SEC File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
FIRSTENERGY CORP.
76 South Main Street
Akron, Ohio 44308
GPU DIVERSIFIED HOLDINGS LLC
300 Madison Avenue
Morristown, New Jersey 07962
(Name of companies filing this statement and addresses
of principal executive offices)
FIRSTENERGY CORP.
----------------
(Name of top registered holding company parent of applicants)
Leila L. Vespoli Douglas E. Davidson, Esq.
Senior Vice President Thelen Reid & Priest LLP
and General Counsel 40 West 57th Street, 26th Floor
FirstEnergy Corp. New York, New York 10019
76 South Main Street
Akron, Ohio 44308
(Names and addresses of agents for service)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
------------------------------------
A. By Order dated October 29, 2001 (HCAR No. 27459) (the "Merger Order"),
as supplemented by a Supplemental Order dated November 5, 2001 (HCAR No. 27463),
the Commission authorized the acquisition of GPU, Inc. ("GPU") by FirstEnergy
Corp. ("FirstEnergy") pursuant to an Agreement and Plan of Merger dated as of
August 8, 2000 (such acquisition, the "Merger"). The Merger was effective as of
November 7, 2001 and, after the Merger, all of the direct subsidiaries of GPU,
including GPU Diversified Holdings LLC ("GPUDH"), became direct subsidiaries of
FirstEnergy. By Orders dated December 17, 1996 (HCAR No. 26631) and December 26,
1996 (HCAR No. 26635) (collectively, the "Prior Orders"), the Commission
authorized GPU International, Inc. ("GPUI"), a then-wholly owned subsidiary of
GPU, to invest up to $30 million in Ballard Generation Systems Inc. ("BGS"), a
Canadian corporation which at that time was to become a joint venture between
GPUI and Ballard Power Systems Inc. ("BPS"), a Canadian corporation.1 The sole
purpose of BGS was, and is, to develop, manufacture and market stationary power
systems employing fuel cell technology ("Stationary Fuel Cell Power Systems").
On December 24, 1996, GPUI purchased 300,001 Class B Voting Common shares and
____________________
1 The Prior Orders also authorized GPUI to acquire warrants ("Warrants") to
purchase 100,000 BPS common shares. As a result of subsequent BPS stock splits,
the Warrants represented the right to purchase 300,000 BPS common shares.
290,300 Class C Non-Voting Preferred shares in the capital of BGS for a total
purchase price of $5,903,000, and over the course of the next two years and in
accordance with the Prior Orders purchased 1.3 million additional BGS shares for
a total additional purchase price of $13 million.2 As a result of the
restructuring described in paragraph B below, GPUDH, a Delaware limited
liability company that, as a result of the Merger, is now a direct, wholly-owned
subsidiary of FirstEnergy, currently owns 1,425,001 Class B Voting Common3
shares and 890,300 Class C Non-Voting Preferred shares. The shares GPUDH
currently owns represent, in the aggregate, approximately 12.6% of the equity
and 8.7% of the outstanding voting securities of BGS. Additionally, since May
1998, two other investors have purchased substantial amounts of BGS stock so
that currently there are four BGS shareholders.
B. In December 2000, the GPU system effected an internal restructuring, in
connection with which GPUI was sold to a third party and all of the GPUI-owned
Class B and Class C BGS shares and an option to purchase an additional 425,000
____________________
2 Such 1.3 million additional BGS shares consist of 250,000 Class B shares
purchased on October 24, 1997, 150,000 Class B shares and 100,000 Class C shares
purchased on November 24, 1997, 300,000 Class B shares and 100,000 Class C
shares purchased on June 12, 1998 and 400,000 Class C shares purchased on March
29, 2000.
3 This 1,425,001 amount includes 425,000 Class B shares acquired by GPUDH upon
the June 2001 exercise of its option to purchase such shares, which it acquired
from GPUI as discussed in Paragraph B of this Item 1. 2
2
Class B BGS shares,4 which has since been exercised, were transferred to GPUDH
and the Warrants were transferred to GPU. GPU exercised the warrants in December
2000, and, at the time of the Merger, held less than 1% of the outstanding
voting securities of BPS. FirstEnergy now holds those BPS shares as a result of
the Merger.
C. BPS and GPUDH now desire to restructure the GPUDH-BGS investment, which
would include the acquisition by BPS of all of GPUDH's Class B and Class C BGS
shares in exchange for restricted BPS shares.5 Accordingly, GPUDH seeks
authority to acquire an amount of BPS shares having a value equal to the value
of the BGS shares to be exchanged, as agreed between BPS and GPUDH. For these
purposes, the BGS shares to be exchanged will be valued at U.S. $19.50 a share,
which was the purchase price paid by the last BGS investor to purchase BGS
shares. The BGS shares will then be exchanged for BPS shares having an equal
value, as determined by the current "Market Value" of BPS's common shares, as
defined.6 At no time will GPUDH own, directly or indirectly, 10% or more of the
____________________
4 The transfer of the shares and option to GPUDH was effected first through a
distribution of such shares and option from GPUI to GPU followed by a capital
contribution of those shares and option from GPU to GPUDH.
