File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
____________________________________________
Cinergy Corp.
The Cincinnati Gas & Electric Company
139 East Fourth Street
Cincinnati, Ohio 45202
(Name of companies filing this statement
and addresses of principal executive offices)
Cinergy Corp.
(Name of top registered holding company parent)
William L. Sheafer
Treasurer
Cinergy Corp.
(address above)
(Name and address of agent of service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this statement to:
Cheryl M. Foley James R. Lance
Vice President, General Counsel Manager - Corporate Finance
and Corporate Secretary and Financial Risk
Cinergy Corp. Management
(address above) Cinergy Corp.
(address above)
William T. Baker, Jr.
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
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Item 1. Description of Proposed Transactions
A. Overview; Requested Authorizations
The Cincinnati Gas & Electric Company ("CG&E"), an Ohio corporation
and wholly-owned utility subsidiary of Cinergy Corp. ("Cinergy"), a
Delaware corporation and registered holding company under the Public
Utility Holding Company Act of 1935 ("Act"), proposes to solicit proxies
from the holders of its outstanding shares of preferred stock and common
stock ("Proxy Solicitation") for use at a special meeting of its
stockholders to be held on or about August 29, 1996 ("Special Meeting") to
consider a proposed amendment to CG&E's amended articles of incorporation
("Articles") that would eliminate a provision restricting the amount of
unsecured debt issuable by CG&E ("Proposed Amendment"). If the Proposed
Amendment is adopted, CG&E will make a special cash payment, in an amount
per share to be supplied by amendment in this proceeding prior to the
issuance of the Proxy Solicitation order requested herein, to each
preferred stockholder who voted his or her shares of preferred stock in
favor of the Proposed Amendment (except if such holder validly tendered any
such shares pursuant to the concurrent cash tender offer noted below).
Concurrently with the Proxy Solicitation, Cinergy proposes to make
an offer ("Offer") to the holders of CG&E's outstanding preferred stock of
each series to acquire for cash any and all shares of CG&E preferred stock
of each series, at respective cash purchase prices for shares of each
series to be supplied by amendment in this proceeding prior to the issuance
of the Proxy Solicitation order requested herein, together with an amount
in cash the equivalent of accrued and unpaid dividends to the date of
payment for shares tendered. Cinergy anticipates that the Offer for each
series of preferred stock will be scheduled to expire at midnight (New York
City time) on the date of the Special Meeting ("Expiration Date"). The
Offer is subject to specified terms and conditions, including that
preferred shareholders who wish to tender their shares vote at the Special
Meeting, in person by ballot or by proxy, in favor of the Proposed
Amendment.
Applicants request that the Commission issue a public notice of the
proposed transactions and order authorizing the Proxy Solicitation
(collectively, "Proxy Solicitation Order") by not later than July 19, 1996,
thereby both affording CG&E sufficient time to solicit proxies in advance
of the Special Meeting and, since the Proxy Solicitation and the Offer will
be effected by means of the same core document - a combined proxy statement
and issuer tender offer statement under the Securities Exchange Act of 1934
("Exchange Act") and applicable rules and regulations thereunder -
facilitating commencement of the Offer. Applicants further request that as
soon as practicable after the Proxy Solicitation Order, but in any event
not later than August 22, 1996, the Commission issue an order authorizing
the Proposed Amendment and Cinergy's proposed acquisition of any and all
shares of CG&E preferred stock pursuant to the Offer.
B. Background: 1995 CG&E Proxy Solicitation in Respect of
Articles Restriction on Unsecured Indebtedness
By order dated September 26, 1995 (Rel. No. 35-26381), the
Commission authorized CG&E to submit to the holders of its outstanding
common and preferred stock, at a special meeting of stockholders to be held
on or about November 16, 1995, proposed amendments to the Articles that
would have suspended for a term of years or eliminated outright the
restriction on unsecured indebtedness referred to above. Adoption of
either proposal required an affirmative two-thirds vote of both the holders
of the outstanding shares of CG&E's preferred stock of all series and
Cinergy, as the holder of all outstanding shares of CG&E common stock.
Based on proxies received prior to the scheduled date of the special
meeting, it became apparent that although both proposals would receive an
affirmative vote of the majority of votes cast, neither would receive the
requisite two-thirds affirmative vote of preferred stockholders./1/
Accordingly, to forestall additional expenses and inconvenience to
shareholders, CG&E cancelled the special meeting.
As discussed below, the purpose of the Proxy Solicitation is to
eliminate the provision in the Articles restricting the ability of CG&E to
incur unsecured indebtedness. CG&E considers that restriction a
significant impediment to its ability to maintain financial flexibility and
minimize its financing costs, to the detriment of its utility customers
and, indirectly, Cinergy's investors. The ongoing financing flexibility
and cost benefits to be gained by CG&E as a result of elimination of the
Articles provision outweigh the one-time cost of the special cash payments
and the other costs of the Proxy Solicitation. Applicants further believe
that the terms of purchase of outstanding shares of CG&E preferred stock
pursuant to the Offer will benefit not only tendering preferred
stockholders (given the proposed per share purchase price) but also, taking
into account all related transaction costs, Cinergy's investors and system
utility customers by (1) contributing to the elimination of the onerous
Articles provision concerning unsecured indebtedness and (2) resulting in
the acquisition and retirement of outstanding shares of CG&E preferred
stock and their potential replacement with comparatively less expensive
financing alternatives, such as short-term debt.
C. Proposed Transactions: Proxy Solicitation and Proposed
Amendment
1. Terms of Proxy Solicitation and Proposed Amendment
CG&E has outstanding 89,663,086 shares of common stock, $8.50 par
value per share ("Common Stock"), all of which are held by Cinergy. CG&E's
outstanding preferred stock consists of two million shares of cumulative
preferred stock, par value $100 per share ("Preferred Stock"), issued in
four series (each, a "Series"),/2/ all of which are listed and traded on
the New York Stock Exchange. The Common Stock and Preferred Stock of each
Series are entitled to one vote per share and constitute CG&E's only
outstanding securities entitled to vote on the Proposed Amendment.
The Articles currently provide that, without the consent of the
holders of Preferred Stock, CG&E shall not issue or assume any securities
representing unsecured debt (other than for purposes of refunding
outstanding unsecured indebtedness or redeeming or otherwise retiring
outstanding shares of stock ranking prior to the Preferred Stock with
respect to the payment of dividends or upon the dissolution, liquidation or
winding up of CG&E) if, immediately after such issue or assumption, the
total outstanding principal amount of all securities representing unsecured
debt would exceed 20% of the aggregate of (1) the total principal amount of
all then-outstanding secured debt of CG&E and (2) the capital and surplus
of CG&E, as stated on CG&E's books ("20% Provision"). The Proposed
Amendment would eliminate the 20% Provision by deleting it in its entirety
from the Articles.
Adoption of the Proposed Amendment requires the affirmative vote at
the Special Meeting (in person by ballot or by proxy) of the holders of not
less than two-thirds of the outstanding shares of each of (1) the Preferred
Stock of all Series, voting together as one class, and (2) the Common
Stock. Cinergy has advised CG&E that it will vote its shares of Common
Stock in favor of the Proposed Amendment. Abstentions and broker non-votes
in respect of the Proposed Amendment will have the effect of votes against
the Proposed Amendment.
Votes at the Special Meeting will be tabulated preliminarily by The
Bank of New York. Inspectors of election, duly appointed by the presiding
officer at the Special Meeting, will definitively count and tabulate the
votes and determine and announce the results at the meeting.
CG&E has engaged MacKenzie Partners, Inc. to act as information
agent in connection with the Proxy Solicitation for a fee plus
reimbursement of reasonable out-of-pocket expenses.
If the Proposed Amendment is adopted, CG&E will make a special cash
payment to each Preferred Stockholder of any series any of whose shares of
Preferred Stock (each, a "Share") are properly voted at the Special Meeting
(in person by ballot or by proxy) in favor of the Proposed Amendment, such
payment to be in an amount per Share (a "Cash Payment") to be specified in
an amendment in this proceeding filed prior to the issuance of the Proxy
Solicitation Order; provided, however, that CG&E shall not make a Cash
Payment in respect of any Share validly tendered pursuant to the Offer.
CG&E will disburse Cash Payments out of its general funds, promptly
after adoption of the Proposed Amendment.
2. Benefits of Proposed Amendment
CG&E believes that adoption of the Proposed Amendment is critical
to maximizing its financial flexibility and minimizing its financing costs.
a. Financial Flexibility
Although historically CG&E's debt financing generally has been
accomplished through the issuance of long-term first mortgage bonds and
only a modest amount of short-term debt, CG&E believes that in the long-run
unsecured debt alternatives will increase in importance as an option in
financing its construction program and in refinancing high-cost first
mortgage bonds. The availability and flexibility of unsecured debt is
necessary to take full advantage of changing conditions in securities
markets. In addition, although CG&E's earnings currently are sufficient to
meet the earnings coverage tests that must be satisfied before issuing
additional first mortgage bonds and Preferred Stock, there have been
periods, including virtually all of 1994, when, because of its inability to
meet the earnings coverage test in the Articles, CG&E was unable to issue
any additional Preferred Stock. Given CG&E's desire to continue to rely on
unsecured debt, a similar inability to issue Preferred Stock in the future
may limit CG&E's financing options to either additional first mortgage
bonds (assuming that the applicable earnings coverage test could be met) or
additional Common Stock.
As noted, CG&E's use of short-term debt is constrained by the 20%
Provision. CG&E believes that the prudent use of short-term debt is vital
to effective financial management of its business. Not only is short-term
debt generally the least expensive form of capital, it also provides
flexibility in meeting seasonal fluctuations in cash requirements, acts as
a bridge between issues of permanent capital, and can be used when
unfavorable conditions prevail in the market for long-term capital.
Because the 20% Provision hampers its flexibility in planning and
financing its business activities, CG&E believes that ultimately it will be
at a competitive disadvantage if that restriction is not removed. The
industry's new competitors - such as power marketers, independent power
producers, and owners of cogenerating facilities - generally are not
subject to similar financing restrictions in their organizational
documents. In recent years, a number of utilities encumbered with charter
restrictions similar to the 20% Provision have eliminated or relaxed such
provisions through successful proxy solicitations./3/ In short, potential
utility competitors of CG&E are not constrained by charter provisions
restricting the use of unsecured debt. Even CG&E's affiliate, PSI Energy,
Inc., is not saddled with a comparable charter restriction.
b. Lower Costs
As stated above, unsecured short-term debt generally represents the
least expensive form of capital. Although short-term debt by its nature
subjects the borrower to potentially greater interest rate volatility, the
cost of short-term debt rarely exceeds the cost of other forms of capital
available at the same time. By increasing its use of short-term debt, it
may be possible for CG&E to lower its cost structure further, making its
energy products more competitive, increasing its earnings, and reducing its
business risks. The 20% Provision impedes CG&E's ability to fully avail
itself of the relative benefits of short-term debt.
With the above benefits in mind, CG&E in 1995 received
authorization from the Public Utilities Commission of Ohio (order dated May
4, 1995 in Case No. 95-358-GE-AIS) to increase the maximum amount of short-
term debt it is permitted to have outstanding at any one time from $200
million to $400 million. Under the 20% Provision, CG&E has available only
approximately $150 million of unsecured debt capacity (short-term or
otherwise), based on capitalization as of March 31, 1996.
Reference is made to Exhibits B-1 (draft Proxy Statement and Offer
to Purchase), B-2 (draft Notice of Special Meeting) and B-3 (draft form of
Proxy) for more detailed information with respect to the Proxy Solicitation
and Proposed Amendment.
D. Proposed Transactions: Offer
1. Terms of Offer
Concurrently with the commencement of the Proxy Solicitation,
subject to the terms and conditions stated in the Offer to Purchase and
Proxy Statement and the accompanying Letters of Transmittal (see Exhibits
B-1 and B-4) (collectively, "Offer Documents"), Cinergy proposes to make
the Offer, pursuant to which it will offer to acquire from the holders of
the Preferred Stock of each Series any and all Shares of that Series at a
purchase price per Share in cash to be supplied by amendment in this
proceeding prior to the issuance of the Proxy Solicitation Order, together
with an amount in cash the equivalent of accrued and unpaid dividends to
the date of payment for any Shares tendered (collectively, a "Purchase
Price"). Cinergy anticipates that the Offer for each series of Preferred
Stock will be scheduled to expire at midnight (New York City time) on the
date of the Special Meeting (i.e., on or about August 29, 1996). As noted
below, the Expiration Date may be extended under certain circumstances.
The Offer consists of separate offers for each of the four Series,
with the offer for any one Series being independent of the offer for any
other Series. The Offer is not conditioned upon any minimum number of
Shares of the applicable Series being tendered; subject to the terms of the
Offer Documents, Cinergy will purchase at the applicable Purchase Price any
and all Shares of any Series that are validly tendered and not withdrawn
prior to the Expiration Date.
To tender shares in accordance with the terms of the Offer
Documents, the tendering Preferred Stockholder must either (1) send to The
Bank of New York, in its capacity as depositary for the Offer
("Depositary"), a properly completed and duly executed Letter of
Transmittal or facsimile thereof for that Series and proxy (if not voting
at the Special Meeting in person by ballot), together with any required
signature guarantees and any other documents required by the Letter of
Transmittal, and either (a) certificates for the Shares to be tendered must
be received by the Depositary at one of its addresses specified in the
Offer Documents, or (b) such Shares must be delivered pursuant to the
procedures for book-entry transfer described in the Offer Documents (and a
confirmation of such delivery must be received by the Depositary), in each
case by the Expiration Date; or (2) comply with a guaranteed delivery
procedure specified in the Offer Documents./4/ Tenders of Shares made
pursuant to the Offer may be withdrawn at any time prior to the Expiration
Date. Thereafter, such tenders are irrevocable, subject to certain
exceptions identified in the Offer Documents.
Cinergy's obligation to proceed with the Offer and to accept for
payment and to pay for any Shares tendered is subject to various conditions
enumerated in the Offer Documents, including, with respect to acquisitions
of tendered Shares, receipt of Commission authorization under the Act.
Another condition is that all tendering Preferred Stockholders must vote in
favor of the Proposed Amendment in person by ballot or by proxy at the
Special Meeting; any tendered Shares as to which a vote in favor of the
Proposed Amendment is not validly cast at the Special Meeting will be
deemed withdrawn and not validly tendered.
At any time or from time to time, Cinergy may extend the Expiration
Date applicable to any Series by giving notice of such extension to the
Depositary, without extending the Expiration Date for any other Series.
During any such extension, all Shares of the applicable Series previously
tendered will remain subject to the Offer, and may be withdrawn at any time
prior to the Expiration Date as extended.
Conversely, Cinergy may elect in its sole discretion to terminate
the Offer prior to the scheduled Expiration Date and not accept for payment
and pay for any Shares tendered, subject to applicable provisions of Rule
13e-4 under the Exchange Act requiring Cinergy either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, upon the occurrence of any of the
conditions to closing enumerated in the Offer Documents, by giving notice
of such termination to the Depositary and making a public announcement
thereof.
