Amendment No. 1 to
SEC File No. 70-9399
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
2800 Pottsville Pike
Reading, Pennsylvania 19605
(Name of company filing this statement and address
of principal executive office)
GPU, INC. ("GPU")
(Name of top registered holding company parent of applicant)
Terrance G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman LLP
Mary A. Nalewako, Secretary 120 West 45th Street
Michael J. Connolly, New York, New York 10036
Assistant General Counsel
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Scott L. Guibord, Secretary
Jersey Central Power & Light Company
2800 Pottsville Pike
Reading, Pennsylvania 19605
(Names and addresses of agents for service)
<PAGE>
JCP&L hereby amends its Application on Form U-1, docketed in SEC File No.
70-9399, as follows:
1. By amending and restating Item 1 thereof to read in its entirety as
follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
-------------------------------------
A. JCP&L proposes to organize a special purpose business trust under
Delaware law ("JCP&L Capital Trust"), which will issue and sell from time to
time in one or more series through December 31, 2000 up to $200 million
aggregate liquidation value of preferred beneficial interests, in the form of
Trust Securities (having a liquidation value per interest to be determined) (the
"Preferred Trust Securities")*. The sole purpose of JCP&L Capital Trust will be
to issue and sell the Preferred Trust Securities to investors and use the net
proceeds of the sale, together with the proceeds of the sale to JCP&L of JCP&L
Capital Trust's common securities ("Common Trust Securities"), to purchase
JCP&L's subordinated debentures (the "Subordinated Debentures").
B. The Common Trust Securities will represent 3% of the aggregate
undivided beneficial interests in JCP&L Capital
- -------
* The transactions proposed herein are substantially the same as the
transactions approved by the Commission in Order dated March 6, 1995 (HCAR
No. 35-26246) (monthly income preferred securities ("MIPS")) with the
exception that the MIPS were issued by a limited partnership subsidiary of
JCP&L and the Preferred Trust Securities will be issued by a special
purpose business trust subsidiary. The trust structure is being utilized
to help ensure the intended tax treatment, as discussed below.
1
<PAGE>
Trust and JCP&L's purchase price therefore will not exceed $6 million. The
Common Trust Securities will not be transferable, and the business and affairs
of JCP&L Capital Trust will be managed and controlled by trustees appointed by
JCP&L as the holder of the Common Trust Securities. JCP&L will be responsible
for all liabilities and obligations of JCP&L Capital Trust.
C. JCP&L will also guarantee on a limited basis to the extent set
forth in payment and guarantee agreements to be executed and delivered by JCP&L
in connection with each series of Preferred Trust Securities (the "Guaranties")
(A) the payment of distributions on the Preferred Trust Securities, if and to
the extent JCP&L Capital Trust has funds on hand legally available therefor, (B)
the redemption price for any redemption of the Preferred Trust Securities, (C)
the aggregate liquidation preference on the Preferred Trust Securities to the
extent JCP&L Capital Trust has funds on hand legally available therefor,
including all accrued but unpaid distributions, whether or not declared and (D)
certain additional amounts that may be payable in respect of the Preferred Trust
Securities.
D. Each Subordinated Debenture will be issued under an Indenture to
be entered into with United States Trust Company of New York, as trustee, and
will have an initial term of up to 49 years. Prior to maturity, JCP&L will pay
only interest on the Subordinated Debentures at a rate equal to the distribution
rate on the Preferred Trust Securities. Such interest payments will constitute
JCP&L Capital Trust's only income and will be used by it to pay distributions on
the Preferred Trust Securities.
2
<PAGE>
Distributions on the Preferred Trust Securities will be made not
less than semi-annually, will be cumulative and must be made to the extent that
JCP&L Capital Trust has funds on hand legally available for such purposes.
However, JCP&L will have the right to defer payment of interest on the
Subordinated Debentures for up to five years in which event JCP&L Capital Trust
may similarly defer payment of distributions on the Preferred Trust Securities,
but in no event may distributions be deferred beyond the maturity date of the
Subordinated Debentures. The distribution rates, payment dates, redemption and
other similar provisions of each series of Preferred Trust Securities will be
identical to the interest rates, payment dates, redemption and other provisions
of the Subordinated Debentures issued by JCP&L with respect thereto.
