File No. 70-
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET
WASHINGTON, D.C. 20549
__________________________________________
FORM U-1 APPLICATION-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)
William J. Grealis George Dwight II
Vice President/Chief Strategic Officer Senior Counsel
Cinergy Corp. Cinergy Corp.
139 East Fourth Street, 29AT2 139 East Fourth Street, 25AT2
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
William C. Weeden
Skadden, Arps, Slate, Meagher & Flom, LLP
1440 New York Avenue, N. W.
Washington, DC 20005
(Name and address of agents for service)
Item 1. Description of Proposed Transactions
A. Introduction; Requested Authorization
Cinergy Corp., a registered public utility holding company
("Cinergy"), seeks Commission authorization under the Public Utility
Holding Company Act of 1935, as amended (the "Act"), to adopt and implement
a shareholder rights plan (the "Plan").
Pursuant to the Plan, the Board of Directors (the "Board") of
Cinergy intends to declare a dividend of one right (a "Right") for each
outstanding share of Cinergy Common Stock, par value $0.01 per share (the
"Common Stock"), payable to shareholders of record on the tenth business
day after receipt of the authorization herein requested (the "Record
Date"). As of April 30, 2000, there were approximately 159 million shares
of Common Stock outstanding. The Rights will be created by and issued
pursuant to a Rights Agreement (the "Rights Agreement"), between Cinergy
and The Fifth Third Bank, an Ohio banking corporation, as Rights Agent.
More specifically, Cinergy herein seeks authorization under the Act
to implement the Plan and the Rights Agreement, including, among other
actions permitted by the Rights Agreement, the following transactions:
(1) The dividend distribution of the Rights;
(2) The making of adjustments to the Exercise Price (defined
below), and the issuance and sale of Common Stock or the transfer of other
assets upon exercise of the Rights;
(3) The redemption of Rights; and
(4) Amending the Rights Agreement from time to time as described
herein.
B. Background: Shareholder Rights Plans
Shareholder rights plans have become a widely accepted means to
maximize shareholder value by reducing the risk of nonrealization of
shareholder value due to opportunistic acquisition proposals. A
fundamental purpose of these plans is to encourage potential acquirors to
negotiate with the Board. And having such a plan in place may enhance the
probability that a competing offer will emerge. More than 2,000 companies
have adopted rights plans, including a majority of the Fortune 500
companies and more than 40 utility companies. The Commission has issued
numerous orders authorizing registered public utility holding companies to
adopt rights plans similar to the instant Plan./1/
The Rights Agreement is appropriate and necessary to preserve, in
the event of an attempted takeover, Cinergy's value for its shareholders.
It is designed to deter attempts to acquire Cinergy in a manner or on terms
which the Board determines are not in the best interests of all
shareholders. Specifically, the Rights Agreement is intended to:
(i) reduce the risk of two-tiered, front-end loaded tender offers
or partial tender offers which may not offer fair and equal value to all
shareholders of Cinergy;
(ii) deter potential accumulators of Cinergy's shares who (through
open market and/or private purchases) may achieve a position of substantial
influence, or even control, without paying to the selling or remaining
shareholders of Cinergy an appropriate control premium for their shares;
(iii) deter potential accumulators of Cinergy's shares who are
only interested in putting Cinergy into "play"; and
(iv) preserve for Cinergy's Board maximum bargaining power and
flexibility to deal with hostile acquirors in order to be in a position to
maximize value for all shareholders.
The Rights Agreement attempts to achieve these goals by confronting
a potential acquiror of more than 10% of Cinergy's outstanding Common Stock
with the possibility that Cinergy's shareholders, by exercising their
Rights, will be able to increase substantially such acquiror's cost of
acquiring Cinergy.
