SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, Inc. ("GPU")
300 Madison Avenue
Morristown, New Jersey 07960
(Name of company filing this statement and address
of principal executive offices)
GPU, INC.
(Name of top registered holding company parent)
T. G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Thelen Reid & Priest LLP
M. J. Connolly, 40 West 57th Street
Vice President - Law New York, New York 10019
S. L. Guibord, Secretary
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07960
W. Edwin Ogden, Esq.
Ryan, Russell, Ogden & Seltzer LLP
1100 Berkshire Boulevard
Suite 301
Reading, Pennsylvania 19601-1221
(Names and addresses of agents for service)
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ITEM 1. Description of Proposed Transaction.
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A. GPU, Inc, ("GPU") and FirstEnergy Corp. ("FirstEnergy"), an Ohio
corporation and an exempt holding company, have entered into an Agreement and
Plan of Merger, dated as of August 8, 2000 (the "Merger Agreement"). The Merger
Agreement provides that upon receipt of all required approvals, including
shareholder approvals, GPU will merge with and into FirstEnergy, with
FirstEnergy being the surviving corporation (the "Merger Transaction").
Immediately after the merger, GPU's existing public utility subsidiaries, Jersey
Central Power & Light Company, Metropolitan Edison Company and Pennsylvania
Electric Company, as well as GPU's other non-utility subsidiary companies, will
become wholly owned subsidiaries of FirstEnergy, either directly or indirectly.
B. The Merger Transaction is further described In the Form S-4
Registration Statement, as amended, of FirstEnergy (SEC Reg. No. 333-46444),
which contains the Joint Proxy Statement/Prospectus of FirstEnergy and GPU
relating to the Merger Transaction. The Commission has declared the Registration
Statement effective under the Securities Act of 1933. The definitive Joint Proxy
Statement was filed with the Commission on October 18, 2000.
C. GPU and FirstEnergy have scheduled special meetings of their
shareholders on November 21, 2000 for the purpose of obtaining required
shareholder approvals relating to the Merger Transaction. GPU will seek to
obtain approval of the Merger Transaction by the affirmative vote of the holders
of a majority of the shares of common stock cast at the meeting; the affirmative
vote of a majority of FirstEnergy's outstanding shares of common stock is
required to approve the Merger Transaction. Accordingly, GPU respectfully
requests that the Commission grant it authority to solicit proxies from its
shareholders ("Solicitation") at the earliest practicable date. Separate
Commission authorization under the Act will be sought to consummate the Merger
Transaction and for related transactions.
D. Rule 54 Analysis.
(a) As described below, GPU meets all of the conditions of Rule 53,
except for Rule 53(a)(1). By Order dated November 5, 1997 (HCAR No. 35-26773)
(the "November 5 Order"), the Commission authorized GPU to increase to 100% of
its "average consolidated retained earnings," as defined in Rule 53, the
aggregate amount which it may invest in EWGs and FUCOs. At June 30, 2000, GPU's
average consolidated retained earnings was approximately $2.4 billion and GPU's
aggregate investment in EWGs and FUCOs was approximately $1.8 billion.
Accordingly, under the November 5 Order, GPU may invest up to an additional $614
million in FUCOs and EWGs as of June 30, 2000.
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(i) GPU maintains books and records to identify investments
in, and earnings from, each EWG and FUCO in which it directly or
indirectly holds an interest.
(A) For each United States EWG in which GPU directly or
indirectly holds an interest:
(1) the books and records for such EWG will be
kept in conformity with United States generally accepted
accounting principles ("GAAP");
(2) the financial statements will be prepared in
accordance with GAAP; and
(3) GPU directly or through its subsidiaries
undertakes to provide the Commission access to such
books and records and financial statements as the
Commission may request.
(B) For each FUCO or foreign EWG which is a majority
owned subsidiary of GPU:
(1) the books and records for such subsidiary will
be kept in accordance with GAAP;
(2) the financial statements for such subsidiary
will be prepared in accordance with GAAP; and
(3) GPU directly or through its subsidiaries
undertakes to provide the Commission access to such
books and records and financial statements, or copies
thereof in English, as the Commission may request.
