President and Chief Executive
Officer
The foregoing is agreed to by me as of the date of this letter.
- -------------------------
Ira H. Jolles
<PAGE>
APPENDIX A
Cause. For purposes of this Agreement, a termination of employment is
for "Cause" if you have been convicted of a felony or the termination is
evidenced by a resolution adopted in good faith by two-thirds of the GPU Board
of Directors (the "Board") that you:
(a) intentionally and continually failed substantially to perform your
reasonably assigned duties with GPU or GPUS (other than a failure resulting from
your incapacity due to physical or mental illness or from your assignment of
duties that would constitute "Good Reason" as hereinafter defined) which failure
continued for a period of at least thirty (30) days after a written notice of
demand for substantial performance, signed by a duly authorized officer of GPU,
has been delivered to you specifying the manner in which you have failed
substantially to perform, or
(b) intentionally engaged in conduct which is demonstrably and
materially injurious to GPU; provided, however, that no termination of your
employment shall be for Cause as set forth in this clause (b) until (1)there
shall have been delivered to you a copy of a written notice, signed by a duly
authorized officer of GPU, setting forth that you were guilty of the conduct set
forth in this clause (b)and specifying the particulars thereof in detail, and
(2)you shall have been provided an opportunity to be heard in person by the
Board (with the assistance of your counsel if you so desire).
No act, nor failure to act, on your part, shall be considered
"intentional" unless you have acted, or failed to act, with a lack of good faith
and with a lack of reasonable belief that your action or failure to act was in
the best interest of GPU. Notwithstanding anything contained in this Agreement
to the contrary, no failure to perform by you after a written notice of
termination is given by you shall constitute Cause for purposes of this
Agreement.
Change in Control. "Change in Control" shall mean:
(1) An acquisition (other than directly from GPU) of any
common stock of GPU ("Common Stock") or other voting securities of GPU entitled
to vote generally for the election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial
<PAGE>
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty percent (20%) or more of the then outstanding shares of Common Stock
or the combined voting power of GPU's then outstanding Voting Securities;
provided, however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A)
an employee benefit plan (or a trust forming a part thereof) maintained by (i)
GPU or (ii) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or
its Subsidiaries, or (C) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
seventy percent (70%) of the members of the Board; provided, however, that if
the election, or nomination for election by GPU's shareholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization
with or into GPU or in which securities of
GPU are issued, unless such merger,
consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization with or into
GPU or in which securities of GPU are issued
where:
A-2
<PAGE>
(i) the shareholders of GPU, immediately
before such merger, consolidation or
reorganization, own directly or
indirectly immediately following
such merger, consolidation or
reorganization, at least sixty
percent (60%) of the combined voting
power of the outstanding voting
securities of the corporation
resulting from such merger or
consolidation or reorganization (the
"Surviving Corporation") in
substantially the same proportion as
their ownership of the Voting
Securities immediately before such
merger, consolidation or
reorganization,
(ii) the individuals who were members of
the Incumbent Board immediately
prior to the execution of the
agreement providing for such merger,
consolidation or reorganization
constitute at least seventy percent
(70%) of the members of the board of
directors of the Surviving
Corporation, or a corporation,
directly or indirectly, beneficially
owning a majority of the Voting
Securities of the Surviving
Corporation, and
(iii) no Person other than (w)GPU, (x) any
Subsidiary, (y) any employee benefit
plan (or any trust forming a part
thereof) that, immediately prior to
such merger, consolidation or
reorganization, was maintained by
GPU or any Subsidiary, or (z) any
Person who, immediately prior to
such merger, consolidation or
reorganization had Beneficial
Ownership of twenty percent (20%) or
more of the then outstanding Voting
Securities or common stock of GPU,
has Beneficial Ownership of twenty
percent (20%) or more of the
combined voting power of the
Surviving Corporation's then
outstanding voting securities or its
common stock.
(B) A complete liquidation or dissolution of
GPU; or
A-3
<PAGE>
(C) The sale or other disposition of all or
substantially all of the assets of GPU to
any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Common Stock or Voting Securities as a result of the acquisition of Common Stock
or Voting Securities by GPU which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of this sentence) as a result of
the acquisition of shares of Common Stock or Voting Securities by GPU, and after
such share acquisition by GPU, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
Good Reason. (a) For purposes of this Agreement, "Good Reason" shall
mean the occurrence after a Change in Control of any of the following events or
conditions:
(1) a change in your status, title, position or
responsibilities (including reporting responsibilities) which, in your
reasonable judgment, represents an adverse change from your status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to you of any duties or responsibilities which, in your reasonable
judgment, are inconsistent with your status, title, position or
responsibilities; or any removal of you from or failure to reappoint or reelect
you to any of such offices or positions, except in connection with the
termination of your employment for disability, Cause, as a result of your death
or by you other than for Good Reason;
(2) a reduction in the rate of your annual base salary;
(3) any change in location of your place of employment to a
location other than Parsippany, New Jersey without your consent,
A-4
<PAGE>
(4) the failure by the GPU Companies to pay to you any portion
of your current compensation or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of any GPU Company
in which you participated, within seven (7) days of the date such compensation
is due;
(5) the failure by the GPU Companies (A)to continue in effect
(without reduction in benefit level, and/or reward opportunities) any material
compensation or employee benefit plan in which you were participating
immediately prior to such failure by the GPU Companies, unless a substitute or
replacement plan has been implemented which provides substantially identical
compensation or benefits to you or (B)to continue to provide you with
compensation and benefits, in the aggregate, at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each other
compensation or employee benefit plan, program and practice in which you were
participating immediately prior to such failure by the GPU Companies;
(6) the failure of GPU or GPUS to obtain a satisfactory
agreement from any successors or assigns to assume and agree to honor and
perform their respective obligations under this Agreement; or
(b) Any event or condition described in clauses (1) through (5) of
paragraph (a) above which occurs (A) within twelve (12) months prior to a Change
in Control or (B) prior to a Change in Control but which you reasonably
demonstrate (x) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control and
who effectuates a Change in Control or (y) otherwise arose in connection with,
or in anticipation of a Change in Control which has been threatened or proposed,
shall constitute Good Reason for purposes of this Agreement notwithstanding that
it occurred prior to a Change in Control.
A-5
EXHIBIT 10-P
August 7, 1997
John G. Graham
21 Candace Lane
Chatham Township, New Jersey 07928
Dear John:
The purpose of this letter is to amend and restate the letter agreement
dated February 6, 1997 between you and GPU Service, Inc. ("GPUS"). That letter
(the "Prior Agreement") amended and restated a letter agreement dated November
1, 1996 between you and GPUS that in turn amended and restated a letter
agreement dated November 22, 1995 between you and GPUS which set forth the terms
and conditions of the supplemental pension that GPUS has agreed to provide to
you upon your retirement. Upon your agreement to this amendment and restatement
as provided on the last page of this letter agreement (the "Agreement"), the
Prior Agreement shall be superseded and replaced in its entirety by the terms
and conditions set forth below.
(1) Upon your retirement on any date subsequent to the date of this
letter (the date as of which you so retire is referred to herein as your
"Retirement Date") you shall be entitled to receive from GPUS a supplemental
pension (your "Supplemental Pension"), which shall be in addition to the pension
payable to you under GPUS's Employee Pension Plan and GPUS's Supplemental and
Excess Benefits Plan (together, "GPUS's Retirement Plans").
(2) The Supplemental Pension payable to you hereunder, when expressed
as a single life annuity, shall be a monthly amount of income equal to the
amount, if any, by which either (a) $12,653.50 for each month beginning after
your Retirement Date and before the month beginning after your 62nd birthday, or
(b) $12,153.50 for each month beginning after the later of your Retirement Date
or your 62nd birthday, exceeds (c) the aggregate pension amount payable to you
for such month under GPUS's Retirement Plans, determined for this purpose
without taking into account (i) any Additional Pension amount payable to you
under GPUS's Employee Pension Plan and (ii) the 20% increase in the pension
amounts payable to you under GPUS's Retirement Plans
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 2
during the first 12 months following your retirement.
For purposes of the foregoing, if any part of the aggregate pension
amount payable to you under GPUS's Retirement Plans is not payable in the form
of a single life annuity commencing on the first day of the month following your
Retirement Date, the pension amount referred to in (c) above shall be determined
as if such part were so payable.
3. The Supplemental Pension shall be paid to you in the form of a
single life annuity unless you are married on your Retirement Date, in which
case it shall be paid in the form described as Option 2 in Section 10.1 of
GPUS's Employee Pension Plan, with your spouse as beneficiary.
4. If you should die before you start to receive your Supplemental
Pension, your surviving spouse, if any, shall be entitled to receive from GPUS
an annuity (the "Survivor's Annuity") payable to her for her lifetime in a
monthly amount equal to 50% of the Supplemental Pension that would have been
payable to you hereunder if you had not died, if you had retired on the last day
of the month in which your death occurs, and if you had not been married on such
last day.
5. Payment of your Supplemental Pension shall commence on the first day
of the month following your Retirement Date and shall end with the payment due
for the month in which your death occurs or, if the Supplemental Pension is
payable in the form described as Option 2 in Section 10.1 of GPUS's Employee
Pension Plan, the month in which your death or your spouse's death occurs
whichever is the later. Payment of the Survivor's Annuity shall commence on the
first day of the month following the date of your death and shall end with the
payment due for the month in which your surviving spouse's death occurs.
6. With each monthly payment of the Supplemental Pension payable to you
during the first 12 months following your Retirement Date, you shall be entitled
to receive an additional amount equal to 20% of the amount of such monthly
payment; provided, however, that if clause (a) of Section 2 hereof applies in
calculating the Supplemental Pension amount payable for such month, the
additional amount payable to you for such month under
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 3
this Section 6 shall be equal to 20% of the Supplemental Pension amount that
would be payable to you for such month if clause (b) instead of clause (a) of
Section 2 were applicable in calculating the amount of your Supplemental Pension
payment for such month.
7. Notwithstanding any other provision of this Agreement to the
contrary, you may elect to have the Supplemental Pension that becomes payable to
you or your surviving spouse under Section 1 or 4 hereof paid in the form of a
single lump sum payment. The amount of such lump sum payment shall be determined
in the same manner as the amount of the lump sum payment payable pursuant to an
election by you under clause (a) of the first paragraph of Section 8 would be
determined, as provided in the third paragraph of Section 8.
Any election under this Section 7 shall be effective only if it is made
at least twenty-four (24) months (twelve (12) months, if the election is made on
or before August 31, 1997) prior to the termination of your employment with GPUS
and all other subsidiaries of GPU, Inc. (GPU, Inc. and its subsidiaries are
referred to herein as the "GPU Companies"). Any election so made may be revoked,
and a new election may be made under this Section 7, at any time; provided,
however, that any such revocation or new election shall be effective only if it
is made within the period specified in the preceding sentence. Any election, or
revocation of an election, that may be made by you under this Section 7 shall be
made in writing, on a form that is furnished to you for such purpose by the
Administrative Committee of GPUS's Employee Pension Plan (the "Administrative
Committee") and that is signed by you and delivered to the Administrative
Committee.
8. Notwithstanding any other provision of this Agreement or GPUS's
Retirement Plans to the contrary, or any other form of distribution or payment
provided for or optional form of distribution or payment otherwise elected under
this Agreement or GPUS's Retirement Plans, you shall be permitted to make either
one, or both, of the following special distribution elections: (a) to have the
Supplemental Pension payable to you hereunder, or the Survivors Annuity payable
hereunder to your surviving spouse, distributed in the form of a single lump sum
payment in the event
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 4
of your termination of employment with the GPU Companies for any reason within
the two (2) year period following the occurrence of a Change in Control, or (b)
if a Change in Control occurs after the termination of your employment with the
GPU Companies but before all payments required to be made hereunder with respect
to your Supplemental Pension have been made, to have the Supplemental Pension
payments that otherwise would be made hereunder after the date of such Change in
Control paid in the form of a single lump sum payment.
An election under clause (a) of the preceding paragraph shall be
effective only if it is made either at least twenty-four (24) months prior to
such termination of your employment, or if such termination of your employment
is the result of an "Involuntary Termination" (as defined in Appendix A hereto)
at least one year prior to such Change in Control. An election under clause (b)
of the preceding paragraph shall be effective only if it is made at least one
year prior to the Change in Control, and prior to the termination of your
employment. Any special election made under clause (a) or (b) of the preceding
paragraph may be revoked, and a new special election may be made thereunder, at
any time; provided, however, that any such revocation or new election shall be
effective only if it is made within the election period specified in this
paragraph. Any special election, or revocation of a special election, that may
be made hereunder shall be made in the same manner as provided in the last
sentence of the second paragraph of Section 7.
The lump sum payment to be made to you pursuant to your election under
clause (a) of the second preceding paragraph shall be in an amount that is
"Actuarially Equivalent" (as defined below and determined as of the first day of
the month following the date of your termination of employment) to the
Supplemental Pension that otherwise would be payable to you hereunder if payment
of your Supplemental Pension and the pension payable to you under GPUS's
Retirement Plans (i) were to commence on your Retirement Date, and (ii) were to
be made in the form of a single life annuity. The lump sum payment to be made to
your surviving spouse pursuant to your election under clause (a) of the second
preceding paragraph shall be in an amount that is Actuarially
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 5
Equivalent (as defined below and determined as of the first day of the month
following the date of your death) to the Survivor's Annuity that otherwise would
be payable to your surviving spouse pursuant to Section 4 hereof. The lump sum
payment to be made to you or your surviving spouse pursuant to your election
under clause (a) of the second preceding paragraph shall be made by no later
than thirty (30) days following the date of your termination of employment.
The lump sum payment to be made pursuant to your election under clause
(b) of the third preceding paragraph shall be in an amount that is Actuarially
Equivalent (as defined below and determined as of the first day of the month
coincident with or next following the date on which the Change in Control
occurs) to the payments that otherwise would be made hereunder with respect to
your Supplemental Pension after the date of such Change in Control. Such lump
sum payment shall be made by no later than thirty (30) days following the date
on which such Change in Control occurs.
For purposes of this Section 8, "Actuarially Equivalent" shall mean,
with respect to any distribution or payment, an actuarially equivalent amount,
calculated by using the annual interest rate on 30-year Treasury securities for
the second month preceding the calendar year in which such distribution is made
or commences, and the mortality table prescribed for purposes of section
417(e)(3)(A)(ii)(I) of the Internal Revenue Code of 1986, as amended (the
"Code"). Such annual interest rate and mortality table shall be as specified or
prescribed by the Commissioner of the Internal Revenue Service for purposes of
Section 417(e)(3)(A)(ii) of the Code in revenue rulings, notices or other
guidance.