5 FirstEnergy currently anticipates that the other BGS shareholders may also
exchange their BGS shares for BPS shares and that BGS will be dissolved,
although there can be no assurance as to the outcome of discussions between such
other BGS shareholders and BGS/BPS.
6 The "Market Value" for each BPS share is the average of the sale price per
share of BPS's common shares as reported on the NASDAQ National Market for the
10 trading days ending three business days before the share exchange documents
were executed. BPS shares are traded on the Toronto Stock Exchange ("TSE") and
the NASDAQ National Market ("NASDAQ"). Based on this formula, GPUDH will receive
1,366,063 BPS shares.
3
outstanding BPS voting common shares. In fact, GPUDH's ownership is expected to
represent less than 2% of the outstanding BPS shares.
D. The principal business of BPS and its associated companies is the
development, manufacture and commercialization of proton exchange membranes
("PEM") fuel cells and PEM fuel cell systems for use in transportation,
stationary, portable and other power operations. A PEM fuel cell produces
electricity using a combination of hydrogen fuel and oxygen, without combustion.
It is an environmentally clean electrochemical device that produces electricity
efficiently and continuously. BPS has developed PEM fuel cells and PEM fuel cell
systems for 17 years and such development has been BPS's primary business since
1989. FirstEnergy believes that BPS would qualify as a Rule 58 company if it
conducted its business solely in the United States, instead of Canada.
Commercialization of BPS products is scheduled to take place over the next
several years. BPS recently launched a portable volume-produced fuel cell system
designed for integration by original equipment manufacturers into a wide variety
4
of industrial and consumer end-product applications. BPS intends to introduce
the first fuel cell stationary power generators into the market by 2003. In the
transportation markets, fuel cell-powered transit bus engines are expected to be
available in 2002, and the first fuel cell-powered automobile engines are
expected to be available between 2003 and 2005. All of BPS's sales revenue is
derived from PEM fuel cell products.
BPS has two development and manufacturing facilities, one in Burnaby,
British Columbia and one in Nabern, Germany, and offices in Burnaby and
Sacramento, California. BPS has 820 employees in Canada, 35 in Germany and four
in the United States.
E. In connection with gpudh's acquisition of the BPS shares, BPS will need
TSE approval to issue and deliver the BPS shares to GPUDH. In particular, the
TSE must approve the deemed price at which the BPS shares are to be issued. All
BPS shares issued to GPUDH will have a holding period with respect to sales in
the United States of up to 12 months, in accordance with United States
securities laws. Sales in the United States after one year will be limited by
the constraints of Rule 144 under the Securities Act of 1933, as amended. Sales
in Canada will be restricted for four months in accordance with Canadian
provincial securities laws.
5
F. GPUDH also has entered into a distribution agreement with BGS, pursuant
to which GPUDH will be a non-exclusive distributor of BGS's PEM fuel cell
stationary power generators in a portion of the United States once such
generators become commercially available.
G. Rule 54 Analysis.
The proposed transaction is also subject to the requirements of Rule
54. Rule 54 provides that in determining whether to approve an application by a
registered holding company which does not relate to any exempt wholesale
generator ("EWG") or "foreign utility company" ("FUCO"), 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.
FirstEnergy currently meets all of the conditions of Rule 53(a), except
for clause (1). In the Merger Order, the Commission, among other things,
authorized FirstEnergy to invest in EWGs and FUCOs so that FirstEnergy's
"aggregate investment," as defined in Rule 53(a)(1), in EWGs and FUCOs does not
exceed $5 billion, which amount is above the level which would be permitted by
clause (1) of Rule 53(a) if such amount were to be currently calculated. The
6
Merger Order also specifies that this $5 billion amount may include amounts
invested in EWGs and FUCOs by FirstEnergy and GPU at the time of the Merger
Order ("Current Investments") and amounts relating to possible transfers to EWGs
of certain generating facilities owned by certain of FirstEnergy's operating
utilities ("GenCo Investments"). FirstEnergy has made the commitment that
through June 30, 2003, its aggregate investment in EWGs and FUCOs other than the
Current Investments and GenCo Investments ("Other Investments") will not exceed
$1.5 billion. The Commission has reserved jurisdiction over investments that
exceed such amount.
As of June 30, 2002, and on the same basis as set forth in the Merger
Order, FirstEnergy's aggregate investment in EWGs and FUCOs was approximately
$1.2 billion,7 an amount significantly below the $5 billion amount authorized in
the Merger Order.