(C) For each FUCO or foreign EWG in which GPU owns 50%
or less of the voting securities, GPU directly or through its
subsidiaries will proceed in good faith, to the extent reasonable
under the circumstances, to cause
(1) such entity to maintain books and records in
accordance with GAAP;
(2) the financial statements of such entity to be
prepared in accordance with GAAP; and
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(3) access by the Commission to such books and
records and financial statements (or copies thereof) in
English as the Commission may request and, in any event,
GPU will provide the Commission on request copies of
such materials as are made available to GPU and its
subsidiaries. If and to the extent that such entity's
books, records or financial statements are not
maintained in accordance with GAAP, GPU will, upon
request of the Commission, describe and quantify each
material variation therefrom as and to the extent
required by subparagraphs (a) (2) (iii) (A) and (a) (2)
(iii) (B) of Rule 53.
(ii) No more than 2% of GPU's domestic public utility
subsidiary employees will render any services, directly or
indirectly, to any EWG and FUCO in which GPU directly or indirectly
holds an interest.
(iii) Copies of this Declaration on Form U-1 are being
provided to the New Jersey Board of Public Utilities and the
Pennsylvania Public Utility Commission, the only federal, state or
local regulatory agencies having jurisdiction over the retail rates
of GPU's electric utility subsidiaries.(1) In addition, GPU will
submit to each such commission copies of any amendments to this
Declaration and a copy of Item 9 of GPU's Form U5S and Exhibits H
and I thereof (commencing with the Form U5S to be filed for the
calendar year in which the authorization herein requested is
granted).
(iv) None of the provisions of paragraph (b) of Rule 53
renders paragraph (a) of that Rule unavailable for the proposed
transactions.
(A) Neither GPU nor any subsidiary of GPU having a book
value exceeding 10% of GPU's consolidated retained earnings is the
subject of any pending bankruptcy or similar proceeding.
(B) GPU's average consolidated retained earnings for the
four most recent quarterly periods (approximately $2.44 billion)
represented a decrease of
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1 Penelec is also subject to retail rate regulation by the New York Public
Service Commission with respect to retail service to approximately 3,700
customers in Waverly, New York served by Waverly Electric Power & Light Company,
a Penelec subsidiary. Waverly Electric's revenues are immaterial, accounting for
less than 1% of Penelec's total operating revenues.
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approximately $13.7 million (or approximately .5%) compared to the
average consolidated retained earnings for the previous four
quarterly periods (approximately $2.45 billion). The decrease in
retained earnings results primarily from a non-recurring loss of
$295 million, after tax, from the sale during the second quarter of
2000 of GPU PowerNet, which provides transmission services in the
State of Victoria, Australia.
(C) GPU did not incur operating losses from direct or
indirect investments in EWGs and FUCOs in 1999 in excess of 5% of
GPU's December 31, 1999 consolidated retained earnings.
As described above, GPU meets all the conditions of Rule 53(a), except for
clause (1). With respect to clause (1), the Commission determined in the
November 5 Order that GPU's financing of investments in EWGs and FUCOs in an
amount greater than 50% of GPU's average consolidated retained earnings as
otherwise permitted by Rule 53(a)(1) would not have either of the adverse
effects set forth in Rule 53(c).
Moreover, even if the effect of the capitalization and earnings of
subsidiary EWGs and FUCOs were considered, there is no basis for the Commission
to withhold or deny approval for the Solicitation. The Solicitation does not, by
itself, or even considered in conjunction with the effect of the capitalization
and earnings of GPU's subsidiary EWGs and FUCOs, have any effect on the
financial integrity of the GPU system, or an adverse impact on GPU's public
utility subsidiaries, their customers, or the ability of State commissions to
protect such public utility customers.