9. In addition to the Supplemental Pension described above, you will
also receive (i) an extension of coverage in your and your family's health care
benefits under the Supplemental and Excess Medical Plan to the third anniversary
of the date of your retirement, or your attainment of age 62, whichever is
later, and (ii) an amended Split-Dollar Agreement with respect to your Senior
Executive Life Insurance policy to provide for eligibility to receive full
benefits under your policy at age 55 with 10 years of service.
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 6
10. You and your surviving spouse shall have the status of a mere
unsecured creditor of GPUS with respect to your, and her, right to receive any
payment under this Agreement. This Agreement shall constitute a mere promise by
GPUS to make payments in the future of the benefits provided for herein. It is
intended that the arrangements reflected in this Agreement be treated as
unfunded for tax purposes, as well as for purposes of Title I of ERISA.
11. Your rights and your surviving spouse's rights to payments under
this Agreement shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by
your creditors or the creditors of your spouse or any other beneficiary.
If the foregoing correctly reflects your understanding of the agreement
between you and GPUS to your Supplemental Pension, will you please so indicate
on the enclosed duplicate copy of this letter which will then constitute a
binding agreement between GPUS on the one hand, and you, on the other.
GPU SERVICE , INC.
By: __________________________________
Fred D. Hafer, Chairman, President
& Chief Executive Officer
<PAGE>
Mr. John G. Graham
August 7, 1997
Page 7
The foregoing correctly reflects my
understanding and is agreed to by me
as of the date of this letter
- ----------------------
John G. Graham
<PAGE>
APPENDIX A
"Change in Control" shall mean:
(1) An acquisition (other than directly from GPU, Inc.
("GPU")) of any common stock of GPU ("Common Stock") or other voting securities
of GPU entitled to vote generally for the election of directors (the "Voting
Securities") by any "Person" (as the term person is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), immediately after which such Person has "Beneficial Ownership" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of the then outstanding shares of common stock or the combined
voting power of GPU's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or
other Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by GPU (for
purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or
(C) any Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board of Directors of GPU (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board of
Directors of GPU (the "Board"); provided, however, that if the election, or
nomination for election by GPU's shareholders, of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
<PAGE>
(A) A merger, consolidation or reorganization with or
into GPU or in which securities of GPU are issued, unless such
merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into GPU or in which
securities of GPU are issued where:
(i) the shareholders of GPU, immediately
before such merger, consolidation or reorganization,
own directly or indirectly immediately following such
merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of
the outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
seventy percent (70%) of the members of the board of
directors of the Surviving Corporation, or a
corporation, directly or indirectly, beneficially
owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) GPU, (x) any
Subsidiary, (y) any employee benefit plan (or any
trust forming a part thereof) that, immediately prior
to such merger, consolidation or reorganization, was
maintained by GPU or any Subsidiary, or (z) any
Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of twenty percent (20%) or more of the then
outstanding Voting Securities or common stock of GPU,
has Beneficial Ownership of twenty percent (20%) or
more of the combined voting power of the Surviving
Corporation's then outstanding voting securities or
its common stock.
A-2
<PAGE>
(B) A complete liquidation or dissolution of GPU; or
(C) The sale or other disposition of all or
substantially all of the assets of GPU to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by GPU which, by reducing the number of shares of Common Stock or
Voting Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by GPU, and after
such share acquisition by GPU, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
"Involuntary Termination" shall mean the termination of your employment
with the GPU Companies (A) as a result of your death, (B) by any GPU Company,
for any reason, or (C) by you, for "Good Reason."
"Good Reason" shall mean the occurrence after a Change in Control of
any of the following events or conditions:
(1) a change in your status, title, position or
responsibilities (including reporting responsibilities) which, in your
reasonable judgment, represents an adverse change from your status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to you of any duties or responsibilities which, in your reasonable
judgment, are inconsistent with your status, title, position or
responsibilities; or any removal of you from or failure to reappoint or reelect
you to any of such offices or positions, except in connection with the
termination of your employment for disability, cause, as a result of your death
or by you other than for Good Reason;
A-3
<PAGE>
(2) a reduction in the rate of your annual base salary;
(3) any change in location of your place of employment to a
location other than Parsippany, New Jersey without your consent,
(4) the failure by the GPU Companies to pay to you any portion
of your current compensation or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of any GPU Company
in which you participated, within seven (7) days of the date such compensation
is due;
(5) the failure by the GPU Companies (A) to continue in effect
(without reduction in benefit level, and/or reward opportunities) any material
compensation or employee benefit plan in which you were participating
immediately prior to such failure by the GPU Companies, unless a substitute or
replacement plan has been implemented which provides substantially identical
compensation or benefits to you or (B) to continue to provide you with
compensation and benefits, in the aggregate, at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each other
compensation or employee benefit plan, program and practice in which you were
participating immediately prior to such failure by the GPU Companies;
(6) the failure of GPUS to obtain a satisfactory agreement
from any successors or assigns to assume and agree to honor and perform GPUS's
obligations under this Agreement; or
Any event or condition described in clauses (1) through (5) above which
occurs (A) within twelve (12) months prior to a Change in Control or (B) prior
to a Change in Control but which you reasonably demonstrate (x) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates a Change
in Control or (y) otherwise arose in connection with, or in anticipation of a
Change in Control which has been threatened or proposed, shall constitute Good
Reason for purposes of this Agreement notwithstanding that it occurred prior to
a Change in Control.
A-4
EXHIBIT 10-Q
GPU, INC.
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
AS AMENDED AND RESTATED AS OF SEPTEMBER 4, 1997
<PAGE>
GPU, INC.
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
1. Purpose. The purpose of this restricted Stock Plan for Outside Directors (the
"Plan") is to enable GPU, Inc. ("GPU") to attract and retain persons of
outstanding competence to serve on its Board of Directors by paying such persons
a portion of their compensation in GPU Common Stock ("Common Stock") pursuant to
the terms hereof.
2. Definitions.
(a) The term "Board of Directors" shall mean the board of directors of
GPU.
(b) The term "Change in Control" shall mean the occurrence during the
term of the Plan of:
(1) An acquisition (other than directly from GPU) of any
Common Stock or other voting securities of GPU entitled to vote generally for
the election of directors (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of GPU's then outstanding
Voting Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) GPU or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by GPU (for purposes of this definition, a
"Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with
a "Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board of Directors (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board of
Directors; provided, however, that if the election, or nomination for election
by GPU's shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
1
<PAGE>
this Plan, be considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into
GPU or in which securities of GPU are issued, unless such merger, consolidation
or reorganization is a "Non-Control Transaction." A "Non-Control Transaction"
shall mean a merger, consolidation or reorganization with or into GPU or in
which securities of GPU are issued where:
(i) the shareholders of GPU, immediately before such
merger, consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least sixty percent
(60%) of the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving
Corporation, or a corporation, directly or indirectly, beneficially owning a
majority of the Voting Securities of the Surviving Corporation, and
(iii) no Person other than (w) GPU, (x) any
Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger, consolidation or reorganization, was
maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial Ownership of twenty
percent (20%) or more of the then outstanding Voting Securities or Common Stock,
has Beneficial Ownership of twenty percent (20%) or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities or its
common stock; 2
<PAGE>
(B) A complete liquidation or dissolution of GPU; or
(C) The sale or other disposition of all or substantially
all of the assets of GPU to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Common Stock or Voting
Securities as a result of the acquisition of Common Stock or Voting Securities
by GPU which, by reducing the number of shares of Common Stock or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by GPU, and after
such share acquisition by GPU, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
(c) The term "Outside Director" or "Participant" means a member of the
Board of Directors who is not an employee (within the meaning of the Employee
Retirement Income Security Act of 1974) of GPU or any of its Subsidiaries. A
director of GPU who is also an employee of GPU or any of its Subsidiaries shall
become eligible to participate in this Plan and shall be entitled to receive an
award of restricted stock upon the termination of such employment.
(d) The term "Subsidiary" means, for purposes other than Section 2(b),
any corporation 50% or more of the outstanding Common Stock of which is owned,
directly or indirectly, by GPU.
(e) The term "Service" shall mean service as an Outside Director.
3. Eligibility. All Outside Directors of GPU shall receive stock awards
hereunder.
3
<PAGE>
4. Stock Awards.
(a) A total of 33,000(1) shares of GPU Common Stock shall be available
for awards under the Plan. Such shares shall be either previously unissued
shares or reacquired shares. Any restricted shares awarded under this Plan with
respect to which the restrictions do not lapse and which are forfeited as
provided herein shall again be available for other awards under the plan.
(b) Each Outside Director shall receive an annual award of 300 shares
of GPU Common Stock with respect to each calendar year or portion thereof,
during which he or she serves as an Outside Director, beginning with the
calendar year 1993. Awards shall be made in January of each year. However, for
the calendar year in which an Outside Director commences Service, the award of
shares to such Outside Director for such year shall be made in the month in
which his or her Service commences, if his or her Service commences after
January 31 of such year. All awards of shares made hereunder shall be subject to
the restrictions set forth in Section 5.
(c) Subject to the provisions of Section 5, certificates representing
shares of GPU Common Stock awarded hereunder shall be issued in the name of the
respective Participants. During the period of time such shares are subject to
the restrictions set forth in Section 5, such certificates shall be endorsed
with a legend to that effect, and shall be held by GPU or an agent therefor. The
Participant shall, nevertheless, have all the other rights of a shareholder,
including the right to vote and the right to receive all cash dividends paid
with respect to such shares.
Subject to the requirements of applicable law, certificates representing such
shares shall be delivered to the Participant within 30 days after the lapse of
the restrictions to which they are subject.
- ------------------
(1) Initially, 20,000 shares were authorized to be issued under the Plan.
On May 29, 1991, GPU effected a two-for-one stock split by way of a
stock dividend, leaving 33,000 shares available for issuance under the
Plan on and after July 1, 1991 after giving effect to shares previously
awarded.
4
<PAGE>
(d) If as a result of a stock dividend, stock split, recapitalization
(or other adjustment in the stated capital of GPU), or as the result of a
merger, consolidation, or other reorganization, the common shares of GPU are
increased, reduced, or otherwise changed, the number of shares available and to
be awarded hereunder shall be appropriately adjusted, and if by virtue thereof a
Participant shall be entitled to new or additional or different shares, such
shares to which the Participant shall be entitled shall be subject to the terms,
conditions, and restrictions herein contained relating to the original shares.
In the event that warrants or rights are awarded with respect to shares awarded
hereunder, and the recipient exercises such rights or warrants, the shares or
securities issuable upon such exercise shall be likewise subject to the terms,
conditions, and restrictions herein contained relating to the original shares.
5. Restrictions.
a) Shares are awarded to a Participant on the condition that he or she
serves or has served as an Outside Director until:
(i) the Participant's death or disability, or
(ii) the Participant's retirement not earlier than the first
day of the month following the attainment of the Participant's 72nd birthday ;
or
(iii)the Participant's resignation or retirement prior to the
first day of the month following the attainment of the Participant's 72nd
birthday with the consent of the Board, i.e., approval thereof by a least 80% of
the directors voting thereon, with the affected director abstaining; or
(iv) the Participant's failure to be re-elected after being
duly nominated. Termination of Service of a Participant for any other reason,
including, without limitation, any involuntary termination effected by Board
action, shall result in forfeiture of all shares awarded. Notwithstanding the
foregoing, upon the occurrence of a Change in Control, the restrictions set
forth in Section 5(b) hereof to which any shares awarded to a Participant are
then still subject shall lapse, and the termination of the Participant's Service
for any reason at any time after the occurrence of such Change in Control shall
not result in the forfeiture of any such shares.
5
<PAGE>
(b) Shares awarded hereunder may not be sold, exchanged, transferred,
pledged, hypothecated, or otherwise disposed of (herein, "Transferred") other
than to GPU pursuant to Section 5(a) during the period commencing on the date of
the award of such shares and ending on the date of termination of the Outside
Director's Service; provided, however, that in no event may any shares awarded
hereunder be Transferred for a period of six months following the date of the
award thereof, except in the case of the recipient's death or disability, other
than to GPU pursuant to Section 5(a) hereof.
(c) Each Participant shall represent and warrant to and agree with GPU
that he or she (i) takes any shares awarded under the Plan for investment only
and not for purposes of sale or other disposition and will also take for
investment only and not for purposes of sale or other disposition any rights,
warrants, shares, or securities which may be issued on account of ownership of
such shares, and (ii) will not sell or transfer any shares awarded or any shares
received upon exercise of any such rights or warrants except in accordance with
(A) an opinion of counsel for GPU (or other counsel acceptable to GPU) that such
shares, rights, warrants, or other securities may be disposed of without
registration under the Securities Act of 1933, or (B) an applicable "no action"
letter issued by the Staff of the Commission.
6. Administrative Committee. An Administrative Committee (the "Committee") shall
have full power and authority to construe and administer the Plan. Any action
taken under the provisions of the Plan by the Committee arising out of or in
connection with the administration, construction, or effect of the Plan or any
rules adopted thereunder shall, in each case, lie within the discretion of the
Committee and shall be conclusive and binding under GPU and upon all
Participants, and all persons claiming under or through any of them.
Notwithstanding the foregoing, any determination made by the Committee after the
occurrence of a Change in Control that denies in whole or in part any claim made
by any individual for benefits under the Plan shall be subject to judicial
review, under a "de novo," rather than a deferential, standard. The Committee
shall have as members the Chief Executive Officer of GPU and two officers of GPU
or its Subsidiaries designated by the Chief Executive Officer; in the absence of
such designation, the other members of the Committee shall be the Chief
Financial Officer and the Secretary of GPU.
6
<PAGE>
7. Approval: Effective Date. The Plan is subject to the approval of a majority
of the holders of GPU's Common Stock present and entitled to vote at a meeting
of shareholders, and of the Securities and Exchange Commission under the Public
Utility Holding Company Act of 1935. The Plan shall be effective January 1,
1989.