In any event, even taking into account the capitalization of and
earnings from EWGs and FUCOs in which FirstEnergy currently has an interest,
there would be no basis for the Commission to withhold approval of the
transactions proposed herein. With respect to capitalization, since the date of
the Merger Order, there has been no material adverse impact on FirstEnergy's
consolidated capitalization resulting from FirstEnergy's investments in EWGs and
FUCOs. Additionally, the proposed transactions will not have any material impact
____________________
7 This $1.2 billion amount represents Current Investments only. As of September
30, 2002, FirstEnergy had no Genco Investments.
7
on FirstEnergy's capitalization. Further, since the date of the Merger Order,
and, after taking into account the effects of the Merger, there has been no
material change in FirstEnergy's level of earnings from EWGs and FUCOs.
FirstEnergy satisfies all of the other conditions of paragraphs (a) and
(b) of Rule 53. With respect to Rule 53(a)(2), FirstEnergy maintains books and
records in conformity with, and otherwise adheres to, the requirements thereof.
With respect to Rule 53(a)(3), no more than 2% of the employees of FirstEnergy's
domestic public utility companies render services, at any one time, directly or
indirectly, to EWGs or FUCOs in which FirstEnergy directly or indirectly holds
an interest. With respect to Rule 53(a)(4), FirstEnergy will continue to provide
a copy of each application and certificate relating to EWGs and FUCOs and
relevant portions of its Form U5S to each regulator referred to therein, and
will otherwise comply with the requirements thereof concerning the furnishing of
information. With respect to Rule 53(b), none of the circumstances enumerated in
subparagraphs (1), (2) and (3) thereunder have occurred. Finally, Rule 53(c) by
8
its terms is inapplicable since the proposed transaction does not involve the
issue or sale of a security to finance the acquisition of an EWG or FUCO.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
-------------------------------
The estimated fees, commissions and expenses expected to be incurred in
connection with the proposed transactions will be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
FirstEnergy believes that Sections 9(a) and 10 of the Act and Rule 54
thereunder may be applicable to the proposed transactions. FirstEnergy believes
that the authorization sought herein is consistent with the requirements of
Sections 10 and 11(b) of the Act which permit public utility holding company
subsidiaries to engage in other businesses "as are reasonably incidental, or
economically necessary or appropriate to the operations" of an integrated public
utility system. Indeed, the acquisition of BPS stock by the FirstEnergy System
would be exempt from the requirements of Sections 9(a) and 10 of the Act if BPS
were a United States-based company (instead of Canadian-based), by virtue of
Rule 58 under the Act and, in particular, Section (b)(1)(ii) thereof. As a
consequence, FirstEnergy believes that the acquisition of the BPS shares by the
FirstEnergy System is appropriate. The Commission has in the past authorized
9
registered holding companies to invest in companies that engage in
"energy-related" activities of the kind authorized by Rule 58 in Canada. See
Cinergy Corp., HCAR No. 27124 (Jan. 11, 2000).
ITEM 4. REGULATORY APPROVALS.
--------------------
No state commission has jurisdiction with respect to any aspect of the
transactions and no Federal commission, other than your Commission, has
jurisdiction with respect to any aspect thereof.
ITEM 5. PROCEDURE.
---------
FirstEnergy requests that the Commission issue an order with respect to the
transactions proposed herein at the earliest practicable date, but in no event
no later than January 31, 2002. It is further requested that: (i) there not be a
recommended decision by an Administrative Law Judge or other responsible officer
of the Commission, (ii) the Office of Public Utility Regulation be permitted to
assist in the preparation of the Commission's decision and (iii) there be no
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
10
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
(a) Exhibits:
A(1) - Certificate of incorporation of BPS -- to be filed by
amendment.
A(2) - By-Laws of BPS -- to be filed by amendment.
C - Not applicable
D - Not applicable
E - Not applicable
F - Opinion of Thelen Reid & Priest LLP -- to be filed
by amendment.
(b) Financial Statements:
1 - Not included as the proposed transaction will
not have a material impact on the financial
condition of FirstEnergy and its subsidiaries.
2 - Reference is made to 1 above.
3 - BPS Balance Sheets, actual as at June 30, 2002
and Statements of Income and Retained Earnings,
actual for the 12 months ended December 31, 1999,
December 31, 2000 and December 31, 2001 -- to be
filed by amendment.
11
4 - None, except as set forth in the Notes to the
Financial Statements.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
(a) The issuance of an order by your Commission with respect to the
proposed Transactions 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.
12
SIGNATURE
---------
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT TO BE SIGNED ON
THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FIRSTENERGY CORP.
GPU DIVERSIFIED HOLDINGS LLC
By:______________________________
Harvey L. Wagner
Vice President and Controller
Date: November 1, 2002
13