E. Each Subordinated Debenture and related Guaranty will be
subordinate to all other existing and future "Senior Indebtedness," as defined
below, of JCP&L and will have no cross-default provisions with respect to other
JCP&L indebtedness -- i.e., a default under any other outstanding JCP&L
indebtedness will not result in a default under the Subordinated Debenture or
the Guaranty. However, JCP&L may not declare and pay dividends on, or redeem or
retire, its outstanding Cumulative Preferred Stock or Common Stock unless all
payments then due (whether or not previously deferred) under the Subordinated
Debentures and the Guaranties have been made. "Senior Indebtedness" consists of
(i) the principal of and premium (if any) in respect of (A) indebtedness of
JCP&L for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar
3
<PAGE>
instruments (including purchase money obligations) for payment of which JCP&L is
responsible or liable; (ii) all capital lease obligations of JCP&L; (iii) all
obligations of JCP&L issued or assumed as the deferred purchase price of
property, all conditional sale obligations of JCP&L and all obligations of JCP&L
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) certain obligations of JCP&L
for the reimbursement of any obligor on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction; (v) all
obligations of the type referred to in clauses (i) through (iv) of other persons
for the payment of which JCP&L is responsible or liable as obligor, guarantor or
otherwise; and (vi) all obligations of the types referred to in clauses (i)
through (v) of other persons secured by any lien on any property or asset of
JCP&L (whether or not such obligation is assumed by JCP&L), except for any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures.
F. It is expected that JCP&L's interest payments on the Subordinated
Debentures will be deductible for income tax purposes and that JCP&L Capital
Trust will be treated as a grantor trust for federal income tax purposes.
Consequently, distributions from JCP&L Capital Trust to the holders of Preferred
Trust Securities will be deemed to constitute distributions of the interest
income received by JCP&L Capital Trust on the Subordinated Debentures.
Consequently, such holders
4
<PAGE>
and JCP&L Capital Trust will not be entitled to any "dividend received
deduction" under the Internal Revenue Code with respect to such distributions.
G. A series of the Preferred Trust Securities will be subject to
mandatory redemption upon redemption of the corresponding series of the
Subordinated Debentures, but will not be subject to any mandatory sinking fund.
A series of Preferred Trust Securities may also be redeemable at the option of
JCP&L Capital Trust at a price equal to its liquidation value plus any accrued
and unpaid distributions plus any premium negotiated in connection with the
marketing of the Preferred Trust Securities, (i) at any time after a specified
no-call period (if any) which could be up to the life of the issuance, or (ii)
in the event that (I) JCP&L Capital Trust is required by applicable tax laws to
withhold or deduct certain amounts in connection with distributions or other
payments, or (II) JCP&L Capital Trust is subject to federal income tax with
respect to interest received on the Subordinated Debentures or will otherwise
not be taxed as a grantor trust, or (III) it is determined that the interest
payments by JCP&L on the Subordinated Debentures are not deductible for federal
income tax purposes, or (IV) JCP&L Capital Trust is subject to more than a de
minimis amount of other taxes, duties or other governmental charges, or (V)
JCP&L Capital Trust becomes subject to regulation as an "investment company"
under the Investment Company Act of 1940, as amended. Upon occurrence of any of
the events set forth in clause (ii) of the immediately preceding sentence, JCP&L
Capital Trust could be dissolved and
5
<PAGE>
the Subordinated Debentures distributed directly to the holders of the Preferred
Trust Securities and to JCP&L on a pro rata basis, resulting in direct ownership
of the Subordinated Debentures by the holders of the Preferred Trust Securities.
The Subordinated Debentures distributed to JCP&L will be canceled.
If at any time JCP&L Capital Trust would be required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, JCP&L also will pay as additional interest
such amounts as shall be required so that the net amounts received and retained
by JCP&L Capital Trust after paying any such taxes, duties, assessments or
governmental charges will not be less than the amounts JCP&L Capital Trust would
have received had no such taxes, duties, assessments or governmental charges
been imposed.
H. In the event of any voluntary or involuntary dissolution or
winding up of JCP&L Capital Trust, the holders of Preferred Trust Securities
will be entitled to receive out of the assets of JCP&L Capital Trust, after
satisfaction of liabilities to creditors and before any distribution of assets
is made to JCP&L, the sum of their stated liquidation preference and all
accumulated and unpaid distributions to the date of payment. All assets of JCP&L
Capital Trust remaining after payment of the liquidation distribution to the
holders of Preferred Trust Securities will be distributed to JCP&L.
