EXHIBIT B-1
MONONGAHELA POWER COMPANY
PROXY STATEMENT
WITH RESPECT TO ITS CUMULATIVE PREFERRED STOCK
INTRODUCTION
This Proxy Statement is first being mailed on or about July __, 2000,
to the cumulative preferred shareholders of Monongahela Power Company, an Ohio
corporation (the "Corporation"), in connection with the solicitation of proxies
by the Board of Directors (the "Board") of the Corporation for use at a special
meeting of the holders of cumulative preferred shares to be held at 10435
Downsville Pike, Hagerstown, Maryland 21740, on August __, 2000, at 10:00 a.m.,
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 the Corporation's Articles of Incorporation (the "Articles")
which would remove from the Articles a provision that limits the Corporation's
ability to issue or assume unsecured debt (the "Unsecured Debt Limitation"). The
Corporation's Board of Directors believes that removal of the Unsecured Debt
Limitation will provide the Corporation with flexibility in planning and
financing its business activities.
If the Proposed Amendment is adopted, the Corporation will make a
special cash payment in the amount of $1.00 per share to each holder of record
who voted in favor of the Proposal (the "Cash Payment").
Shareholders are requested to return their proxies by August __, 2000.
YOUR VOTE AND PROMPT ACTION ARE IMPORTANT. YOU ARE URGED TO VOTE BY
MARKING, SIGNING, DATING AND RETURNING THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE.
VOTING PROCEDURES
RECORD DATE, VOTING SECURITIES, REQUIRED VOTE
Only holders of record of the Corporation's outstanding cumulative
preferred stock at the close of business on July __, 2000 (the "Record Date"),
(or their legal representatives or attorneys-in-fact) will be entitled to vote
in person or by proxy at the Special Meeting and to receive the Cash Payment
from the Corporation. Any beneficial holder of cumulative preferred stock who is
not the registered holder of such stock as of the Record Date (as would be the
case for any beneficial holder whose shares are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee) must
arrange with the holder of record on the Record Date to execute and deliver a
proxy form on such beneficial owner's behalf.
The Corporation's authorized voting securities consist of common stock
and cumulative preferred stock. The Corporation has five series of cumulative
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preferred stock outstanding and the record holders of all shares of all such
series will vote together as one class with respect to the Proposed Amendment.
Each share of stock has one vote per share. The shares outstanding as of the
Record Date are as follows:
CLASS SHARES OUTSTANDING
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Common stock, par value $50 per share .................................5,891,000
Total voting as a single class....................................5,891,000
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Cumulative preferred stock, par value $100 per share
Series / CUSIP number
4.40% Series / 610202202......................................... 90,000
4.80% Series B / 610202301....................................... 40,000
4.50% Series C / 610202400....................................... 60,000
6.28% Series D / 610202509....................................... 50,000
7.73% Series L / 610202848....................................... 500,000
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Total voting as a single class .................................. 740,000
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The affirmative vote of at least two-thirds of the outstanding shares
of the Corporation's cumulative preferred stock, voting together as one class,
together with the affirmative vote of a majority of the Corporation's
outstanding common stock is required to approve the Proposed Amendment.
Allegheny Energy, Inc. ("AE Inc."), the holder of all of the Corporation's
5,891,000 outstanding shares of common stock, has advised the Corporation that
it intends to vote all of the outstanding shares of common stock of the
Corporation in favor of the Proposed Amendment.
PROXIES
THE ENCLOSED PROXY IS SOLICITED BY THE CORPORATION'S BOARD, WHICH
RECOMMENDS VOTING FOR THE PROPOSED AMENDMENT. ALL SHARES OF THE CORPORATION'S
COMMON STOCK WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT. Shares of
cumulative preferred stock represented by properly executed proxies will be
voted in accordance with the instructions thereon. If returned proxy cards are
executed and dated but not marked with respect to the Proposed Amendment, the
shares 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. The enclosed proxy, however, gives 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 in accordance with
their best judgment.
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Because the Proposed Amendment will be adopted only if affirmative
votes are cast at the Special Meeting by holders of record on the Record Date of
two-thirds of the votes entitled to be cast by the cumulative preferred stock,
the following actions will have the same effect as voting against the Proposal:
(a) failing to execute, date and return a proxy card or (b) executing, dating
and returning a proxy marked "AGAINST" or "ABSTAINS" as to the Proposed
Amendment.
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 by delivering to Marleen L. Brooks, Corporate Secretary,
Monongahela Power Company, 10435 Downsville Pike, Hagerstown, MD 21740-1766,
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.