The Plan would not, however, make Cinergy "acquisition-proof" nor
preclude a proxy contest. Shareholder rights plans in general and this
Plan in particular protect against takeover abuses, give all interested
parties an increased period of time in which to make decisions on
fundamental matters such as a takeover, and strengthen the ability of the
Board to fulfill its fiduciary duties in considering an acquisition offer
that gives maximum long-term value to the holders of the Common Stock.
For all of these reasons, Cinergy believes that the Plan, including
the adoption of the Rights Agreement and the distribution of the Rights to
Cinergy's shareholders, provides appropriate protections for shareholders
from the takeover abuses discussed above.
C. Description of Plan
1. Exercise Price
The Rights created under the Rights Agreement would entitle the
holders thereof to purchase one share of Common Stock at a price of $100
per whole share of Common Stock (the "Exercise Price"), subject to
adjustment. Initially, the Rights would not be exercisable and would trade
with the outstanding shares of Common Stock. Upon the occurrence of the
triggering events described below, the Rights would become exercisable and
certificates representing the Rights would be distributed and would trade
independently of such outstanding shares. However, the Rights would not
entitle the holders thereof to make a discounted purchase of shares of
Cinergy's Common Stock or of the common stock of the person proposing to
acquire Cinergy until the occurrence of either of the events described
below under "Discount Purchase Right."
2. Distribution Events
The Rights would become exercisable (i.e., Common Stock could be
purchased at the Exercise Price pursuant to the Rights) upon the earlier to
occur of (such date, the "Distribution Date") (i) 10 business days after
the first public announcement that any person or group (an "Acquiring
Person") has without the Board's prior consent acquired beneficial
ownership of 10% or more of Cinergy's outstanding Common Stock
("Acquisition Event") and (ii) 10 business days (unless extended by the
Board) after any person or group has commenced a tender or exchange offer
which would, upon its consummation, result in such person or group becoming
an Acquiring Person ("Offer Event").
3. Discount Purchase Right
After the Distribution Date, if an Acquisition Event has occurred,
the holders of the Rights (other than an Acquiring Person and certain
transferees thereof, whose Rights will become void) would immediately have
the right to receive (subject to the effectiveness of an appropriate
registration statement under the Securities Act of 1933), for each Right
exercised, Common Stock having a market value equal to two times the
Exercise Price then in effect ("Discount Purchase Right").
In the event that, following an Acquisition Event, (i) Cinergy is
acquired by another person or entity not controlled by Cinergy ("Acquiror")
in a merger or other business combination transaction in which Cinergy is
not the continuing or surviving entity, (ii) an Acquiror consolidates or
merges into Cinergy in a merger or other business combination transaction
in which Cinergy is the continuing or surviving entity and, in connection
with the transaction, all or part of the Common Stock is changed into or
exchanged for property, or (iii) 50% or more of Cinergy's consolidated
assets or earning power is sold or transferred to an Acquiror, each holder
of a Right (except Rights which previously have been voided as set forth
above) will thereafter be entitled to receive, for each Right exercised,
common stock of the Acquiror or other appropriate party having a market
value equal to two times the Exercise Price then in effect.
4. Redemption of Rights
The Rights may be redeemed, as a whole, at a Redemption Price of
$0.01 per Right, subject to adjustment, at the direction of the Board,
which Redemption Price shall be paid at Cinergy's option, in cash, shares
of Common Stock or other appropriate form of consideration, at any time
prior to the earlier of (i) the close of business on the date that any
person has become an Acquiring Person and (ii) the date of final expiration
of the Rights. The Rights will expire at the close of business ten years
from the date of the Rights Agreement, unless earlier redeemed or exchanged
by Cinergy as described below.
5. Adjustments to Exercise Price
The Exercise Price payable, and the number of shares of Common
Stock (or other securities, as the case may be) issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Common Stock, (ii) upon the grant to holders of
the Common Stock of certain rights or warrants to subscribe for or purchase
shares of Common Stock or convertible securities at less than the then
current market price of Common Stock or (iii) upon the distribution to
holders of the Common Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends or dividends payable in Common
Stock) or of subscription rights or warrants. Prior to the date on which
the Rights become exercisable, the Board may make such equitable
adjustments as it deems appropriate in the circumstances in lieu of any
adjustment otherwise required by the foregoing.