8. Termination and Amendment. The Board of Directors of GPU may suspend,
terminate, modify or amend the Plan, provided that no amendment or modification
to Section 2(b), to the penultimate sentence of Section 6, to the last sentence
of Section 5(a), or to this Section 8, nor any suspension or termination of the
Plan, effectuated (I) at the request of a third party who has indicated an
intention or taken steps to effect a Change in Control and who effectuates a
Change in Control, (ii) within six (6) months prior to, or otherwise in
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed and which actually occurs, or (iii) following a Change in
Control, shall be effective if the amendment, modification, suspension or
termination adversely affects the rights of any Participant under the Plan. If
the Plan is terminated, the terms of the Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no amendment, modification, suspension or termination of the Plan
shall adversely affect the rights of any Participant with respect to any award
(including without limitation any right with respect to the timing and method of
payment of any award) granted to the Participant prior to the date of the
adoption of such amendment, modification, suspension or termination without such
Participant's written consent.
7
EXHIBIT 10-R
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
OF
GPU, INC.
As Amended and Restated as of
June 5, 1997
<PAGE>
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
OF
GPU, INC.
As Amended and Restated as of
June 5, 1997
-----
1. Purpose
The Retirement Plan for Outside Directors of GPU, Inc. (the "Plan") is
designed to enhance the ability of GPU, Inc. (the "Corporation") to attract and
retain competent and experienced Outside Directors by providing retirement
benefits and death benefits for Eligible Outside Directors who retire or die
after the Plan's Effective Date.
2. Definitions
Except as otherwise specified or as the context may otherwise require,
the following terms have the meanings indicated below for all purposes of this
Plan:
"Board of Directors" means the board of directors of the Corporation.
"Outside Director" means a member of the Board of Directors who, during
the period involved, is not or was not an Officer or an employee of the
Corporation or a subsidiary thereof.
"Board Service" means service as an Outside Director of the Corporation
both before and after the Effective Date.
"Change in Control" means the occurrence during the term of the Plan of:
1. An acquisition (other than directly from the Corporation) of any
Common Stock or other voting securities of the Corporation entitled to vote
generally for the election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of the then
1
<PAGE>
outstanding shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a
trust forming a part thereof) maintained by (i) the Corporation or (ii) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
the Corporation (for purposes of this definition, a "Subsidiary"), (B) the
Corporation or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
2. The individuals who, as of August 1, 1996, are members of the Board
of Directors (the "Incumbent Board"), cease for any reason to constitute at
least seventy percent (70%) of the members of the Board of Directors; provided,
however, that if the election, or nomination for election by the Corporation's
shareholders, of any new director was approved by a vote of at least two-thirds
of the Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
3. The consummation of:
(A) A merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued, unless such
merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Corporation or in which the securities of the Corporation are
issued where:
(i) the shareholders of the Corporation, immediately before such
merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at
least sixty percent (60%) of the combined voting power of the
outstanding voting securities of the corporation resulting from such
merger or
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consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or
reorganization,
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least seventy
percent (70%) of the members of the board of directors of the Surviving
Corporation, or a corporation, directly or indirectly, beneficially
owning a majority of the Voting Securities of the Surviving
Corporation, and
(iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any
employee benefit plan (or any trust forming a part thereof) that,
immediately prior to such merger, consolidation or reorganization, was
maintained by the Corporation or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or reorganization had
Beneficial Ownership of twenty percent (20%) or more of the then
outstanding Voting Securities or Common Stock, has Beneficial Ownership
of twenty percent (20%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities or its
common stock.
(B) A complete liquidation or dissolution of the Corporation; or
(C) The sale or other disposition of all or substantially all of the
assets of the Corporation to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by the Corporation which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by the Corporation,
and after such share acquisition by the Corporation, the Subject Person becomes
the Beneficial Owner of any additional shares of Common Stock or Voting
Securities which increases the percentage of the then outstanding shares of
Common Stock or Voting Securities Beneficially Owned by the Subject Person, then
a Change in Control shall occur.
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"Compensation" means the sum of: (a) the monthly retainer paid in cash
to an Outside Director as compensation for services as a Director of the
Corporation, excluding any fees paid for attendance at meetings of the Board of
Directors or any committee of the Board of Directors, and also excluding any
additional retainer paid for service as a Committee Chairman, and (b)
one-twelfth of the cash value of all shares awarded to, the Outside Director
pursuant to the Restricted Stock Plan for Outside Directors as the annual award
thereunder for the year preceding his or her Retirement, and not subsequently
forfeited.
The cash value of a share shall be its closing price as reported for
New York Stock Exchange-Composite Transactions on the date of award.
"Effective Date" means the date of initial adoption of this Plan by the
Board of Directors.
"Retirement or Retires" means the cessation of service as an Outside
Director for any reason other than (i) acceptance of employment as an officer or
employee of the Corporation or a subsidiary thereof or (ii) death.
3. Eligibility
An Outside Director who has completed at least fifty-four (54) months
of Board Service, whether or not continuous, and who Retires or dies before
Retirement on or after the Effective Date shall be eligible for benefits as
provided herein. After the occurrence of a Change in Control, any person who was
an Outside Director immediately prior to such Change in Control shall be
eligible for benefits as provided herein upon Retirement or death before
Retirement, whether or not such Outside Director has completed at least
fifty-four (54) months of Board Service.
4. Pension Benefits of Eligible Retired Outside Directors Before Death
The accumulated amount of pension benefits payable to an Outside
Director eligible to receive benefits hereunder shall be equal to the product of
(a) the number of months of such Outside Director's Board Service under this
Plan times (b) the monthly compensation of such Outside Director at the date of
such Outside Director's Retirement under the Plan. Such pension benefits shall
be paid in monthly installments equal to the monthly compensation of each
Outside Director at the date of such Outside Director's Retirement. Such pension
benefits shall commence on the first day of the month following the Director's
60th birthday or the Director's Retirement under the Plan, whichever is later,
and shall continue during the Retired Outside Director's life
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until the date when the total payments to the Retired Outside Director shall be
equal to the Outside Director's accumulated pension benefits at the date of such
Director's Retirement. Notwithstanding the foregoing, in the case of any retired
Outside Director who again becomes an Outside Director after payment of his
pension benefits hereunder has commenced, no further payments shall be made with
respect to his pension benefits after the date on which he resumes Board
Service, until his subsequent Retirement or death. The pension benefits payable
under this Section 4 or under Section 5 upon such Outside Director's subsequent
Retirement or death (i) shall be determined by taking into account only the
excess of (A) his total number of months of Board Service prior to July 1, 1997
over (B) the number of months for which he received pension benefit payments
hereunder prior to his resumption of Board Service, and (ii) shall be based on
his monthly compensation at the date of his subsequent Retirement or death.
Notwithstanding the provisions of the preceding paragraph, an Outside
Director may elect to have the accumulated amount of the pension benefits that
become payable hereunder upon his or her Retirement or death before Retirement
paid to the Outside Director, or to his or her surviving spouse (or, if
applicable, designated beneficiary) in the event of his or her death before
Retirement, in the form of a single lump sum payment. Such payment shall be in
an amount that is Actuarially Equivalent (as defined in the GPU Service, Inc.
Employee Pension Plan or any successor thereto and determined as of the first
day of the month next following the date of the Outside Director's Retirement or
earlier death) to the payments that otherwise would be made hereunder with
respect to the Outside Director's accumulated pension benefits if such payments
were made in the form, and if such payments commenced to be made at the time,
provided in the preceding paragraph or in Section 5(b), as applicable. Such lump
sum payment shall be made by no later than thirty (30) days following the date
of the Outside Director's Retirement or earlier death.
Any election made by an Outside Director under the preceding paragraph
shall be effective only if it is made at least twenty-four (24) months (twelve
(12) months if the election is made on or before August 31, 1997) prior to the
Outside Director's Retirement or earlier death. Any election so made may be
revoked, and a new election may be made under the preceding paragraph, at any
time; provided, however, that any such revocation or new election shall be
effective only if it is made within the election period specified in the
preceding sentence. Any such election, or any such revocation of an election,
shall be made in writing, on a form that is furnished to the Outside Director
for such purpose by the Personnel, Compensation and
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Nominating Committee and that is filed by the Outside Director with such
Committee.
5. Benefits Payable by Reason of Death of Eligible Outside Director
In the event that an Outside Director who is eligible to receive
benefits hereunder should die prior to receiving payment of the full amount of
his or her accumulated pension benefits, the remaining portion of such Outside
Director's accumulated pension benefits shall be paid as follows:
(a)If the Outside Director dies after Retirement and if, at the time of
his or her death, monthly installment payments were being made to the Outside
Director, such payments shall continue to be made to the Outside Director's
surviving spouse (or, if applicable, designated beneficiary) until the aggregate
of the payments to the Outside Director and such surviving spouse or beneficiary
shall be equal to the Outside Director's accumulated pension benefits at the
date of such Director's Retirement.
(b)If the Outside Director dies prior to Retirement, there shall be
paid to the Outside Director's surviving spouse (or, if applicable, designated
beneficiary) monthly installments equal to the monthly compensation of such
Outside Director at the date of such Outside Director's death until the
aggregate of the payments to such surviving spouse (or, if applicable,
designated beneficiary) shall be equal to the Outside Director's accumulated
amount of pension benefits at the date of the Outside Director's death. Payment
of such monthly installments shall begin on the first day of the month next
following the Outside Director's death or, if later, the first day of the month
in which the Outside Director's 60th birthday would have occurred if the outside
Director had survived. The provision of this Section 5(b) shall not apply if, at
the time of the Outside Director's death, there is in effect an election made by
the Outside Director under the second paragraph of Section 4.
6. Change in Control
Notwithstanding any other provision of the Plan to the contrary or any
other form of payment otherwise elected hereunder, each Outside Director shall
be permitted to make either one or both of the following special distribution
elections: (a) to have his or her pension benefits distributed in the form of a
single lump sum payment in the event of the Outside Director's Retirement
following a Change in Control, or (b) if a Change in Control occurs after the
Outside Director's Retirement or earlier death but before all payments required
to
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be made with respect to his or her accumulated pension benefits pursuant to
Section 4 and Section 5(a) have been made, to have the payments that otherwise
would be made hereunder with respect to the Outside Director's accumulated
pension benefits after the date of such Change in Control paid in the form of a
single lump sum payment.
Any such election shall be effective only if it is made at least twelve
(12) months prior to such Change in Control, and prior to the Outside Director's
Retirement or earlier death. Any special election made under clause (a) or (b)
of the preceding paragraph may be revoked, and a new special election may be
made thereunder at any time; provided, however, that any such revocation or new
election shall be effective only if it is made within the period specified in
the preceding sentence. Any special election, or revocation of a special
election, that may be made hereunder shall be made in the manner provided in the
last sentence of the last paragraph of Section 4.
The lump sum payment to be made to an Outside Director pursuant to his
or her election under clause (a) of the second preceding paragraph shall be in
an amount that is Actuarially Equivalent (as defined in the GPU Service, Inc.
Employee Pension Plan or any successor thereto and determined as of the first
day of the month next following the date of the Outside Director's Retirement)
to the pension benefits that otherwise would be payable hereunder with respect
to the Outside Director if such pension benefits were to commence upon the
Outside Director's Retirement or 60th birthday, whichever is later. Such lump
sum payment shall be made by no later than thirty (30) days following the date
of the Outside Director's Retirement.
The lump sum payment to be made pursuant to an Outside Director's
election under clause (b) of the third preceding paragraph shall be in an amount
that is Actuarially Equivalent (as defined in the GPU Service, Inc. Employee
Pension Plan or any successor thereto and determined as of the first day of the
month coincident with or next following the date on which the Change in Control
occurs) to the payments that otherwise would be made hereunder with respect to
the Outside Director's accumulated pension benefits after the date of such
Change in Control. Such lump sum payment shall be made by no later than thirty
(30) days following the date on which such Change in Control occurs.
7. Designated Beneficiary of Eligible Outside Director
If an Eligible Outside Director shall die without leaving a surviving
spouse or if the Outside Director's surviving spouse shall die prior to payment
in full of the outside Director's accumulated pension benefits, the payments
which would otherwise
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have been made to the Outside Director's surviving spouse shall be made to the
Outside Director's designated beneficiary (or beneficiaries). Such designations
shall be made in writing on forms provided by the Corporation to the Outside
Director. Any such designation by an Outside Director may be revoked by the
Outside Director at any time before or after Retirement. Any such revocation
shall be made in writing on a form provided by the Corporation to the Outside
Director.
8. Provision for Benefits
All benefits payable hereunder shall be provided from the general
assets of the Corporation. No Outside Director shall acquire any interest in any
specific assets of the Corporation by reason of this Plan. An Outside Director
shall have the status of a mere unsecured creditor of the Corporation with
respect to his or her right to receive any payment under the Plan. The Plan
shall constitute a mere promise by the Corporation to make payments in the
future of the benefits provided for herein. It is intended that the arrangements
reflected in this Plan be treated as unfunded for tax purposes.
9. Amendment and Termination
The Board of Directors reserves the right to terminate this Plan or
amend this Plan prospectively in any respect at any time, but no such amendment
may reduce (a) the benefits of any Outside Director who has previously Retired
hereunder, or (b) the benefits accrued hereunder by any Outside Director prior
to the effective date of such termination or amendment. In addition, the
definition of Change in Control in Section 2, the last sentence in Section 3,
the last paragraph in Section 4, this Section 9, and the last sentence of
Section 10 may not be amended or modified, and the Plan may not be terminated,
(i) at the request of a third party who has indicated an intention or taken
steps to effect a Change in Control and who effectuates a Change in Control,
(ii) within six (6) months prior to, or otherwise in connection with, or in
anticipation of, a Change in Control which has been threatened or proposed and
which actually occurs, or (iii) following a Change in Control, if the amendment,
modification or termination adversely affects the rights of any Outside Director
under the Plan.
10. Administration
This Plan shall be administered by the Personnel, Compensation, and
Nominating Committee of the Board of Directors. Such Committee's final decision,
in making any determination or construction under this Plan and in exercising
any discretionary power, shall in all instances be final and binding on all
persons
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having or claiming any rights under this Plan. Notwithstanding the foregoing,
any determination made by the Committee after the occurrence of a Change in
Control that denies in whole or in part any claim made by any individual for
benefits under the Plan shall be subject to judicial review, under a "de novo,"
rather than a deferential, standard.
11. Miscellaneous
Nothing herein contained shall be deemed to give any Outside Director
the right to be retained as a director of the Corporation, nor shall it
interfere with the Outside Director's right to terminate such directorship at
any time. An Outside Director's rights to payments under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer (other than
transfer by will or by the laws of descent and distribution, in the absence of a
beneficiary designation), assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Outside Director or his or her spouse or other
beneficiary.
