File No. 70-9445
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
__________________________________________
AMENDMENT NO. 1 TO FORM U-1 DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________________________
Cinergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45202
(Name of company filing this statement
and address of principal executive offices)
Cinergy Corp.
(Name of top registered holding company parent)
William L. Sheafer
Vice President and Treasurer
Cinergy Corp.
(address above)
(Name and address of agent of service)
The Commission is requested to direct all notices, orders and
communications in this matter to:
George Dwight II
Senior Counsel
Cinergy Corp
(address above)
513-287-2643
513-287-3810 (fax)
[email protected]
The application in this proceeding as previously filed is hereby amended
and restated as follows:
Item 1. Description of Proposed Transactions
A. Introduction
Cinergy Corp. ("Cinergy"), a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the "Act") seeks
authority to issue (or, in the case of shares purchased on the open market,
to acquire on behalf of plan participants) and sell, from time to time
through December 31, 2004, up to 75,000 shares of Cinergy common stock,
$.01 par value per share ("Common Stock"), under the employee stock
purchase plan described below. At December 31, 1998 Cinergy had issued and
outstanding 158,664,532 shares of Common Stock.
On December 16, 1998, Cinergy's Board of Directors approved
resolutions adopting the Cinergy Corp. Sharesave Scheme (the "Plan," see
copy filed as Exhibit B) for employees of Cinergy Global Power Services
Ltd. ("CGPS"), an indirect wholly-owned subsidiary of Cinergy organized
under the laws of the United Kingdom ("UK"). The purpose of the Plan
is to allow employees to participate in share ownership, which will be
beneficial to both the employees and Cinergy. Adoption of the Plan does
not require the approval of Cinergy's shareholders.
The Plan is governed by and conforms to UK law and has received
preliminary approval from the Inland Revenue, the UK taxation agency
equivalent to the Internal Revenue Service. The necessary documentation
has been submitted to the Inland Revenue for formal approval, which will be
obtained before the Plan is implemented. The Plan is a typical UK
"sharesave scheme" permitting employees to purchase parent company stock at
a discount.
Cinergy proposes to use proceeds from sales of Common Stock under
the Plan for general corporate purposes. To the extent that shares issued
under the Plan may consist of previously issued shares acquired on the open
market, Cinergy would finance such purchases with general corporate funds.
B. Cinergy Global Power Services Ltd.
Cinergy has two direct wholly-owned nonutility subsidiaries,
Cinergy Investments, Inc. and Cinergy Global Resources, Inc. ("CGR"), which
function as holding companies for Cinergy's domestic and foreign nonutility
subsidiaries, respectively. Formed in 1997 as a direct wholly-owned
subsidiary of CGR, CGPS provides project development, asset management and
other centralized services on CGR's behalf in connection with potential and
actual investments in foreign utility companies ("FUCOs") and exempt
wholesale generators ("EWGs"). At year-end 1998 Cinergy, through CGR, had
ownership interests in eight FUCOs and one foreign EWG/1/. CGPS provides
the following services on behalf of CGR in respect of associate FUCOs, EWGs
and related project parent companies (the level and combination of which
varies from project to project):
Project Development Activities: This core activity involves
identifying, bidding on and developing investment prospects, hiring
advisers, and preparing or assisting in the preparation, review and
negotiation of project bidding, development, investment/financing,
operational and commercial contracts, documents and filings.
Asset Management Services: CGPS also provides asset management
services by which, after financial closing and acquisition of the
project investment, the project investment is managed, i.e., advice
is given to the specific Cinergy investing entity and further
support services may be provided, e.g., negotiation of additional
investment or disposal of the investment.
On-Site Technical Services: Third, after financial closing, CGPS
may also provide operational and maintenance and other technical
and support services directly to or on behalf of the in-country
asset-owning entity (i.e., the FUCO itself or the EWG that directly
holds the eligible facility). This is more likely to occur in
cases where Cinergy owns a controlling interest in the project
company.
CGPS had 35 employees at year-end 1998, working in the following
areas: (i) project development/asset management, (ii) finance and (iii)
company administration. The bulk of the employees fall into the project
development/asset management function. Both those employees and the
finance staff may provide any combination of project development, asset
management and in-country services. The company administration staff
generally provide only internal support services.
C. UK Sharesave Scheme
The Plan will be administered by a three-person committee (the
"Plan Committee") initially comprised of two CGPS officers and one Cinergy
officer. Subject to certain conditions and restrictions, all current and
future employees of CGPS will be eligible to participate in the Plan. Both
authorized and unissued shares of Common Stock and previously issued shares
of Common Stock acquired by Cinergy on the open market, in negotiated
transactions or otherwise may be issued and sold to CGPS employees pursuant
to the Plan.