Subject to compliance with applicable law, Cinergy further reserves
the right in the Offer Documents, in its sole discretion, to amend the
Offer in any respect by making a public announcement thereof. If Cinergy
materially changes the terms of the Offer or the information concerning the
Offer, or if it waives a material condition of the Offer, Cinergy will
extend the Expiration Date to the extent required by the applicable
provisions of Rule 13e-4 under the Exchange Act. Those provisions require
that the minimum period during which an issuer tender offer must remain
open following material changes in the terms of the offer or information
concerning the offer (other than a change in price or change in percentage
of securities sought) will depend on the facts and circumstances, including
the relative materiality of such terms or information. If the Offer is
scheduled to expire at any time earlier than the expiration of a period
ending on the tenth business day from, and including, the date that Cinergy
notifies Preferred Stockholders that it will (a) increase or decrease the
price it will pay for Shares or (b) decrease the percentage of Shares it
seeks, the Expiration Date will be extended until the expiration of such
period of ten business days.
Shares validly tendered to the Depositary pursuant to the Offer and
not withdrawn in accordance with the procedures set forth in the Offer
Documents will be held by Cinergy until the Expiration Date (or returned in
the event the Offer is terminated). Subject to the terms and conditions of
the Offer, as promptly as practicable after the Expiration Date, Cinergy
will accept for payment (and thereby purchase) and pay for Shares validly
tendered and not withdrawn. Cinergy will pay for Shares that it has
purchased pursuant to the Offer by depositing the applicable Purchase Price
with the Depositary, which will act as agent for the tendering Preferred
Stockholders for the purpose of receiving payment from Cinergy and
transmitting payment to tendering Preferred Stockholders. Cinergy will pay
all stock transfer taxes, if any, payable on account of its acquisition of
Shares pursuant to the Offer, except in certain circumstances where special
payment or delivery procedures are utilized in conformance with the
applicable Letters of Transmittal.
With respect to Shares validly tendered and accepted for payment by
Cinergy, each tendering Preferred Stockholder will be entitled to receive
as consideration from Cinergy only the applicable Purchase Price (which may
reflect a premium over the current market price at the commencement of the
Offer). Any such holder will not be entitled to receive with respect to
such tendered Shares additional consideration in the form of a Cash
Payment. As stated above in Item 1.C, the latter payment is payable by
CG&E solely in respect of Shares voted by Preferred Stockholders at the
Special Meeting in favor of the Proposed Amendment, provided that (a) such
Shares have not been tendered pursuant to the Offer and (b) the Proposed
Amendment is adopted at the Special Meeting. By contrast, the Purchase
Price is payable by Cinergy in respect of Shares validly tendered (i.e., by
Preferred Stockholders who, among other things, vote in favor of the
Proposed Amendment) and accepted for payment by Cinergy, regardless of
whether the Proposed Amendment is adopted at the Special Meeting.
As noted immediately above, subject to the terms and conditions of
the Offer, Shares validly tendered and not withdrawn will be accepted for
payment and paid for by Cinergy as promptly as practicable after the
Expiration Date. If the Proposed Amendment is adopted at the Special
Meeting, promptly after consummation of the Offer Cinergy will make a
capital contribution to CG&E of all Shares tendered to and acquired by
Cinergy pursuant to the Offer, and CG&E will thereupon retire and cancel
such Shares.
If the Proposed Amendment is not adopted at the Special Meeting,
CG&E intends as promptly as practicable thereafter to call another special
meeting of its common and preferred stockholders and to solicit proxies
therefrom for the same purpose as in the instant proceeding - i.e., to
secure the requisite two-thirds affirmative vote of stockholders to amend
the Articles to eliminate the 20% Provision. At that meeting, Cinergy
would vote any Shares acquired by it pursuant to the Offer or otherwise/5/
(as well as all of its shares of Common Stock) in favor of the proposed
Articles amendment to eliminate the 20% Provision. If the proposed
amendment is adopted at that meeting, and in any event within one year from
the Expiration Date (including any potential extension thereto pursuant to
the Offer), Cinergy will promptly after such meeting or at the expiration
of such one-year period, as applicable, make a capital contribution to CG&E
of all Shares held by Cinergy, and CG&E will thereupon retire and cancel
such Shares.
To finance its purchase of any Shares tendered, accepted for
payment and paid for pursuant to the Offer, Cinergy intends to use its
general funds and/or funds borrowed pursuant to an existing credit
agreement with a group of banks (see Rel. No. 35-26488, March 12, 1996).
Smith Barney Inc. and Morgan Stanley & Co. Incorporated will act as
dealer managers for Cinergy in connection with the Offer. Cinergy has
agreed to pay the dealer managers a fee for Shares tendered, accepted for
payment and paid for pursuant to the Offer and to reimburse the dealer
managers for their reasonable out-of-pocket expenses, including attorneys'
fees. In addition, Cinergy has agreed to pay soliciting brokers and
dealers a separate fee for any Shares tendered, accepted for payment and
paid for pursuant to the Offer.
2. Benefits of Offer; Utilization of Cinergy rather than
CG&E as Offeror
The proposed acquisition by Cinergy of Shares pursuant to the Offer
will benefit Cinergy's utility system customers, shareholders and Preferred
Stockholders. The Offer allows Preferred Stockholders who may not favor
the elimination of the 20% Provision an option to exit the Preferred Stock
at a premium to the market price and without the usual transaction costs
associated with a sale. System utility customers and Cinergy shareholders
will benefit from CG&E lowering its cost of capital through the anticipated
reduction in the aggregate amount payable of Preferred Stock dividends and,
to the extent Preferred Stock is replaced with debt, realizing benefits
from the tax deductibility of interest since preferred stock dividends are
not deductible for tax purposes. Moreover, as discussed above in Item
1.C.2, elimination of the 20% Provision will (among other benefits) permit
CG&E to redeem and replace a portion of its high-coupon debt with lower
cost short-term debt, resulting in additional cost savings.
More specifically, assuming only a 50% overall success rate for the
Offer, the estimated cash savings to CG&E thereafter amount to between $3.4
million each year (based on dollar-for-dollar replacement of Preferred
Stock with short-term debt at prevailing rates on the date hereof) and $7
million each year (based on purchased Shares being refinanced entirely by
cash and short-term investments on hand), after taxes and excluding
expenses incurred in connection with the Offer and the Proxy Solicitation.
On a cumulative net present value savings basis, assuming (x) a 50% overall
success rate for the Offer (and that 30% of all Preferred Stockholders do
not tender their Shares pursuant to the Offer but do vote in favor of the
Proposed Amendment at the Special Meeting), (y) refinancing of Shares
acquired and paid for pursuant to the Offer with short-term debt at
prevailing rates at the date hereof (and assuming such rates do not change
throughout the period), and (z) a discount rate equal to CG&E's after-tax
weighted average cost of capital, the proposed transactions are anticipated
to yield total after-tax, present value cash savings of about $18
million over approximately the next seven and one-half years/6/, net of
cash expenditures incurred in the Offer and Proxy Solicitation (i.e., Cash
Payments, the applicable Purchase Prices paid for validly tendered and
accepted Shares, and the other fees and expenses listed in Item 2). Of
course, a success rate for the Offer higher than the 50% rate assumed above
has the potential to generate even further cash savings.
As noted above (see Item 1.B), CG&E conducted an unsuccessful proxy
solicitation in the fall of 1995 the purpose of which was to obtain the
requisite affirmative vote of shareholders to suspend or eliminate from the
Articles the 20% Provision. Given the significant benefits that will
accrue from elimination of the 20% Provision, Applicants remain committed
to using their best efforts to secure that result. A principal aim of the
proposed transactions is to accomplish that objective in a cost-effective
manner. However, as with the 1995 proxy solicitation, there can be no
assurance of success.
In that regard, as stated above in Item 1.D.1, in the event the
Proposed Amendment is not adopted at the Special Meeting, CG&E intends
shortly thereafter to call another special meeting of its common and
preferred stockholders and to solicit proxies for the same purpose as
herein - to secure the requisite two-thirds affirmative vote of both
classes of stockholders to amend the Articles to eliminate the 20%
Provision. At that meeting, Cinergy would vote any Shares previously
acquired by it pursuant to the Offer or otherwise (together with shares
held by it of Common Stock) in favor of such proposed amendment to the
Articles, thereby maximizing its prospects for adoption in that event. By
contrast, if CG&E, rather than Cinergy, had acquired Shares pursuant to the
Offer, upon acquisition thereof by CG&E any such Shares would be deemed
treasury shares under Ohio law and, as such, CG&E would be precluded from
voting those Shares under any circumstances.
Item 2. Fees, Commissions and Expenses.
Other than the Cash Payments and the applicable Purchase Prices
identified in Item 1, the fees, commissions and expenses (each, a "fee") to
be incurred, directly or indirectly, by Cinergy and CG&E or any associate
company thereof in connection with the proposed transactions are estimated
as follows:
U-1 filing fee. . . . . . . . . . . . . . $2,000
Cinergy Services, Inc. fees.. . . . . . . $10,000
Outside counsel fees. . . . . . . . . . . $65,000
Information agent fees. . . . . . . . . . $35,000
Dealer manager fees . . . . . . . . . . . $770,000
Depositary fees . . . . . . . . . . . . . $22,000
Broker/dealer fees. . . . . . . . . . . . $750,000
Printing, mailing, stock transfer
taxes and miscellaneous fees. . . . . . . $75,000
TOTAL . . . . . . $1,729,000
Item 3. Applicable Statutory Provisions.
Section 12(e) of the Act and Rules 62 and 65 thereunder are
applicable to the Proxy Solicitation. Section 6(a) is applicable to the
Proposed Amendment. Sections 9(a) and 10 are applicable to the acquisition
by Cinergy of Shares pursuant to the Offer. The contemplated capital
contribution by Cinergy to CG&E of Shares acquired by Cinergy pursuant to
the Offer is exempt from Section 12(b) and Rule 45(a) pursuant to Rule
45(b)(4). To the extent that the Commission determines that any other
provision of the Act or rule thereunder is applicable to the proposed
transactions, Applicants request an order or orders thereunder.
Item 4. Regulatory Approval.
Other than the Commission, no state or federal regulatory agency has
jurisdiction over the proposed transactions.
Item 5. Procedure.
As stated in Item 1, the Special Meeting is scheduled to take place
on or about August 29, 1996. CG&E, which was unsuccessful in a similar
proxy solicitation authorized by the Commission in the fall of 1995, needs
to secure a super-majority affirmative vote of its Preferred Stockholders
to secure passage of the Proposed Amendment.
In order to afford CG&E sufficient time in advance of the Special
Meeting to solicit proxies and to maximize the prospect for adoption of the
Proposed Amendment at the Special Meeting, Applicants request that the
Commission issue and publish not later than July 19, 1996 the requisite
notice under Rule 23 with respect to the filing of this Application-
Declaration, together with an order under Section 12(e) and Rule 62
permitting CG&E to solicit proxies pursuant to the Proxy Solicitation. As
explained in Item 1, concurrently with the commencement of the Proxy
Solicitation, Cinergy intends to commence the Offer using a combined issuer
tender offer statement/proxy statement under the Exchange Act.
Applicants further request that the Proxy Solicitation Order
specify a date not later than August 13, 1996 as the date after which the
Commission may issue an order granting and permitting to become effective
the other transactions for which authorization is sought herein, namely,
the Proposed Amendment and Cinergy's acquisition of Shares pursuant to the
Offer. Applicants request that the Commission issue this second order by
not later than August 22, 1996 (i.e., one week before the Special
Meeting/Expiration Date).
Applicants waive a recommended decision by a hearing officer or other
responsible officer of the Commission; consent that the Staff of the
Division of Investment Management may assist in the preparation of the
Commission's orders herein; and request that there be no waiting period
between the issuance of such orders and their effectiveness.
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
A-1 Amended Articles of Incorporation of CG&E effective January
24, 1994 (filed as an exhibit to CG&E's 1993 Form 10-K in File No. 1-1232
and hereby incorporated by reference).
A-2 Regulations of CG&E as amended, adopted April 25, 1996 (filed
as an exhibit to CG&E's Form 10-Q for the quarter ended March 31, 1996, in
File No. 1-1232 and hereby incorporated by reference).
B-1 Draft Offer to Purchase and Proxy Statement
B-2 Draft Notice of Special Meeting (to be filed by amendment)
B-3 Draft Form of Proxy (to be filed by amendment)
B-4 Draft Form of Letter of Transmittal (to be filed by amendment)
C Not applicable
D Not applicable
E Not applicable
F Preliminary opinion of counsel (to be filed by amendment)
G Form of notice and order permitting proxy solicitation
(b) Financial Statements:
FS-1 Cinergy Consolidated Financial Statements, dated March 31,
1996 (to be filed by amendment)
FS-2 Cinergy Financial Statements, dated March 31, 1996 (to be
filed by amendment).
FS-3 CG&E Consolidated Financial Statements, dated March 31, 1996
(to be filed by amendment).
FS-4 Cinergy Consolidated Financial Data Schedule (to be filed by
amendment as part of electronic submission only).
FS-5 Cinergy Financial Data Schedule (to be filed by amendment as
part of electronic submission only).
FS-6 CG&E Consolidated Financial Data Schedule (to be filed by
amendment as part of electronic submission only).
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.
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SIGNATURE
Pursuant to the requirements of the Act, each of the undersigned
companies has duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 1, 1996
Cinergy Corp.
By: /s/ William L. Sheafer
Treasurer
The Cincinnati Gas & Electric Company
By: /s/ William L. Sheafer
Treasurer
<PAGE>
Endnotes
/1/ Approximately 58% of CG&E's preferred stockholders voted in favor of
the proposal to suspend for a term of years the Articles restriction on
unsecured indebtedness; approximately 51% voted in favor of the proposal to
eliminate the restriction. Prior to the proxy solicitation, Cinergy had
informed CG&E that it would vote its shares of CG&E common stock in favor
of both proposals.
/2/ The four series of Preferred Stock consist of a 4% series, of which
270,000 shares are outstanding ("4% Series"); a 4-3/4% series, of which
130,000 shares are outstanding ("4-3/4% Series"); a 7-3/8% series, of which
800,000 shares are outstanding ("7-3/8% Series"); and a 7-7/8% series, of
which 800,000 shares are outstanding ("7-7/8% Series").
/3/ The Commission has authorized utility subsidiaries of registered
holding companies to solicit their shareholders for similar charter
amendments with respect to unsecured debt limitations. See, e.g.,
Blackstone Valley Electric Company, Rel. No. 35-26320 (June 28, 1995);
Alabama Power Company, Rel. No. 35-26118 (Sept. 7, 1994).
/4/ Preferred Stockholders will not be under any obligation to tender
Shares pursuant to the Offer; the Offer will not constitute a notice of
redemption of any Series pursuant to the Articles. Nor will the Offer
operate to waive any option CG&E has to redeem Shares. The 7-3/8% Series
is subject to mandatory redemption in an amount sufficient to retire on
each August 1, beginning in 1998, and in each year thereafter, 40,000
Shares, at a price of $100 per Share plus accrued dividends, and CG&E has
the noncumulative option to redeem up to 40,000 additional Shares in each
such year. In addition, the 7-3/8% Series is redeemable, upon call, after
August 1, 2002 at a price of $100 per Share plus accrued dividends. The
entire 7-7/8% Series is subject to mandatory redemption on January 1, 2004
at a price of $100 per Share plus accrued dividends. The Shares of each
Series have no preemptive or conversion rights.
/5/ Following the Expiration Date and the consummation of the purchase of
Shares pursuant to the Offer, Cinergy may determine to purchase additional
Shares on the open market, in privately negotiated transactions, through
one or more tender offers or otherwise. Cinergy will not undertake any
such transactions without receipt of any required Commission authorizations
under the Act in one or more separate proceedings. Likewise, in the event
such a further special meeting is necessary, CG&E would not undertake any
associated proxy solicitation and proposed Articles amendment prior to
receipt of any required Commission authorizations under the Act in a
separate proceeding.
