<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PEOPLES ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PEOPLES ENERGY CORPORATION 122 South Michigan
Avenue - Chicago, Illinois 60603
RICHARD E. TERRY
Chairman of the Board
January 3, 1995
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Peoples Energy Corporation, to be held on Friday,
February 24, 1995. The meeting will begin at 11:00 a.m. in the
Arthur Rubloff Auditorium of The Art Institute of Chicago, located
on Columbus Drive, between Monroe Street and Jackson Boulevard, in
Chicago, Illinois.
It is important that your shares be represented at this
meeting. Therefore, whether or not you plan to attend, please sign
the enclosed proxy and return it promptly in the envelope
provided. If you attend the meeting, you may, at your discretion,
withdraw your proxy and vote in person.
If you plan to attend the meeting, please save the admission
ticket that is attached to your proxy and present it at the door.
In accordance with our regular practice, a summary of the
proceedings will be sent to all shareholders after the meeting.
Let me again urge you to return your proxy at your earliest
convenience.
Sincerely,
[SIGNATURE]
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 24, 1995
The regular Annual Meeting of Shareholders of PEOPLES ENERGY CORPORATION
will be held in the Arthur Rubloff Auditorium of The Art Institute of Chicago,
located on Columbus Drive, between Monroe Street and Jackson Boulevard, in
Chicago, Illinois, at 11:00 a.m., on Friday, February 24, 1995, for the
following purposes:
1. To elect directors of Peoples Energy Corporation.
2. To approve amendments to the Long-Term Incentive Compensation Plan.
3. To approve amendments to the Articles of Incorporation of Peoples Energy
Corporation.
4. To ratify the appointment of independent public accountants.
5. To act upon such other matters as may properly come before the meeting.
All shareholders, whether or not they expect to be present at the meeting,
are requested to sign, date, and mail the accompanying proxy in the envelope
enclosed with this Notice. Shareholders who are present at the meeting may
withdraw their proxies and vote in person.
If you plan to attend the meeting, please save the admission ticket that is
attached to your proxy and present it at the door. Attendance at the meeting
will be limited to shareholders of record as of the record date and their guests
or their authorized representatives, not to exceed two per shareholder, and to
guests of the Company.
Shareholders of record as of December 26, 1994, will be entitled to vote at
the meeting and at any adjournment thereof.
EMMET P. CASSIDY
Secretary
Chicago, Illinois
January 3, 1995
<PAGE>
PEOPLES ENERGY CORPORATION 122 South Michigan Avenue Chicago, Illinois 60603
RICHARD E. TERRY
Chairman of the Board
January 3, 1995
PROXY STATEMENT
This Proxy Statement is being mailed to shareholders on or about January 3,
1995, in connection with the solicitation of proxies on behalf of the Board of
Directors of Peoples Energy Corporation (the Company), to be voted at the Annual
Meeting of Shareholders of the Company. The meeting will be held at 11:00 a.m.
on Friday, February 24, 1995, in the Arthur Rubloff Auditorium of The Art
Institute of Chicago, located on Columbus Drive, between Monroe Street and
Jackson Boulevard, in Chicago, Illinois. The shares represented by the proxies
received are to be voted in accordance with the specifications contained in the
proxy. Proxies are revocable at any time prior to use.
The Company has borne the cost of preparing, assembling, and mailing this
proxy soliciting material. In addition to solicitation by mail, there may be
incidental personal solicitations made by directors, officers, and regular
employees of the Company. The cost of solicitation, including payments to
brokers, nominees, or fiduciaries who mail such material to their clients, will
be borne by the Company.
The Company has retained Corporate Investor Communications, Inc., 111
Commerce Road, Carlstadt, New Jersey, to assist with the solicitation of proxies
from certain shareholders, for which services Corporate Investor Communications
will receive a fee that is expected to be about $6,500, plus reimbursement for
certain expenses.
OUTSTANDING VOTING SECURITIES
Only holders of common shares of record as of December 26, 1994, are
entitled to vote at the meeting or any adjournment thereof. As of December 26,
1994, there were outstanding 34,898,353 shares of common stock of the Company.