CASH PAYMENTS
Subject to the terms and conditions set forth in this Proxy Statement,
if (but only if) the Proposed Amendment is approved and adopted by the
shareholders of the Corporation, the Corporation will make the applicable Cash
Payment to each cumulative preferred shareholder on the Record Date who voted in
favor of the Proposed Amendment. If a shareholder votes against the Proposed
Amendment or abstains, such shareholder shall not be entitled to the Cash
Payment (regardless of whether the Proposed Amendment is adopted). If the
Proposed Amendment is adopted, Cash Payments will be paid out of the
Corporation's general funds promptly after the Proposed Amendment is approved.
However, no accrued interest will be paid on the Cash Payments regardless of any
delay in making payments.
Only cumulative preferred shareholders on the Record Date (or their
legal representatives or attorneys-in-fact) are entitled to receive Cash
Payments. Any beneficial owner of shares who is not the registered holder of
such shares as of the Record Date must arrange with the record holder to receive
his proportionate interest in the Cash Payments made to such record holder. The
Corporation will have no responsibility or liability for any aspect of the
records relating to or payments made on account of any beneficial owner's
interest in the Cash Payment made to a record holder of cumulative preferred
stock.
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DESCRIPTION OF THE PROPOSED AMENDMENT
The Proposed Amendment, if adopted, would eliminate a section of the
Corporation's Articles which restricts the ability of the Corporation to incur
certain unsecured indebtedness.
Specifically, paragraph (a) of subdivision (11) of section 1.5 of the
Articles provides that the consent of the holders of at least a majority of the
cumulative preferred stock at the time outstanding is necessary for effecting or
validating:
"[t]he issue of any unsecured notes, debentures or other
securities representing unsecured indebtedness, or the assumption of
any such unsecured securities, for a purpose other than the refunding
or renewing of outstanding unsecured securities theretofore issued or
assumed by the Corporation resulting in equal or longer maturities or
the redemption or other retirement of all outstanding shares of
Cumulative Preferred Stock, if, immediately after such issuance or
assumption, (i) the total principal amount of all unsecured notes,
debentures or other securities representing unsecured indebtedness
issued or assumed by the Corporation and then outstanding would
thereby exceed twenty percent (20%) of the aggregate of (x) the total
principal amount of all bonds or other securities representing secured
indebtedness issued or assumed by the Corporation and then outstanding
and (y) the capital stock, premiums thereon and surplus of the
Corporation as then stated on the books of account of the Corporation,
or (ii) the total principal amount of all unsecured notes, debentures
or other securities representing unsecured indebtedness issued or
assumed by the Corporation and then outstanding having maturities of
less than ten years would thereby exceed ten percent (10%) of such
aggregate. Payment due upon the maturity of unsecured debt having an
original single maturity in excess of ten years or the payment due
upon the final maturity of any unsecured serial debt which had
original maturities in excess of ten years shall not be regarded for
purposes of clause (ii) of this Paragraph (a) as unsecured debt of a
maturity of less than ten years until such payment is required to be
made within three years."
The Proposed Amendment would delete paragraph (a) of subdivision (11)
of section 1.5 and thereby enable the Corporation to incur unsecured
indebtedness without a shareholder vote.
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REASONS FOR THE PROPOSAL
GENERAL
Regulatory, legislative, technological and market developments are
leading to a more competitive environment in the electric utility industry,
including in the markets served by the Corporation. Starting on January 1, 2001,
all customers in Ohio will be able to choose their electricity supplier. This
marks the beginning of a five-year transition to market rates. Similarly, in
March 2000, the West Virginia legislature approved a plan that will allow
competition among electric suppliers, although the implementation of the plan is
subject to further action by the legislature.
As competition intensifies, flexibility and cost reduction will be even
more crucial to success. Because the electric utility industry is extremely
capital intensive, control and minimization of financing costs are of particular
importance. In response to the competitive forces and regulatory changes faced
by the Corporation, the Corporation has from time to time considered, and
expects to continue to consider, various strategies designed to enhance its
competitive position and to increase its ability to adapt to and anticipate
changes in its utility business.