/6/ The termination date of this approximate seven and one-half year period
corresponds with the mandatory redemption date of the 7-7/8% Series, i.e.,
January 1, 2004.
<PAGE>
OFFER TO PURCHASE AND PROXY STATEMENT
CINERGY CORP.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF THE FOLLOWING SERIES OF
CUMULATIVE PREFERRED STOCK OF THE CINCINNATI GAS & ELECTRIC COMPANY
270,000 SHARES, CUMULATIVE PREFERRED STOCK, 4% SERIES AT A PURCHASE PRICE OF
$ PER SHARE
130,000 SHARES, CUMULATIVE PREFERRED STOCK, 4 3/4% SERIES AT A PURCHASE PRICE OF
$ PER SHARE
800,000 SHARES, CUMULATIVE PREFERRED STOCK, 7 7/8% SERIES AT A PURCHASE PRICE OF
$ PER SHARE
800,000 SHARES, CUMULATIVE PREFERRED STOCK, 7 3/8% SERIES AT A PURCHASE PRICE OF
$ PER SHARE
----------------
THE CINCINNATI GAS & ELECTRIC COMPANY
PROXY STATEMENT
WITH RESPECT TO ITS COMMON STOCK AND CUMULATIVE PREFERRED STOCK
------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON , , 1996, UNLESS THE OFFER IS EXTENDED.
------------------
Cinergy Corp., a Delaware corporation ("Cinergy"), invites the holders of
each series of cumulative preferred stock listed above (each a "Series of
Preferred," and the holder thereof a "Preferred Shareholder") of The Cincinnati
Gas & Electric Company, an Ohio corporation and wholly-owned utility subsidiary
of Cinergy ("CG&E"), to tender any and all of their shares of a Series of
Preferred ("Shares") for purchase at the purchase price per Share listed above,
plus an amount equal to the equivalent of accrued and unpaid dividends to the
date of payment for the Shares tendered, net to the seller in cash, upon the
terms and subject to the conditions set forth in this Offer to Purchase and
Proxy Statement and in the accompanying Letter of Transmittal (which together
constitutes the "Offer"). Cinergy will purchase all Shares validly tendered and
not withdrawn, upon the terms and subject to the conditions of the Offer. See
"Terms of the Offer -- Certain Conditions of the Offer" and "Terms of the Offer
- -- Extension of Tender Period; Termination; Amendments."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. PREFERRED SHAREHOLDERS WHO WISH
TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED
AMENDMENT, AS DESCRIBED BELOW. THE OFFER IS SUBJECT TO CERTAIN OTHER CONDITIONS.
SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER."
Concurrently with the Offer, the Board of Directors of CG&E is soliciting
proxies for use at the Special Meeting of Shareholders of CG&E to be held at its
principal office, 139 East Fourth Street, Cincinnati, Ohio 45202, on ,
1996, or any adjournment or postponement of such meeting (the "Special
Meeting"). The Special Meeting is being held to consider an amendment (the
"Proposed Amendment") to CG&E's Amended Articles of Incorporation (the
"Articles") which would remove a provision of the Articles that limits CG&E's
ability to issue unsecured debt. PREFERRED SHAREHOLDERS WHO WISH TO TENDER THEIR
SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED AMENDMENT IN
PERSON BY BALLOT OR BY PROXY AT THE SPECIAL MEETING. HOWEVER, PREFERRED
SHAREHOLDERS HAVE THE RIGHT TO VOTE FOR THE PROPOSED AMENDMENT REGARDLESS OF
WHETHER THEY TENDER THEIR SHARES. IF THE PROPOSED AMENDMENT IS APPROVED AND
ADOPTED, CG&E WILL MAKE A SPECIAL CASH PAYMENT IN THE AMOUNT OF $ PER SHARE TO
EACH PREFERRED SHAREHOLDER WHO VOTED IN FAVOR OF THE PROPOSED AMENDMENT BUT WHO
DID NOT TENDER HIS OR HER SHARES. THOSE PREFERRED SHAREHOLDERS WHO VALIDLY
TENDER THEIR SHARES WILL BE ENTITLED ONLY TO THE PURCHASE PRICE PER SHARE LISTED
ABOVE PLUS AN AMOUNT IN CASH EQUAL TO THE EQUIVALENT OF ACCRUED AND UNPAID
DIVIDENDS TO THE DATE OF PAYMENT.
IMPORTANT
Any Preferred Shareholder desiring to accept the Offer and tender all or any
portion of his or her Shares should, in addition to voting in favor of the
Proposed Amendment either by executing and returning the enclosed proxy (the
"Proxy") or by voting in person by ballot at the Special Meeting, either (i)
request his or her broker, dealer, commercial bank, trust company or nominee to
effect the transaction for him or her, or (ii) complete and sign the Letter of
Transmittal or a facsimile thereof, in accordance with the instructions in the
Letter of Transmittal, mail or deliver it and any other required documents to
The Bank of New York (the "Depositary"), and deliver the certificates for such
Shares to the Depositary, along with the Letter of Transmittal, or tender such
Shares pursuant to the procedure for book-entry transfer set forth below under
"Terms of the Offer -- Procedure for Tendering Shares," prior to the Expiration
Date (as defined below). A Preferred Shareholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or nominee must
contact such broker, dealer, commercial bank, trust company or nominee if he or
she desires to tender such Shares. Any Preferred Shareholder who desires to
tender Shares and whose certificates for such Shares are not immediately
available, or who cannot comply in a timely manner with the procedure for
book-entry transfer, should tender such Shares by following the procedures for
guaranteed delivery set forth below under "Terms of the Offer -- Procedure for
Tendering Shares."
EACH SERIES OF PREFERRED HAS ITS OWN LETTER OF TRANSMITTAL, AND ONLY THE
APPLICABLE LETTER OF TRANSMITTAL FOR SUCH SERIES OF PREFERRED OR A NOTICE OF
GUARANTEED DELIVERY MAY BE USED TO TENDER SHARES OF SUCH SERIES OF PREFERRED.
------------------
NEITHER CINERGY, CG&E, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF
THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER
AS TO WHETHER TO TENDER ANY OR ALL SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE
HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
------------------
This Offer to Purchase and Proxy Statement and the accompanying proxy are
first being mailed to Preferred Shareholders on or about , 1996.
--------------------
Each Series of Preferred is listed and traded on The New York Stock
Exchange, Inc. (the "NYSE"). On , 1996 (the last trading day prior to
the commencement of the Offer), the last reported sale prices on the NYSE were
$ for the 4% Series of Preferred (on , 1996), $ for the 4 3/4%
Series of Preferred (on , 1996), $ for the 7 7/8% Series of
Preferred (on , 1996) and $ for the 7 3/8% Series of Preferred (on
, 1996). Preferred Shareholders are urged to obtain a current market
quotation, if available, for the Shares. On , 1996, there were issued
and outstanding 270,000 Shares of the 4% Series of Preferred, 130,000 Shares of
the 4 3/4% Series of Preferred, 800,000 Shares of the 7 7/8% Series of Preferred
and 800,000 Shares of the 7 3/8% Series of Preferred.
------------------
Questions or requests for assistance or for additional copies of this Offer
to Purchase and Proxy Statement, the Letter of Transmittal for a Series of
Preferred, the Proxy, or other tender offer or proxy solicitation materials may
be directed to MacKenzie Partners, Inc. (the "Information Agent") or Smith
Barney Inc. and Morgan Stanley & Co. Incorporated (the "Dealer Managers") at
their respective addresses and telephone numbers set forth on the back cover of
this Offer to Purchase and Proxy Statement.
------------------
The Dealer Managers for the Offer are:
SMITH BARNEY INC. MORGAN STANLEY & CO.
INCORPORATED
----------------
The date of this Offer to Purchase and Proxy Statement is July , 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
CINERGY OR CG&E AS TO WHETHER PREFERRED SHAREHOLDERS SHOULD TENDER SHARES
PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE
CONTAINED HEREIN OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CINERGY OR CG&E.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SUMMARY.................................................................................................... 2
TERMS OF THE OFFER......................................................................................... 4
Number of Shares; Purchase Prices; Expiration Date; Dividends............................................ 4
Procedure for Tendering Shares........................................................................... 5
Withdrawal Rights........................................................................................ 7
Acceptance of Shares for Payment and Payment of Purchase Price and Dividends............................. 7
Certain Conditions of the Offer.......................................................................... 8
Extension of Tender Period; Termination; Amendments...................................................... 9
PROPOSED AMENDMENT AND PROXY SOLICITATION.................................................................. 10
Introduction............................................................................................. 10
Voting Securities, Rights and Procedures................................................................. 10
Proxies.................................................................................................. 11
Cash Payments............................................................................................ 11
Security Ownership of Certain Beneficial Owners and Management........................................... 12
Business to come before the Special Meeting.............................................................. 12
Explanation of the Proposed Amendment.................................................................... 12
Reasons for the Proposed Amendment....................................................................... 13
Financial and Other Information Relating to CG&E......................................................... 14
Relationship with Independent Public Accountants......................................................... 15
PRICE RANGE OF SHARES; DIVIDENDS........................................................................... 15
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER......................................................... 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 18
SOURCE AND AMOUNT OF FUNDS................................................................................. 19
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES.......................................................... 20
FEES AND EXPENSES ASSOCIATED WITH THE OFFER................................................................ 20
CERTAIN INFORMATION REGARDING CINERGY AND CG&E............................................................. 20
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION.............................................................. 22
ADDITIONAL INFORMATION REGARDING CINERGY................................................................... 23
MISCELLANEOUS.............................................................................................. 23
</TABLE>
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS PROVIDED SOLELY FOR THE CONVENIENCE OF THE
PREFERRED SHAREHOLDERS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT AND MORE SPECIFIC
DETAILS CONTAINED IN THE OFFER AND ANY AMENDMENTS HERETO. PREFERRED SHAREHOLDERS
ARE URGED TO READ THIS OFFER IN ITS ENTIRETY. EACH OF THE CAPITALIZED TERMS USED
IN THIS SUMMARY AND NOT DEFINED HEREIN HAS THE MEANING SET FORTH ELSEWHERE IN
THIS OFFER TO PURCHASE OR PROXY STATEMENT.
<TABLE>
<S> <C>
The Companies..................... Cinergy is a registered holding company under the Public
Utility Holding Company Act of 1935 (the "Holding
Company Act"), and is the parent company of CG&E, PSI
Energy, Inc. ("PSI"), Cinergy Services, Inc. ("Cinergy
Services") and Cinergy Investments, Inc. ("Cinergy
Investments"). CG&E is an operating utility primarily
engaged in providing electric and gas service in the
southwestern portion of Ohio and, through its principal
subsidiary, The Union Light, Heat and Power Company
("ULH&P"), in adjacent areas in Kentucky. PSI is an
operating utility primarily engaged in providing
electric service in north central, central, and southern
Indiana. Cinergy Services provides management, finan-
cial, administrative, engineering, legal and other
services to Cinergy, CG&E, PSI Energy, Cinergy
Investments and subsidiaries thereof. Cinergy conducts
its non-utility businesses through Cinergy Investments
and its subsidiaries.
The Shares........................ CG&E 4% Cumulative Preferred Stock ($100 par value)
CG&E 4 3/4% Cumulative Preferred Stock ($100 par value)
CG&E 7 7/8% Cumulative Preferred Stock ($100 par value)
CG&E 7 3/8% Cumulative Preferred Stock ($100 par value)
The Offer......................... Offer to purchase any or all shares of each Series of
Preferred at the price per Share set forth below.
Purchase Price.................... $ per 4% Share
$ per 4 3/4% Share
$ per 7 7/8% Share
$ per 7 3/8% Share
Independent Offer................. The Offer for one Series of Preferred is independent of
the Offer for any other Series of Preferred. The Offer
is not conditioned upon any minimum number of Shares of
the applicable Series of Preferred being tendered.
Preferred Shareholders who wish to tender their Shares
must vote in favor of the Proposed Amendment. The Offer
is subject, however, to certain other conditions.
Expiration Date of the Offer...... The Offer expires at 12:00 Midnight, New York City time
, , 1996, unless extended (the "Expiration
Date").
How to Tender Shares.............. See "Terms of the Offer -- Procedure for Tendering
Shares." For further information, call the Information
Agent or the Dealer Managers or consult your broker for
assistance.
Withdrawal Rights................. Tendered Shares of any Series of Preferred may be
withdrawn at any time until the Expiration Date with
respect to such Series of Preferred and, unless
theretofore accepted for payment, may also be withdrawn
after , 1996. See "Terms of the Offer --
Withdrawal Rights."
Purpose of the Offer.............. Cinergy is making the Offer because it believes that the
purchase of Shares is attractive to Cinergy, its
shareholders and CG&E. In addition, the Offer gives
Preferred Shareholders the opportunity
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
to sell their Shares at a premium over the market price
and without the usual transaction costs associated with
a market sale. See "Purpose of the Offer; Certain
Effects of the Offer."
Dividends......................... The Board of Directors of CG&E will consider the
declaration of dividends on each Series of Preferred at
its meeting on July 23, 1996. If declared, such dividend
for each Series of Preferred will be payable on October
1, 1996 to the owners of record on or about September 3,
1996. A tender and purchase of Shares pursuant to the
Offer will result in the tendering Preferred Shareholder
receiving payment of a dividend per Share at the
dividend rate fixed for Shares of the Series of
Preferred tendered, from July 1, 1996 (the last regular
quarterly dividend payment date) to the date of payment
for such Shares. Tendering Preferred Shareholders will
not receive the regular quarterly dividend payable on
October 1, 1996 or any dividends on such tendered Shares
declared in any later dividend period.
Brokerage Commissions............. Not payable by Preferred Shareholders.
Solicitation Fee.................. Cinergy will pay to each designated Soliciting Dealer a
solicitation fee of $1.50 per Share (except that for
transactions for beneficial owners equal to or exceeding
5,000 Shares, Cinergy will pay a solicitation fee of
$1.25 per Share) for any Shares tendered, accepted for
payment and paid for pursuant to the Offer.
Proposed Amendment................ Concurrently with the Offer, the Board of Directors of
CG&E is soliciting proxies for use at the Special
Meeting of Shareholders of CG&E. The Special Meeting is
being held to consider an amendment to CG&E's Articles
which would remove a provision that limits CG&E's
ability to issue unsecured debt.
Special Cash Payment.............. Preferred Shareholders have the right to vote for the
Proposed Amendment regardless of whether they tender
their Shares. If the Proposed Amendment is approved and
adopted by CG&E's shareholders, CG&E will make a special
cash payment of $ per Share to each Preferred
Shareholder who voted in favor of the Proposed Amendment
but who did not tender his or her Shares. Preferred
Shareholders who validly tender their Shares will be
entitled only to the purchase price per share listed on
the front cover of this Offer to Purchase and Proxy
Statement plus an amount in cash equivalent to accrued
and unpaid dividends to the date of payment.
Stock Transfer Tax................ Cinergy will pay or cause to be paid any stock transfer
taxes with respect to the sale and transfer of any
Shares to it or its order pursuant to the Offer. See
Instruction 6 of the applicable Letter of Transmittal.
See "Terms of the Offer -- Acceptance of Shares for
Payment of Purchase Price and Dividends."
Payment Date...................... Promptly after the Special Meeting.
Further Information............... Additional copies of this Offer to Purchase and Proxy
Statement and the applicable Letter of Transmittal may
be obtained by contacting MacKenzie Partners Inc., 156
Fifth Avenue, New York, NY 10010, telephone (800)
322-2885 (toll-free) and (212) 929-5500 (brokers and
dealers). Questions about the Offer should be directed
to Smith Barney Inc. at (800) 655-4811 or Morgan Stanley
& Co. Incorporated at (800) 223-2440 Extension 1965.