12. Phase Out of Plan
Notwithstanding any other provision in this Plan to the contrary, the
provisions of this Section 11 shall apply on or after July 1, 1997.
(a) No individual who first becomes an Outside Director on or after
July 1, 1997 shall be entitled to receive any pension benefits under this Plan.
(b) For purposes of determining the amount of pension benefits payable
under Section 4, 5 or 6 with respect to any individual who is an Outside
Director on July 1, 1997, the number of months of such Outside Director's Board
Service shall be determined by taking into account only months of Board Service
completed prior to July 1, 1997.
(c) In the case of any individual who is an Outside Director on July 1,
1997, his or her Board Service on and after such date shall be taken into
account for purposes of determining his or her eligibility under Section 3 for
benefits payable under the Plan.
9
EXHIBIT 10-S
DEFERRED REMUNERATION PLAN FOR OUTSIDE DIRECTORS
OF GPU, INC.
(AS AMENDED AND RESTATED EFFECTIVE October 8, 19997)
1. Purpose
1.1 The purpose of this document is to set forth the Deferred
Remuneration Plan for Outside Directors, as amended and restated
effective October 8, 1997. The Plan will be implemented by
individual elections by each Director.
2. Plan Summary
2.1 This Plan provides for deferral by Directors of all or a portion
of current Remuneration.
2.2 Funds being deferred will be credited with the equivalent of
interest in accordance with Section 6.
2.3 Each component of the deferred funds will be distributed as
follows:
(a) for a Director who elects deferral until a date or dates
following his or her Retirement, to the Director, in
accordance with his or her latest effective election.
(b) for a Director who elects deferral until a date or dates
preceding his or her Retirement, to the Director, in
accordance with his or her initial election, or
(c) if a Director dies before the deferred funds have been
fully distributed, to his or her designated beneficiary, in
accordance with the option in effect for the Director under
Section 7.2 for each component except as the Board may
otherwise determine, based on the circumstances at the time
the distribution is to commence.
<PAGE>
3. Definition of Terms
3.1 Account - refers to both Pre-Retirement and Retirement Accounts
established for Directors unless specifically designated one or
the other in the text of this Plan.
3.2 Board of Directors - refers to the Board of Directors of GPU,Inc.
3.3 Change in Control - A "Change in Control" shall mean the
occurrence during the term of the Plan of:
(1) An acquisition (other than directly from GPU, Inc. (the
"Corporation")) of any common stock of the Corporation ("Common
Stock") or other voting securities of the Corporation entitled to
vote generally for the election of directors of the Corporation
(the "Voting Securities") by any "Person" (as the term person is
used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit
plan (or a trust forming a part thereof) maintained by (i) the
Corporation or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by the
Corporation (for purposes of this definition, a "Subsidiary"),
(B) the Corporation or its Subsidiaries, or (C) any Person in
connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who, as of August 1, 1996, are members of the
Board of Directors (the "Incumbent Board"), cease for any reason
to constitute at least
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seventy percent (70%) of the members of the Board of Directors;
provided, however, that if the election, or nomination for
election by the Corporation's shareholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the board of directors of the
Corporation (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into
the Corporation or in which securities of the Corporation are
issued, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean
a merger, consolidation or reorganization with or into the
Corporation or in which securities of the Corporation are issued
where:
(i) the shareholders of the Corporation,
immediately before such merger, consolidation or reorganization,
own directly or indirectly immediately following such merger,
consolidation or reorganization, at least sixty percent (60%) of
the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(ii) The individuals who were members of the
Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation
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or reorganization constitute at least seventy percent (70%) of
the members of the board of directors of the Surviving
Corporation, or a corporation, directly or indirectly,
beneficially owning a majority of the Voting Securities of the
Surviving Corporation, and
(iii) no Person other than (w) the Corporation,
(x) any Subsidiary, (y) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such merger,
consolidation or reorganization, was maintained by the
Corporation or any Subsidiary, or (z) any Person who, immediately
prior to such merger, consolidation or reorganization had
Beneficial Ownership of twenty percent (20%) or more of the then
outstanding Voting Securities or common stock of the Corporation,
has Beneficial Ownership of twenty percent (20%) or more of the
combined voting power of the Surviving Corporation's then
outstanding voting securities or its common stock;
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or substantially
all of the assets of the Corporation to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount
of the then outstanding Common Stock or Voting Securities as a
result of the acquisition of Common Stock or Voting Securities by
the Corporation which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject
Person, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of
shares of Common Stock or Voting Securities by the Corporation,
and after such share acquisition by the Corporation, the Subject
Person becomes the Beneficial Owner of any
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additional shares of Common Stock or Voting Securities which
increases the percentage of the then outstanding shares of Common
Stock or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
3.4 Committee - refers to the Personnel, Compensation and Nominating
Committee of the Corporation.
3.5 Director - refers to a member of the Board of Directors who is
not an employee of the Corporation or any of its subsidiaries.
3.6 Plan refers to this Deferred Remuneration Plan for Outside
Directors as described in this document and as it may be amended
in the future.
3.7 Remuneration - refers to all cash amounts earned during a
calendar year by a Director for services performed as a Director
(including services performed as a member of a committee of the
Board of Directors), but does not include consulting fees,
reimbursement for travel or other expenses or Corporation
contributions to other benefit plans.
3.8 Pre-Retirement Account - refers to the memorandum account which
shall be established and maintained for a Director who elects,
pursuant to Section 5.2, to have payment of any portion of his or
her Remuneration for any Plan Year deferred to a date prior to
his or her Retirement. A separate Pre-Retirement Account shall be
established and maintained for the Remuneration for each Plan
Year which the Director so elects to defer.
3.9 Retirement Account - refers to the memorandum account which shall
be established and maintained for a Director who elects, pursuant
to Section 5.2, to have payment of any portion of his or her
Remuneration for any Plan Year deferred to a date after his or
her Retirement. All amounts deferred pursuant to elections made
on or before December 31, 1985 under the Plan by a Director,
together with all interest equivalents earned by such election
and credited to such amounts prior to December 31, 1986, shall be
treated, on or after such date, as part of the Director's
Retirement Account).
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3.10 Retirement - refers to the retirement from service on the Board
of Directors, on account of resignation, death, or any other
reason, without becoming an employee of the Corporation or any of
its subsidiaries.
3.11 Plan Year refers to the period October 1, 1986 through December
31, 1986; and each twelve (12) month period from January 1
through December 31 thereafter.
4. Administration
4.1 The Board of Directors has established this Plan. The Board of
Directors may in its sole discretion modify the provisions of the
Plan from time-to-time, or, may terminate the entire Plan at any
time; provided, however, that Section 3.3, this Section 4.1,
Section 4.4, the last sentence in the first paragraph of Section
6 and the last paragraph in Section 7.2 may not be amended or
modified, and the Plan may not be terminated, (i) at the request
of a third party who has indicated an intention or taken steps to
effect a Change in Control and who effectuates a Change in
Control, (ii) within six (6) months prior to, or otherwise in
connection with, or in anticipation of, a Change in Control which
has been threatened or proposed and which actually occurs, or
(iii) following a Change in Control, if the amendment,
modification or termination adversely affects the rights of any
Director under the Plan. No modification or termination of the
Plan shall adversely affect the rights of any Director with
respect to any amounts standing to the Director's credit in any
Account immediately prior to the date of the adoption of such
modification or termination, including without limitation any
rights with respect to the time and method of payment of, or the
crediting of interest equivalents with respect to, any such
amounts.
4.2 Responsibility for the ongoing administration of this Plan rests
with the Committee.
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4.3 The Committee may delegate the daily administration of this Plan,
including the maintenance of appropriate records, receiving
notifications, making filings, and maintaining related
documentation, to the Vice President - Human Resources of GPU
Service, Inc. and to the Vice President=s staff or to any one or
more other officers or employees of GPU Service, Inc. or any
other subsidiary of GPU, Inc.
4.4 All questions concerning the Plan, as well as any dispute over
accounting or administrative procedures or interpretation of the
Plan, will be resolved at the sole discretion of the Committee,
except that no member of the Committee shall vote on any matter
which affects that member but not all other members of the
Committee. Notwithstanding the foregoing, any determination made
by the Committee after the occurrence of a AChange in Control@
that denies in whole or in part any claim made by any individual
for benefits under the Plan shall be subject to judicial review,
under a "de novo", rather than a deferential, standard.
4.5 All provisions of this plan, its administration and
interpretation, are intended to be in compliance with appropriate
Internal Revenue Service Rulings and judicial decisions regarding
the construction and operation of a deferred compensation
program, so that deferred Remuneration and interest equivalents
thereon will not constitute income constructively received prior
to being distributed under the terms of this Plan.
4.6 A Director=s election to voluntarily defer Remuneration,
selection of a distribution commencement date and distribution
option, and designation of a beneficiary and contingent
beneficiary, made pursuant to this Plan shall be made in writing,
on a form furnished to the Director by the Corporation for such
purposes, signed and delivered personally or by first class mail
to: Corporate Secretary, GPU Service Inc., 100 Interpace Parkway,
Parsippany, New Jersey 07054, or to such other address as may be
specified in such form.
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Any such election, selection, designation, or change therein,
shall not become effective unless and until received by the
Corporate Secretary. Except as otherwise provided in Section 7.2
or 7.4, any change in a Director's election as to the
distribution commencement date or distribution option for his or
her Retirement Account shall be effective only if such change is
made at least twenty-four (24) months prior to such Director's
Retirement.
Notwithstanding the foregoing, in the case of any Director who,
as a result of a change in the Corporation's mandatory retirement
policy for Directors adopted by the Board of Directors, is
required to retire within twenty-four (24) months after the date
of adoption of such change, any change of election as to the
distribution commencement date or distribution option for such
Director's Retirement Account shall be effective if such change
of election is made by the Director no later than forty-five (45)
days after the date of adoption of such change in policy by the
Board of Directors.
5. Deferral Election
5.1A Director may elect to defer all or any portion of his or her
Remuneration for any Plan Year, providing such portion is three
thousand dollars ($3,000) or more. A separate deferral election shall
be made with respect to a Director=s Remuneration for each Plan Year.
An election to defer Remuneration for the 1986 amended Plan Year shall
be made on or prior to September 30. In subsequent years, the election
shall be made on or before December 31 of the year preceding the Plan
Year. Notwithstanding, the foregoing, (a) Directors who are initially
elected prior to December 1st of any Plan Year may, within 30 days of
such initial election, make a deferral election for the then current
Plan Year, and (b) Directors who are initially elected after December
1st of any Plan Year may immediately make a deferral election for both
the then current Plan Year and
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for the immediately succeeding Plan Year; provided, however, that any
deferral election made pursuant to clause (a) or (b) hereof shall be
effective only with respect to Remuneration earned after such election
has become effective. All elections under this Section 5.1 shall be
irrevocable.
5.2 In his or her election to defer Remuneration for any Plan Year, a
Director shall specify the amount or portion of the Remuneration
to be deferred, and shall indicate whether the Remuneration so
deferred is to be credited to a Pre-Retirement Account, or to a
Retirement Account.
5.3 With respect to Remuneration deferred hereunder for a Plan Year
which a Director elects to have credited to his or her
Pre-Retirement Account, the Director shall specify in the
election form the date on which distribution of the
Pre-Retirement Account shall be made or commence. The date so
selected shall be no earlier than 24 months from the close of the
Plan Year. In the election form for the Plan Year, the Director
shall also select an option under Section 7.2 for the
distribution of the Pre-Retirement Account. Except as provided in
Section 7.2 or 7.4, the date so specified, and the option so
selected, may not thereafter be changed by the Director.
5.4 With respect to any Remuneration deferred hereunder which a
Director elects to have credited to his or her Retirement
Account, the Director shall, at the time he or she first elects
to have an amount credited to that account, also elect a
distribution commencement date and a distribution option under
Section 7.2 for the distribution of the Retirement Account. A
Director may, subject to the provisions of Section 4.6, change
any election as to the distribution commencement date and
distribution option for the Retirement Account previously made by
the Director. The distribution commencement date so elected shall
be either January 15 of the calendar year following the
Director=s Retirement, or January 15 of any subsequent calendar
year.
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<PAGE>
5.5 In the case of a Director who, prior to January 1, 1986, made a
deferral election under the Plan with respect to his or her
Remuneration for the calendar year 1986, any deferral election
made by the Director hereunder with respect to the period
commencing October 1, 1986 and ending December 31, 1986 shall be
effective, for that period, only with respect to the excess, if
any, of the amount he or she so elects to defer for said period
over the amount of Remuneration for said period deferred pursuant
to the Director=s prior election.
5.6 The amounts which are deferred, including interest equivalents,
will be credited to a Director=s Account. Prior to distribution,
all amounts deferred including interest equivalents, will
constitute general assets of the Corporation for use as it deems
necessary, and will be subject to the claims of the Corporation=s
creditors. A Director shall have the status of a mere unsecured
creditor of the Corporation with respect to his or her right to
receive any payment under the Plan. The Plan shall constitute a
mere promise by the Corporation to make payments in the future of
the benefits provided for herein. It is intended that the
arrangements reflected in this Plan be treated as unfunded for
tax purposes.
6. Interest
Interest equivalents, compounded monthly on deposits treated as monthly
transactions, will be credited at the end of each quarter in the calendar
year. Such credit will be made to the balance of each account maintained
for a Director hereunder, including the undistributed balance of any such
account from which payments are being made in installments. The rate used
in calculation of interest equivalents will be no less than the rate
equal to the simple average of Citibank N.A. of New York Prime Rates for
the last business day of each of the three months in the calendar quarter
or, if greater, such other rate as established from time to time by the
Committee.
10
<PAGE>
The Corporation may, but shall not be required to, purchase a life
insurance policy, or policies, to assist it in funding its payment
obligations under the Plan. If a policy, or policies, is so purchased, it
shall, at all times, remain the exclusive property of the Corporation and
subject to the claims of its creditors. Neither the Director nor any
beneficiary or contingent beneficiary designated by him or her shall have
any interest in, or rights with respect to such policy.
7. Distribution of Deferred Funds
7.1 A Director=s Pre-Retirement Account shall be distributed to the
Director, or distributions from such Pre-Retirement Accounts
shall commence, on the date or dates specified in the elections
made by the Director with respect to such accounts. A Director=s
Retirement Account shall commence, on the date specified in the
Director's latest effective election.