The November 5 Order was predicated, in part, upon the assessment of GPU's
overall financial condition which took into account, among other factors, GPU's
consolidated capitalization ratio and the recent growth trend in GPU's retained
earnings. As of June 30, 1997, the most recent quarterly period for which
financial statement information was evaluated in the November 5 Order, GPU's
consolidated capitalization consisted of 49.2% equity and 50.8% debt. As stated
in the November 5 Order, GPU's June 30, 1997 pro forma capitalization,
reflecting the November 6, 1997 acquisition of PowerNet Victoria, was 39.3%
equity and 61.7% debt.
At June 30, 2000, GPU's common equity and debt represented 31.4% and
68.6%, respectively, of its consolidated capitalization, as set forth in Exhibit
H hereto. Thus, since the date of the November 5 Order, there has been no
material adverse change in GPU's consolidated capitalization ratio, which
remains within acceptable ranges and limits as evidenced by the
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credit ratings of GPU's electric utility subsidiaries.(2)
GPU's consolidated retained earnings grew on average approximately 6.5%
per year from 1994 through 1999. Earnings attributable to GPU's investments in
EWGs and FUCOs have contributed positively to consolidated earnings.
Accordingly, since the date of the November 5 Order, the capitalization
and earnings attributable to GPU's investments in EWGs and FUCOs have not had
any adverse impact on GPU's financial integrity.
Reference is made to Exhibit H which sets forth GPU's consolidated
capitalization at June 30, 2000. The Solicitation will have no impact on GPU's
capitalization or earnings.
ITEM 2. Fees, Commissions and Expenses.
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A. GPU estimates that the total amount of all fees and expenses
to be incurred in connection with the Solicitation will not exceed $100,000. GPU
has engaged the services of ChaseMellon Shareholder Services L.L.C. to assist in
the Solicitation and has agreed to pay ChaseMellon Shareholder Services L.L.C. a
fee for its services of $10,500, together with reimbursement of its reasonable
out of pocket expenses.
B. Solicitation will also be made in person or by letter,
telephone, facsimile or telegraph, and may be made by directors, officers and
employees of GPU and its subsidiaries.
ITEM 3. Applicable Statutory Provisions.
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Section 12(e) and Rule 62 are applicable to the Solicitation.
ITEM 4. Regulatory Approvals.
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The Solicitation is not subject to the jurisdiction of any State
commission or any federal commission, other than your Commission.
ITEM 5. Procedure.
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It is requested that the Commission issue an order with respect to the
Solicitation at the earliest practicable date but, in any event, not later than
November 3, 2000. It is further requested that (iii) there not be a recommended
decision by an Administrative Law Judge or other responsible officer of the
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2 The first mortgage bonds of JCP&L, Met-Ed and Penelec are rated A+ by Standard
& Poors Corporation, and A2 by Moody's Investors Service, Inc.
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Commission, (iv) the Office of Public Utility Regulation be permitted to assist
in the preparation of the Commission's decision, and (v) there be no waiting
period between issuance of the Commission's order and the date on which it is to
become effective.
ITEM 6. Exhibits and Financial Statements.
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(a) Exhibits
A - Proxy materials of GPU and FirstEnergy
(incorporated by reference to Form S-4, Proxy
Statement/Prospectus of FirstEnergy and GPU, SEC
Reg. No. 333-46444).
F-1 - Opinion of Thelen Reid & Priest LLP.
F-2 - Opinion of Ryan, Russell, Ogden & Seltzer LLP.
H - Capitalization Ratios as at June 30, 2000
(incorporated by reference to Exhibit H,
Post-Effective Amendment No. 3, SEC File No.
70-7670).
I - Proposed form of public notice.
(b) Financial Statements:
Omitted as not relevant to the Solicitation.
ITEM 7. Information as to Environmental Effects.
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(a) The issuance of an order by your Commission with respect to the
transactions contemplated herein is not a major Federal action significantly
affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an environmental impact
statement with respect to the proposed transactions which are the subject
hereof. Reference is made to Item 4 hereof regarding regulatory approvals with
respect to the Solicitation.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, THE UNDERSIGNED COMPANY HAS DULY CAUSED THIS STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
By: /s/ B. L.Levy
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B. L. Levy
Senior Vice President
Date: October 31, 2000
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