</TABLE>
3
<PAGE>
TERMS OF THE OFFER
NUMBER OF SHARES; PURCHASE PRICES; EXPIRATION DATE; DIVIDENDS
Upon the terms and subject to the conditions described herein and in the
applicable Letter of Transmittal, Cinergy will purchase any and all Shares that
are validly tendered on or prior to the applicable Expiration Date (and not
properly withdrawn in accordance with "Terms of the Offer -- Withdrawal Rights")
at the purchase price per Share listed on the front cover of this Offer to
Purchase and Proxy Statement plus an amount equal to the equivalent of accrued
and unpaid dividends to the date of payment for the Shares tendered, net to the
seller in cash. See "Terms of the Offer -- Certain Conditions of the Offer" and
"Terms of the Offer -- Extension of Tender Period; Termination."
THE OFFER FOR A SERIES OF PREFERRED IS NOT CONDITIONED UPON ANY MINIMUM
NUMBER OF SHARES OF SUCH SERIES OF PREFERRED BEING TENDERED AND IS INDEPENDENT
OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. PREFERRED SHAREHOLDERS WHO WISH
TO TENDER THEIR SHARES PURSUANT TO THE OFFER MUST VOTE IN FAVOR OF THE PROPOSED
AMENDMENT, AS DESCRIBED HEREIN. THE OFFER IS SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE "TERMS OF THE OFFER -- CERTAIN CONDITIONS OF THE OFFER."
The Offer is being sent to all persons in whose names Shares are registered
on the books of CG&E on the Record Date (as defined below). Only a record holder
of Shares on the Record Date may vote in person or by proxy at the Special
Meeting. No record date is fixed for determining which persons are permitted to
tender Shares. Any person who wishes to tender Shares and is the beneficial
owner or record holder of such Shares but who was not the record holder as of
the Record Date must arrange to obtain a properly executed proxy that authorizes
such person (or such person's legal representative or attorney-in-fact) to vote
such Shares on behalf of the record holder on the Record Date. If such person is
the beneficial owner but not the record holder of the Shares, such person must
also arrange for the record transfer of Shares prior to tendering.
Alternatively, a beneficial owner or record holder of Shares who was not the
record holder as of the Record Date could direct such record holder to tender
the Shares and vote in favor of the Proposed Amendment on behalf of such
beneficial owner or record holder.
With respect to each Series of Preferred, the Expiration Date is the later
of 12:00 Midnight, New York City time, on , , 1996 or the latest
time and date to which the Offer with respect to such Series of Preferred is
extended. Cinergy expressly reserves the right, in its sole discretion, and at
any time and/or from time to time, to extend the period of time during which the
Offer for any Series of Preferred is open, by giving oral or written notice of
such extension to the Depositary, without extending the period of time during
which the Offer for any other Series of Preferred is open. There is no assurance
whatsoever that Cinergy will exercise its right to extend the Offer for any
Series of Preferred. If Cinergy decides, in its sole discretion, to decrease the
number of Shares of any Series of Preferred being sought or to increase or
decrease the consideration offered in the Offer to holders of any Series of
Preferred and, at the time that notice of such increase or decrease is first
published, sent or given to holders of such Series of Preferred in the manner
specified herein, the Offer for such Series of Preferred is scheduled to expire
at any time earlier than the tenth business day from the date that such notice
is first so published, sent or given, such Offer will be extended until the
expiration of such ten-business-day period. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or federal holiday
and consists of the time period from 12:01 a.m. through 12:00 midnight, New York
City time.
NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED AND NO
TENDERS WILL BE ACCEPTED IN RESPECT OF SHARES FOR WHICH A VOTE IN FAVOR OF THE
PROPOSED AMENDMENT HAS NOT BEEN CAST AT THE SPECIAL MEETING. SUCH VOTE MAY BE
CAST BY PROPERLY COMPLETING EITHER THE FORM OF PROXY THAT IS A PART OF THE
APPLICABLE LETTER OF TRANSMITTAL OR THE SEPARATE FORM OF PROXY ENCLOSED HEREWITH
OR BY VOTING IN PERSON BY BALLOT AT THE SPECIAL MEETING.
A regular quarterly dividend on each Series of Preferred will be considered
by CG&E's Board of Directors at its July 23, 1996 meeting. If declared, such
dividend will be payable October 1, 1996 to owners of
4
<PAGE>
record on or about September 3, 1996. A tender and purchase of Shares pursuant
to the Offer will result in the tendering Preferred Shareholder receiving
payment of a dividend per share (to the extent, and only to the extent, that
such dividends are declared by the Board of Directors of CG&E), at the dividend
rate fixed for Shares of the Series of Preferred, from July 1, 1996 (the last
regular quarterly dividend payment date) to the date of payment for such Shares.
Tendering Preferred Shareholders will not receive the regular quarterly dividend
payable on October 1, 1996 or any dividends on such tendered Shares declared in
any later dividend period.
PROCEDURE FOR TENDERING SHARES
To tender Shares pursuant to the Offer, the tendering owner of Shares must
either:
(a)
send to the Depositary (at one of its addresses set forth on the back
cover of this Offer to Purchase and Proxy Statement) a properly
completed and duly executed Letter of Transmittal or facsimile thereof and
Proxy (if not voting at the Special Meeting in person by ballot), together
with any required signature guarantees and any other documents required by
the Letter of Transmittal and either (i) certificates for the Shares to be
tendered must be received by the Depositary at one of such addresses or (ii)
such Shares must be delivered pursuant to the procedures for book-entry
transfer described herein (and a confirmation of such delivery must be
received by the Depositary), in each case by the Expiration Date; or
(b)
comply with the guaranteed delivery procedure described under
"Guaranteed Delivery Procedure" below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and Philadelphia Depository Trust Company (collectively
referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer
within two business days after the date of this Offer to Purchase and Proxy
Statement, and any financial institution that is a participant in the system of
any Book-Entry Transfer Facility may make delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account in accordance with the procedures of such Book-Entry Transfer Facility.
Although delivery of Shares may be effected through book-entry transfer, such
delivery must be accompanied by either (i) a properly completed and duly
executed Letter of Transmittal or facsimile thereof, together with any required
signature guarantees and any other required documents or (ii) an Agent's Message
(as hereinafter defined) and, in any case, must be received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
Proxy Statement by the Expiration Date.
The term "Agent's Message" means a message, transmitted by one of the
Book-Entry Transfer Facilities, received by the Depositary and forming a part of
the book-entry transfer when a tender is initiated, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from a
participant tendering Shares that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that Cinergy may enforce
such agreement against such participant.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States that is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered owner of the shares
tendered therewith and such owner has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURE. If a Preferred Shareholder desires to tender
Shares pursuant to the Offer and such Preferred Shareholder's certificates are
not immediately available or the procedures for
5
<PAGE>
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Depositary prior to the Expiration
Date, such Shares may nevertheless be tendered if all of the following
guaranteed delivery procedures are complied with:
(i)
such tender is made by or through an Eligible Institution;
(ii)
a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Cinergy herewith, is received
(with any required signature guarantees) by the Depositary as provided below
prior to the Expiration Date; and
(iii)
the certificates for all tendered Shares in proper form for transfer
or a Book-Entry Confirmation with respect to all tendered Shares,
together with a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof) and any other documents required by
the Letter of Transmittal, are received by the Depositary no later than 5:00
p.m., New York City time, within three NYSE trading days after the date of
such Notice of Guaranteed Delivery.
THE NOTICE OF GUARANTEED DELIVERY MAY BE DELIVERED BY HAND OR TRANSMITTED BY
FACSIMILE TRANSMISSION OR MAILED TO THE DEPOSITARY AND MUST INCLUDE AN
ENDORSEMENT BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN SUCH NOTICE OF
GUARANTEED DELIVERY.
In all cases, Shares shall not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) is received by the Depositary and a vote in favor of the
Proposed Amendment in respect of such Shares has been cast at the Special
Meeting either in person or by completion and execution of a proxy (which proxy
may be either the form of proxy that is a part of the applicable Letter of
Transmittal or the separate form of proxy enclosed herewith).
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer in all cases will be made only after timely
receipt by the Depositary of certificates for (or Book-Entry Confirmation with
respect to) such Shares, a Letter of Transmittal or a manually signed facsimile
thereof, properly completed and duly executed, with any required signature
guarantees and all other documents required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING PREFERRED SHAREHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
BECAUSE IT IS THE TIME OF RECEIPT, NOT THE TIME OF MAILING, WHICH DETERMINES
WHETHER A TENDER HAS BEEN MADE PRIOR TO THE EXPIRATION DATE, SUFFICIENT TIME
SHOULD BE ALLOWED FOR DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH PREFERRED SHAREHOLDER MUST NOTIFY THE
DEPOSITARY OF SUCH PREFERRED SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING AND
EXECUTING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN
PREFERRED SHAREHOLDERS MUST SUBMIT A PROPERLY COMPLETED FORM W-8 IN ORDER TO
AVOID THE APPLICABLE BACKUP WITHHOLDING; PROVIDED, HOWEVER, THAT BACKUP
WITHHOLDING WILL NOT APPLY TO FOREIGN STOCKHOLDERS SUBJECT TO 30% (OR LOWER
TREATY RATE) WITHHOLDING ON GROSS PAYMENTS RECEIVED PURSUANT TO THE OFFER. SEE
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
EACH PREFERRED SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF THE OFFER.
All questions as to the form of documents and the validity, eligibility
(including the time of receipt) and acceptance for payment of any tender of
Shares will be determined by Cinergy, in its sole discretion, and its
determination will be final and binding. Cinergy reserves the absolute right to
reject any or all tenders of Shares that (i) it determines are not in proper
form or (ii) the acceptance for payment of or payment for
6
<PAGE>
which may, in the opinion of Cinergy's counsel, be unlawful. Cinergy also
reserves the absolute right to waive any defect or irregularity in any tender of
Shares. None of Cinergy, the Dealer Managers, the Depositary, the Information
Agent or any other person will be under any duty to give notice of any defect or
irregularity in tenders, nor shall any of them incur any liability for failure
to give any such notice.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after , 1996, unless theretofore accepted
for payment as provided in this Offer to Purchase and Proxy Statement.
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary, at one of its addresses set forth on
the back cover of this Offer to Purchase and Proxy Statement, and must specify
the name of the person who tendered the Shares to be withdrawn and the number of
Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the
Depositary, a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution (except in the case of Shares tendered by an Eligible
Institution) must be submitted prior to the release of such Shares. In addition,
such notice must specify, in the case of Shares tendered by delivery of
certificates, the name of the registered owner (if different from that of the
tendering Preferred Shareholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities to be credited with the withdrawn Shares and
the name of the registered holder (if different from the name of such account).
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed
not validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered by again following one of the procedures described in "Terms of the
Offer -- Procedure for Tendering Shares" at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Cinergy, in its sole discretion, and
its determination will be final and binding. None of Cinergy, the Dealer
Managers, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defect or irregularity in any notice
of withdrawal or will incur any liability for failure to give any such
notification.
ACCEPTANCE OF SHARES FOR PAYMENT AND PAYMENT OF PURCHASE PRICE AND DIVIDENDS
Upon the terms and subject to the conditions of the Offer, and as promptly
as practicable after the Special Meeting, Cinergy will accept for payment (and
thereby purchase) and pay for Shares validly tendered and not withdrawn as
permitted in "Terms of the Offer -- Withdrawal Rights." In all cases, payment
for Shares accepted for payment pursuant to the Offer will be made promptly but
only after timely receipt by the Depositary of certificates for such Shares (or
of an Agent's Message), a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other required documents.
For purposes of the Offer, Cinergy will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered and not
withdrawn as, if and when it gives oral or written notice to the Depositary of
its acceptance for payment of such Shares. Cinergy will pay for Shares that it
has purchased pursuant to the Offer by depositing the purchase price therefor
and dividend thereon with the Depositary, which will act as agent for tendering
Preferred Shareholders for the purpose of receiving payment from Cinergy and
transmitting payment to tendering Preferred Shareholders. Under no circumstances
will interest be paid on amounts to be paid to tendering Preferred Shareholders,
regardless of any delay in making such payment.
Certificates for all Shares not validly tendered will be returned or, in the
case of Shares tendered by book-entry transfer, such Shares will be credited to
an account maintained with a Book-Entry Transfer Facility, as promptly as
practicable, without expense to the tendering Preferred Shareholder.
If certain events occur, Cinergy may not be obligated to purchase Shares
pursuant to the Offer. See "Terms of the Offer -- Certain Conditions of the
Offer."
7
<PAGE>
Cinergy will pay or cause to be paid any stock transfer taxes with respect
to the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to any person other
than the registered owner, or if tendered Shares are registered in the name of
any person other than the person signing the Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered owner, such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted. See Instruction 6 of the
accompanying Letter of Transmittal.
CERTAIN CONDITIONS OF THE OFFER
IN ORDER TO TENDER THEIR SHARES, PREFERRED SHAREHOLDERS MUST VOTE IN FAVOR
OF THE PROPOSED AMENDMENT IN PERSON BY BALLOT OR BY PROXY AT THE SPECIAL
MEETING. PREFERRED SHAREHOLDERS HAVE THE RIGHT TO VOTE FOR THE PROPOSED
AMENDMENT (AND, IF THE PROPOSED AMENDMENT IS APPROVED AND ADOPTED, RECEIVE THE
SPECIAL CASH PAYMENT) REGARDLESS OF WHETHER THEY TENDER THEIR SHARES. ANY SHARES
FOR WHICH A VOTE IN FAVOR OF THE PROPOSED AMENDMENT WAS NOT VALIDLY CAST AT THE
SPECIAL MEETING WILL BE DEEMED WITHDRAWN AND NOT VALIDLY TENDERED BY THE
APPLICABLE PREFERRED SHAREHOLDER. PREFERRED SHAREHOLDERS WHO TENDER THEIR SHARES
WILL ONLY BE ENTITLED TO THE PURCHASE PRICE PER SHARE LISTED ON THE FRONT COVER
OF THIS OFFER TO PURCHASE AND PROXY STATEMENT PLUS AN AMOUNT IN CASH EQUAL TO
THE EQUIVALENT OF ACCRUED AND UNPAID DIVIDENDS TO THE DATE OF PAYMENT.