7.2 The options for distribution are:
(a) A single lump sum payment.
(b) Annual Installments over any fixed number of years selected
by the Director, with a minimum of five annual installments
for the Retirement Account.
(c) Other options, in equal or unequal payments, as
specifically approved by the Committee.
If distribution of a Director=s Account is to be made in annual
installments under Option (b) of Section 7.2, the amount of each
installment will equal the total amount in said Account on the
date the installment is payable, divided by the number of
installments remaining to be paid. In addition, if the
distributions are made in installments under Option (b) of
Section 7.2, the interest equivalent accrued on each Account each
year after the date the first installment is payable will be
distributed on each anniversary of such date.
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<PAGE>
Notwithstanding any other provision of the Plan to the contrary
or any other optional form of distribution otherwise elected,
each Director shall be permitted to make either one or both of
the following special distribution elections: (x) to have the
entire balance of his or her Accounts distributed in the form of
a single lump sum payment in the event of the Director's
Retirement following a Change in Control, or (y) if a Change in
Control occurs after the Director's Retirement but before all
payments with respect to the balances of his or her Accounts have
been made in accordance with the Director's elections under
Sections 5.3 and 5.4, to have the entire balance of each of his
Accounts that remains unpaid at the time of such Change in
Control distributed in the form of a single lump sum payment. Any
such election shall be effective only if it is made at least
twelve (12) months prior to such Change in Control and prior to
the Retirement. Any special election made under clause (x) or (y)
above may be revoked, and a new special election may be made
thereunder at any time; provided, however, that any such
revocation or new election shall be effective only if it is made
within the period specified in the preceding sentence. Any
special election, or revocation of a special election, that may
be made hereunder shall be made in the manner set forth in
Section 4.6. The lump sum payment to be made pursuant to a
Director's special election hereunder shall be made by no later
than thirty (30) days following the date of the Director's
Retirement or, in the case of a special election under clause (y)
above, the date of Change in Control.
7.3 Except as the Committee may otherwise determine based on the
circumstances at the time the distribution to the beneficiary is to
commence:
(a) If a Director should die after distribution of his/her Account
maintained for the Director has commenced, but before the entire
balance has been fully distributed, distributions will continue to
be made to the Director's designated beneficiary or contingent
beneficiary, in accordance with the distribution option in effect
for such Account at the time of the Director's death.
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<PAGE>
(b) If a Director should die before any distribution from an Account
maintained for the Director hereunder has been made to him or her,
distribution to the Director's designated beneficiary or contingent
beneficiary shall be made, or shall commence, as soon as
practicable after the Director's death, in accordance with the
distribution option in effect for such Account at the time of the
Director's death.
Amounts remaining to be paid, after the death of the Director, to
the designated beneficiary and the contingent beneficiary, will be
paid in a lump sum to the estate of the last of such persons to
die.
7.4 Notwithstanding anything herein to the contrary, any Account
maintained for a Director hereunder may be distributed, in whole
or in part, to such Director on any date earlier than the date on
which distribution is to be made or commence, pursuant to the
Director's election if:
(a) the Director requests early distribution, and
(b) the Committee, in its sole discretion, determines that early
distribution is necessary to help the Director meet some
severe financial need arising from circumstances which were
beyond the Director's control and which were not foreseen by
the Director at the time he or she made the election as to
the date or dates for distribution. A request by a Director
for an early distribution shall be made in writing, shall
set forth sufficient information as to the Director's needs
for such distribution to enable the Committee to take action
on his or her request, and shall be mailed or delivered to
the Corporation's Corporate Secretary.
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8. Non-Assignment of Deferred Remuneration
8.1 A Director's rights to payments under this Plan shall not be
subject to any manner to anticipation, alienation, sale, transfer
(other than transfer by will or by the laws of descent and
distribution, in the absence of a beneficiary designation),
assignment, pledge, encumbrance, attachment or garnishment by
creditors of the Director or his or her spouse or other
beneficiary.
8.2 All amounts paid under the Plan, including the interest
equivalents credited to a Director's Account, are considered to
be Remuneration. The crediting of interest equivalents is
intended to preserve the value of the remuneration so deferred
for the Director.
14
EXHIBIT 10-CC
GPU, INC.
1990 STOCK PLAN FOR EMPLOYEES OF
GPU, INC. AND SUBSIDIARIES
AS AMENDED AND RESTATED
TO REFLECT AMENDMENTS
THROUGH JUNE 5, 1997
<PAGE>
1990 STOCK PLAN FOR EMPLOYEES OF
GPU, INC. AND SUBSIDIARIES
--------------------------
1. Purpose
GPU, Inc. (the "Corporation") desires to attract and retain employees
of outstanding talent. The 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries (the "Plan") affords eligible employees the opportunity to acquire
proprietary interests in the Corporation and thereby encourages their highest
levels of performance.
2. Scope and Duration
(a) Awards under the Plan may be granted in the following forms:
(i) incentive stock options ("incentive stock options") as
provided in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and non-qualified stock options ("non-qualified
options") (the term "options" includes incentive stock options and
non-qualified options);
(ii) shares of Common Stock of the Corporation (the "Common
Stock") which are restricted as provided in paragraph 10 ("restricted
shares"); or
(iii)rights to acquire shares of Common Stock which are
restricted as provided in paragraph 10 ("units" or "restricted units").
Options may be accompanied by stock appreciation rights ("rights").
(b) The maximum aggregate number of shares of Common Stock as to which
awards of options, restricted shares, units or rights may be made from time to
time under the Plan is 1,974,190 shares(1). Shares issued pursuant to this Plan
may be in whole or in part, as the Board of Directors of the Corporation (the
"Board of Directors") shall from time to time determine, authorized but unissued
shares or issued shares reacquired by the Corporation. If for any reason any
shares as to which an option has been granted cease to be subject to purchase
thereunder or any restricted shares or restricted units are forfeited to the
Corporation, or to the extent that any awards under the Plan denominated in
shares or units are paid or settled in cash or are surrendered upon the exercise
of an option, then (unless the Plan shall have been terminated) such shares or
units, and any shares surrendered to the Corporation upon such exercise, shall
become available for subsequent awards under the Plan unless such shares or
units, if so made available for subsequent awards under the Plan, would not be
exempt from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") pursuant to Rule 16b-3, as amended, thereunder; provided, however, that
shares surrendered to the Corporation upon the exercise of an incentive stock
option and shares subject to an incentive stock option surrendered upon the
exercise of a right shall not be available for subsequent award of additional
stock options under the Plan.
(c) No incentive stock option shall be granted hereunder after November
30, 1999.
3. Administration
(a) The Plan shall be administered by those members of the Personnel,
Compensation and Nominating Committee, or any successor thereto, of the Board of
Directors who are "non-employee directors" within the meaning of Rule 16b-3, as
amended, under Section 16(b) of the Exchange Act or by such other committee
consisting of not less than two persons each of whom shall qualify as
"non-employee directors," as may be determined by the Board of Directors ("the
Committee").
- --------------------------
(1) Initially, 1,000,000 shares were authorized to be issued under the
Plan. On May 29, 1991, the Corporation effected a two-for-one stock
split by way of a stock dividend, leaving 1,974,190 shares available
for issuance under the Plan on and after that date, after giving effect
to shares previously awarded.
2
<PAGE>
(b) The Committee shall have plenary authority in its sole discretion,
subject to and not inconsistent with the express provisions of this Plan: (i) to
grant options, to determine the purchase price of the Common Stock covered by
each option, the term of each option, the employees to whom, and the time or
times at which, options shall be granted and the number of shares to be covered
by each option; (ii) to designate options as incentive stock options or
non-qualified options and to determine which options shall be accompanied by
rights; (iii) to grant rights and to determine the purchase price of the Common
Stock covered by each right or related option, the term of each right or related
option, the employees to whom, and the time or times at which, rights or related
options shall be granted and the number of shares to be covered by each right or
related option; (iv) to grant restricted shares and restricted units and to
determine the term of the Restricted Period (as defined in paragraph 10) and
other conditions applicable to such shares or units, the employees to whom, and
the time or times at which, restricted shares or restricted units shall be
granted and the number of shares or units to be covered by each grant; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of the option
and rights agreements (which need not be identical) and the restricted share and
restricted unit agreements (which need not be identical) entered into in
connection with awards under the Plan, including any provisions of such
agreements that may permit a recipient of an award of restricted units to elect,
prior to the vesting of such units, to defer the payment of cash and/or the
delivery of shares of Common Stock otherwise to be made upon the vesting of such
restricted units, and/or to defer the payment of any cash compensation awarded
to the recipient with respect to such restricted units, or with respect to any
restricted stock awarded to the recipient, either under this Plan or the GPU
System Companies Deferred Compensation Plan (a "Deferral"); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan. Without limiting the foregoing, the Committee shall have plenary authority
in its sole discretion, subject to and not inconsistent with the express
provisions of the Plan, (1) to select GPU Officers (as defined below) for
participation in the Plan, (2) to determine the timing, price and amount of any
grant or award under the Plan to any GPU Officer, (3) either (A) to determine
the form in which payment of any right granted or awarded under the Plan will be
made (i.e., cash, securities or any combination thereof) or (B) to approve the
election of the employee to receive cash in whole or in part in settlement of
any right granted or awarded under the Plan. As used herein, the term "GPU
Officer" shall mean an officer (other than an assistant officer) of the
Corporation and any person who may from time to time be designated an executive
officer of the Corporation by its Board of Directors. The exercise by the
Committee of the powers granted in clauses (i), (ii), (iii), (iv), and (vii)
hereof shall be subject to the approval of the Board of Directors with respect
to a recipient of an award hereunder who is an officer (other than assistant
officer) of the Corporation or the Chairman or President of any subsidiary (as
defined in paragraph 4(a) hereof) of the Corporation (the"Board"). (The
Committee and the Board are sometimes hereinafter referred to as the
"Grantors.")
(c) The Grantors may delegate to one or more of their members or to one
or more agents such administrative duties as they may deem advisable, and the
Grantors or any person to whom
3
<PAGE>
they have delegated duties as aforesaid may employ one or more persons to render
advice with respect to any responsibility the Grantors or such person may have
under the Plan; provided, that the Grantors may not delegate any duties to a
member of the Board of Directors who would not qualify as a "non-employee
director" to administer the Plan as contemplated by Rule 16b-3, as amended, or
other applicable rules under the Exchange Act. The Grantors may employ
attorneys, consultants, accountants or other persons and the Grantors, the
Corporation and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Grantors in good faith shall be
final and binding upon all employees who have received awards, the Corporation
and all other interested persons. Notwithstanding the foregoing, any action
taken or any interpretation or determination made by the Grantors after the
occurrence of a "Change in Control" (as defined in paragraph 7(c) hereof) which
adversely affects the rights of any employee with respect to any award made to
the employee hereunder shall be subject to judicial review under a "de novo"
rather than a deferential standard. No member or agent of the Grantors shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or awards made thereunder, and all members and
agents of the Grantors s shall be fully protected by the Corporation in respect
of any such action, determination or interpretation.
4. Eligibility; Factors to be Considered in Making Awards
(a) Only employees of the Corporation or its subsidiaries may receive
awards under the Plan. The term "subsidiary" means any corporation one hundred
(100%) percent of the common stock of which is owned, directly or indirectly, by
the Corporation. A director of the Corporation or of a subsidiary who is not
also an employee will not be eligible to receive an award.
(b) In determining the employees to whom awards shall be granted and
the number of shares or units to be covered by each award, the Committee shall
take into account the nature of the employee's duties, his or her present and
potential contributions to the success of the Corporation and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
Plan.
(c) Awards may be granted singly, in combination or in tandem and may
be made in combination or in tandem with or in replacement of, or as
alternatives to, awards or grants under any other employee plan maintained by
the Corporation or its
4
<PAGE>
subsidiaries. An award made in the form of an option, a unit or a right may
provide, in the discretion of the committee, for (i) the crediting to the
account of, or the current payment to, each employee who has such an award of an
amount equal to the cash dividends and stock dividends paid by the Corporation
upon one share of Common Stock for each restricted unit, or share of Common
Stock subject to an option or right, included in such award, and for each
restricted unit which is the subject of a Deferral ("Dividend Equivalents"), or
(ii) the deemed reinvestment of such Dividend Equivalents and stock dividends in
shares of Common Stock or the deemed reinvestment of units in additional units ,
which deemed reinvestment in each case shall be deemed to be made in accordance
with the provisions of paragraph 10 and credited to the Employee's account
("Additional Deemed Shares"). Such Additional Deemed Shares shall be subject to
the same restrictions (including but not limited to provisions regarding
forfeitures) applicable with respect to the option, unit or right with respect
to which such credit is made. Dividend Equivalents not deemed reinvested as
stock dividends shall not be subject to forfeiture, and may bear amounts
equivalent to interest or cash dividends as the Committee may determine. An
employee who has been granted incentive stock options under the Plan may be
granted an additional award or awards, subject to such limitations as may be
imposed by the Code with respect to incentive stock options.
(d) The Committee, in its sole discretion, may grant to an employee who
has been granted an award under the Plan or any other employee plan maintained
by the Corporation, any of its subsidiaries, or any successor thereto, in
exchange for the surrender and cancellation of such award, a new award in the
same or a different form and containing such terms, including without limitation
a price which is different (either higher or lower) than any price provided in
the award so surrendered and cancelled, as the Committee may deem appropriate.
5. Option Price
(a) The purchase price of the Common Stock covered by each option shall
be determined by the Committee; provided, however, that in the case of incentive
stock options, the purchase price shall not be less than 100% of the fair market
value of the Common Stock on the date the option is granted. Fair market value
shall mean the closing price of the Common Stock as reported on the New York
Stock Exchange Composite Tape for the date on which the option is granted, or if
there are no sales on
5
<PAGE>
such date, on the next preceding day on which there were sales. Such price shall
be subject to adjustment as provided in paragraph 13. The price so determined
shall also be applicable in connection with the exercise of any related right.