The Corporation believes that adoption of the Proposed Amendment to
eliminate the Unsecured Debt Limitation is key to meeting the objectives of
flexibility and capital cost reduction. Historically, the Corporation's debt
financing generally has been accomplished through the issuance of long-term
first mortgage bonds, a modest amount of unsecured or short-term debt and
long-term pollution control bonds. First mortgage bonds represent secured
indebtedness because they place a first priority lien on substantially all of
the Corporation's assets. The Corporation's indenture with respect to its first
mortgage bonds contains certain restrictive covenants with respect to, among
other things, the disposition of assets and the ability to issue additional
first mortgage bonds. Pollution control bonds also represent secured debt, and
are available only for very limited purposes. In contrast, unsecured debt
financing (including short-term debt, which often is the lowest-cost form of
debt available to the Corporation) generally imposes fewer restrictions on the
Corporation than first mortgage bonds and is much more widely available than
pollution control bonds.
Inasmuch as the Unsecured Debt Limitation contained in the Articles
limits the Corporation's flexibility in planning and financing its business
activities, the Corporation believes it ultimately will be placed at a
competitive disadvantage if the Unsecured Debt Limitation is not eliminated. The
industry's new competitors generally are not subject to the type of financing
restrictions the Articles impose on the Corporation. In addition, some potential
utility competitors have no comparable provision in their charters restricting
the issuance of unsecured debt. In recent years, several other utilities with
the same or similar charter restrictions
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have successfully eliminated such provisions by soliciting their shareholders to
approve similar amendments to their charters.
Although the Corporation sells relatively low-cost power, it must
continue to explore new ways of reducing costs and enhancing operating and
financing flexibility. The Corporation believes that the adoption of the
Proposed Amendment will be in its competitive interest and in the best long-term
interests of its shareholders.
FINANCIAL FLEXIBILITY
If the Proposed Amendment is adopted, the Corporation will have
increased flexibility (a) to choose among different types of debt financing and
(b) to finance projects using the most cost-effective means. The Corporation
believes that various financing alternatives using unsecured debt will increase
in importance as an option in financing its construction program and refinancing
its first mortgage bonds. The Corporation also believes that flexibility in the
use of unsecured debt, including short-term debt, is necessary for it to take
full advantage of changing conditions in the securities markets. If the Proposed
Amendment is adopted, the Corporation may increase the amount of unsecured debt
to more than 20% of its total capitalization.
In addition, although the Corporation'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 is no
guarantee that this will be true in the future. Other utilities have been unable
to issue first mortgage bonds during certain periods because of restrictive
covenants in their mortgages. If the Corporation were unable to issue first
mortgage bonds or preferred stock in the future, and unable to issue additional
unsecured debt as a result of the Unsecured Debt Limitation, the Corporation's
financing options would be limited to more costly alternatives.
The Corporation believes that the prudent use of unsecured debt in
excess of the Unsecured Debt Limitation is vital to the effective financial
management of its business. Not only is unsecured short-term debt generally one
of the least expensive forms of capital, it also provides flexibility in meeting
seasonal and business cycle 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.
The Proposed Amendment will not necessarily increase the amount of debt
incurred by the Corporation, but will allow the Corporation to change its mix of
debt types. The actual amount of debt incurred by the Corporation is and will
remain a function of many factors, including rating agency considerations, cash
flow expectations and interest market conditions. If the Proposed Amendment is
adopted, the Corporation anticipates that it will change its mix of debt
securities toward more issuances on an unsecured basis to cover its capital
needs and to
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fund future maturities as needed. As a regulated utility, the Corporation's
capital structure will continue to be subject to the approval of the Public
Utilities Commission of Ohio and the SEC under the 1935 Act.
LOWER FINANCING COSTS
As mentioned above, the Corporation's short-term debt issuances
generally represent one of its lowest-cost forms of financing. The Corporation
is reassessing its historically modest use of short-term debt. By increasing its
use of short-term debt, the Corporation may be able to lower its cost structure,
thereby making its products more competitive and reducing its business risks.
With the Unsecured Debt Limitation in place, however, the availability and
corresponding benefits of short-term debt are restricted. Although short-term
debt may expose the borrower to more volatility in interest rates, the
Corporation believes that the cost of short-term debt seldom exceeds the cost of
other forms of capital available at the same time.
FOR THE ABOVE REASONS, THE CORPORATION'S BOARD BELIEVES THAT THE BEST
LONG-TERM INTERESTS OF SHAREHOLDERS ARE SERVED BY, AND ENCOURAGES SHAREHOLDERS
TO VOTE FOR, THE ADOPTION OF THE PROPOSAL.