Notwithstanding any other provision of the Offer, Cinergy will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend the Offer or may postpone (subject to the requirements of the
Securities Exchange Act of 1934 [the "Exchange Act"] for prompt payment for or
return of Shares) the acceptance for payment of, or payment for, Shares
tendered, if at any time after , 1996, and at or before acceptance
for payment of or payment for any Shares, any of the following shall have
occurred:
(a)
there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, or before any court, authority, agency or tribunal that (i)
challenges the acquisition of Shares pursuant to the Offer or otherwise in
any manner relates to or affects the Offer or (ii) in the sole judgment of
Cinergy, could materially and adversely affect the business, condition
(financial or otherwise), income, operations or prospects of Cinergy and its
subsidiaries taken as a whole, or otherwise materially impair in any way the
contemplated future conduct of the business of Cinergy or any of its
subsidiaries or materially impair the Offer's contemplated benefits to
Cinergy;
(b)
there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order
or injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or Cinergy or any
of its subsidiaries, by any legislative body, court, authority, agency or
tribunal that, in Cinergy's sole judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or
all of the Shares illegal or otherwise restrict or prohibit consummation of
the Offer, (ii) delay or restrict the ability of Cinergy, or render Cinergy
unable, to accept for payment or pay for some or all of the Shares, (iii)
materially impair the contemplated benefits of the Offer to Cinergy or (iv)
materially affect the business, condition (financial or otherwise), income,
operations or prospects of Cinergy and its subsidiaries taken as a whole, or
otherwise materially impair in any way the contemplated future conduct of
the business of Cinergy or any of its subsidiaries;
(c)
there shall have occurred (i) any significant decrease in the market
price of the Shares or any change in the general political, market,
economic or financial conditions in the United States or abroad that could
have a material adverse effect on Cinergy's business, operations, prospects
or ability to obtain financing generally or the trading in the other equity
securities of Cinergy, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
8
<PAGE>
limitation on, or any event that, in Cinergy's sole judgment, might affect
the extension of credit by lending institutions in the United States, (iii)
the commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, (iv)
any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-counter
market, (v) in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof or
(vi) any decline in either the Dow Jones Industrial Average or the Standard
and Poor's Composite 500 Stock Index by an amount in excess of 15% measured
from the close of business on , 1996;
(d)
any tender or exchange offer with respect to some or all of the
Shares (other than the Offer), or a merger, acquisition or other
business combination proposal for Cinergy, shall have been proposed,
announced or made by any person or entity;
(e)
there shall have occurred any event or events that have resulted, or
may in the sole judgment of Cinergy result, in an actual or
threatened change in the business, condition (financial or otherwise),
income, operations, stock ownership or prospects of Cinergy and its
subsidiaries; or
(f)
the Securities and Exchange Commission (the "SEC") shall have
withheld approval, under the Holding Company Act, of the acquisition
of the Shares by Cinergy pursuant to the Offer or the approval and adoption
of the Proposed Amendment at the Special Meeting;
and, in the sole judgment of Cinergy, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payment. With respect to the approval of the SEC referenced in clause
(f) above, the SEC must find that the acquisition of the Shares by Cinergy is
not detrimental to the public interest or the interest of the investors or
consumers, and that the consideration paid in connection with the acquisition
and the adoption of the Proposed Amendment, including fees, commissions and
other remuneration, is reasonable.
The foregoing conditions are for the sole benefit of Cinergy and may be
asserted by Cinergy regardless of the circumstances (including any action or
inaction by Cinergy) giving rise to any such condition, and any such condition
(including the condition related to the requirement that Preferred Shareholders
tendering their Shares vote in favor of the Proposed Amendment at the Special
Meeting) may be waived by Cinergy, in whole or in part, at any time and from
time to time in its sole discretion. The failure by Cinergy at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by Cinergy concerning the
events described above will be final and binding on all parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
Cinergy expressly reserves the right, in its sole discretion, and at any
time and/or from time to time, to extend the period of time during which the
Offer for any Series of Preferred is open by giving oral or written notice of
such extension to the Depositary, without extending the period of time during
which the Offer for any other Series of Preferred is open. There can be no
assurance, however, that Cinergy will exercise its right to extend the Offer for
any Series of Preferred. During any such extension, all Shares of the subject
Series of Preferred previously tendered will remain subject to the Offer, except
to the extent that such Shares may be withdrawn as set forth in "Terms of the
Offer -- Withdrawal Rights." Cinergy also expressly reserves the right, in its
sole discretion, to terminate the Offer and not accept for payment or pay for
any Shares tendered, subject to Rule 13e-4(f)(5) under the Exchange Act, which
requires Cinergy either to pay the consideration offered or to return the Shares
tendered promptly after the termination or withdrawal of the Offer, upon the
occurrence of any of the conditions specified in "Terms of the Offer -- Certain
Conditions of the Offer" by giving oral or written notice of such termination to
the Depositary, and making a public announcement thereof.
Subject to compliance with applicable law, Cinergy further reserves the
right, in its sole discretion, to amend the Offer in any respect. Amendments to
the Offer may be made at any time and/or from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration
9
<PAGE>
Date. Any public announcement made pursuant to the Offer will be disseminated
promptly to Preferred Shareholders affected thereby in a manner reasonably
designed to inform such Preferred Shareholders of such change. Without limiting
the manner in which Cinergy may choose to make a public announcement, except as
required by applicable law, Cinergy shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
If Cinergy materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, Cinergy
will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price
or change in percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such terms or information.
The SEC has stated that, in its view, an offer should remain open for a minimum
of five business days from the date that a notice of such a material change is
first published, sent or given. If the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that Cinergy publishes, sends or gives to Preferred
Shareholders a notice that it will (a) increase or decrease the price it will
pay for Shares or (b) decrease the percentage of Shares it seeks, the Offer will
be extended until the expiration of such period of ten business days.
PROPOSED AMENDMENT AND PROXY SOLICITATION
INTRODUCTION
This Offer to Purchase and Proxy Statement is first being mailed on or about
, 1996 to the shareholders of CG&E in connection with the
solicitation of proxies by the Board of Directors (the "Board") of CG&E for use
at the Special Meeting. At the Special Meeting, the shareholders of CG&E will
vote upon the Proposed Amendment to the Articles.
Preferred Shareholders who wish to tender their Shares pursuant to the Offer
must vote in favor of the Proposed Amendment in person by ballot or by proxy at
the Special Meeting. However, Preferred Shareholders have the right to vote for
the Proposed Amendment regardless of whether they tender their Shares. If the
Proposed Amendment is approved and adopted by CG&E's shareholders, CG&E will
make a special cash payment in the amount of $ per Share (the "Cash Payment")
to each Preferred Shareholder who voted in favor of the Proposed Amendment but
who did not tender his or her Shares. If a Preferred Shareholder votes against
the Proposed Amendment or abstains, such Preferred Shareholder shall not be
entitled to the Cash Payment (regardless of whether the Proposed Amendment is
approved and adopted). Those Preferred Shareholders who validly tender their
Shares will be entitled only to the purchase price per Share listed on the front
cover of this Offer to Purchase and Proxy Statement plus an amount in cash equal
to the equivalent of accrued and unpaid dividends to the date of payment.
VOTING SECURITIES, RIGHTS AND PROCEDURES
Only holders of record of CG&E's voting securities at the close of business
on , 1996 (the "Record Date") will be entitled to vote in person or
by proxy at the Special Meeting. The outstanding voting securities of CG&E are
divided into two classes: common stock and cumulative preferred stock. The class
of cumulative preferred stock has been issued in the four Series of Preferred
with the record holders of all Shares of the cumulative preferred stock voting
together as one class. The shares outstanding as of the Record Date, and the
vote to which each share is entitled in consideration of the Proposed Amendment,
are as follows:
<TABLE>
<CAPTION>
VOTES PER
CLASS SHARES OUTSTANDING SHARE
- ------------------------------------------------------------------- ------------------ --------------
<S> <C> <C>
Common Stock (Par Value $8.50 per share)........................... 89,663,086 1 vote
Cumulative Preferred Stock (Par Value $100 per Share).............. 2,000,000 1 vote
</TABLE>
The affirmative vote of the holders of two-thirds of the outstanding shares
of each of CG&E's (i) common stock and (ii) cumulative preferred stock, all
series voting together as one class, is required to approve the Proposed
Amendment to be presented at the Special Meeting. Abstentions and broker non-
10
<PAGE>
votes will have the effect of votes against the Proposed Amendment. CINERGY HAS
ADVISED CG&E THAT IT INTENDS TO VOTE ALL OF THE OUTSTANDING SHARES OF COMMON
STOCK OF CG&E IN FAVOR OF THE PROPOSED AMENDMENT.
Votes at the Special Meeting will be tabulated preliminarily by the
Depositary. Inspectors of Election, duly appointed by the presiding officer of
the Special Meeting, will definitively count and tabulate the votes and
determine and announce the results at the meeting. CG&E has no established
procedure for confidential voting. There are no rights of appraisal in
connection with the Proposed Amendment.
PROXIES
THE ENCLOSED PROXY IS SOLICITED BY CG&E'S BOARD, WHICH RECOMMENDS VOTING FOR
THE PROPOSED AMENDMENT. ALL SHARES OF CG&E'S COMMON STOCK WILL BE VOTED IN
ACCORDANCE WITH THE BOARD'S RECOMMENDATION. PREFERRED SHAREHOLDERS TENDERING
THEIR SHARES PURSUANT TO THE OFFER AND VOTING AT THE SPECIAL MEETING BY PROXY
MAY USE EITHER THE PROXY THAT IS A PART OF THE APPLICABLE LETTER OF TRANSMITTAL
OR THE SEPARATELY ENCLOSED PROXY. Shares of CG&E's cumulative preferred stock
represented by properly executed proxies received at or prior to the Special
Meeting will be voted in accordance with the instructions thereon. If no
instructions are indicated, duly executed proxies will be voted in accordance
with the recommendation of the Board. It is not anticipated that any other
matters will be brought before the Special Meeting. However, the enclosed proxy
and the proxy that is a part of each Letter of Transmittal give discretionary
authority to the proxy holders named therein should any other matters be
presented at the Special Meeting, and it is the intention of the proxy holders
to act on any other matters in accordance with their best judgment.
Execution of a proxy will not prevent a shareholder from attending the
Special Meeting and voting in person. Any shareholder giving a proxy may revoke
it at any time before it is voted by delivering to the Secretary of CG&E written
notice of revocation bearing a later date than the proxy, by delivering a duly
executed proxy bearing a later date, or by voting in person by ballot at the
Special Meeting.
CG&E will bear the cost of the solicitation of proxies by the Board. CG&E
has engaged MacKenzie Partners, Inc. to act as Information Agent in connection
with the solicitation of proxies for a fee of $12,500 plus reimbursement of
reasonable out-of-pocket expenses. Proxies will be solicited by mail or by
telephone. In addition, officers and employees of CG&E may also solicit proxies
personally or by telephone; such persons will receive no additional compensation
for these services. The Information Agent has not been retained to make, and
will not make, solicitations or recommendations in connection with the Proposed
Amendment.
CG&E has requested that brokerage houses and other custodians, nominees and
fiduciaries forward solicitation materials to the beneficial owners of shares of
CG&E's cumulative preferred stock held of record by such persons and will
reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith.
The solicitation of proxies has been approved by the SEC under the Holding
Company Act. An application has been filed with the SEC under the Holding
Company Act requesting approval of the Proposed Amendment and the acquisition of
the Shares by Cinergy pursuant to the Offer.
CASH PAYMENTS
Subject to the terms and conditions set forth in this Offer to Purchase and
Proxy Statement, if (but only if) the Proposed Amendment is approved and adopted
by the shareholders of CG&E, CG&E will make a Cash Payment to each Preferred
Shareholder whose Shares are properly voted in favor of the Proposed Amendment,
in person by ballot or by proxy, at the Special Meeting in the amount of $
for each Share held by such Preferred Shareholder on the Record Date which is so
voted. CASH PAYMENTS WILL BE MADE TO PREFERRED SHAREHOLDERS, AS OF THE RECORD
DATE, IN RESPECT OF EACH SHARE WHICH IS SO VOTED ONLY IF SUCH SHARES ARE VOTED
FOR THE ADOPTION OF THE PROPOSED AMENDMENT; PROVIDED, HOWEVER, THAT THOSE
PREFERRED SHAREHOLDERS WHO VALIDLY TENDER THEIR SHARES WILL BE ENTITLED ONLY TO
THE PURCHASE PRICE PER SHARE LISTED ON THE
11
<PAGE>
FRONT COVER OF THIS OFFER TO PURCHASE AND PROXY STATEMENT PLUS AN AMOUNT IN CASH
EQUAL TO THE EQUIVALENT OF ACCRUED AND UNPAID DIVIDENDS TO THE DATE OF PAYMENT.
Cash Payments will be paid out of CG&E's general funds, promptly after the
Proposed Amendment shall have become effective.
Only Preferred Shareholders (or their legal representatives or
attorneys-in-fact) are entitled to vote at the Special Meeting and to receive
Cash Payments from CG&E. Any beneficial holder of Shares who is not the
registered holder of such Shares as of the Record Date (as would be the case for
any beneficial owner whose Shares are registered in the name of such holder's
broker, dealer, commercial bank, trust company or other nominee) must arrange
with the record Preferred Shareholder to execute and deliver a proxy form on
such beneficial owner's behalf. If a beneficial holder of Shares intends to
attend the Special Meeting and vote in person, such beneficial holder must
obtain a legal proxy form from his or her broker, dealer, commercial bank, trust
company or other nominee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As noted above, Cinergy owns all the outstanding common stock of CG&E.
Pursuant to Section 13(d) of the Exchange Act, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by management
of CG&E to be the beneficial owner of more than 5% of CG&E's class of cumulative
preferred stock as of the Record Date.
CG&E's directors and executive officers do not beneficially own any Shares
as of the Record Date. The beneficial ownership of Cinergy's common stock held
by each director, as well as directors and executive officers as a group, as of
May 31, 1996, is set forth in the following table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER (1) OF BENEFICIAL OWNERSHIP (2)
- ----------------------------------------------------------------- -------------------------------------
<S> <C>
Jackson H. Randolph.............................................. 79,214 shares
James E. Rogers.................................................. 264,985 shares
William J. Grealis............................................... 22,399 shares
732,835 shares
(representing 0.47% of the class)
All directors and executive officers as a group..................
</TABLE>
- ------------------------
(1) No individual listed beneficially owned more than 0.17% of the outstanding
shares of common stock of Cinergy.
(2) Includes shares which there is a right to acquire within 60 days pursuant to
the exercise of stock options in the following amounts: Mr. Rogers --
189,403; Mr. Grealis -- 20,000; and all directors and executive officers as
a group -- 473,778.
BUSINESS TO COME BEFORE THE SPECIAL MEETING
The following Proposed Amendment to CG&E's Articles is the only item of
business expected to be presented at the Special Meeting:
To remove in its entirety ARTICLE FOURTH, Clause 6-A(b), limiting CG&E's
ability to issue unsecured indebtedness.
EXPLANATION OF THE PROPOSED AMENDMENT
Without the consent of the holders of CG&E's cumulative preferred stock, the
Articles currently prohibit the issuance or assumption of any unsecured notes,
debentures or other securities representing unsecured indebtedness (other than
for the purpose of refunding outstanding unsecured indebtedness or for the
redemption or retirement of outstanding shares of stock ranking prior to the
cumulative preferred stock with respect to the payment of dividends or upon the
dissolution, liquidation or winding up of CG&E) if, immediately after such
issuance or assumption, the total outstanding principal amount of all securities
representing unsecured debt (including unsecured securities then to be issued or
assumed) would exceed 20% of the aggregate of (1) the total principal amount of
all outstanding secured debt of CG&E at the time
12
<PAGE>
of such issuance or assumption and (2) the capital and surplus of CG&E, as
stated on CG&E's books. The Proposed Amendment, if adopted, would eliminate in
its entirety clause 6-A(b), as set forth below, from the Articles.
Clause 6-A.