The Annual Report of the Company for the fiscal year ended September 30,
1994, including financial statements, is being mailed on or about January 3,
1995, together with this Proxy Statement, to all shareholders of record as of
December 26, 1994.
CUMULATIVE VOTING RIGHTS
In the election of directors, shareholders have cumulative voting rights.
Cumulative voting rights consist of the right to vote, in person or by proxy,
the number of shares owned by the shareholder, for as many persons as there are
directors to be elected, or to cumulate said shares and give one candidate as
many votes as the number of directors multiplied by the number of his or her
shares shall equal, or to distribute such number of votes among the candidates
as he or she shall think fit.
ITEM 1. ELECTION OF DIRECTORS
All directors are to hold office for a term of one year or until their
respective successors shall be duly elected. Unless otherwise specified, votes
represented by the proxies will be cast equally for the election of the below-
named nominees to the office of director; however, the votes may be cast
cumulatively for less than the entire number of nominees if any situation arises
that, in the opinion of the proxy holders, makes such action necessary or
desirable. If any of the nominees should be unable to serve or will not serve,
which is not anticipated, management reserves discretionary authority to vote
for a substitute.
1
<PAGE>
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<C> <S>
PASTORA SAN JUAN CAFFERTY, 54. Director since 1988. Professor, since 1985, at
the University of Chicago, Chicago, Illinois, where she has been on the faculty
[PHOTO] since 1971. Mrs. Cafferty is also a director of Kimberly-Clark Corporation and
WMX, Inc.
FRANKLIN A. COLE, 68. Director since 1990. Chairman of the Board, since 1984, of
Croesus Corporation, Chicago, Illinois, a private investment, management and
[PHOTO] advisory company. Prior to that, Mr. Cole was Chairman of the Board and Chief
Executive Officer (1971-1984) of Walter E. Heller International Corporation. Mr.
Cole is also a director of American National Bank and Trust Company of Chicago,
American National Corporation, GATX Corporation, AON Corporation, CNA Investment
Shares, Inc., and Duff & Phelps Utility Income, Inc.
J. BRUCE HASCH, 56. Director since 1987. President and Chief Operating Officer
(1990) of the Company. Mr. Hasch is also President, Chief Operating Officer
[PHOTO] (1990), and a Director (1986) of The Peoples Gas Light and Coke Company and
North Shore Gas Company, subsidiaries of the Company engaged primarily in the
purchase, production, storage, distribution, sale, and transportation of natural
gas. Prior to becoming President, Mr. Hasch was Executive Vice President
(1985-1990) of the Company and its subsidiaries and Vice President (1981-1985)
of both subsidiary companies. Mr. Hasch has been an employee of the Company
and/or its subsidiaries since 1960, including 16 years with Natural Gas Pipeline
Company of America, a former subsidiary.
FREDERICK C. LANGENBERG, 67. Director since 1985. Chairman of the Board (1991),
until his retirement in April 1991, of The Interlake Corporation, Lisle,
[PHOTO] Illinois, a diversified manufacturer of metals and materials handling products.
Prior to that, Mr. Langenberg was Chairman of the Board and Chief Executive
Officer (1983-1991) of Interlake. Mr. Langenberg is also a director of The
Interlake Corporation, Carpenter Technology Corporation, Dietrich Industries and
a Trustee of Piedmont College.
</TABLE>
2
<PAGE>
<TABLE>
<C> <S>
HOMER J. LIVINGSTON, JR., 59. Director since 1989. President and Chief Executive
Officer, since 1993, of the Chicago Stock Exchange, Chicago, Illinois, a stock
[PHOTO] exchange. Prior to that, Mr. Livingston was Chairman of the Board and Chief
Executive Officer (1988-1992) of H. Livingston & Company, L.P. Mr. Livingston is
also a director of American National Can Corp.
WILLIAM G. MITCHELL, 63. Director since 1982. Vice Chairman (1986) and Director
(1977), until his retirement in May 1987, of Centel Corporation, Chicago,
[PHOTO] Illinois, a telephone utility and business-related communications firm. Prior to
becoming Vice Chairman, Mr. Mitchell was President (1977-1986) of Centel. Mr.