Upon any liquidation, dissolution or winding up of JCP&L, the amount
payable on each series of the Preferred Trust
6
<PAGE>
Securities would be limited to a pro rata portion of any amount recovered by
JCP&L Capital Trust in its capacity as a subordinated debt holder of JCP&L. The
Subordinated Debentures and the payment obligations under the Guaranty will be
subordinate to all other existing and future Senior Indebtedness, except for any
such indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures.
I. The constituent instruments of JCP&L Capital Trust, including its
declaration of trust, will provide, among other things, that JCP&L Capital
Trust's activities will be limited to the issuance and sale of Common Trust
Securities and Preferred Trust Securities from time to time and the application
of the proceeds thereof to the purchase of the Subordinated Debentures.
Accordingly, it is not proposed that JCP&L Capital Trust's constituent
instruments include any interest or distribution coverage or capitalization
ratio restrictions on its ability to issue and sell Preferred Trust Securities,
as each such issuance will be supported by a Subordinated Debenture and a
Guaranty, and such restrictions would therefore not be relevant or necessary for
JCP&L Capital Trust to maintain an appropriate capital structure. Moreover, the
issuance of Subordinated Debentures by JCP&L will be subject to the restriction
in Article VI, paragraph Eighth (B) of JCP&L's Restated Certificate of
Incorporation which limits, without the consent of the holders of a majority of
JCP&L's outstanding Cumulative Preferred Stock, the amount of unsecured
indebtedness which JCP&L may have outstanding at any one time to 20% of the
aggregate of the total outstanding
7
<PAGE>
principal amount of all bonds and other securities representing
secured indebtedness issued or assumed by JCP&L plus JCP&L's capital stock,
premiums thereon, and surplus of JCP&L as stated on its books of account. JCP&L
Capital Trust's constituent instruments will further state that JCP&L will be
responsible for all liabilities and obligations of JCP&L Capital Trust.
J. JCP&L expects to apply the net proceeds of the sale to JCP&L
Capital Trust of Subordinated Debentures to the redemption of outstanding senior
securities pursuant to the optional redemption provisions thereof, to the
repayment of outstanding short-term debt, for construction purposes, and for
other general corporate purposes, including to reimburse JCP&L's treasury for
funds previously expended therefrom for the above purposes. JCP&L will not use
any of the net proceeds of the sale of Subordinated Debentures to acquire,
either directly or indirectly, any interest in any exempt wholesale generator
("EWG") or foreign utility company ("FUCO").
K. Rule 54 Analysis.
-----------------
The proposed transactions contemplate, among other things, the issuance or
acquisition of securities by the Applicants which do not relate to EWGs and
FUCOs. Accordingly, the transactions are subject to Rule 54, which provides
that, in determining whether to approve an application which does not relate to
any EWG or FUCO, the Commission shall not consider the effect of the
capitalization or earnings of any such EWG or FUCO which is a subsidiary of a
registered holding company if the requirements of Rule 53 (a), (b) and (c) are
satisfied.
8
<PAGE>
(a) As described below, GPU meets all of the conditions of Rule 53 under
the Act, 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 September 30, 1998,
GPU's average consolidated retained earnings was approximately $2.16 billion,
and GPU's aggregate investment in EWGs and FUCOs was approximately $1.29
billion. Accordingly, under the November 5 Order, GPU may invest up to an
additional $869 million in EWGs and FUCOs as of September 30, 1998.
(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
9
<PAGE>
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
10
<PAGE>
(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, 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 or
FUCO in which GPU directly or indirectly holds an interest.
(iii) Copies of this Application on Form U-1 are being provided to
the New Jersey Board of Public Utilities ("NJBPU") 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
11
<PAGE>
subsidiaries.(1) In addition, GPU will submit to each such commission
copies of any amendments to this Application, Rule 24 certificates
required hereunder, as well as 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 render
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 $2.16 billion)
represented an increase of approximately $25.8 million (or
approximately 1.2%) compared to the average consolidated
retained earnings for the previous four quarterly periods
(approximately $2.135 billion).