With certain exceptions, no adjustment in the Exercise Price will
be required until the time at which cumulative adjustments require an
adjustment of at least 1% in such Exercise Price. No fractional shares of
Common Stock will be issued and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Common Stock on the last
trading date prior to the date of exercise.
6. Amendments
The terms of the Rights may be amended by the Board (i) prior to
the Distribution Date in any manner, and (ii) on or after the Distribution
Date to cure any ambiguity, to correct or supplement any provision of the
Rights Agreement which may be defective or inconsistent with any other
provisions, or in any manner not adversely affecting the interests of the
holders of the Rights (including the interests of any Acquiring Person) or,
subject to certain limitations, to shorten or lengthen any time period
under the Rights Agreement. The terms of the Rights may not be amended at
a time when the Rights are not redeemable.
Item 2. Fees, Commissions and Expenses
The fees, commissions, and expenses paid or to be paid or incurred
by Applicant or any associate company thereof in connection with the
proposed transactions are estimated as follows:
Skadden Arps Slate Meagher & Flom $45,000
Rights Agent $ 5,000
TOTAL $50,000
Item 3. Applicable Statutory Provisions
Sections 6(a), 7, 9(a), 10 and 12(c) of the Act and Rules 42 and 54
thereunder are or may be applicable to the proposed transactions./2/
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 exempt wholesale generator (as defined in section 32
of the Act, "EWG") or a foreign utility company (as defined in section 33
of the Act, "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 if paragraphs (a), (b) and (c) of Rule 53 are satisfied.
Cinergy currently does not meet the conditions of Rule 53(a). As of
March 31, 2000, Cinergy's "aggregate investment," as defined in Rule
53(a)(1), in EWGs and FUCOs was approximately $607.8 million. This amount
is equal to approximately 58% of Cinergy's average "consolidated retained
earnings," also as defined in Rule 53(a)(1), for the four quarters ended
March 31, 2000, of approximately $1055.8 million, which exceeds the 50%
"safe harbor" limitation contained in the rule.
By order dated March 23, 1998 (HCAR No. 26848) ("1998 Order"), the
Commission authorized Cinergy to increase its aggregate investment in EWGs
and FUCOs to an amount equal to 100% of Cinergy's average "consolidated
retained earnings." By order dated June 23, 2000 (HCAR No. 27190) ("2000
Order"), the Commission granted Cinergy additional authorization to invest
in EWGs and FUCOs beyond that granted in the 1998 Order specifically, $1
billion in addition to Cinergy's aggregate investment at the date of such
order. Although Cinergy's aggregate investment at March 31, 2000 exceeds
the 50% "safe harbor" limitation, this investment is below the limitation
authorized by the 1998 and 2000 Orders.
With respect to capitalization, there has been no material adverse
impact on Cinergy's consolidated capitalization resulting from Cinergy's
investments in EWGs and FUCOs. As of September 30, 1997, the most recent
period for which financial statement information was evaluated in the 1998
Order, Cinergy's consolidated capitalization consisted of 44.1% equity and
55.9% debt. As of March 31, 2000, Cinergy's consolidated capitalization
consisted of 43.5 % equity and 56.5% debt. These ratios are within
acceptable ranges, as further reflected by the fact that at March 31, 2000
Cinergy's senior unsecured debt was rated "investment grade" by all the
major rating agencies. The impact of the proposed transactions upon
Cinergy's consolidated capitalization will be insubstantial.