* * * *
"(b) Issue any unsecured notes, debentures or other securities
representing unsecured indebtedness, or assume any such unsecured
securities, for purposes other than the refunding of outstanding
unsecured indebtedness theretofore incurred or assumed by the Company or
the redemption or other retirement of outstanding shares of stock
ranking prior to the Cumulative Preferred Stock with respect to the
payment of dividends or upon the dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, if, immediately after
such issue or assumption, the total principal amount of all unsecured
notes, debentures or other securities representing unsecured
indebtedness issued or assumed by the Company and then outstanding
(including unsecured securities then to be issued or assumed) would
exceed 20% of the aggregate of (i) the total principal amount of all
bonds and other securities representing secured indebtedness issued or
assumed by the Company and then to be outstanding, and (ii) the capital
and surplus of the Company as then to be stated on the books of account
of the Company;"
REASONS FOR THE PROPOSED AMENDMENT
CG&E believes that regulatory, legislative and market developments will lead
to a more competitive environment in the electric and gas utility industry. As
competition intensifies, flexibility and cost leadership will be even more
crucial to success in the future. Given that the electric and gas industry is
extremely capital intensive, controlling and minimizing financing costs are
essential ingredients to operating effectively in the new competitive
environment. It is, therefore, for those two reasons, flexibility and cost
leadership, that you are being asked to vote in favor of the Proposed Amendment.
CG&E believes that adoption of the Proposed Amendment is key to meeting the
objectives of flexibility and cost leadership. If adopted, the amendment would
eliminate the current provision of CG&E's Articles that limits the total amount
of CG&E's unsecured indebtedness to 20% of the total amount of CG&E's secured
indebtedness, plus capital and surplus. Historically, CG&E's debt financing
generally has been accomplished through the issuance of long-term first mortgage
bonds and a modest amount of unsecured short-term debt. First mortgage bonds
represent secured indebtedness because they place a first priority lien on
substantially all of CG&E's assets. The First Mortgage Indenture between CG&E
and its bondholders contains certain restrictive covenants with respect to,
among other things, the disposition of assets and the ability to issue
additional first mortgage bonds. Short-term debt, usually the lowest cost debt
available to CG&E, represents one type of unsecured indebtedness. While the
Proposed Amendment will not only allow CG&E to issue a greater amount of
unsecured debt, it will also allow CG&E to issue a greater amount of total debt;
however, CG&E presently has no intention of issuing a greater amount of total
debt than it otherwise would have issued absent the adoption of the Proposed
Amendment. It is, however, CG&E's intention to change the mix of debt securities
toward more issuances on a short-term and unsecured basis.
Inasmuch as the 20% provision contained in the Articles limits CG&E's
flexibility in planning and financing its business activities, CG&E believes it
ultimately will be at a competitive disadvantage if the provision is not
eliminated. The industry's new competitors (for example, power marketers,
independent power producers and cogenerating facilities) generally are not
subject to the type of financing restrictions the Articles impose on CG&E.
Recently, several other utilities with the same or similar charter restrictions
have successfully eliminated such provisions by soliciting their shareholders
for the same or similar amendments. Therefore, many potential utility
competitors, and even CG&E's Indiana affiliate, PSI, have no comparable
provision restricting the use of unsecured debt. While CG&E's current low-cost
structure has
13
<PAGE>
been instrumental in reducing the ability of other competitors to attract CG&E's
large bulk power customers, CG&E must continue to explore new ways of reducing
costs and enhancing flexibility. CG&E believes that the adoption of the Proposed
Amendment will be in the best long-term competitive interests of shareholders by
enhancing its ability to meet the two objectives described below.
FINANCIAL FLEXIBILITY
CG&E believes that in the long run, various types of unsecured debt
alternatives will increase in importance as an option in financing its
construction program and refinancing high-cost mortgage bonds. The availability
and flexibility of unsecured debt is necessary to take full advantage of
changing conditions in securities markets. CG&E intends to continue to rely on
unsecured debt up to the 20% maximum currently allowable under the Articles. In
addition, although CG&E's earnings currently are sufficient to meet the earnings
coverage tests that must be satisfied before issuing additional first mortgage
bonds and preferred stock, there have been periods, including virtually all of
the year 1994, when, because of its inability to meet the Articles test, CG&E
was unable to issue any additional preferred stock. A similar inability to issue
preferred stock in the future, combined with the inability to issue additional
unsecured debt, would limit CG&E's financing options to either additional first
mortgage bonds (assuming that the earnings coverage test could be met) or
additional common stock.
CG&E's use of unsecured short-term debt is subject to the 20% provision
contained in the Articles. CG&E believes that the prudent use of such debt in
excess of this provision is vital to effective financial management of the
business. Not only is unsecured short-term debt generally the least expensive
form of capital, it also provides flexibility in meeting seasonal fluctuations
in cash requirements, acts as a bridge between issues of permanent capital and
can be used when unfavorable conditions prevail in the market for long-term
capital.
With these benefits in mind, in 1995, CG&E sought and received the approval
of The Public Utilities Commission of Ohio (the "PUCO") to increase the maximum
amount of short-term debt it is permitted to have outstanding from $200 million
to $400 million. However, because of the 20% provision of the Articles, CG&E had
only $150 million of short-term debt capacity available, based on capitalization
as of March 31, 1996. Beyond that, the amount of short-term debt available to
CG&E will continue to decline as additional unsecured long- and short-term debt
is issued.
LOWER COSTS
As previously mentioned, CG&E's short-term debt issuances generally
represent the lowest-cost form of financing. The corporate reorganization during
1994 resulted in the formation of Cinergy, a combined company that is larger and
financially stronger than either CG&E or PSI would have been on a stand-alone
basis. Accordingly, CG&E has been able to reassess its historically modest use
of short-term debt. By increasing its use of short-term debt, it may be possible
for CG&E to lower its cost structure further, thereby making its products more
competitive, increasing earnings and reducing its business risks. However, with
the Articles' 20% provision in place and with CG&E's increasing reliance on
unsecured debt, the availability and concomitant benefits of short-term debt
diminish. And although short-term debt, by its nature, exposes the borrower to
potentially more volatility in interest rates, it should be noted that the cost
of short-term debt rarely exceeds the cost of other forms of capital available
at the same time.
IT IS FOR ALL THE ABOVE REASONS THAT CG&E'S BOARD BELIEVES THE BEST
LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS
TO VOTE FOR, THE ADOPTION OF THE PROPOSED AMENDMENT.
FINANCIAL AND OTHER INFORMATION RELATING TO CG&E
The financial statements of CG&E and related information included in its
Annual Report on Form 10-K for the year ended December 31, 1995, and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, each as
filed with the SEC, are hereby incorporated by reference. CG&E will provide
without charge, upon the written or oral request of any person (including any
beneficial owner) to whom this Offer to Purchase and Proxy Statement is
delivered, a copy of such information (excluding certain exhibits). Such
requests for information should be directed to CG&E's principal office at 139
East Fourth Street, Cincinnati, Ohio 45202, Attention: Corporate Secretary;
telephone (513) 381-2000.
14
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee of Cinergy's board of directors,
such board employed on January 25, 1996 Arthur Andersen LLP as independent
public accountants for Cinergy and its subsidiaries, including CG&E, for the
year 1996. Representatives of Arthur Andersen LLP are expected to be present at
the Special Meeting with the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
PRICE RANGE OF SHARES; DIVIDENDS
CG&E's Cumulative Preferred Stock 4% Series, 4 3/4% Series, 7 7/8% Series
and 7 3/8% Series are listed and traded on the NYSE under the symbols "CIN-A,"
"CIN-B," "CIN-I" and "CIN-G," respectively. The last reported sale price on the
NYSE, as of the close of business on , 1996, for each of the Series
of Preferred is shown on the inside front cover of this Offer to Purchase and
Proxy Statement.
PREFERRED SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS, IF
AVAILABLE, FOR THE SHARES.
15
<PAGE>
The following table sets forth the high and low sales prices of each Series
of Preferred on the NYSE and the cash dividends paid thereon for the fiscal
quarters indicated.
<TABLE>
<CAPTION>
4% SERIES OF PREFERRED 4 3/4% SERIES OF PREFERRED
--------------------------------- ---------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
1st Quarter...................... $ 58.500 $ 53.000 $ 1.000 $ 68.000 $ 63.250 $ 1.188
2nd Quarter...................... $ 56.000 $ 52.000 $ 1.000 $ 65.000 $ 61.500 $ 1.188
3rd Quarter...................... $ 53.000 $ 46.500 $ 1.000 $ 62.000 $ 55.000 $ 1.188
4th Quarter...................... $ 51.000 $ 46.500 $ 1.000 $ 57.000 $ 52.500 $ 1.188
1995
1st Quarter...................... $ 50.500 $ 47.000 $ 1.000 $ 59.000 $ 52.500 $ 1.188
2nd Quarter...................... $ 52.500 $ 49.000 $ 1.000 $ 67.625 $ 57.000 $ 1.188
3rd Quarter...................... $ 56.000 $ 51.500 $ 1.000 $ 67.000 $ 64.000 $ 1.188
4th Quarter...................... $ 58.500 $ 53.500 $ 1.000 $ 72.500 $ 64.000 $ 1.188
1996
1st Quarter...................... $ 57.000 $ 53.250 $ 1.000 $ 73.375 $ 64.500 $ 1.188
2nd Quarter...................... $ 56.000 $ 52.000 $ 1.000 $ 67.000 $ 63.500 $ 1.188
</TABLE>
<TABLE>
<CAPTION>
7 3/8% SERIES OF PREFERRED 7 7/8% SERIES OF PREFERRED
----------------------------------- -----------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
1st Quarter................. $ 106.500 $ 104.500 $ 1.844 $ 112.375 $ 112.375 $ 1.969
2nd Quarter................. * * $ 1.844 $ 106.875 $ 106.500 $ 1.969
3rd Quarter................. * * $ 1.844 * * $ 1.969
4th Quarter................. * * $ 1.844 $ 107.250 $ 105.000 $ 1.969
1995
1st Quarter................. $ 94.250 $ 93.797 $ 1.844 * * $ 1.969
2nd Quarter................. $ 105.000 $ 101.703 $ 1.844 * * $ 1.969
3rd Quarter................. $ 104.500 $ 104.031 $ 1.844 * * $ 1.969
4th Quarter................. * * $ 1.844 * * $ 1.969
1996
1st Quarter................. * * $ 1.844 $ 112.188 $ 112.188 $ 1.969
2nd Quarter................. * * $ 1.844 $ 108.750 $ 108.750 $ 1.969
</TABLE>
- ------------------------
* No trades reported on the NYSE.
Dividends for a Series of Preferred are payable when, as and if declared by
CG&E's Board of Directors at the rate per annum included in such title of the
Series of Preferred listed on the front cover of this Offer to Purchase and
Proxy Statement. A regular quarterly dividend on each Series of Preferred will
be considered by CG&E's Board of Directors at its July 23, 1996 meeting. If
declared, such dividend will be payable October 1, 1996 to owners of record on
or about September 3, 1996. A tender and purchase of Shares pursuant to the
Offer will result in the tendering Preferred Shareholder receiving payment of a
dividend per Share (to the extent, and only to the extent, that such dividends
are declared by the Board of Directors of CG&E), at the dividend rate fixed for
Shares of the Series of Preferred tendered, from July 1, 1996 (the last regular
quarterly dividend payment date) to the date of payment for such Shares.
Tendering Preferred Shareholders will not receive the regular quarterly dividend
payable on October 1, 1996 or any dividends on such tendered Shares declared in
any later dividend period.
16
<PAGE>
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
Cinergy believes that the purchase of the Shares at this time represents an
attractive opportunity that will benefit Cinergy, its shareholders, and CG&E. In
addition, the Offer gives Preferred Shareholders the opportunity to sell their
Shares at a premium to the market price on the date of the announcement of the
Offer and without the usual transaction costs associated with a sale.
After the consummation of the Offer, Cinergy may determine to purchase
additional Shares on the open market, in privately negotiated transactions,
through one or more tender offers or otherwise. Any such purchases may be on the
same terms as, or on terms which are more or less favorable to holders of Shares
than, the terms of the Offer. However, Rule 13e-4(f)(6) under the Exchange Act
prohibits Cinergy and its affiliates (including CG&E) from purchasing any Shares
of a Series of Preferred, other than pursuant to the Offer, until at least ten
business days after the Expiration Date with respect to that Series of
Preferred. Any future purchases of Shares by Cinergy would depend on many
factors, including the market price of the Shares, Cinergy's business and
financial position, restrictions on Cinergy's ability to purchase Shares imposed
by law or by NYSE listing requirements and general economic and market
conditions.
Preferred Shareholders are not under any obligation to tender Shares
pursuant to the Offer. The Offer does not constitute notice of redemption of any
Series of Preferred pursuant to CG&E's Articles, nor does Cinergy or CG&E intend
to effect any such redemption by making the Offer. The Offer does not constitute
a waiver by CG&E of any option it has to redeem Shares. The 7 3/8% Series of
Preferred is subject to mandatory redemption in an amount sufficient to retire
on each August 1, beginning in 1998, and in each year thereafter, 40,000 Shares,
at a price of $100 per Share, plus accrued dividends, and CG&E has the
noncumulative option to redeem up to 40,000 additional Shares in each such year.
In addition, the 7 3/8% Series of Preferred is redeemable, upon call, after
August 1, 2002 at a price of $100 per Share, plus accrued dividends. The entire
7-7/8% Series of Preferred is subject to mandatory redemption on January 1, 2004
at a price of $100 per Share, plus accrued dividends. The Shares of each Series
of Preferred have no preemptive or conversion rights.
Upon liquidation or dissolution of CG&E, owners of the Shares would be
entitled to receive an amount equal to the liquidation preference per share
($100) plus all accrued and unpaid dividends (whether or not earned or declared)
thereon to the date of payment, prior to the payment of any amounts to the
holders of CG&E's common stock.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth herein shall be held until
the Expiration Date (or returned to the extent the Offer is terminated in
accordance herewith). To the extent that the Proposed Amendment is approved,
subsequent to the acceptance for payment of, and payment for, the Shares
tendered in accordance with the terms hereof, Cinergy intends to transfer its
Shares to CG&E and, at that time, it is expected that CG&E will retire and
cancel the Shares. In the event the Proposed Amendment is not adopted at the
Special Meeting, CG&E intends, as promptly as practicable thereafter, to call
another special meeting of its shareholders and to solicit proxies therefrom for
an amendment substantially similar to the Proposed Amendment. At that meeting,
Cinergy would vote any Shares acquired by it pursuant to the Offer or otherwise
(together with its shares of common stock) in favor of such amendment, thereby
maximizing the prospects for the adoption of the amendment. Therefore, if the
Proposed Amendment (or an amendment similar thereto) is ultimately successful,
it is likely that the Offer will reduce the number of Shares of each of the
Series of Preferred that might otherwise trade publicly or become available for
purchase and/or sale and likely will reduce the number of owners of Shares of
each of the Series of Preferred, which could adversely affect the liquidity and
sale value of the Shares not purchased in the Offer. Depending on the number of
Shares tendered and purchased pursuant to the Offer, the Series of Preferred may
no longer meet the requirements of the NYSE for continued listing, which could
adversely affect the market for the Shares. In addition, the Series of Preferred
are currently registered under Section 12(g) of the Exchange Act. Registration
of the Shares under the Exchange Act may be terminated upon the application by
CG&E to the SEC if the Shares are neither listed on a national securities
exchange nor held by more than 300 holders of record. Termination of
17
<PAGE>
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished to Preferred Shareholders and could make
certain provisions of the Exchange Act no longer applicable to CG&E.
Except as disclosed in this Offer to Purchase and Proxy Statement, Cinergy
and CG&E have no plans or proposals that relate to or would result in: (a) the
acquisition by any person of additional securities of CG&E or the disposition of
securities of CG&E; (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving CG&E or any of its
subsidiaries; (c) a sale or transfer of a material amount of assets of CG&E or
any of its subsidiaries; (d) any change in the present Board or management of
CG&E; (e) any material change in the present dividend rate or policy, or
indebtedness or capitalization of CG&E; (f) any other material change in CG&E's
corporate structure or business; (g) any change in CG&E's Articles or
Regulations or any actions that may impede the acquisition of control of CG&E by
any person; (h) a class of equity securities of CG&E being delisted from a
national securities exchange; (i) a class of equity securities of CG&E becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Exchange Act; or (j) the suspension of CG&E's obligation to file reports
pursuant to Section 15(d) of the Exchange Act.