CERTAIN EFFECTS OF THE PROPOSAL
If the Proposed Amendment is adopted at the Special Meeting, the
Unsecured Debt Limitation will no longer be in effect. As discussed above, the
Unsecured Debt Limitation provision places restrictions on the Corporation's
ability to issue or assume unsecured indebtedness. Both secured and unsecured
indebtedness rank prior to the cumulative preferred stock. Accordingly, if the
Corporation actually incurs a greater amount of total indebtedness, and such
indebtedness increases the credit risks of the Corporation, the market price and
credit rating of the cumulative preferred stock could decline.
RATING AGENCIES
As of the date of this Proxy Statement, each series of cumulative
preferred stock was rated "a2" by Moody's Investors Service, Inc., "A-" by
Standard & Poor's Rating Services, a division of McGraw-Hill Companies, Inc.,
and "A+" by Fitch IBCA, Inc. (collectively the "Rating Agencies"). The Rating
Agencies have informed the Corporation that the adoption of the Proposed
Amendment, in and of itself, will not result in a reduction of the cumulative
preferred stock's current ratings.
Ratings are not recommendations to purchase, hold or sell shares of the
preferred stock inasmuch as the ratings do not comment as to market price or
suitability for a particular investor. The ratings are based on current
information
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furnished to the Rating Agencies by the Corporation and obtained from other
sources. The ratings may be changed, suspended or withdrawn as a result of
changes in, or the unavailability of, such information.
FINANCIAL AND OTHER INFORMATION RELATING TO THE CORPORATION
The financial statements of the Corporation and related information
included in its Annual Report on Form 10-K for the year ended December 31, 1999
and its Quarterly Report on Form 10-Q for the three months ended March 31, 2000,
each as filed with the SEC, are incorporated herein by reference. The
Corporation will provide without charge, upon the written or oral request of any
person (including any beneficial owner) to whom this Proxy Statement is
delivered, a copy of such information (excluding certain exhibits). Such
requests for information should be directed to Marleen L. Brooks, Corporate
Secretary, 10435 Downsville Pike, Hagerstown, MD 21740-1766, telephone (301)
665-2704.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the material United States federal income tax
considerations of a Cash Payment to United States holders. A United States
holder is the beneficial owner of cumulative preferred stock who, or that, is
(i) a citizen or resident of the United States, (ii) a corporation organized
under the laws of the United States or any state thereof, (iii) an estate whose
income is subject to United States federal income tax regardless of its source,
or (iv) a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are authorized
to control all substantial decisions of the trust.
It is unclear whether, for U.S. federal income tax purposes, the Cash
Payment is properly treated as miscellaneous ordinary income or a dividend (to
the extent paid out of the Corporation's current or accumulated earnings and
profits). As miscellaneous ordinary income, the Cash Payment would be includable
in income by United States holders using the cash receipts and disbursements
method of accounting at the time of receipt and by United States holders using
an accrual method of accounting at the time the holders' right to receive the
Cash Payment became fixed.
On the other hand, if the Cash Payment were properly treated as a
dividend paid out of the Corporation's current and accumulated earnings and
profits, United States holders that are corporations would, subject to
applicable limitations, be entitled to a dividend received deduction. To the
extent the Cash Payment exceeded the Corporation's current and accumulated
earnings and profits, the Cash Payment would be treated as a non-taxable return
of capital to the extent of the holder's basis in the Preferred Stock and
thereafter as capital gain. Additionally, all holders would include the Cash
Payment in income at the time it was received.
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The Corporation will, for information reporting purposes, treat the
Cash Payments as ordinary non-dividend income to recipient United States
holders, but this treatment is not binding on the holders or the Internal
Revenue Service. Preferred shareholders should consult their own tax advisors in
light of their particular circumstances as to the application of United States
federal income tax laws to the receipt of the Cash Payment, as well as the
effect of any state or local tax laws.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Cash Payment to non-exempt U.S. holders may be subject to information
reporting, and a backup withholding of 31% may apply unless the holder furnishes
a correct tax identification number and certifies that he is not subject to
backup withholding
DISSENTERS' RIGHTS
Section 1701.74 of the Ohio Revised Code provides that if you are a
shareholder of an Ohio corporation you are entitled to dissent from, and obtain
payment for your shares in the event of, among other things, an amendment to the
Corporation's Articles that (i) changes any of the express terms of issued
shares of a particular class that has preference in dividends or distributions
or on liquidation over shares of any other class, and (ii) the holders of the
shares of such particular class are substantially prejudiced thereby, and (iii)
the articles do not expressly or by implication provide for or permit such
amendment. As described herein, the Proposed Amendment would amend the Articles
to remove a covenant which provides that the issuance or assumption of unsecured
indebtedness for certain purposes above a certain threshold requires the consent
of the holders of at least a majority of the outstanding shares of cumulative
preferred stock. To the extent that the Proposed Amendment is deemed to change
an express term of the cumulative preferred stock, whose holders are
"substantially prejudiced" thereby, and the present Articles of the Corporation
do not expressly or by implication provide for such an amendment, if you are a
holder of the cumulative preferred stock you would have the right to dissent
from the Proposed Amendment and obtain payment of the fair cash value of your
cumulative preferred shares.