Each participating employee in the Plan will be granted a right (an
"Option") to acquire shares of Common Stock at a discount of up to 20% of
market value, by entering into a savings contract ("Savings Contract") to
save between 10 and 250 pounds sterling per month over either a three or
five year period. Each participant will make monthly contributions to a
savings account ("Savings Account") which will be initially administered by
Computershare Services plc as agent for the Royal Bank of Scotland (the
"Savings Carrier").
The Plan has three main attractions for participants. First,
Options are granted at a discount up to 20% of the market value of the
Common Stock. Second, any gains on the exercise of the Options will be
tax-free for the participant. Third, participants that make monthly
contributions for the entire three or five year savings period will be
entitled to receive a tax-free bonus.
Under the Plan, and after it has been approved by the Inland
Revenue (the UK taxation agency referred to above), the Plan Committee will
invite applications ("Date of Invitation") from eligible employees to apply
to enter into three and/or five year Savings Contracts. Each offering
period will make available both three and five year Savings Contracts,
although an employee that elects to participate may do so only via a single
Savings Contract three or five years with respect to that offering
period. The invitation will state the US dollar price per share of Common
Stock (the "Option Price") at which participating employees may acquire
shares of Common Stock upon the exercise of Options. The Option Price will
be set at a discount of up to 20% (the maximum permitted under UK law) of
the average of the high and low sales prices of the Common Stock as
reported on the New York Stock Exchange on the most recent trading date
preceding the Date of Invitation. The actual size of the discount will be
determined by the Plan Committee in its discretion, provided that the size
of the discount will be identical for both the three and five year Savings
Contracts for that offering period. The invitation will also direct each
participant to choose the amount of its monthly contribution to the Plan,
with a minimum of 10 pounds sterling and a maximum of 250 pounds sterling
per month.
In each subsequent year in which the Plan is in effect, the Plan
Committee may determine to initiate a new offering period for three and
five year Savings Contracts, and each eligible employee may be granted
Options thereunder, notwithstanding concurrent or prior participation by
the employee in one or more additional Savings Contracts relating to
separate offering periods, provided that in respect of all Savings
Contracts in which the employee is participating, that particular
employee's contributions do not exceed 250 pounds sterling in total in any
one month.
Within 14 days of the Date of Invitation, eligible employees that
wish to participate in the Plan must submit their applications for the
grant of Options under the Plan. Each application must specify whether the
employee wishes to enter into a three or five year Savings Contract and the
amount of the monthly contribution (from 10 to 250 pounds sterling), via a
payroll deduction, that the employee wishes to make for the duration of
that Savings Contract.
Within 29 days after the Date of Invitation, the Plan Committee
will grant to each eligible employee who has submitted a valid application
an Option reflecting the terms requested in the application.
At the end of the Savings Contract (the "Maturity Date"), a tax-free
bonus will be payable by the Savings Carrier which, for the initial
offering period, will be equal to 2.75 or 7.5 monthly salary payments,
depending on whether the employee has opted for a three or five year
Savings Contract, respectively./2/ The tax-free bonus will be added to the
savings accumulated in the Savings Account through the monthly payroll
deductions. For any offering period, the Plan Committee has the discretion
(which it must exercise at the time the options are granted) to permit
those employees who have opted for five year Savings Contracts to leave
their accumulated savings in their Savings Accounts for an additional two
years, thereby earning a tax-free bonus payable at the end of the seventh
year equivalent to 13.5 monthly contributions from salary.
Generally, the Options will not be exercisable until the six-month
period commencing with the end of the three or five year Savings Contract
that the employee has chosen. Upon exercise of the Option, the employee
will be entitled to purchase the largest whole number of shares of Common
Stock (with any residual funds to be returned to the employee) at the
then-current exchange rate, determined by the sum of (a) the employee's
total monthly contributions for the period of the Savings Contract and (b)
the bonus payments described above (collectively, "Exercise Price"),
divided by the Option Price.
Notwithstanding the general rule that Options may be exercised only
at the end of the Savings Contract, there are certain circumstances in
which employees may exercise Options prior to the end of the three or five
year Savings Contract. For example, subject to certain conditions, if the
participant leaves the employment of CGPS due to retirement, ill health,
death, severance or other "good leaver" circumstances (as specified in the
Plan), or if Cinergy is subject to a change in control or liquidation or
similar events, a participant may in either case exercise his Option(s), to
the extent of his accumulated savings to that date together with interest
thereon (provided the Savings Account has been open for at least 12 months)
at the rate of 3% per annum. No bonus, however, will be payable in that
situation.