NEITHER CINERGY, CG&E, THEIR RESPECTIVE BOARDS OF DIRECTORS, NOR ANY OF
THEIR RESPECTIVE OFFICERS MAKES ANY RECOMMENDATION TO ANY PREFERRED SHAREHOLDER
AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH PREFERRED SHAREHOLDER MUST MAKE
HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[In the opinion of Taft, Stettinius & Hollister, tax counsel to Cinergy,]
the following summary describes the principal United States federal income tax
consequences of sales of Shares pursuant to the Offer and the receipt of Cash
Payments in connection with the approval and adoption of the Proposed Amendment.
This summary is based on the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations, changes to any of which subsequent
to the date of this Offer to Purchase and Proxy Statement may adversely affect
the tax consequences described herein, possibly on a retroactive basis. This
summary is addressed to United States Holders, as defined below, who hold Shares
as capital assets within the meaning of Section 1221 of the Code. This summary
does not discuss all of the tax consequences that may be relevant to a Holder in
light of his particular circumstances or to Holders subject to special rules
(including certain financial institutions, insurance companies, dealers in
securities, Holders who acquired their Shares pursuant to the exercise of stock
options or other compensation arrangements with CG&E, and Holders who are not
citizens or residents of the United States). Holders of Shares should consult
their tax advisors with regard to the application of the United States federal
income tax laws to their particular situations as well as any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means an owner of a Share
that (a) is (i) for United States federal income tax purposes a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof or (iii) an estate or trust the income of which is
subject to United States federal income taxation regardless of its source or (b)
is not described in (a) and whose income from a Share is effectively connected
with such Holder's conduct of a United States trade or business. The term also
includes certain former citizens of the United States.
TENDER OFFER
A United States Holder will recognize gain or loss equal to the difference
between the tax basis of his or her Shares and the amount of cash received in
exchange therefor. For this purpose, an amount equal to $ per Share will be
treated as fees for voting in favor of the Proposed Amendment, rather than cash
received in exchange for Shares, and will constitute ordinary income to
recipient United States Holders. A United States Holder's gain or loss will be
long-term capital gain or loss if the holding period for the Shares is more than
18
<PAGE>
one year as of the date of the sale of such Shares. The excess of net long-term
capital gains over net short-term capital losses is taxed at a lower rate than
ordinary income for certain non-corporate taxpayers. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations on the deductibility of capital losses.
CASH PAYMENTS/MODIFICATION
Cash Payments will be treated as fees for voting in favor of the Proposed
Amendment and will constitute ordinary income to recipient United States
Holders. United States Holders, whether or not they receive Cash Payments, will
not recognize any taxable income or loss with respect to the Shares as a result
of the modification of the Articles by the Proposed Amendment.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate United States Holders may be subject to backup
withholding at a rate of 31% on Cash Payments. Each United States Holder
entitled to receive a Cash Payment pursuant to the Offer will be asked to
provide such Holder's correct taxpayer identification number and certify that
such Holder is not subject to backup withholding by completing the substitute
From W-9 included herewith.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
SOURCE AND AMOUNT OF FUNDS
Assuming that Cinergy purchases all outstanding Shares pursuant to the
Offer, the total amount required by Cinergy to purchase such shares will be $
million, exclusive of the dividend payments, fees and other expenses. Cinergy
intends to use its general funds (which, in the ordinary course, include funds
from CG&E) and funds borrowed pursuant to its revolving credit agreement with a
group of banks to purchase shares pursuant to the Offer. This revolving credit
agreement currently extends to May, 2001. The borrowing limit of this facility,
applicable to the transaction contemplated herein, is $100 million. The facility
permits Cinergy to borrow funds at a fluctuating interest rate determined by the
prime lending market in New York, and also permits Cinergy to borrow money for
fixed periods of time specified by Cinergy at fixed interest rates determined by
the Eurodollar interbank market in London, or by offering its banks the
opportunity to bid to make loans at competitive rates, at Cinergy's option. If a
material adverse change in the business, operations, affairs, assets or
condition, financial or otherwise, or prospects of Cinergy and its subsidiaries,
on a consolidated basis, should occur, the banks may decline to lend additional
money to Cinergy under this revolving credit agreement, although borrowings
outstanding at the time of such an occurrence would not then become due and
payable.
19
<PAGE>
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
Each of Cinergy and CG&E has been advised by its directors and executive
officers that no directors or executive officers of the respective companies own
any Shares. Based upon the companies' records and upon information provided to
each company by its directors and executive officers, neither company nor, to
the knowledge of either, any of their subsidiaries, directors, or executive
officers has engaged in any transactions involving Shares during the 40 business
days preceding the date hereof. Neither company nor, to the knowledge of either,
any of its directors or executive officers is a party to any contract,
arrangement, understanding or relationship relating directly or indirectly to
the Offer with any other person with respect to any securities of CG&E.
FEES AND EXPENSES ASSOCIATED WITH THE OFFER
DEALER MANAGER FEES. Smith Barney Inc. and Morgan Stanley & Co.
Incorporated will act as Dealer Managers for Cinergy in connection with the
Offer, but will not provide services to CG&E in connection with the Proposed
Amendment or the solicitation of proxies therewith. Cinergy has agreed to pay
each Dealer Manager a combined fee of $___ per Share for any Shares tendered,
accepted for payment and paid for pursuant to the Offer. Each Dealer Manager
will also be reimbursed by Cinergy for its reasonable out-of-pocket expenses,
including attorneys' fees, and will be indemnified against certain liabilities,
including certain liabilities under the federal securities laws, in connection
with the Offer. Each Dealer Manager has rendered, is currently rendering and is
expected to continue to render various investment banking services to Cinergy
and CG&E. Each Dealer Manager has received, and will continue to receive,
customary compensation from the companies for such services. Cinergy has
retained The Bank of New York as Depositary and MacKenzie Partners, Inc. as
Information Agent in connection with the Offer. The Depositary and Information
Agent will receive reasonable and customary compensation for their services and
will also be reimbursed for certain out-of-pocket expenses. Cinergy has agreed
to indemnify the Depositary and Information Agent against certain liabilities,
including certain liabilities under the federal securities law, in connection
with the Offer. Neither the Depositary nor the Information Agent has been
retained to make solicitations or recommendations in connection with the Offer.
SOLICITED TENDER FEES. Pursuant to Instruction 10 of the accompanying
Letter of Transmittal, Cinergy will pay to designated brokers and dealers a
solicitation fee of $1.50 per Share (except that for transactions for beneficial
owners equal to or exceeding 5,000 Shares, Cinergy will pay a solicitation fee
of $1.25 per Share) for any Shares tendered, accepted for payment and paid for
pursuant to the Offer.
STOCK TRANSFER TAXES. Cinergy will pay all stock transfer taxes, if any,
payable on account of the acquisition of Shares by Cinergy pursuant to the
Offer, except in certain circumstances where special payment or delivery
procedures are utilized pursuant to Instruction 6 of the accompanying Letter of
Transmittal.
CERTAIN INFORMATION REGARDING CINERGY AND CG&E
JOINT VENTURE. On June 6, 1996, Cinergy and General Public Utilities
Corporation ("GPU") announced that Avon Energy Partners plc ("Avon Energy"), a
joint venture between Cinergy and GPU, declared the cash offer to purchase
capital shares of Midlands Electricity plc ("Midlands") wholly unconditional in
all respects and thereby is committed to purchase all outstanding shares of
Midlands. Avon Energy had commenced its offer to acquire all of the shares of
Midlands on May 13, 1996.
As of June 6, Avon Energy owned 114,936,823 shares of Midlands capital stock
and had received acceptances of the offer from holders representing an
additional 189,884,237 shares. Together, these shares total 77.65% of the
outstanding capital stock of Midlands. The total consideration to be paid by
Avon Energy is estimated to be approximately $2.6 billion and will be paid in
cash.
20
<PAGE>
Midlands is one of twelve regional electricity companies in the United
Kingdom. Midlands primarily distributes and supplies electricity to 2.2 million
industrial, commercial, and residential customers. In addition, Midlands,
together with its subsidiaries, generates power, supplies natural gas to
industrial and commercial customers, and performs electrical contracting
services.
Following the announcement of the potential acquisition of Midlands, three
major credit rating agencies, Duff & Phelps Credit Rating Co., Fitch Investors
Service, Inc., and Standard & Poor's Corporation, affirmed the current ratings
of Cinergy's operating subsidiaries after their consideration of the effects of
the potential acquisition. The other major credit rating agency, Moody's
Investors Service ("Moody's"), placed the credit ratings of Cinergy's operating
subsidiaries, CG&E, PSI, and ULH&P, under review for possible downgrade. Moody's
indicated that its review will focus on the likelihood of the transaction being
completed and will assess the operating strategies of the combined companies and
the anticipated benefits of the transaction. It will also focus on the financial
impact the transaction will have on Cinergy and its operating subsidiaries,
including the credit implications. Cinergy cannot predict the outcome of this
review.
For further information relating to the Midlands acquisition, reference is
made to Cinergy's Current Reports on Form 8-K dated May 7, 1996 and June 6,
1996, which are hereby incorporated by reference.
COMPETITION AND CORPORATE STRUCTURE. The primary factor influencing the
future profitability of Cinergy and CG&E is the changing competitive environment
for energy services, including the impact of emerging technologies, and the
related commoditization of electric power markets. Changes in the industry
include increased competition in wholesale power markets and ongoing pressure
for "customer choice" by large industrial customers and, ultimately, by all
retail customers. Cinergy and CG&E support increased competition in the electric
utility industry and have chosen to take a leadership role in state and Federal
debates on industry reform.
As the electric utility industry moves toward a competitive environment,
Cinergy is reassessing its corporate structure, including the issue of whether
to remain vertically integrated. As a first step toward "unbundling" the
business for a competitive environment, Cinergy announced its intention to
reorganize into strategic business units. This functional reorganization will
separate Cinergy's utility businesses into an energy services business unit, an
energy delivery business unit and an energy commodities business unit. The
design of these new organizations is expected to be completed by the end of the
year. Cinergy continues to analyze what benefits, if any, may exist in the
future for its various stakeholders of separating the business units into
different corporations.
21
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain consolidated historical financial information of
CG&E and its subsidiaries. The historical financial information (other than the
ratios of earnings to fixed charges) was derived from the audited consolidated
financial statements included in CG&E's Annual Report on Form 10-K for the year
ended December 31, 1995 and from the unaudited consolidated financial statements
included in CG&E's Quarterly Reports on Form 10-Q for the period ended March 31,
1996 and the period ended March 31, 1995, which statements are hereby
incorporated by reference. More comprehensive financial information is included
in such reports and the financial information which follows is qualified in its
entirety by reference to such reports and all of the financial statements and
related notes contained therein, copies of which may be obtained as set forth
herein. The data as of and for the three months ended March 31, 1996 and March
31, 1995 has been derived from unaudited financial statements which, in the
opinion of CG&E, reflect all adjustments, consisting of any normal recurring
adjustments, necessary for a fair representation of such data. The results of
operations for such three month periods do not purport to be indicative of the
results to be expected for a full year.
CONDENSED INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------------
1995 1994 1996 1995
--------- ------------ --------- ---------
(UNAUDITED)
(THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Operating Revenues............................. $1,848,075 $1,788,185 $ 574,784 $ 525,167
Operating Income............................... 360,032 291,336(a) 120,055 109,279
Allowance for Borrowed and Equity Funds Used
During Construction........................... 5,644 4,948 1,174 1,576
Phase-In Deferred Return....................... 8,537 15,351 2,093 2,134
Net Income..................................... 236,201 158,311(a) 91,755 77,224
Preferred Dividend Requirement................. 17,673 22,377 3,474 5,362
Net Income Applicable to Common Stock.......... 218,528 135,934(a) 88,281 71,862
Ratio of Earnings to Fixed Charges............. 3.40 2.60(a) 5.24 4.01
</TABLE>
- ------------------------
(a) In 1994, CG&E recognized charges to earnings of approximately $64 million
($46 million, net of taxes) primarily for certain merger-related and other
expenditures which cannot be recovered from customers under the merger
savings sharing mechanism authorized by the PUCO. The charges include the
PUCO electric jurisdictional portion of merger costs incurred through
December 31, 1994, previously capitalized information systems development
costs, and severance benefits to former officers of CG&E. Of the total $64
million charge, $52 million is reflected in "Operating Income."
22
<PAGE>
CONDENSED BALANCE SHEET DATA (AT END OF PERIOD):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- --------------------
1995 1994 1996 1995
--------- --------- --------- ---------
(UNAUDITED)
(THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Net Utility Plant In Service.................. $3,698,240 $3,720,655 $3,685,636 $3,718,115
Construction Work In Progress................. 77,661 74,989 74,017 74,993
Cash and Temporary Cash Investments........... 6,612 52,516 47,967 16,063
Other Current Assets.......................... 579,716 544,180 419,355 515,755
Other Assets.................................. 814,699 789,325 831,116 780,472
--------- --------- --------- ---------
$5,176,928 $5,181,665 $5,058,091 $5,105,398
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES:
Common Equity................................. $1,528,463 $1,532,972 $1,574,749 $1,553,184
Cumulative Preferred Stock.................... 200,000 290,000 200,000 290,000
Long-term Debt................................ 1,702,650 1,837,757 1,694,391 1,638,860
Current Liabilities........................... 612,132 427,528 469,253 530,223
Other Liabilities............................. 1,133,683 1,093,408 1,119,698 1,093,131
--------- --------- --------- ---------
$5,176,928 $5,181,665 $5,058,091 $5,105,398
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
ADDITIONAL INFORMATION REGARDING CINERGY
Cinergy is subject to the informational requirements of the Exchange Act and
in accordance therewith files periodic reports, proxy statements and other
information with the SEC. Cinergy is required to disclose in such proxy
statements certain information, as of particular dates, concerning its directors
and officers, their remuneration, stock options granted to them, the principal
holders of its securities and any material interest of such persons in
transactions with Cinergy. In connection with the Offer, Cinergy has also filed
an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC that includes
certain additional information relating to the Offer.
Such material can be inspected and copied at the public reference facilities
of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Reports, proxy materials and other information
about Cinergy are also available at the offices of the NYSE, 20 Broad Street,
New York, New York 10005. Copies may also be obtained by mail from the SEC's
Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549.
Cinergy's Schedule 13E-4 will not be available at the SEC's regional offices.
MISCELLANEOUS
The Offer is not being made to, nor will Cinergy accept tenders from, owners
of Shares in any jurisdiction in which the Offer or its acceptance would not be
in compliance with the laws of such jurisdiction. Cinergy is not aware of any
jurisdiction where the making of the Offer or the tender of Shares would not be
in compliance with applicable law. If Cinergy becomes aware of any jurisdiction
where the making of the Offer or the tender of Shares is not in compliance with
any applicable law, Cinergy will make a good faith effort to comply with such
law. If, after such good faith effort, Cinergy cannot comply with such law, the
Offer will not be made to (nor will tenders be accepted from or on behalf of)
the owners of Shares residing in such jurisdiction. In any jurisdiction in which
the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer will be deemed to be made on Cinergy's
behalf by one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
23
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates for Shares should be sent or delivered by each
tendering Preferred Shareholder of CG&E or his or her broker, dealer, bank or
trust company to the Depositary at one of its addresses set forth below.