A shareholder will be entitled to this relief, however, only if the
shareholder complies strictly with all of the procedural and other requirements
of Ohio Revised Code Section 1701.85. The following summary is not a complete
statement of the method of compliance with Section 1701.85 and is qualified in
its entirety by reference to the copy of Section 1701.85 attached to this
document as Annex A.
A shareholder who wishes to perfect rights as a dissenting shareholder
in the event the Proposed Amendment is adopted:
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o must have been a record holder of the Corporation's cumulative
preferred stock as to which that shareholder seeks relief on the
Record Date for the Special Meeting;
o must not have voted the shareholder's shares of cumulative preferred
stock in favor of the adoption of the Proposed Amendment; and
o must deliver to the Corporation, not later than ten days after the
Special Meeting, a written demand for payment of the fair cash value
of the shares of the Corporation's cumulative preferred stock as to
which that shareholder seeks relief. The written demand must state the
shareholder's name, address, number of shares of the Corporation's
cumulative preferred stock as to which that shareholder seeks relief
and the amount claimed as the fair cash value of those shares of
stock.
A vote against the adoption of the Proposed Amendment will not satisfy
the requirement of a written demand for payment. Any written demand for payment
should be mailed or delivered to:
Monongahela Power Company
10435 Downsville Pike
Hagerstown, MD 21740-1766
Attn: Marleen L. Brooks
Because the written demand must be delivered to the Corporation within
the ten-day period following the Special Meeting, it is recommended, although
not required, that a shareholder using the mails should use certified or
registered mail, return receipt requested, to confirm that the shareholder has
made a timely delivery.
If the Corporation sends the dissenting shareholder, at the address
specified in the demand, a request for the certificate(s) representing the
shareholder's shares, the dissenting shareholder must deliver the certificate(s)
to the Corporation within 15 days of the sending of the Corporation's request.
The Corporation may endorse the certificate(s) with a legend to the effect that
the shareholder has demanded fair cash value of the shares represented by the
certificate(s). Failure to deliver the certificate(s) within 15 days of the
request terminates the shareholder's rights as a dissenting shareholder. The
Corporation must notify the shareholder of its election to terminate the
shareholder's rights as a dissenting shareholder within 20 days after the lapse
of the 15 day period.
Unless the dissenting shareholder and the Corporation agree on the fair
cash value per share of the Corporation's cumulative preferred stock, the
shareholder must, within three months after the service of the written demand by
the shareholder, file a petition in the Court of Common Pleas of Washington
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County, Ohio. If the court finds that the shareholder is entitled to be paid the
fair cash value of the Corporation's cumulative preferred stock, the court may
appoint one or more appraisers to receive evidence and to recommend a decision
on the amount of the fair cash value. Fair cash value:
o will be determined as of the day prior to the Special Meeting;
o will be the amount a willing seller and willing buyer would accept or
pay with neither being under compulsion to sell or buy;
o will not exceed the amount specified in the shareholder's written
demand; and
o will exclude any appreciation or depreciation in market value
resulting from the Proposed Amendment.
The court will make a finding as to the fair cash value of a share of
the Corporation's cumulative preferred stock and render judgment against the
Corporation for its payment with interest at a rate and from a date the court
considers equitable. The costs of proceedings shall be assessed or apportioned
as the court considers equitable.
The rights of any dissenting shareholder will terminate if:
o the dissenting shareholder has not complied with Section 1701.85
unless the Corporation, by its Board of Directors, waives the failure;
o the Corporation abandons or is finally enjoined or prevented from
carrying out, or the shareholders of the Corporation rescind their
adoption of, the Proposed Amendment.
o the dissenting shareholder withdraws his or her written demand, with
the consent of the Corporation, by its Board of Directors; or
o the corporation and the dissenting shareholder have not agreed upon
the fair cash value per share of the Corporation's cumulative
preferred stock and neither has timely filed or joined in a petition
in an appropriate court for a determination of the fair cash value of
the Corporation's cumulative preferred stock.