With respect to earnings, Cinergy's interests in EWGs and FUCOs have
made consistent and significant contributions to Cinergy's consolidated
retained earnings, as reflected in the quarterly certificates filed by
Cinergy in Docket No. 70-9011. Although Cinergy's consolidated earnings
for the year ended December 31, 1997 were negatively affected by Cinergy's
50% ownership interest in Midlands Electricity plc ("Midlands"), a FUCO,
this was solely as a result of the imposition by the United Kingdom of a
one-time, non-recurring windfall tax. Significantly, this tax did not
affect earnings from ongoing operations, and therefore would not have any
negative impact on earnings in future periods. In July 1999, Cinergy sold
all of its ownership in Midlands, realizing a substantial profit.
Cinergy satisfies all of the other conditions of paragraphs (a) and
(b) of Rule 53. With reference to Rule 53(a)(2), Cinergy maintains books
and records in conformity with, and otherwise adheres to, the requirements
thereof. With reference to Rule 53(a)(3), no more than 2% of the employees
of Cinergy's domestic public utility companies render services, at any one
time, directly or indirectly, to EWGs or FUCOs in which Cinergy directly or
indirectly holds an interest. With reference to Rule 53(a)(4), Cinergy
will concurrently provide a copy of this application to each regulator
referred to therein, and will otherwise comply with the requirements
thereof concerning the furnishing of information. With reference to Rule
53(b), none of the circumstances enumerated in subparagraphs (1), (2) and
(3) thereunder have occurred. Finally, Rule 53(c) by its terms is
inapplicable since the proposed transactions do not involve the issue or
sale of a security to finance the acquisition of an EWG or FUCO.
Item 4. Regulatory Approval
The proposed transactions are not subject to the jurisdiction of
any state or federal commission other than this Commission.
Item 5. Procedure
Applicant requests that the Commission issue an order as soon as
practicable after the expiration of the applicable public notice period
granting and permitting this Application-Declaration to become effective.
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 (incorporated
by reference from Cinergy's 1993 Form 10-K in File No. 1-11377)
A-2 By-laws of Cinergy, as amended on April 21, 1999
(incorporated by reference from Cinergy's March 31, 1999 Form 10-Q in File
No. 1-11377)
A-3 Form of Rights Agreement, dated July ____, 2000,
between Cinergy and The Fifth Third Bank, as Rights Agent
B Not applicable
C Not applicable
D Not applicable
E Not applicable
F-1 Preliminary Opinion of Counsel
G Form of Federal Register Notice
Financial Statements
NOTE: Cinergy corporate and consolidated actual and pro forma
financial statements are omitted since the proposed transactions will not
have a material impact thereon.
Item 7. Information as to Environmental Effects
(a) The proposed transactions are designed to assist
Cinergy's Board in responding to an unsolicited takeover. Consequently,
the Commission's action in this matter will not constitute any 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 Public Utility Holding Company
Act of 1935, the undersigned company has duly caused this
Application-Declaration on Form U-1 to be signed on its behalf by the
officer indicated
below.
Dated: July 28, 2000
Cinergy Corp.
By: /s/William J. Grealis
Vice President & Chief Strategic
Officer
ENDNOTES
/1/ See HCAR Nos. 27052, July 23, 1999 (Allegheney Energy, Inc.); 27013,
April 30, 1999 (Northeast Utilities); 26965, January 15, 1999 (Interstate
Energy Corp.); 26961, December 29, 1998 (Ameren Corp.); 26861, April 22,
1998 (Conectiv, Inc.); 26797, December 19, 1997 (Central and South West
Corp.); 26751, August 1, 1997 (New Century Energies, Inc.); 26532, June 12,
1996 (National Fuel Gas Co.); 26434, December 19, 1995 (Consolidated
Natural Gas Co.).
/2/ Cinergy shareholder approval is not required for the adoption of the
Plan inasmuch as Cinergy does not intend to increase the number of shares
of Common Stock (600,000,000) authorized by its certificate of
incorporation. Accordingly, Commission authorization to solicit proxies
under Section 12(e) is not being requested.