- -------
(1) Pennsylvania Electric Company ("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.
12
<PAGE>
(C) GPU did not incur operating losses from direct or indirect
investments in EWGs and FUCOs in 1997 in excess of 5% of GPU's
December 31, 1997 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 transactions proposed herein. The
transactions would not, by themselves, or even considered in conjunction with
the effect of the capitalization and earnings of GPU's subsidiary EWGs and
FUCOs, have a material adverse 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 ratios and the recent growth trend in GPU's
retained earnings. As of June 30, 1997, the most recent quarterly period for
which
13
<PAGE>
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 60.7% debt.
GPU's September 30, 1998 consolidated capitalization consists of
45.6% equity and 54.4% debt. 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 credit
ratings of GPU's electric utility subsidiaries.(2)
GPU's consolidated retained earnings grew on average approximately
4.5% per year from 1991 through 1997. Earnings attributable to GPU's investments
in EWGs and FUCOs have contributed positively to consolidated earnings,
excluding the impact of the windfall profits tax on the Midlands Electricity plc
investment.(3)
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.
- -------
(2) Indeed, on November 20, 1998, Moody's Investor's Service increased the
long term debt ratings of Met-Ed and Penelec to A3 and A2, respectively.
(3) As discussed in the November 5 Order, GPU incurred a loss for 1997 from
its investments in EWGs and FUCOs as a result of the windfall profits tax
imposed on Midlands Electricity, plc.
14
<PAGE>
Reference is made to Exhibit H filed herewith which sets forth GPU's
consolidated capitalization and earnings at September 30, 1998 and after giving
effect to the transactions proposed herein. As set forth in such exhibit, the
proposed transactions will not have a material impact on GPU's capitalization or
earnings.
2. By amending Item 3 thereof in its entirety as follows:
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
--------------------------------
A. The acquisition by JCP&L of the Common Trust Securities of
JCP&L Capital Trust is subject to Sections 9(a) and 10 of the Act.
B. JCP&L believes that the issuance of its Subordinated
Debentures and its Guaranties to JCP&L Capital Trust will be exempt from the
declaration requirements of the Act by virtue of Rules 45(b)(1) and 52(b)
thereunder.
3. By deleting Exhibits A-1 through A-11, G and H from Item 6(a)
thereof.
4. By redesignating and filing the following exhibits in Item 6(a)
thereof:
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
----------------------------------
A-1 - Form of Declaration of Trust of JCP&L Capital Trust
-- to be filed by amendment.
15
<PAGE>
A-2 - Form of Trust Agreement of JCP&L Capital Trust --
to be filed by amendment.
A-3 - Form of Amended and Restated Trust Agreement of
JCP&L Capital Trust -- to be filed by amendment.
A-4 - Form of Preferred Trust Securities Certificate
of JCP&L Capital Trust -- to be filed by
amendment.
A-5 - Form of JCP&L Subordinated Debenture Indenture -
to be filed by amendment.
A-6 - Form of Subordinated Debenture instrument --
incorporated by reference to Exhibit A-5.
B-1 - Form of Guaranty -- to be filed by amendment.
B-2 - Form of Underwriting Agreement -- to be filed by amendment.
C - Registration Statement on Form S-3 under the
Securities Act of 1933 relating to the various
securities which are the subject hereof and all
amendments and exhibits thereto -- Incorporated by
reference to SEC Registration No. --------- to be
assigned to such registration statement.
D-1 - Copy of Petition filed by JCP&L with the NJBPU --
to be filed by amendment.
D-2 - Copy of NJBPU Order granting the Petition --
to be filed by amendment.
E - Not Applicable.
F-l - Opinion of Berlack, Israels & Liberman LLP --
to be filed by amendment.
G - Revised proposed form of public notice.
H - GPU Actual and Pro Forma Capitalization ratios
at September 30, 1998.
16
<PAGE>
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.
JERSEY CENTRAL POWER & LIGHT COMPANY
By: /s/ T. G. Howson
----------------------------
T. G. Howson,
Vice President and Treasurer
Dated: January 5, 1999
17
EXHIBITS TO BE FILED BY EDGAR
-----------------------------
G - Revised proposed form of public notice.
H - GPU Actual and Pro Forma Capitalization ratios at
September 30, 1998.