(b) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise; payment may be made in cash,
which may be paid by check or other instrument acceptable to the Corporation, in
shares of the Common Stock, valued at the closing price of the Common Stock as
reported on the New York Stock Exchange Composite Tape for the date of exercise,
or if there were no sales on such date, on the next preceding day on which there
were sales, or (if permitted by the Committee and subject to such terms and
conditions as it may determine) by surrender of outstanding awards under the
Plan. In addition, the employee shall pay any amount necessary to satisfy
applicable federal, state or local tax requirements promptly upon notification
of the amount due. The Committee may permit such amount to be paid in shares of
Common Stock previously owned by the employee, or a portion of the shares of
Common Stock that otherwise would be distributed to such employee upon exercise
of the option, or a combination of cash and shares of such Common Stock.
6. Term of Options
The term of each incentive stock option granted under the Plan shall be
such period of time as the Committee shall determine, but not more than ten
years from the date of grant, subject to earlier termination as provided in
paragraphs 11 and 12. The term of each non-qualified stock option granted under
the Plan shall be such period of time as the Committee shall determine, subject
to earlier termination as provided in paragraphs 11 and 12.
7. Exercise of Options
(a) Each option shall become exercisable in whole or in part, as the
Committee shall determine provided, however, that the Committee may also, in its
discretion, accelerate the exercisability of any option in whole or in part at
any time.
(b) Subject to the provisions of the Plan and unless otherwise provided
in the option agreement, an option granted under the Plan shall become
exercisable in full at the earliest of the employee's death, Eligible Retirement
(as defined below),
6
<PAGE>
or Total Disability (as defined in paragraph 12). For purposes of this Plan, the
term "Eligible Retirement" shall mean the date upon which an employee, having
attained an age of not less than fifty-five, terminates his or employment with
the Corporation and all of its subsidiaries, provided that such employee is
immediately eligible to receive a pension (whether or not he or she otherwise
elects to defer such receipt) under Section 3.1 or 3.3 of the "Employee Pension
Plan" maintained by any subsidiary or subsidiaries of the Corporation for
salaried employees, or any successor plan thereto.
(c) Notwithstanding the foregoing, an option shall become immediately
exercisable as to all shares of Common Stock remaining subject to the option on
or following a "Change in Control" of the Corporation (the date upon which such
event occurs shall be referred to for purposes of this Plan as an "Acceleration
Date"). A "Change in Control" shall mean the occurrence during the term of the
Plan of:
(1) An acquisition (other than directly from the Corporation) of
any Common Stock or other voting securities of the Corporation entitled to vote
generally for the election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of the then outstanding shares of Common Stock or the combined
voting power of the Corporation's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an
employee benefit plan (or a trust forming a part thereof) maintained by (i) the
Corporation or (ii) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Corporation (for purposes of this definition, a
"Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of the
Board of Directors (the "Incumbent Board"), cease for any reason to constitute
at least seventy percent (70%) of the members of the Board of Directors;
provided, however, that if
7
<PAGE>
the election, or nomination for election by the Corporation's shareholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or into
the Corporation or in which securities of the Corporation are issued, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
with or into the Corporation or in which securities of the Corporation are
issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least seventy percent
(70%) of the members of the board of directors of the Surviving Corporation, or
a corporation, directly or indirectly, beneficially owning a majority of the
Voting Securities of the Surviving Corporation, and
(iii)no Person other than (w) the Corporation, (x)
any Subsidiary, (y) any employee benefit plan (or any trust forming a part
thereof) that, immediately prior to such merger,
8
<PAGE>
consolidation or reorganization, was maintained by the Corporation or any
Subsidiary, or (z) any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of twenty percent (20%)
or more of the then outstanding Voting Securities or Common Stock, has
Beneficial Ownership of twenty percent (20%) or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities or its
common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or substantially
all of the assets of the Corporation to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by the Corporation which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of this sentence) as a result of
the acquisition of shares of Common Stock or Voting Securities by the
Corporation, and after such share acquisition by the Corporation, the Subject
Person becomes the Beneficial Owner of any additional shares of Common Stock or
Voting Securities which increases the percentage of the then outstanding shares
of Common Stock or Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(d) An option may be exercised, at any time or from time to time
(subject, in the case of an incentive stock option, to such restrictions as may
be imposed by the Code), as to any or all full shares as to which the option has
become exercisable, provided, however, that an option may not be exercised at
any one time as to less than 100 shares (or less than the number of shares as to
which the option is then exercisable, if that number is less than 100 shares).
(e) Subject to the provisions of paragraphs 11 and 12, in the case of
incentive stock options, no option may be exercised at any time unless the
holder thereof is then an employee of the
9
<PAGE>
subparagraph 7(e), subsidiary shall include, as under Treasury Corporation or
any of its subsidiaries. For purposes of this Regulations Section 1.421-7(h)(3)
and (4), example (3), any corporation which is a subsidiary of the Corporation
during the entire portion of the requisite period of employment during which it
is the employer of the holder.
(f) Upon the exercise of an option or portion thereof in accordance
with the Plan, the option agreement and such rules and regulations as may be
established by the Committee, the holder thereof shall have the rights of a
shareholder with respect to the shares issued as a result of such exercise.
8. Award and Exercise of Rights
(a) A right may be awarded by the Committee in connection with any
option granted under the Plan, either at the time the option is granted or
thereafter at any time prior to the exercise, termination or expiration of the
option ("tandem right"), or separately ("freestanding right"). Each tandem right
shall be subject to the same terms and conditions as the related option and
shall be exercisable only to the extent the option is exercisable. A right shall
be exercisable (as to a tandem right, only to the extent the related option is
exercisable) on or after an Acceleration Date.
(b) A right shall entitle the employee upon exercise in accordance with
its terms (subject, in the case of a tandem right, to the surrender unexercised
of the related option or any portion or portions thereof which the employee from
time to time determines to surrender for this purpose) to receive, subject to
the provisions of the Plan and such rules and regulations as from time to time
may be established by the Committee, a payment having an aggregate value equal
to the product of (A) the excess of (i) the fair market value on the exercise
date of one share of Common Stock over (ii) the exercise price per share, in the
case of a tandem right, or the price per share specified in the terms of the
right, in the case of a freestanding right, multiplied by (B) the number of
shares with respect to which the right shall have been exercised. The payment
may be made in the form of all cash, all shares of Common Stock, or a
combination thereof, as elected by the employee.
(c) The exercise price per share specified in a right shall be as
determined by the Committee, provided that, in the case of a tandem right
accompanying an incentive stock option,
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<PAGE>
the exercise price shall be not less than fair market value of the Common Stock
subject to such option on the date of grant.
(d) If upon the exercise of a right the employee is to receive a
portion of the payment in shares of Common Stock, the number of shares shall be
determined by dividing such portion by the fair market value of a share on the
exercise date. The number of shares received may not exceed the number of shares
covered by any option or portion thereof surrendered. Cash will be paid in lieu
of any fractional share.
(e) No payment will be required from an employee upon exercise of a
right, except that any amount necessary to satisfy applicable federal, state or
local tax requirements shall be withheld or paid promptly by the employee upon
notification of the amount due and prior to or concurrently with delivery of
cash or a certificate representing shares. The Committee may permit such amount
to be paid in shares of Common Stock previously owned by the employee, or a
portion of the shares of Common Stock that otherwise would be distributed to
such employee upon exercise of the right, or a combination of cash and shares of
such Common Stock.
(f) The fair market value of a share shall mean the closing price of
the Common Stock as reported on the New York Stock Exchange Composite Tape for
the date of exercise, or if there are no sales on such date, on the next
preceding day on which there were sales; provided, however, that in the case of
rights that relate to an incentive stock option, the Committee may prescribe, by
rules of general application, such other measure of fair market value as the
Committee may in its discretion determine but not in excess of the maximum
amount that would be permissible under Section 422 of the Code without
disqualifying such option under Section 422.
(g) Upon exercise of a tandem right, the number of shares subject to
exercise under the related option shall automatically be reduced by the number
of shares represented by the option or portion thereof surrendered.
(h) A right related to an incentive stock option may only be exercised
if the fair market value of a share of Common Stock on the exercise date exceeds
the option price.
11
<PAGE>
9. Non-Transferability of Options, Rights and Units; Holding Periods for
GPU Officers
Options, rights, and units granted under the Plan shall not be
transferable by the grantee thereof otherwise than by will or the laws of
descent and distribution; provided, that the designation of a beneficiary by an
employee shall not constitute a transfer; and options and rights may be
exercised during the lifetime of the employee only by the employee or, unless
such exercise would disqualify an option as an incentive stock option, by the
employee's guardian or legal representative.
10. Award and Delivery of Restricted Shares or Restricted
Unit
(a) At the time an award of restricted shares or restricted units is
made, the Committee shall establish a period of time (the "Restricted Period")
applicable to such award. Each award of restricted shares or restricted units
may have a different Restricted Period. The Committee may, in its sole
discretion, at the time an award is made, prescribe conditions for the
incremental lapse of restrictions during the Restricted Period and for the lapse
or termination of restrictions upon the satisfaction of other conditions in
addition to or other than the expiration of the Restricted Period with respect
to all or any portion of the restricted shares or restricted units. Subject to
Section 9 hereof, the Committee may also, in its sole discretion, shorten or
terminate the Restricted Period, or waive any conditions for the lapse or
termination of restrictions with respect to all or any portion of the restricted
shares or restricted units. Notwithstanding the foregoing but subject to Section
9 hereof, all restrictions shall lapse, and the Restricted Period shall
terminate, with respect to all restricted shares or restricted units upon the
earliest to occur of an employee's Eligible Retirement, death, Total Disability
or the occurrence of an Acceleration Date.
(b) (1) Unless such shares are issued as uncertificated shares pursuant
to subparagraph (3) below, a stock certificate representing the number of
restricted shares granted to an employee shall be registered in the employee's
name but shall be held in custody by the Corporation or an agent therefor for
the employee's account. The employee shall generally have the rights and
privileges of a shareholder as to such restricted shares,
12
<PAGE>
including the right to vote such restricted shares, except that, subject to the
provisions of paragraph 11, the following restrictions shall apply: (i) the
employee shall not be entitled to delivery of the certificate until the
expiration or termination of the Restricted Period and the satisfaction of any
other conditions prescribed by the Committee; (ii) none of the restricted shares
may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed
of during the Restricted Period and until the satisfaction of any other
conditions prescribed by the Committee at the time of award; and (iii) all of
the restricted shares shall be forfeited and all rights of the employee to such
restricted shares shall terminate without further obligation on the part of the
Corporation unless the employee has remained an employee of the Corporation or
any of its subsidiaries until the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee
at the time of award applicable to such restricted shares. At the discretion of
the Committee, (i) cash and stock dividends with respect to the restricted
shares may be either currently paid or withheld by the Corporation for the
employee's account, and interest may be paid on the amount of cash dividends
withheld at a rate and subject to such terms as determined by the Committee or
(ii) the Committee may require that all cash dividends be applied to the
purchase of additional shares of Common Stock, and such purchased shares,
together with any stock dividends related to such restricted shares (such
purchased shares and stock dividends are hereafter referred to as "Additional
Restricted Shares") shall be treated as Additional Shares, subject to forfeiture
on the same terms and conditions as the original grant of the restricted shares
to the employee.
(2) The purchase of any such Additional Restricted Shares shall be made
either (x) through the Corporation's Dividend Reinvestment and Stock Purchase
Plan, in which event the price of such shares so purchased through the
reinvestment of dividends shall be as determined in accordance with the
provisions of that plan and no stock certificate representing such Additional
Restricted Shares shall be registered in the employee's name or (y) in
accordance with such alternative procedure as is determined by the Committee in
which event the price of such purchased shares shall be the closing price of the
Common Stock as reported on the New York Stock Exchange Composite Tape for the
date on which such purchase is made, or if there were no sales on such date, the
next preceding day on which there were sales. In the event that the Committee
shall not require reinvestment, cash or stock dividends so withheld by the
Committee shall not be subject to forfeiture. Upon the forfeiture of any
restricted
13
<PAGE>
shares (including any Additional Restricted Shares), such forfeited shares shall
be transferred to the Corporation without further action by the employee. The
employee shall have the same rights and privileges, and be subject to the same
restrictions, with respect to any shares received pursuant to paragraph 13.
(3) Notwithstanding anything herein to the contrary, shares
representing Restricted Shares or Additional Restricted Shares may be issued as
uncertificated shares.
(c) Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee at the time of
award, or at such earlier time as provided for in paragraph 11, the restrictions
applicable to the restricted shares (including Additional Restricted Shares)
shall lapse and a stock certificate for the number of restricted shares
(including any Additional Restricted Shares) with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions,
except any that may be imposed by law, to the employee or the employee's
beneficiary or estate, as the case may be. The Corporation shall not be required
to deliver any fractional share of Common Stock but will pay, in lieu thereof,
the fair market value (determined as of the date the restrictions lapse) of such
fractional share to the employee or the employee's beneficiary or estate, as the
case may be.
No payment will be required from the employee upon the issuance or
delivery of any restricted shares, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due and prior to or concurrently with
the issuance or delivery of a certificate representing such shares. The
Committee may permit such amount to be paid in shares of Common Stock previously
owned by the employee, or a portion of the shares of Common Stock that otherwise
would be distributed to such employee upon the lapse of the restrictions
applicable to the restricted shares, or a combination of cash and shares of such
Common Stock.
(d) In the case of an award of restricted units, no shares of Common
Stock shall be issued at the time the award is made, and the Corporation shall
not be required to set aside a fund for the payment of any such award.
(e) Subject to subparagraph (g) below:
14
<PAGE>
(i) Upon the expiration or termination of the Restricted Period or the
occurrence of an Acceleration Date and the satisfaction of any other conditions
prescribed by the Committee or at such earlier time as provided for in paragraph
11, the Corporation shall deliver to the employee or the employee's beneficiary
or estate, as the case may be, one share of Common Stock for each restricted
unit with respect to which the restrictions have lapsed ("vested unit").
(ii) In addition, if the Committee has not required the deemed
reinvestment of such Dividend Equivalents pursuant to paragraph 4, at
such time the Corporation shall deliver to the employee cash equal to
any Dividend Equivalents or stock dividends credited with respect to
each such vested unit and, to the extent determined by the Committee,
the interest thereupon. However, if the Committee has required such
deemed reinvestment in connection with such restricted unit, in
addition to the stock represented by such vested unit, the Corporation
shall deliver the number of Additional Deemed Shares credited to the
employee with respect to such vested unit.