Mitchell is also a director of The Sherwin-Williams Company, The Northern Trust
Corporation, The Northern Trust Company, and The Interlake Corporation.
EARL L. NEAL, 66. Director since 1985. Principal, since 1955, of Earl L. Neal &
Associates, Chicago, Illinois, a private law firm. During 1983, Mr. Neal was the
[PHOTO] Chairman of the Board of First Federal Savings and Loan Association of Chicago,
Chicago, Illinois. Mr. Neal is also a director of Chicago Title and Trust
Company, Chicago Title Insurance Company, Lincoln National Corporation, First
Chicago Corporation, and The First National Bank of Chicago.
MICHAEL S. REEVES, 59. Director since 1991. Executive Vice President (1987) of
the Company. Mr. Reeves is also Executive Vice President (1987) and Director
[PHOTO] (1988) of The Peoples Gas Light and Coke Company and North Shore Gas Company,
subsidiaries of the Company engaged primarily in the purchase, production,
storage, distribution, sale, and transportation of natural gas. Prior to
becoming Executive Vice President, Mr. Reeves was Vice President (1977-1987) of
both subsidiary companies. Mr. Reeves has been an employee of the Company and/or
its subsidiaries since 1956.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
RICHARD E. TERRY, 57. Director since 1984. Chairman of the Board and Chief
Executive Officer (1990) of the Company. Mr. Terry is also Chairman of the
[PHOTO] Board, Chief Executive Officer (1990), and a Director (1982) of The Peoples Gas
Light and Coke Company and North Shore Gas Company, subsidiaries of the Company
engaged primarily in the purchase, production, storage, distribution, sale, and
transportation of natural gas. Prior to becoming Chairman, Mr. Terry was
President and Chief Operating Officer (1987-1990), Executive Vice President
(1984-1987), and Vice President and General Counsel (1981-1984) of the Company
and its subsidiaries. Mr. Terry has been an employee of the Company and/or its
subsidiaries since 1972. Mr. Terry is also a director of Harris Bankcorp, Inc.,
Harris Trust and Savings Bank, and Amsted Industries.
RICHARD P. TOFT, 58. Director since 1988. Chairman of the Board, President and
Chief Executive Officer (1994) of Chicago Title and Trust Company, Chicago,
[PHOTO] Illinois, a trust, investment management, and title insurance company. Prior to
becoming Chairman, Mr. Toft was President and Chief Executive Officer of Chicago
Title and Trust Company (1982-1994). Mr. Toft is also Senior Vice President
(1990) of Alleghany Corporation, New York, New York, parent firm of Chicago
Title and Trust Company. Mr. Toft is also a director of Chicago Title Insurance
Company, Underwriters Reinsurance Company, and The Cologne Life Reinsurance
Company.
ARTHUR R. VELASQUEZ, 56. Director since 1985. President and Chief Executive
Officer, since 1989, of Azteca Foods, Inc., Chicago, Illinois, a Mexican food
[PHOTO] products company. Prior to that, Mr. Velasquez was President and Chief Executive
Officer (1971-1987) of Azteca Corn Products Corporation. Mr. Velasquez is also
President of CID Broadcasting, Inc. (1980) and President of Crescent
Communications of California, Inc. (1993). Mr. Velasquez is also a director of
Arvin Industries, LaSalle National Corporation, and LaSalle National Bank.
</TABLE>
4
<PAGE>
MEETINGS AND FEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during fiscal 1994. All incumbent
directors attended 75% or more of the aggregate number of meetings of the Board
and of those committees on which such directors served.
Directors who are not employees receive an annual retainer of $19,000 and a
meeting fee of $850 for each Board and each committee meeting attended, other
than meetings of the Outside Directors Committee. In addition, any non-employee
director who serves as chairman of a committee of the Board receives a $3,000
annual retainer. Officers of the Company who serve on the Board receive no
compensation as directors.
The Company offers non-employee directors an opportunity to defer their
director's compensation. Under the Directors Deferred Compensation Plan, a
director may elect to defer the receipt of compensation earned as a director
until a future date and to receive such compensation at that time in the form of
cash, Company common stock, or a combination of both. An election to defer, or
to cease to defer, compensation earned as a director of the Company is effective
only with respect to compensation earned in the calendar year following the year
in which the election is made, but in no event with respect to compensation
earned within six months after the date on which the election is made.