EXHIBIT G
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35- ----------; 70- ---)
JERSEY CENTRAL POWER & LIGHT
Jersey Central Power & Light Company (JCP&L), 2800 Pottsville Pike,
Reading, Pennsylvania, an electric utility subsidiary of GPU, Inc., a registered
holding company, has filed an application pursuant to Sections 9(a) and 10 of
the Public Utility Holding Company Act of 1935 and Rules 45(b)(1) and 52(b)
thereunder.
JCP&L proposes to organize a special purpose business trust under
Delaware law ("JCP&L Capital Trust"), which will issue and sell from time to
time in one or more series through December 31, 2000 up to $200 million
aggregate liquidation value of preferred beneficial interests, in the form of
Trust Securities (having a liquidation value per interest to be determined) (the
"Preferred Trust Securities")*. The sole purpose of JCP&L Capital Trust will be
to issue and sell the Preferred Trust Securities to investors and use the net
proceeds of the
- -------
* The transactions proposed herein are substantially the same as the
transactions approved by the Commission in Order dated March 6, 1995
(HCAR No. 35-26246) (monthly income preferred securities ("MIPS")) with
the exception that the MIPS were issued by a limited partnership
subsidiary of JCP&L and the Preferred Trust Securities will be issued
by a special purpose business trust subsidiary. The trust structure is
being utilized to help ensure the intended tax treatment, as discussed
below.
<PAGE>
sale, together with the proceeds of the sale to JCP&L of JCP&L Capital Trust's
common securities ("Common Trust Securities"), to purchase JCP&L's subordinated
debentures (the "Subordinated Debentures").
The Common Trust Securities will represent 3% of the aggregate
undivided beneficial interests in JCP&L Capital Trust and JCP&L's purchase price
therefore will not exceed $6 million. The Common Trust Securities will not be
transferable, and the business and affairs of JCP&L Capital Trust will be
managed and controlled by trustees appointed by JCP&L as the holder of the
Common Trust Securities. JCP&L will be responsible for all liabilities and
obligations of JCP&L Capital Trust.
JCP&L will also guarantee on a limited basis to the extent set forth
in payment and guarantee agreements to be executed and delivered by JCP&L in
connection with each series of Preferred Trust Securities (the "Guaranties") (A)
the payment of distributions on the Preferred Trust Securities, if and to the
extent JCP&L Capital Trust has funds on hand legally available therefor, (B) the
redemption price for any redemption of the Preferred Trust Securities, (C) the
aggregate liquidation preference on the Preferred Trust Securities to the extent
JCP&L Capital Trust has funds on hand legally available therefor, including all
accrued but unpaid distributions, whether or not declared and (D) certain
additional amounts that may be payable in respect of the Preferred Trust
Securities.
<PAGE>
Each Subordinated Debenture will be issued under an Indenture to be
entered into with United States Trust Company of New York, as trustee, and will
have an initial term of up to 49 years. Prior to maturity, JCP&L will pay only
interest on the Subordinated Debentures at a rate equal to the distribution rate
on the Preferred Trust Securities. Such interest payments will constitute JCP&L
Capital Trust's only income and will be used by it to pay distributions on the
Preferred Trust Securities. Distributions on the Preferred Trust Securities will
be made not less than semi-annually, will be cumulative and must be made to the
extent that JCP&L Capital Trust has funds on hand legally available for such
purposes. However, JCP&L will have the right to defer payment of interest on the
Subordinated Debentures for up to five years in which event JCP&L Capital Trust
may similarly defer payment of distributions on the Preferred Trust Securities,
but in no event may distributions be deferred beyond the maturity date of the
Subordinated Debentures. The distribution rates, payment dates, redemption and
other similar provisions of each series of Preferred Trust Securities will be
identical to the interest rates, payment dates, redemption and other provisions
of the Subordinated Debentures issued by JCP&L with respect thereto.