Because any proxy card received by the Corporation that does not
contain voting instructions will be voted for adoption of the Proposed
Amendment, a shareholder who wishes to exercise dissenters' rights must either:
o not sign and return his or her proxy card; or
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o if the shareholder signs and returns the shareholder's proxy card,
check the appropriate box on the proxy card to either vote against or
to abstain from voting on the adoption of the Proposed Amendment.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As noted above, AE Inc. owns all of the outstanding common stock of the
Corporation.
Pursuant to Section 13(d) of the Securities Exchange Act of 1934, as
amended, a beneficial owner of a security is any person who directly or
indirectly has or shares voting or investment power over such security.
To the knowledge of the Corporation, as of July __, 2000, there is no
person who is a beneficial owner of more than 5% of the cumulative preferred
shares of the Corporation other than the shareholders shown in the chart below.
Shares of Cumulative Percent of Outstanding
Name Preferred Stock Cumulative Preferred Stock
---- --------------- --------------------------
John Hancock Advisers 124,000 16.76
101 Huntington Avenue
Boston, MA 02199
CGU Insurance 77,638 10.49
One Beacon Street
Boston, MA 02108
Associates Corp. of 67,000 9.05
North America
250 East Carpenter Freeway
Irving, TX 75062
American States Insurance Co. 41,000 5.54
500 North Meridian Street
Indianapolis, IN 46204
Flaherty & Crumrine, Inc. 39,357 5.32
301 East Colorado Boulevard
Pasadena, CA 91101
SOLICITATION OF PROXIES
Proxies will be solicited by mail, telephone, telegraph, telex,
telecopier and in person. Solicitation may be made by directors, officers,
investor relations
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personnel and other regular employees of the Corporation. Such persons will
receive no additional compensation for such solicitation.
The Corporation has retained Georgeson Shareholder Securities Corp.
("Georgeson") to assist in connection with this proxy solicitation for which
Georgeson will be paid a reasonable and customary fee and will be reimbursed for
reasonable out-of-pocket expenses. The Corporation will indemnify Georgeson
against certain liabilities and expenses in connection with the proxy
solicitation, including liabilities under the federal securities laws.
The Corporation has requested that brokerage houses and other
custodians, nominees and fiduciaries forward solicitation materials to the
beneficial owners of shares of the Corporation'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 expenses related directly to the proxy solicitation will be borne
by the Corporation.
YOUR VOTE AND PROMPT ACTION ARE IMPORTANT. YOU ARE URGED TO VOTE BY
MARKING, SIGNING, DATING AND RETURNING THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE.
DELIVERY OF PROXIES
Properly executed proxies should be mailed or delivered to Georgeson at
the address set forth below as soon as possible. If you have any questions
concerning this proxy solicitation or the procedures to be followed to execute
and deliver a proxy or need additional copies of documents, please contact
Georgeson at:
[Georgeson logo]
17 State Street, 10th Floor
New York, NY 10004
Banks and brokers call collect: (212) 440-9800
All others call toll free: (800) 223-2064.
By Order of the Board of Directors
Marleen L. Brooks
Secretary
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ANNEX A
SECTION 1701.85 OF THE OHIO REVISED CODE - QUALIFICATIONS OF AND PROCEDURES FOR
DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of section
1701.84 of the Revised Code in the case of a merger pursuant to section 1701.80
of the Revised Code and a dissenting shareholder entitled to relief under
division (E) of section 1701.84 of the Revised Code in the case of a merger
pursuant to section 1701.801 of the Revised Code shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date on which
the agreement of merger was adopted by the directors of that corporation. Within
twenty days after he has been sent the notice provided in section 1701.80 or
1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the constituent
corporation involved constitutes service on the surviving or the new entity,
whether the demand is served before, on, or after the effective date of the
merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the
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corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the
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corporation for the payment of it, with interest at such rate and from such date
as the court considers equitable. The costs of the proceeding, including
reasonable compensation to the appraisers to be fixed by the court, shall be
assessed or apportioned as the court considers equitable. The proceeding is a
special proceeding and final orders in it may be vacated, modified, or reversed
on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such fair
cash value and to sell such shares as to which he seeks relief, and the right
and obligation of the corporation to purchase such shares and to pay the fair
cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
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(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of the
corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an agreement
as to the fair cash value per share, and neither the shareholder nor the
corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon shares
of such class or any dividend, distribution, or interest is paid in money upon
any securities issued in extinguishment of or in substitution for such shares,
an amount equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the corporation, all rights of the holder shall be restored and
all distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
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