Participants are not required to exercise Options upon maturity of
the Savings Contracts. In the event the Option Price is higher than the
market value of the Common Stock on the Maturity Date i.e., the Options
are "underwater" participants may withdraw the amounts accrued in their
respective Savings Accounts to that date, together with their matching
bonus payments.
The Plan has a ten years' duration. At any time, by action of the
Cinergy Board or the Plan Committee, Cinergy may alter, amend or terminate
the Plan, provided that no amendment shall become effective without
approval of the Inland Revenue.
All administrative costs of the Plan will be borne by Cinergy.
Item 2. Fees, Commissions and Expenses
The fees, commissions and expenses that have been or will be incurred,
directly or indirectly, by Cinergy or any of its associate companies in
connection with the proposed transactions are not expected to exceed
approximately $37,000, comprised of administrative costs of approximately
$10,000 and legal fees and expenses of Herbert Smith (a firm of UK
soliciters) of approximately $27,000.
Item 3. Applicable Statutory Provisions
Sections 6(a) and 7 and rules 42 and 54 are or may be applicable to
the proposed transactions.
Rule 54 provides that in determining whether to approve the issue
or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or FUCO, or other transactions by such
registered holding company or its subsidiaries other than with respect to
EWGs or FUCOs, the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon
the registered holding company system if the conditions of rule 53(a), (b)
and (c) are satisfied.
Cinergy currently does not meet the conditions of rule 53(a). At
December 31, 1998, Cinergy's "aggregate investment," as defined in rule
53(a)(1), in EWGs and FUCOs (including related project parents) was
approximately $619 million. This amount equals approximately 65% of the
average of Cinergy's consolidated retained earnings for the four quarterly
periods ended December 31, 1998 (approximately $949 million), which exceeds
the 50% "safe harbor" limitation contained in rule 53(a). By order dated
March 23, 1998 (HCAR No. 26848) ("100% Order"), the Commission authorized
Cinergy to increase its total investments in EWGs and FUCOs to 100% of
consolidated retained earnings. Accordingly, although Cinergy's aggregate
investment exceeds the 50% safe harbor, such additional level of investment
is expressly permitted under the 100% Order.
At September 30, 1997, the most recent period for which financial
statement information was evaluated in the 100% Order, Cinergy's
consolidated capitalization consisted of 44.1% equity and 55.9% debt; at
such date, Cinergy's pro forma consolidated capitalization, taking into
account the entire amount of non-recourse debt allocable to Cinergy's
ownership interest in EWGs and FUCOs (i.e., $949 million) was 38.2% equity
and 61.8% debt. As shown in Exhibit H-1 filed herewith, Cinergy's
consolidated capitalization at December 31, 1998 consisted of 42% equity
and 58% debt; also as shown in such exhibit, even if the entire amount of
non-recourse debt allocable to Cinergy's ownership interest in EWGs and
FUCOs were consolidated (i.e., $1.2 billion), equity would still comprise
35.5% of the overall capital structure. The proposed transactions will
have an immaterial effect on Cinergy's capitalization.
With respect to earnings, the 100% Order stated that Cinergy did
not report a full-year operating loss attributable to its investments in
EWGs and FUCOs for any year 1992 through 1996. That order also stated that
Midlands Electricity plc ("Midlands"), a FUCO in the United kingdom in
which Cinergy has a 50% ownership interest, recorded a one-time
extraordinary charge in the third quarter of 1997 as a result of a windfall
profits tax imposed by the authorities in the United Kingdom, of which $109
million was allocable to Cinergy. However, the 100% Order noted that
Midland's credit ratings by Standard and Poor's remained unchanged
following the charge. Since the date of the 100% Order, Cinergy's
investments in EWGs and FUCOs have continued to make a positive
contribution to Cinergy's earnings (as shown in Cinergy's quarterly
certificates in File No. 70-9011).
With respect to the remaining conditions of rule 54, Cinergy has
complied and will continue to comply with the record-keeping requirements
of rule 53(a)(2), the limitation under rule 53(a)(3) on the use of
operating company personnel in rendering services to EWGs and FUCOs, and
the requirements of rule 53(a)(4) concerning submission of specified
filings under the Act to retail rate regulatory agencies. In addition,
none of the conditions in rule 53(b) has occurred.