Each Subordinated Debenture and related Guaranty will be subordinate
to all other existing and future "Senior Indebtedness," as defined below, of
JCP&L and will have no
<PAGE>
cross-default provisions with respect to other JCP&L indebtedness -- i.e., a
default under any other outstanding JCP&L indebtedness will not result in a
default under the Subordinated Debenture or the Guaranty. However, JCP&L may not
declare and pay dividends on, or redeem or retire, its outstanding Cumulative
Preferred Stock or Common Stock unless all payments then due (whether or not
previously deferred) under the Subordinated Debentures and the Guaranties have
been made. "Senior Indebtedness" consists of (i) the principal of and premium
(if any) in respect of (A) indebtedness of JCP&L for money borrowed and (B)
indebtedness evidenced by securities, debentures, bonds or other similar
instruments (including purchase money obligations) for payment of which JCP&L is
responsible or liable; (ii) all capital lease obligations of JCP&L; (iii) all
obligations of JCP&L issued or assumed as the deferred purchase price of
property, all conditional sale obligations of JCP&L and all obligations of JCP&L
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) certain obligations of JCP&L
for the reimbursement of any obligor on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction; (v) all
obligations of the type referred to in clauses (i) through (iv) of other persons
for the payment of which JCP&L is responsible or liable as obligor, guarantor or
otherwise; and (vi) all obligations of the types referred to in clauses (i)
through
<PAGE>
(v) of other persons secured by any lien on any property or asset of JCP&L
(whether or not such obligation is assumed by JCP&L), except for any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures.
It is expected that JCP&L's interest payments on the Subordinated
Debentures will be deductible for income tax purposes and that JCP&L Capital
Trust will be treated as a grantor trust for federal income tax purposes.
Consequently, distributions from JCP&L Capital Trust to the holders of Preferred
Trust Securities will be deemed to constitute distributions of the interest
income received by JCP&L Capital Trust on the Subordinated Debentures.
Consequently, such holders and JCP&L Capital Trust will not be entitled to any
"dividend received deduction" under the Internal Revenue Code with respect to
such distributions. A series of the Preferred Trust Securities will be subject
to mandatory redemption upon redemption of the corresponding series of the
Subordinated Debentures, but will not be subject to any mandatory sinking fund.
A series of Preferred Trust Securities may also be redeemable at the option of
JCP&L Capital Trust at a price equal to its liquidation value plus any accrued
and unpaid distributions plus any premium negotiated in connection with the
marketing of the Preferred Trust Securities, (i) at any time after a specified
no-call period (if any) which could be up to the life of the issuance, or (ii)
in the event that (I) JCP&L
<PAGE>
Capital Trust is required by applicable tax laws to withhold or deduct certain
amounts in connection with distributions or other payments, or (II) JCP&L
Capital Trust is subject to federal income tax with respect to interest received
on the Subordinated Debentures or will otherwise not be taxed as a grantor
trust, or (III) it is determined that the interest payments by JCP&L on the
Subordinated Debentures are not deductible for federal income tax purposes, or
(IV) JCP&L Capital Trust is subject to more than a de minimis amount of other
taxes, duties or other governmental charges, or (V) JCP&L Capital Trust becomes
subject to regulation as an "investment company" under the Investment Company
Act of 1940, as amended. Upon occurrence of any of the events set forth in
clause (ii) of the immediately preceding sentence, JCP&L Capital Trust could be
dissolved and the Subordinated Debentures distributed directly to the holders of
the Preferred Trust Securities and to JCP&L on a pro rata basis, resulting in
direct ownership of the Subordinated Debentures by the holders of the Preferred
Trust Securities. The Subordinated Debentures distributed to JCP&L will be
canceled.
If at any time JCP&L Capital Trust would be required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, JCP&L also will pay as additional interest
such amounts as shall be
<PAGE>
required so that the net amounts received and retained by JCP&L Capital Trust
after paying any such taxes, duties, assessments or governmental charges will
not be less than the amounts JCP&L Capital Trust would have received had no such
taxes, duties, assessments or governmental charges been imposed.
In the event of any voluntary or involuntary dissolution or winding
up of JCP&L Capital Trust, the holders of Preferred Trust Securities will be
entitled to receive out of the assets of JCP&L Capital Trust, after satisfaction
of liabilities to creditors and before any distribution of assets is made to
JCP&L, the sum of their stated liquidation preference and all accumulated and
unpaid distributions to the date of payment. All assets of JCP&L Capital Trust
remaining after payment of the liquidation distribution to the holders of
Preferred Trust Securities will be distributed to JCP&L.