A bookkeeping account is maintained for each participant. The account
reflects the amount of cash and/or the number of share equivalents to which the
participant is entitled under the terms of the plan.
The account of a participant who elects to defer compensation in the form of
cash is credited with the dollar amount of compensation so deferred on each date
that the participant is entitled to payment for services as a director. Interest
on the cash balance of the account is computed and credited quarterly as of
March 31, June 30, September 30, and December 31 of each year at the prime
commercial rate in effect at Harris Trust and Savings Bank, Chicago, Illinois.
The account of a participant who elects to defer compensation in the form of
stock is credited with share equivalents on each date that the participant is
entitled to a payment for services as a director. The number of share
equivalents so credited is determined by dividing the compensation so deferred
by the mean price of a share of Company common stock on the New York Stock
Exchange on such date. Additional share equivalents are credited to the
director's account on each date that the Company pays a dividend on the common
stock. During the fiscal year ended September 30, 1994, plan participants as a
group were credited with 3,133.275 share equivalents for compensation deferred
in the form of stock, with an average per-share base price of $27.21. During the
same period, such participants were credited with $27,410 for compensation
deferred in the form of cash.
COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors of the Company during
fiscal 1994 were the Audit, Compensation-Nominating, Public Policy, Outside
Directors, and Executive Committees. As explained below, the Outside Directors
Committee was terminated on December 7, 1994.
The Audit Committee makes recommendations to the Board concerning the
appointment of the Company's independent public accountants and reviews with the
accountants the scope and nature of the audit engagement, the fees for services
performed by the firm, and the results of the completed audit. The Committee
also reviews and discusses with the internal audit department, management, and
the Board, such matters as accounting policies, internal controls, and
procedures for preparation of financial statements. In addition, the Committee
oversees the selection of independent public accountants to perform audits of
certain Company-sponsored employee benefit plans and reviews reports regarding
the results of such audits. The members of the Audit Committee are Messrs. Cole
(Chairman), Langenberg, Mitchell, Toft, Velasquez, and Mrs. Cafferty. The
Committee held two meetings in fiscal 1994.
The Compensation-Nominating Committee considers and makes recommendations to
the Board concerning salary compensation for elected officers of the Company and
its subsidiaries. The Committee also considers, reviews and grants awards under
the Company's Long-Term Incentive Compensation Plan (LTIC Plan) and Short-
5
<PAGE>
Term Incentive Compensation Plan (STIC Plan) to officers (and, with respect to
the LTIC Plan, key employees) of the Company and its subsidiaries other than the
Chief Executive Officer. In addition, the Committee considers and makes
recommendations to the Outside Directors Committee concerning grants to the
Chief Executive Officer under these plans.
The Committee also makes recommendations to the Board regarding nominees for
election as members of the Board of the Company. The Committee will consider
written recommendations from shareholders of the Company regarding potential
nominees for election as directors. To be considered for inclusion in the slate
of nominees proposed by the Board at the next Annual Meeting of Shareholders of
the Company, such recommendations should be received in writing by the Secretary
of the Company no later than November 15, 1995. In addition, the Committee
maintains, with the approval of the Board, formal criteria for selecting
directors, and also considers other matters, such as the size and composition of
the Board, directors' compensation, benefits, and other forms of remuneration.
The members of the Compensation-Nominating Committee are Messrs. Livingston
(Chairman), Langenberg, Mitchell, Neal, and Toft. The Committee held four
meetings in fiscal 1994.
The Outside Directors Committee considers, reviews, and grants awards to the
Chief Executive Officer under the STIC Plan and LTIC Plan. The members of the
Outside Directors Committee are Messrs. Cole, Langenberg, Livingston, Mitchell,
Neal, Toft, Velasquez, and Mrs. Cafferty. Effective December 7, 1994, the Board
approved the elimination of the Outside Directors Committee as a formally
designated committee. The change is solely technical and has no substantive
effect. Mr. Terry's awards under the named plans will still be subject to the
approval of the outside directors (the members of the former Outside Directors
Committee), but the Board no longer deemed it necessary to designate the outside
directors as a committee. The Committee held one meeting in fiscal 1994.