The Depositary is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL: FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
(FOR ELIGIBLE INSTITUTIONS
ONLY)
Tender & Exchange Department
101 Barclay Street
Receive and Deliver Window
New York, New York 10286
Tender & Exchange Department (212) 815-6213
Church Street Station
New York, New York 10286-1248
FOR INFORMATION,
TELEPHONE:
(800) 507-9357
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase and Proxy
Statement, the Letter of Transmittal, the Proxy or other tender offer or proxy
materials may be directed to the Information Agent or the Dealer Managers, and
such copies will be furnished promptly at the companies' expense. Preferred
Shareholders may also contact their local broker, dealer, commercial bank or
trust company for assistance concerning the Offer.
The Information Agent:
MCKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(800) 322-2885
The Dealer Managers:
<TABLE>
<S> <C>
SMITH BARNEY INC. MORGAN STANLEY & CO. INCORPORATED
388 Greenwich Street 1585 Broadway
New York, New York 10013 New York, New York 10036
(800) 655-4811 (800) 223-2440, Ext. 1965
Attention: Paul S. Galant Attention: Steve Sahara
</TABLE>
24
Exhibit G
Cinergy Corp. and The Cincinnati Gas & Electric Company
Notice of Proposal to Amend Articles and Acquire Preferred Shares pursuant
to Cash Tender Offer; Order Authorizing Proxy Solicitation
Cinergy Corp. ("Cinergy"), a registered holding company, and its
wholly-owned utility subsidiary, The Cincinnati Gas & Electric Company, an
Ohio corporation ("CG&E"), both of 139 East Fourth Street, Cincinnati, Ohio
45202, have filed an application-declaration under sections 6(a), 9(a) and
10 of the Act and rules 62 and 65 thereunder.
CG&E has outstanding approximately 90,000,000 shares of common stock, $8.50
par value per share ("Common Stock"), all of which are held by Cinergy.
CG&E's outstanding preferred stock consists of two million shares of
cumulative preferred stock, par value $100 per share ("Preferred Stock"),
issued in four series (each, a "Series"), all of which are listed and
traded on the New York Stock Exchange. The four series of Preferred Stock
consist of a 4% series, of which 270,000 shares are outstanding ("4%
Series"); a 4-3/4% series, of which 130,000 shares are outstanding ("4-3/4%
Series"); a 7-3/8% series, of which 800,000 shares are outstanding ("7-3/8%
Series"); and a 7-7/8% series, of which 800,000 shares are outstanding
("7-7/8% Series").
CG&E's amended articles of incorporation ("Articles") provide that, without
the consent of the holders of Preferred Stock, CG&E shall not issue or
assume any securities representing unsecured debt (subject to certain
exceptions) if, immediately thereafter, the total outstanding principal
amount of all securities representing unsecured debt would exceed 20% of
the aggregate of (1) the total principal amount of all then-outstanding
secured debt of CG&E and (2) the capital and surplus of CG&E, as stated on
CG&E's books ("20% Provision").
By order dated September 26, 1995 (Rel. No. 35-26381), the Commission
authorized CG&E to submit to the holders of its outstanding Common Stock
and Preferred Stock, at a special meeting of stockholders to be held on or
about November 16, 1995, proposed amendments to the Articles that would
have suspended for a term of years or eliminated outright the 20%
Provision. Adoption of either proposal required an affirmative two-thirds
vote of the holders of both classes. Neither proposal was adopted.
Approximately 58% of Preferred Stockholders voted in favor of the proposal
to suspend for a term of years the 20% Provision; approximately 51% voted
in favor of the proposal to eliminate the 20% Provision.
In the present proceeding, CG&E proposes to solicit proxies ("Proxy
Solicitation") from the holders of its outstanding shares of Preferred
Stock of each Series and Common Stock for use at a special meeting of its
stockholders to be held on or about August 29, 1996 ("Special Meeting") to
consider a proposed amendment to the Articles that would eliminate the 20%
Provision ("Proposed Amendment"). Adoption of the Proposed Amendment
requires the affirmative vote at the Special Meeting (in person by ballot
or by proxy) of the holders of not less than two-thirds of the outstanding
shares of each of (1) the Preferred Stock of all Series, voting together as
one class, and (2) the Common Stock. Cinergy has advised CG&E that it will
vote its shares of Common Stock in favor of the Proposed Amendment. CG&E
has engaged MacKenzie Partners, Inc. to act as information agent in
connection with the Proxy Solicitation for a fee plus reimbursement of
reasonable out-of-pocket expenses.
If the Proposed Amendment is adopted, CG&E will make a special cash payment
in the amount of $____ per share (a "Cash Payment") to each Preferred
Stockholder of any series who voted his or her shares of Preferred Stock
(each, a "Share") in favor of the Proposed Amendment (except if such holder
validly tendered any such shares pursuant to the Offer defined below).
CG&E will disburse Cash Payments out of its general funds, promptly after
adoption of the Proposed Amendment.
Concurrently with the Proxy Solicitation, subject to the terms and
conditions stated in the relevant offering documents,/1/ Cinergy proposes
to make an offer ("Offer") to the holders of the Preferred Stock of each
Series to acquire for cash any and all shares of Preferred Stock of each
Series at the following prices (subject to potential increase or decrease
pursuant to the terms of the Offer): 4% Series, at a purchase price of
$_____ per share; 4-3/4% Series, at a purchase price of $_____ per share;
7-3/8% Series, at a purchase price of $_____ per share; 7-7/8% Series, at a
purchase price of $_____ per share, together in each case with an amount in
cash the equivalent of accrued and unpaid dividends to the date of payment
for Shares tendered (each such purchase price and accrued dividend
cash-equivalent amount, collectively, a "Purchase Price"). Cinergy
anticipates that the Offer for each Series will be scheduled to expire at
midnight (New York City time) on the date of the Special Meeting, i.e., on
or about August 29, 1996 ("Expiration Date").
The Offer consists of separate offers for each of the four Series, with the
offer for any one Series being independent of the offer for any other
Series. The Offer is not conditioned upon any minimum number of Shares of
the applicable Series being tendered; subject to the terms of the offering
documents, Cinergy will purchase at the applicable Purchase Price any and
all Shares of any Series that are validly tendered and not withdrawn prior
to the Expiration Date.
To tender Shares in accordance with the terms of the offering documents,
the tendering Preferred Stockholder must either (1) send to The Bank of New
York, in its capacity as depositary for the Offer ("Depositary"), a
properly completed and duly executed Letter of Transmittal or facsimile
thereof for that Series and proxy (if not voting at the Special Meeting in
person by ballot), together with any required signature guarantees and any
other documents required by the Letter of Transmittal, and either (a)
certificates for the Shares to be tendered must be received by the
Depositary at one of its addresses specified in the offering documents, or
(b) such Shares must be delivered pursuant to the procedures for book-entry
transfer described in the offering documents (and a confirmation of such
delivery must be received by the Depositary), in each case by the
Expiration Date; or (2) comply with a guaranteed delivery procedure
specified in the offering documents. Tenders of Shares made pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date.
Thereafter, such tenders are irrevocable, subject to certain exceptions
identified in the offering documents.
Cinergy's obligation to proceed with the Offer and to accept for payment
and to pay for any Shares tendered is subject to various conditions
enumerated in the offering documents, including, with respect to
acquisitions of tendered Shares, receipt of Commission authorization under
the Act. Another condition is that all tendering Preferred Stockholders
must vote in favor of the Proposed Amendment in person by ballot or by
proxy at the Special Meeting.
At any time or from time to time, Cinergy may extend the Expiration Date
applicable to any Series by giving notice of such extension to the
Depositary, without extending the Expiration Date for any other Series.
During any such extension, all Shares of the applicable Series previously
tendered will remain subject to the Offer, and may be withdrawn at any time
prior to the Expiration Date as extended.
Conversely, Cinergy may elect in its sole discretion to terminate the Offer
prior to the scheduled Expiration Date and not accept for payment and pay
for any Shares tendered, subject to applicable provisions of Rule 13e-4
under the Exchange Act requiring Cinergy either to pay the consideration
offered or to return the Shares tendered promptly after the termination or
withdrawal of the Offer, upon the occurrence of any of the conditions to
closing enumerated in the offering documents, by giving notice of such
termination to the Depositary and making a public announcement thereof.
Subject to compliance with applicable law, Cinergy further reserves the
right in the offering documents, in its sole discretion, to amend the Offer
in any respect by making a public announcement thereof. If Cinergy
materially changes the terms of the Offer or the information concerning the
Offer, or if it waives a material condition of the Offer, Cinergy will
extend the Expiration Date to the extent required by the applicable
provisions of Rule 13e-4 under the Exchange Act. Those provisions require
that the minimum period during which an issuer tender offer must remain
open following material changes in the terms of the offer or information
concerning the offer (other than a change in price or change in percentage
of securities sought) will depend on the facts and circumstances, including
the relative materiality of such terms or information. If the Offer is
scheduled to expire at any time earlier than the expiration of a period
ending on the tenth business day from, and including, the date that Cinergy
notifies Preferred Stockholders that it will (a) increase or decrease the
price it will pay for Shares or (b) decrease the percentage of Shares it
seeks, the Expiration Date will be extended until the expiration of such
period of ten business days.
Shares validly tendered to the Depositary pursuant to the Offer and not
withdrawn in accordance with the procedures set forth in the offering
documents will be held by Cinergy until the Expiration Date (or returned in
the event the Offer is terminated). Subject to the terms and conditions of
the Offer, as promptly as practicable after the Expiration Date, Cinergy
will accept for payment (and thereby purchase) and pay for Shares validly
tendered and not withdrawn. Cinergy will pay for Shares that it has
purchased pursuant to the Offer by depositing the applicable Purchase Price
with the Depositary, which will act as agent for the tendering Preferred
Stockholders for the purpose of receiving payment from Cinergy and
transmitting payment to tendering Preferred Stockholders. Cinergy will pay
all stock transfer taxes, if any, payable on account of its acquisition of
Shares pursuant to the Offer, except in certain circumstances where special
payment or delivery procedures are utilized in conformance with the
applicable Letters of Transmittal.
With respect to Shares validly tendered and accepted for payment by
Cinergy, each tendering Preferred Stockholder will be entitled to receive
as consideration from Cinergy only the applicable Purchase Price (which may
reflect a premium over the current market price at the commencement of the
Offer). Any such holder will not be entitled to receive with respect to
such tendered Shares additional consideration in the form of a Cash
Payment.
As noted, subject to the terms and conditions of the Offer, Shares validly
tendered and not withdrawn will be accepted for payment and paid for by
Cinergy as promptly as practicable after the Expiration Date. If the
Proposed Amendment is adopted at the Special Meeting, promptly after
consummation of the Offer Cinergy will make a capital contribution to CG&E
of all Shares tendered to and acquired by Cinergy pursuant to the Offer,
and CG&E will thereupon retire and cancel such Shares.
If the Proposed Amendment is not adopted at the Special Meeting, CG&E
intends as promptly as practicable thereafter to call another special
meeting of its common and preferred stockholders and to solicit proxies
therefrom for the same purpose as in the instant proceeding - i.e., to
secure the requisite two-thirds affirmative vote of stockholders to amend
the Articles to eliminate the 20% Provision. At that meeting, Cinergy
would vote any Shares acquired by it pursuant to the Offer or otherwise/2/
(as well as all of its shares of Common Stock) in favor of the proposed
amendment to eliminate the 20% Provision, thereby maximizing the prospects
for adoption thereof if such special meeting proves necessary./3/ If the
proposed amendment is adopted at that meeting, and in any event within one
year from the Expiration Date (including any potential extension thereto
pursuant to the Offer), Cinergy will promptly after such meeting or at the
expiration of such one-year period, as applicable, make a capital
contribution to CG&E of all Shares held by Cinergy, and CG&E will thereupon
retire and cancel such Shares.
To finance its purchase of any Shares tendered, accepted for payment and
paid for pursuant to the Offer, Cinergy intends to use its general funds
and/or funds borrowed pursuant to an existing credit agreement with a group
of banks (see Rel. No. 35-26488, March 12, 1996).
Smith Barney Inc. and Morgan Stanley & Co. Incorporated will act as dealer
managers for Cinergy in connection with the Offer. Cinergy has agreed to
pay the dealer managers a fee for Shares tendered, accepted for payment and
paid for pursuant to the Offer and to reimburse the dealer managers for
their reasonable out-of-pocket expenses, including attorneys' fees. In
addition, Cinergy has agreed to pay soliciting brokers and dealers a
separate fee for any Shares tendered, accepted for payment and paid for
pursuant to the Offer.
CG&E states that it considers the 20% Provision a significant impediment to
its ability to maintain financial flexibility and minimize its financing
costs, to the detriment of its utility customers and, indirectly, Cinergy's
investors. Applicants assert that the ongoing financing flexibility and
cost benefits to be gained by CG&E as a result of elimination of the 20%
Provision outweigh the one-time cost of the Cash Payments and the other
costs of the Proxy Solicitation. Applicants further represent that the
terms of purchase of Shares pursuant to the Offer will benefit not only
tendering Preferred Stockholders (by affording Preferred Stockholders who
may not favor the elimination of the 20% Provision an option to exit the
Preferred Stock at a premium to the market price and without the usual
transaction costs associated with a sale) but also, taking into account all
related transaction costs, Cinergy's investors and system utility customers
by (1) contributing to the elimination of the 20% Provision and (2)
resulting in the acquisition and retirement of outstanding Shares and their
potential replacement with comparatively less expensive financing
alternatives, such as short-term debt.
As noted, CG&E proposes to submit the Proposed Amendment for consideration
and action at a special meeting of stockholders scheduled to take place on
or about August 29, 1996 and, in connection therewith, to solicit proxies
from the holders of its capital stock. CG&E requests that the
effectiveness of the application-declaration with respect to the
solicitation of proxies for voting by its stockholders on the Proposed
Amendment be permitted to become effective forthwith, pursuant to Rule
62(d).
It appearing to the Commission that the application-declaration regarding
the proposed solicitation of proxies should be permitted to become
effective forthwith, pursuant to Rule 62(d):
IT IS ORDERD, that the application-declaration regarding the proposed
solicitation of proxies be, and it hereby is, permitted to become effective
forthwith pursuant to Rule 62 and subject to the terms and conditions
prescribed in Rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
<PAGE>
ENDNOTES
/1/ The Proxy Solicitation and the Offer will be effected by means of the
same core document - a combined proxy statement and issuer tender offer
statement under the Securities Exchange Act of 1934 ("Exchange Act") and
applicable rules and regulations thereunder.
/2/ Following the Expiration Date and the consummation of the purchase of
Shares pursuant to the Offer, Cinergy may determine to purchase additional
Shares on the open market, in privately negotiated transactions, through
one or more tender offers or otherwise. Cinergy will not undertake any
such transactions without receipt of any required Commission authorizations
under the Act in one or more separate proceedings. Likewise, in the event
such a further special meeting is necessary, CG&E would not undertake any
associated proxy solicitation and proposed Articles amendment prior to
receipt of any required Commission authorizations under the Act in a
separate proceeding.
/3/ By contrast, if CG&E, rather than Cinergy, had acquired Shares pursuant
to the Offer, upon acquisition thereof by CG&E any such Shares would be
deemed treasury shares under Ohio law and, as such, CG&E would be precluded
from voting those Shares under any circumstances.