(iii)Notwithstanding the foregoing, the Committee may, in its
sole discretion, elect to pay cash or part cash and part Common Stock
in lieu of delivering only Common Stock for the vested units and
related Additional Deemed Shares. If a cash payment is made in lieu of
delivering Common Stock, the amount of such cash payment shall be equal
to the closing price of the Common Stock as reported on the New York
Stock Exchange Composite Tape for the date on which the Restricted
Period lapsed with respect to such vested unit and related Additional
Deemed Shares, or if there are no sales on such date, on the next
preceding day on which there were sales.
(f) Upon the occurrence of an Acceleration Date, all outstanding vested
units (including restricted units whose restrictions have lapsed as a result of
the occurrence of such acceleration date) and credited Dividend Equivalents or
related Additional Deemed Shares shall be payable as soon as practicable but in
no event later than 90 days after such Acceleration Date in cash, in shares of
Common Stock, or part in cash and part in Common Stock, as the Committee, in its
sole discretion, shall determine.
15
<PAGE>
(i) Subject to subparagraph (g) below, to the extent that an
employee receives cash in payment for his or her vested units and
Additional Deemed Shares, such employees shall receive an amount equal
to the product of (x) the number of vested units and Additional Deemed
Shares credited to such employee's account for which such employee is
receiving payment in cash multiplied by (y) the highest closing price
per share of Common Stock occurring during the ninety (90) day period
preceding and the ninety (90) day period following the Acceleration
Date (the "Multiplication Factor").
(ii) Subject to subparagraph (g) below, to the extent that an
employee receives Common Stock in payment for his or her vested units
and Additional Deemed Shares, such employee shall receive the number of
shares of Common Stock determined by dividing (x) the product of (I)
the number of vested units and Additional Deemed Shares credited to
such employee's account for which such employee is receiving payment in
Common Stock multiplied by (II) the Multiplication Factor, by (y) the
fair market value per share of the Common Stock for the day preceding
the payment date, or if there are no sales on such date, on the next
preceding day on which there were sales.
(g) No payment will be required from the employee upon the award of any
restricted units, the crediting or payment of any Dividend Equivalents or
Additional Deemed Shares, or the delivery of Common Stock or the payment of cash
in respect of vested units, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due. The Committee may permit such
amount to be paid in shares of Common Stock previously owned by the employee, or
a portion of the shares of Common Stock that otherwise would be distributed to
such employee in respect of vested units and Additional Deemed Shares, or a
combination of cash and shares of such Common Stock.
(h) In addition, the Committee shall have the right, in its absolute
discretion, upon or prior to the vesting of any restricted shares (including
Additional Restricted Shares) and restricted units (including Additional Deemed
Shares) to award cash compensation to the employee for the purpose of aiding the
employee in the payment of any and all federal, state and local income taxes
payable as a result of such vesting, if the performance of the Corporation
during the Restricted Period meets such criteria as the Committee shall have
prescribed.
16
<PAGE>
(i) Notwithstanding any other provision in this paragraph 10 to
the contrary, any payment of cash and/or delivery of any shares of Common Stock
otherwise required to be made hereunder on any date with respect to any
restricted units awarded to an employee, or with respect to any cash
compensation awarded to an employee pursuant to subparagraph (h) above, may be
deferred, at the employee's election, either under this Plan or under the GPU
System Companies Deferred Compensation Plan for Elected Officers, to the extent
such deferral is permitted under, and upon such terms and conditions as may be
set forth in, the written agreement between the employee and the Corporation
(whether as initially entered into, or as subsequently amended) evidencing the
award of such units, or cash compensation, to the employee.
11. Termination of Employment
In the event that the employment of an employee to whom an option or
right has been granted under the Plan shall be terminated for any reason other
than as set forth in paragraph 12, such option or right may, subject to the
provisions of the Plan, be exercised (but only to the extent that the employee
was entitled to do so at the termination of his or her employment) at any time
within three (3) months after such termination, but in no case later than the
date on which the option or right terminates.
Unless otherwise determined by the Committee, if an employee to whom
restricted shares or restricted units have been granted ceases to be an employee
of the Corporation or of any subsidiary prior to the end of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee
at the time of grant for any reason other than as set forth in paragraph 12, the
employee shall immediately forfeit all restricted shares and restricted units,
including all Additional Restricted Shares or Additional Deemed Shares related
thereto.
Any option, right, restricted share or restricted unit agreement, or
any rules and regulations relating to the Plan, may contain such provisions as
the Committee shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Any such rules and
regulations with reference to any option agreement shall be consistent with the
provisions of the Code and any applicable
17
<PAGE>
rules and regulations thereunder. Nothing in the Plan or in any award granted
pursuant to the Plan shall confer upon any employee any right to continue in the
employ of the Corporation of any of its subsidiaries or interfere in any way
with the right of the Corporation or any such subsidiary to terminate such
employment at any time.
12. Eligible Retirement, Death or Total Disability of Employee
If any employee to whom an option, right, restricted share or
restricted unit has been granted under the Plan shall die, or suffer a Total
Disability, while employed by the Corporation or any of its subsidiaries or if
an employee terminates his or her employment pursuant to an Eligible Retirement,
such option or right may be exercised, as set forth herein, or such restricted
shares or restricted unit shall be deemed to be vested, whether or not the
employee was otherwise entitled at such time to exercise such option or right,
or be treated as vested in such share or unit. Subject to the restrictions
otherwise set forth in this Plan, such option or right shall be exercisable by
the employee, a legatee or legatees of the employee under the employee's last
will, or by the employee's personal representatives or distributees, whichever
is applicable, at any time (but in no case later than the date on which the
option or right terminates in accordance with the terms of grant) within three
years after the date of the earlier of (i) the employee's death or Total
Disability (if the employee shall have died or suffered a Total Disability while
employed by the Corporation or its subsidiaries), or (ii) such employee's
Eligible Retirement.
For purposes of this paragraph 12, "Total Disability" is defined as the
permanent inability of an employee, as a result of accident or sickness, to
perform any and every duty pertaining to such employee's occupation or
employment for which the employee is suited by reason of the employee's previous
training, education and experience.
13. Adjustments Upon Changes in Capitalization, etc.
Notwithstanding any other provision of the Plan, the Committee may at
any time make or provide for such adjustments to the Plan, to the number and
class of shares available thereunder or to any outstanding options, restricted
shares or restricted units as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of distributions to
holders of Common Stock other than a normal cash
18
<PAGE>
dividend, changes in the outstanding Common Stock by reason of stock dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or exchanges
of shares, separations, reorganizations, liquidations and the like. In the event
of any offer to holders of Common Stock generally relating to the acquisition of
their shares, the Committee may make such adjustment as it deems equitable in
respect of outstanding options, rights, and restricted units including in the
Committee's discretion revision of outstanding options, rights, and restricted
units so that they may be exercisable for or payable in the consideration
payable in the acquisition transaction. Any such determination by the Committee
shall be conclusive and binding on all parties. No adjustment shall be made in
the minimum number of shares with respect to which an option may be exercised at
any time. Any fractional shares resulting from such adjustments to options,
rights, limited rights, or restricted units shall be eliminated.
14. Effective Date
The Plan as amended shall become effective as of June 1, 1990, subject
to the approval of the Corporation's shareholders at the Corporation's 1990
Annual Meeting of Shareholders. The Committee may, in its discretion, grant
awards under the Plan, the grant, exercise or payment of which shall be
expressly subject to the conditions that to the extent required at the time of
grant, exercise or payment (i) the shares of Common Stock covered by such awards
shall be duly listed, upon official notice of issuance, upon the New York Stock
Exchange, and (ii) if the Corporation deems it necessary or desirable a
Registration Statement under the Securities Act of 1933 with respect to such
shares shall be effective.
15. Termination and Amendment
The Board of Directors of the Corporation may suspend, terminate,
modify or amend the Plan, provided that no amendment or modification to the
penultimate sentence of Section 3(c), to Section 7(c) or to this Section 15, nor
any suspension or termination of the Plan, effectuated (i) at the request of a
third party who has indicated an intention or taken steps to effect a Change in
Control and who effectuates a Change in Control, (ii) within six (6) months
prior to, or otherwise in connection with, or in anticipation of, a Change in
Control which has been threatened or proposed and which actually occurs, or
(iii) following a Change in Control, shall be effective if the
19
<PAGE>
amendment, modification, suspension or termination adversely affects the rights
of any employee under the Plan.. If the Plan is terminated, the terms of the
Plan shall, notwithstanding such termination, continue to apply to awards
granted prior to such termination. In addition, no amendment, modification,
suspension or termination of the Plan shall adversely affect the rights of any
employee with respect to any award (including without limitation any right with
respect to the timing and method of payment of any award) granted to the
employee prior to the date of the adoption of such amendment, modification,
suspension or termination without such employee's written consent.
16. Written Agreements
Each award of options, rights, restricted shares or restricted units
shall be evidenced by a written agreement, executed by the employee and the
Corporation, which shall contain such restrictions, terms and conditions as the
Committee may require.
17. Effect on Other Stock Plans
The adoption of the Plan shall have no effect on awards made or to be
made pursuant to other stock plans covering employees of the Corporation, its
subsidiaries, or any successors thereto.
20
Exhibit 12-A
Page 1 of 2
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 4,143,379 $ 3,970,711 $ 3,822,459 $ 3,654,211 $ 3,599,371
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES 3,272,644 3,292,796 3,080,614 3,017,888 2,872,538
Interest portion
of rentals (A) 26,108 26,093 27,362 24,655 25,536
Fixed charges of
service company
subsidiaries (B) 3,121 3,695 3,666 3,637 4,204
----------- ----------- ----------- ----------- -----------
Net expense 3,243,415 3,263,008 3,049,586 2,989,596 2,842,798
----------- ----------- ----------- ----------- -----------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 5,583 10,672 14,671 11,827 9,936
Equity in undistributed
earnings/(losses) of
affiliates (27,100) 33,981 (3,597) (1,014) (914)
Other income/
(expense), net 5,585 23,490 215,007 (146,958) (5,539)
Minority interest
net income (1,337) (2,701) (922) -- --
----------- ----------- ----------- ----------- -----------
Total other income
and deductions (17,269) 65,442 225,159 (136,145) 3,483
----------- ----------- ----------- ----------- -----------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 882,695 $ 773,145 $ 998,032 $ 528,470 $ 760,056
=========== =========== =========== =========== ===========
FIXED CHARGES:
Interest on funded
indebtedness $ 249,026 $ 216,352 $ 192,488 $ 186,259 $ 191,142
Other interest (C) 66,400 59,398 56,396 47,498 21,525
Preferred stock dividends
of subsidiaries on a
pretax basis (E) 19,500 24,008 26,756 30,314 46,270
Interest portion
of rentals (A) 26,108 26,093 27,362 24,655 25,536
----------- ----------- ----------- ----------- -----------
Total fixed
charges $ 361,034 $ 325,851 $ 303,002 $ 288,726 $ 284,473
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO FIXED CHARGES 2.44 2.37 3.29 1.83 2.67
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS (D) 2.44 2.37 3.29 1.83 2.67
=========== =========== =========== =========== ===========
<PAGE>
Exhibit 12-A
Page 2 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from operating expenses.
(B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc.
which are accounted for as operating expenses in the Company's
consolidated income statement. The Company has removed the fixed
charges from operating expenses and included such amounts in fixed
charges as interest on funded indebtedness and other interest for this
statement.
(C) Includes dividends on subsidiary-obligated mandatorily redeemable
preferred securities of $28,888, $28,888, $24,816 and $7,692
for the years 1997, 1996, 1995 and 1994, respectively.
(D) GPU Inc., the parent holding company, does not have any preferred stock
outstanding, therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends is the same as the ratio of earnings to
fixed charges.
(E) Calculation of preferred stock dividends of subsidiaries on a pretax
basis is as follows:
</FN>
Twelve Months Ended December 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes and
preferred stock dividends
of subsidiaries and
gain on preferred
stock reacquisition $541,161 $471,302 $721,786 $270,058 $521,853
Income before preferred
stock dividends of
subsidiaries and gain
on preferred stock
reacquisition 347,625 304,583 457,080 184,380 324,430
Pretax earnings ratio 155.7% 154.7% 157.9% 146.5% 160.9%
Preferred stock dividends
of subsidiaries 12,524 15,519 16,945 20,692 28,757
Preferred stock dividends
of subsidiaries on
a pretax basis 19,500 24,008 26,756 30,314 46,270
</TABLE>
Exhibit 12-B
Page 1 of 2
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $2,093,972 $2,057,918 $2,035,928 $1,952,425 $1,935,909
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES 1,658,382 1,729,532 1,653,387 1,622,399 1,600,984
Interest portion
of rentals (A) 10,614 10,666 12,354 10,187 10,944
---------- ---------- ---------- ---------- ----------
Net expense 1,647,768 1,718,866 1,641,033 1,612,212 1,590,040
---------- ---------- ---------- ---------- ----------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 2,319 6,647 7,824 4,143 4,756
Other income, net 1,919 7,202 14,889 21,995 6,281
---------- ---------- ---------- ---------- ----------
Total other income
and deductions 4,238 13,849 22,713 26,138 11,037
---------- ---------- ---------- ---------- ----------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 450,442 $ 352,901 $ 417,608 $ 366,351 $ 356,906
========== ========== ========== ========== ==========
FIXED CHARGES:
Interest on funded
indebtedness $ 89,869 $ 89,648 $ 92,602 $ 93,477 $ 100,246
Other interest (B) 25,829 21,847 16,337 14,726 6,530
Interest portion
of rentals (A) 10,614 10,666 12,354 10,187 10,944
---------- ---------- ---------- ---------- ----------
Total fixed
charges $ 126,312 $ 122,161 $ 121,293 $ 118,390 $ 117,720
========== ========== ========== ========== ==========
RATIO OF EARNINGS
TO FIXED CHARGES 3.57 2.89 3.44 3.09 3.03
========== ========== ========== ========== ==========
Preferred stock
dividend requirement 11,376 13,072 14,457 14,795 16,810
Ratio of income before
provision for
income taxes to
net income (C) 152.9% 147.6% 148.8% 152.3% 151.1%
Preferred stock
dividend requirement
on a pretax basis 17,394 19,294 21,512 22,529 25,400
Fixed charges, as above 126,312 122,161 121,293 118,390 117,720
---------- ---------- ---------- ---------- ----------
Total fixed charges
and preferred
stock dividends $ 143,706 $ 141,455 $ 142,805 $ 140,919 $ 143,120
========== ========== ========== ========== ==========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 3.13 2.50 2.92 2.60 2.49
========== ========== ========== ========== ==========
<PAGE>
Exhibit 12-B
Page 2 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable
preferred securities of $10,700, $10,700 and $6,628 for the years
1997, 1996 and 1995, respectively.