Item 4. Regulatory Approval
No U.S. state or federal regulatory agency other than the Commission
under the Act has jurisdiction over the proposed transactions. As
mentioned in Item 1, the Inland Revenue, the United Kingdom equivalent of
the Internal Revenue Service, must approve the terms of the Plan prior to
its implementation.
Item 5. Procedure
Cinergy requests that the Commission issue and publish as soon as
practicable the requisite notice under Rule 23 with respect to the filing
of this application, and that the Commission issue an order granting the
authority requested herein as soon as practicable after expiration of the
public notice period.
Applicant waives a recommended decision by a hearing officer or other
responsible officer of the Commission; consents that the Staff of the
Division of Investment Management may assist in the preparation of the
Commission's order; and requests that there be no waiting period between
the issuance of the Commission's order and its effectiveness.
Item 6. Exhibits and Financial Statements
(a) Exhibits:
A-1 Certificate of Incorporation of Cinergy (Exhibit to
Cinergy's 1993 Form 10-K in File No. 1-11377 and hereby incorporated by
reference)
A-2 By-Laws of Cinergy, as amended (Exhibit A-2 to
Declaration in File No. 70-9439 and hereby incorporated by reference)
B Cinergy Corp. UK Sharesave Scheme for employees of
Cinergy Global Power Services Ltd. (filed with initial application)
C Not applicable
D Not applicable
E Not applicable
F-1 Preliminary opinion of counsel (filed with initial
application)
G Form of Federal Register notice (filed with initial
application)
H-1 Pro Forma Consolidated Capitalization at December 31, 1998
(b) Financial Statements:
FS-1 Cinergy Pro Forma Consolidated Financial Statements, dated
September 30, 1998 (incorporated by reference from Financial Statement FS-1
in File No. 70-9439)
FS-2 Cinergy Pro Forma Financial Statements, dated September 30,
1998 (incorporated by reference from Financial Statement FS-2 in File No.
70-9439)
FS-3 Cinergy Consolidated Financial Data Schedule (incorporated by
reference from Financial Data Schedule FS-3 in File No. 70-9439)
FS-4 Cinergy Financial Data Schedule (incorporated by reference from
Financial Data Schedule FS-4 in File No. 70-9439)
Item 7. Information as to Environmental Effects
(a) The Commission's action in this matter will not constitute
major federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transactions.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the undersigned company
has duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 7, 1999
CINERGY CORP.
By: /s/William L. Sheafer
Vice President and Treasurer
ENDNOTES
/1/ For more information with respect to these FUCO and EWG investments,
see the quarterly certificates in File No. 70-9011.
/2/ The amount of the bonus payments may vary from offering period to
offering period (but not within any single offering period). The Inland
Revenue (not Cinergy or the Plan Committee) determines the size of bonuses
payable under all UK sharesave schemes such as the Plan, on a periodic
basis by reference to prevailing bank lending rates in the UK.
Exhibit H-1
File No. 70-9445
CINERGY CORP. CONSOLIDATED CAPITALIZATION
ACTUAL
DECEMBER 31, 1998
$ Millions Percentage
Common Stock Equity
Common stock $ 2
Paid-in capital 1,595
Retained earnings 945
Accumulated other comprehensive income (loss) (1)
Total common stock equity 2,541 40.5%
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 93 1.5%
Debt
Long-term debt 2,554
Long-term debt due within one year 136
Notes payable and other short-term
obligations 954
Total debt 3,644 58.0%
Total capitalization $ 6,278 100.0%
The following table sets forth Cinergy's pro forma capitalization, assuming
that the entire amount of non-recourse debt applicable to Exempt Entities
which is attributable to Cinergy's ownership interest ($1.2 billion) is
consolidated. It should be noted that such consolidation is inconsistent
with the requirements of GAAP, and is being provided to the staff of the
Securities and Exchange Commission solely at its request.
CINERGY CORP. CONSOLIDATED CAPITALIZATION
PRO FORMA
DECEMBER 31, 1998
$ Millions Percentage
Common Stock Equity
Common stock $ 2
Paid-in capital 1,595
Retained earnings 945
Accumulated other comprehensive income (loss) (1)
Total common stock equity 2,541 34.2 %
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 93 1.3 %
Debt
Long-term debt 3,513
Long-term debt due within one year 138
Notes payable and other short-term
obligations 1,151
Total debt 4,802 64.5 %
Total capitalization $ 7,436 100.0 %