Upon any liquidation, dissolution or winding up of JCP&L, the amount
payable on each series of the Preferred Trust Securities would be limited to a
pro rata portion of any amount recovered by JCP&L Capital Trust in its capacity
as a subordinated debt holder of JCP&L. The Subordinated Debentures and the
payment obligations under the Guaranty will be subordinate to all other existing
and future Senior Indebtedness, except for any such indebtedness that is by its
terms subordinated to or pari passu with the Subordinated Debentures.
<PAGE>
The constituent instruments of JCP&L Capital Trust, including its
declaration of trust, will provide, among other things, that JCP&L Capital
Trust's activities will be limited to the issuance and sale of Common Trust
Securities and Preferred Trust Securities from time to time and the application
of the proceeds thereof to the purchase of the Subordinated Debentures.
Accordingly, it is not proposed that JCP&L Capital Trust's constituent
instruments include any interest or distribution coverage or capitalization
ratio restrictions on its ability to issue and sell Preferred Trust Securities,
as each such issuance will be supported by a Subordinated Debenture and a
Guaranty, and such restrictions would therefore not be relevant or necessary for
JCP&L Capital Trust to maintain an appropriate capital structure. Moreover, the
issuance of Subordinated Debentures by JCP&L will be subject to the restriction
in Article VI, paragraph Eighth (B) of JCP&L's Restated Certificate of
Incorporation which limits, without the consent of the holders of a majority of
JCP&L's outstanding Cumulative Preferred Stock, the amount of unsecured
indebtedness which JCP&L may have outstanding at any one time to 20% of the
aggregate of the total outstanding principal amount of all bonds and other
securities representing secured indebtedness issued or assumed by JCP&L plus
JCP&L's capital stock, premiums thereon, and surplus of JCP&L as stated on its
books of account. JCP&L Capital Trust's constituent instruments will
<PAGE>
further state that JCP&L will be responsible for all liabilities and obligations
of JCP&L Capital Trust.
JCP&L expects to apply the net proceeds of the sale to JCP&L Capital
Trust of Subordinated Debentures to the redemption of outstanding senior
securities pursuant to the optional redemption provisions thereof, to the
repayment of outstanding short-term debt, for construction purposes, and for
other general corporate purposes, including to reimburse JCP&L's treasury for
funds previously expended therefrom for the above purposes. JCP&L will not use
any of the net proceeds of the sale of Subordinated Debentures to acquire,
either directly or indirectly, any interest in any exempt wholesale generator or
foreign utility company.
The Application and any amendments thereto are available for public
inspection through the Commission's Office of Public Reference. Interested
persons wishing to comment or request a hearing should submit their views in
writing by -----, 1998 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the applicant at the address
specified above. Proof of service (by affidavit, or in case of an attorney at
law, by certificate) should be filed with the request. Any request for a hearing
shall identify specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in this matter.
<PAGE>
After said date, the Application, as it may be amended, may be granted.
Exhibit H
CAPITALIZATION AND CAPITALIZATION RATIOS
----------------------------------------
(IN THOUSANDS)
The actual and pro forma capitalization of GPU, Inc. and Subsidiary Companies at
September 30, 1998 is as follows:
Actual Pro Forma (3)
---------------- ------------------
Amount % Amount %
--------- ---- ---------- -----
Long-term debt(1) $4,476,167 51.0 $4,476,167 48.2
Notes payable 298,393 3.4 398,393 4.3
Preferred stock (2) 155,478 1.8 155,478 1.7
Subsidiary-obligated
mandatorily redeemable
preferred securities 330,000 3.8 780,000 8.4
Common equity 3,499,009 40.0 3,471,620 37.4
--------- ---- --------- ----
$8,759,047 100.0 $9,281,658 100.0
========= ===== ========= =====
(1) Includes securities due within one year of $262,110.
(2) Includes securities due within one year of $2,500.
(3) The pro forma capitalization excludes approximately $750 million of
GPU's proportionate share of non-recourse debt used to finance the
acquisition of exempt wholesale generators and foreign utility companies,
as defined under the Public Utility Holding Company Act of 1935, which
debt is not consolidated for financial reporting purposes. After giving
effect to the non-recourse debt, the pro forma percentages would be as
follows: Long-term debt 52.1%; Notes payable 4.0%; Preferred stock 1.5%;
Subsidiary-obligated mandatorily redeemable preferred securities 7.8%; and
Common equity 34.6%.