(C) Represents income before provision for income taxes divided by net
income as follows:
</FN>
Twelve Months Ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $324,130 $230,740 $296,315 $247,961 $239,187
Net Income 212,014 156,303 199,089 162,841 158,344
</TABLE>
Exhibit 12-C
<TABLE>
Page 1 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 943,109 $ 910,408 $ 854,674 $ 801,303 $ 801,487
--------- --------- --------- --------- ---------
OPERATING EXPENSES 728,644 733,664 686,183 655,805 624,025
Interest portion
of rentals (A) 6,151 5,367 5,186 5,315 4,932
--------- --------- --------- --------- ---------
Net expense 722,493 728,297 680,997 650,490 619,093
--------- --------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 1,100 1,245 2,430 3,847 2,919
Other income/
(expense), net 3,371 1,220 129,660 (98,953) (5,581)
--------- --------- --------- --------- ---------
Total other income
and deductions 4,471 2,465 132,090 (95,106) (2,662)
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 225,087 $ 184,576 $ 305,767 $ 55,707 $ 179,732
========= ========= ========= ========= =========
FIXED CHARGES:
Interest on funded
indebtedness $ 43,885 $ 45,373 $ 45,844 $ 43,270 $ 42,887
Other interest (B) 15,765 14,436 14,147 15,137 6,990
Interest portion
of rentals (A) 6,151 5,367 5,186 5,315 4,932
--------- --------- --------- --------- ---------
Total fixed
charges $ 65,801 $ 65,176 $ 65,177 $ 63,722 $ 54,809
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO FIXED CHARGES 3.42 2.83 4.69 0.87 3.28
========= ========= ========= ========= =========
Preferred stock
dividend requirement 483 944 944 2,960 6,960
Ratio of income before
provision for
income taxes to
net income (C) 170.3% 172.9% 162.0% 174.8% 160.4%
Preferred stock
dividend requirement
on a pretax basis 823 1,632 1,529 5,174 11,164
Fixed charges, as above 65,801 65,176 65,177 63,722 54,809
--------- --------- --------- --------- ---------
Total fixed charges
and preferred
stock dividends $ 66,624 $ 66,808 $ 66,706 $ 68,896 $ 65,973
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 3.38 2.76 4.58 0.81 2.72
========= ========= ========= ========= =========
<PAGE>
Exhibit 12-C
Page 2 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable
preferred securities of $9,000, $9,000, $9,000 and $3,200 for the
years 1997, 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by net
income as follows:
</FN>
Twelve Months Ended December 31,
1997 1996 1995 1994* 1993
-------- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $159,286 $119,400 $240,590 $-- $124,923
Net Income 93,517 69,067 148,540 -- 77,875
* For the twelve months ended December 31, 1994, the ratio was based on the
composite income tax rate for 1994.
</TABLE>
Exhibit 12-D
Page 1 of 2
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31, 1997
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 1,052,936 $ 1,019,645 $ 981,329 $ 944,744 $ 908,280
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES 824,596 840,288 793,320 776,215 688,587
Interest portion
of rentals (A) 4,236 4,490 4,911 3,632 3,406
----------- ----------- ----------- ----------- -----------
Net expense 820,360 835,798 788,409 772,583 685,181
----------- ----------- ----------- ----------- -----------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 2,164 2,780 4,417 3,837 2,261
Other income/
(expense), net 2,469 (825) 56,454 (71,287) (7,021)
----------- ----------- ----------- ----------- -----------
Total other income
and deductions 4,633 1,955 60,871 (67,450) (4,760)
----------- ----------- ----------- ----------- -----------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 237,209 $ 185,802 $ 253,791 $ 104,711 $ 218,339
=========== =========== =========== =========== ===========
FIXED CHARGES:
Interest on funded
indebtedness $ 49,125 $ 49,654 $ 49,875 $ 46,439 $ 44,714
Other interest (B) 17,526 16,300 17,616 11,913 5,255
Interest portion
of rentals (A) 4,236 4,490 4,911 3,632 3,406
----------- ----------- ----------- ----------- -----------
Total fixed
charges $ 70,887 $ 70,444 $ 72,402 $ 61,984 $ 53,375
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO FIXED CHARGES 3.35 2.64 3.51 1.69 4.09
=========== =========== =========== =========== ===========
Preferred stock
dividend requirement 665 1,503 1,544 2,937 4,987
Ratio of income before
provision for
income taxes to
net income (C) 175.0% 165.2% 163.4% 134.4% 172.3%
Preferred stock
dividend requirement
on a pretax basis 1,164 2,483 2,523 3,946 8,594
Fixed charges, as above 70,887 70,444 72,402 61,984 53,375
----------- ----------- ----------- ----------- -----------
Total fixed charges
and preferred
stock dividends $ 72,051 $ 72,927 $ 74,925 $ 65,930 $ 61,969
=========== =========== =========== =========== ===========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 3.29 2.55 3.39 1.59 3.52
=========== =========== =========== =========== ===========
<PAGE>
Exhibit 12-D
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable
preferred securities of $9,188, $9,188, $9,188 and $4,492 for the
years 1997, 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by net
income as follows:
</FN>
Twelve Months Ended December 31, 1997
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $166,322 $115,358 $181,389 $ 42,727 164,964
Net Income 95,023 69,809 111,010 31,799 95,728
</TABLE>
Exhibit 21(A)
JERSEY CENTRAL POWER & LIGHT COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
- ------------ -------- -------------
JCP&L CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
Exhibit 21(B)
METROPOLITAN EDISON COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
- ------------ -------- -------------
YORK HAVEN POWER COMPANY HYDROELECTRIC GENERATING NEW YORK
STATION
MET-ED CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
Exhibit 21(C)
PENNSYLVANIA ELECTRIC COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
------------ -------- -------------
NINEVEH WATER WATER SERVICE PENNSYLVANIA
COMPANY
THE WAVERLY ELECTRIC LIGHT ELECTRIC DISTRIBUTION PENNSYLVANIA
AND POWER COMPANY
PENELEC CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
EXHIBIT 23-A
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
GPU, Inc. on Forms S-8 (File Nos. 33-32325, 33-32326, 33-34661, 33-32327,
33-51037, 33-32328 and 33-51035) and Form S-3 (File No. 33-30765) of our report
dated February 4, 1998, on our audits of the consolidated financial statements
and financial statement schedule of GPU, Inc. and Subsidiaries as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, which report is included in this Annual Report on Form 10-K, for the
year ended December 31, 1997.
New York, New York
March 12, 1998
EXHIBIT 23-B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Jersey Central Power & Light Company on Form S-3 (File No. 33-49463) of our
report dated February 4, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Jersey Central Power & Light
Company and Subsidiary as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, which report is included in
this Annual Report on Form 10-K, for the year ended December 31, 1997.
New York, New York
March 12, 1998
EXHIBIT 23-C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Metropolitan Edison Company on Forms S-3 (File Nos. 33-51001, 33-53673 and
33-53673-01) of our report dated February 4, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
Metropolitan Edison Company and Subsidiaries as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997, which
report is included in this Annual Report on Form 10-K, for the year ended
December 31, 1997.
New York, New York
March 12, 1998
EXHIBIT 23-D
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Pennsylvania Electric Company on Forms S-3 (File Nos. 33-49669, 33-53677 and
33-53677-01) of our report dated February 4, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
Pennsylvania Electric Company and Subsidiaries as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997, which
report is included in this Annual Report on Form 10-K, for the year ended
December 31, 1997.
New York, New York
March 12, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000040779
<NAME> GPU, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,509,571
<OTHER-PROPERTY-AND-INVEST> 2,118,703
<TOTAL-CURRENT-ASSETS> 1,129,180
<TOTAL-DEFERRED-CHARGES> 2,167,254
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 12,924,708
<COMMON> 314,458
<CAPITAL-SURPLUS-PAID-IN> 755,040
<RETAINED-EARNINGS> 2,111,416 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,099,930 <F2>
421,500 <F3>
66,478
<LONG-TERM-DEBT-NET> 4,325,972
<SHORT-TERM-NOTES> 298,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 54,714
<LONG-TERM-DEBT-CURRENT-PORT> 619,434
12,500
<CAPITAL-LEASE-OBLIGATIONS> 3,308
<LEASES-CURRENT> 138,919
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,883,453
<TOT-CAPITALIZATION-AND-LIAB> 12,924,708
<GROSS-OPERATING-REVENUE> 4,143,379
<INCOME-TAX-EXPENSE> 223,617
<OTHER-OPERATING-EXPENSES> 3,272,644
<TOTAL-OPERATING-EXPENSES> 3,496,261
<OPERATING-INCOME-LOSS> 647,118
<OTHER-INCOME-NET> 8,641
<INCOME-BEFORE-INTEREST-EXPEN> 655,759
<TOTAL-INTEREST-EXPENSE> 319,321 <F4>
<NET-INCOME> 335,101 <F5>
0
<EARNINGS-AVAILABLE-FOR-COMM> 335,101
<COMMON-STOCK-DIVIDENDS> 239,597
<TOTAL-INTEREST-ON-BONDS> 246,935
<CASH-FLOW-OPERATIONS> 844,263
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.77
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF
<F1> ($29,296).
<F2> INCLUDES REACQUIRED COMMON STOCK OF $80,984.
<F3> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F3> SECURITIES OF $330,000.
<F4> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F4> PREFERRED SECURITIES OF $28,888, PREFERRED STOCK DIVIDENDS OF
<F4> SUBSIDIARIES OF $12,524, AND GAIN ON REACQUIRED PREFERRED STOCK
<F4> OF $9,288.
<F5> INCLUDES MINORITY INTEREST NET (INCOME)/LOSS OF ($1,337).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,881,682
<OTHER-PROPERTY-AND-INVEST> 461,037
<TOTAL-CURRENT-ASSETS> 387,738
<TOTAL-DEFERRED-CHARGES> 960,319
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,690,776
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 875,639
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,540,121
216,500 <F1>
37,741
<LONG-TERM-DEBT-NET> 1,173,304
<SHORT-TERM-NOTES> 95,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 19,454
<LONG-TERM-DEBT-CURRENT-PORT> 11
12,500
<CAPITAL-LEASE-OBLIGATIONS> 6
<LEASES-CURRENT> 79,419
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,515,920
<TOT-CAPITALIZATION-AND-LIAB> 4,690,776
<GROSS-OPERATING-REVENUE> 2,093,972
<INCOME-TAX-EXPENSE> 110,740
<OTHER-OPERATING-EXPENSES> 1,658,382
<TOTAL-OPERATING-EXPENSES> 1,769,122
<OPERATING-INCOME-LOSS> 324,850
<OTHER-INCOME-NET> 543
<INCOME-BEFORE-INTEREST-EXPEN> 325,393
<TOTAL-INTEREST-EXPENSE> 113,379 <F2>
<NET-INCOME> 212,014
11,376
<EARNINGS-AVAILABLE-FOR-COMM> 200,638
<COMMON-STOCK-DIVIDENDS> 150,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 89,869
<CASH-FLOW-OPERATIONS> 427,825
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES OF $125,000.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $10,700.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000065350
<NAME> METROPOLITAN EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,576,530
<OTHER-PROPERTY-AND-INVEST> 180,068
<TOTAL-CURRENT-ASSETS> 201,100
<TOTAL-DEFERRED-CHARGES> 576,283
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,533,981
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200
<RETAINED-EARNINGS> 281,121 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 717,594
100,000 <F2>
12,056
<LONG-TERM-DEBT-NET> 576,924
<SHORT-TERM-NOTES> 48,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 18,479
<LONG-TERM-DEBT-CURRENT-PORT> 22
0
<CAPITAL-LEASE-OBLIGATIONS> 30
<LEASES-CURRENT> 38,372
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,021,704
<TOT-CAPITALIZATION-AND-LIAB> 2,533,981
<GROSS-OPERATING-REVENUE> 943,109
<INCOME-TAX-EXPENSE> 64,314
<OTHER-OPERATING-EXPENSES> 728,644
<TOTAL-OPERATING-EXPENSES> 792,958
<OPERATING-INCOME-LOSS> 150,151
<OTHER-INCOME-NET> 1,991
<INCOME-BEFORE-INTEREST-EXPEN> 152,142
<TOTAL-INTEREST-EXPENSE> 58,625 <F3>
<NET-INCOME> 93,517
483
<EARNINGS-AVAILABLE-FOR-COMM> 93,034
<COMMON-STOCK-DIVIDENDS> 80,000 <F4>
<TOTAL-INTEREST-ON-BONDS> 43,885
<CASH-FLOW-OPERATIONS> 212,477
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $12,487.
<F2> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES.
<F3> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,000.
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000077227
<NAME> PENNSYLVANIA ELECTRIC COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,815,954
<OTHER-PROPERTY-AND-INVEST> 75,200
<TOTAL-CURRENT-ASSETS> 242,705
<TOTAL-DEFERRED-CHARGES> 458,916
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,592,775
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 400,040 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 791,338
105,000 <F2>
16,681
<LONG-TERM-DEBT-NET> 676,444
<SHORT-TERM-NOTES> 60,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 16,781
<LONG-TERM-DEBT-CURRENT-PORT> 30,011
0
<CAPITAL-LEASE-OBLIGATIONS> 3,272
<LEASES-CURRENT> 19,939
<OTHER-ITEMS-CAPITAL-AND-LIAB> 872,509
<TOT-CAPITALIZATION-AND-LIAB> 2,592,775
<GROSS-OPERATING-REVENUE> 1,052,936
<INCOME-TAX-EXPENSE> 70,390
<OTHER-OPERATING-EXPENSES> 824,596
<TOTAL-OPERATING-EXPENSES> 894,986
<OPERATING-INCOME-LOSS> 157,950
<OTHER-INCOME-NET> 1,560
<INCOME-BEFORE-INTEREST-EXPEN> 159,510
<TOTAL-INTEREST-EXPENSE> 64,487 <F3>
<NET-INCOME> 95,023
665
<EARNINGS-AVAILABLE-FOR-COMM> 94,358
<COMMON-STOCK-DIVIDENDS> 60,000 <F4>
<TOTAL-INTEREST-ON-BONDS> 49,125
<CASH-FLOW-OPERATIONS> 179,343
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $6,332.
<F2> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES.
<F3> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,188.
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