The Public Policy Committee prepares reports to the Board and provides
advice to management on major public issues affecting the Company or the gas
industry in general. The Committee also considers and makes recommendations to
the Board regarding the Company's Contributions Program and Budget and also
reviews and monitors corporate policy with respect to charitable and
philanthropic giving. Members of the Public Policy Committee are Messrs. Neal
(Chairman), Cole, Livingston, Velasquez, and Mrs. Cafferty. The Committee held
three meetings in fiscal 1994.
The Executive Committee, in the recess of the Board, has the authority to
act upon most corporate matters that require Board approval. The members of the
Executive Committee are Messrs. Terry (Chairman), Mitchell (Vice Chairman),
Cole, Langenberg, Livingston, Neal, Toft, Velasquez, and Mrs. Cafferty. The
Committee held no meetings in fiscal 1994.
6
<PAGE>
SHARE OWNERSHIP OF DIRECTOR NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership, as of November 30, 1994, of the Company's Common Stock by (a) each
director, the Chief Executive Officer and the four most highly paid executive
officers of the Company and (b) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AS OF NOVEMBER
DIRECTORS & OFFICERS 30, 1994 (1)
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
Pastora San Juan Cafferty................................................................. 500
Franklin A. Cole.......................................................................... 1,133(2)
Patrick J. Doyle, Jr...................................................................... 12,223(3)(4)
J. Bruce Hasch............................................................................ 39,353(3)(4)
James Hinchliff........................................................................... 26,826(3)(4)
Frederick C. Langenberg................................................................... 4,000
Homer J. Livingston, Jr................................................................... 6,426(5)
William G. Mitchell....................................................................... 17,516(5)
Earl L. Neal.............................................................................. 14,856(5)
Michael S. Reeves......................................................................... 31,195(3)(4)
Richard E. Terry.......................................................................... 55,298(3)(4)
Richard P. Toft........................................................................... 6,527(5)
Arthur R. Velasquez....................................................................... 3,061(5)
Directors and executive officers as a group............................................... 324,564
<FN>
- --------------------------
(1) The total shares held by all directors and executive officers as a group is
less than one per cent of the Company's outstanding common stock. Unless
otherwise indicated, each individual has sole voting and investment power
with respect to the shares of common stock attributed to him or her in the
table.
(2) Includes 1,000 shares in which Mr. Cole shares voting and investment power
with his spouse.
(3) Includes shares of restricted stock awarded under the Long-Term Incentive
Compensation Plan of the Company, the restrictions on which had not lapsed
as of November 30, 1994, as follows: Messrs. Doyle, 3,275; Hasch, 8,230;
Hinchliff, 5,575; Reeves, 5,575; Terry, 13,425; and all executive officers
as a group, 43,170. Owners of shares of restricted stock have the right to
vote such shares and to receive dividends thereon, but have no investment
power with respect to such shares until the restrictions thereon lapse.
(4) Includes shares that the following have a right to acquire within 60 days
following November 30, 1994, through the exercise of Options granted under
the Long-Term Incentive Compensation Plan of the Company: Messrs. Doyle,
3,900; Hasch, 9,500; Hinchliff, 6,200; Reeves, 6,200; Terry, 14,500; and
all executive officers of the Company as a group, 90,500.
(5) Includes 5,426; 5,180; 13,200; 6,227; and 3,061 shares to which Messrs.
Livingston, Mitchell, Neal, Toft, and Velasquez, respectively, are
prospectively entitled pursuant to the Directors Deferred Compensation Plan
of the Company.
</TABLE>
EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation and grants of stock options, stock appreciation rights and
restricted stock awards under the Company's Long-Term Incentive Compensation
Plan. All compensation was paid by the Company and its subsidiaries for services
in all capacities during the three fiscal years set forth below, to (i) the
Chief Executive Officer and (ii) the four most highly compensated executive
officers of the Company other than the Chief Executive Officer.
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
--------------------------------
ANNUAL COMPENSATION RESTRICTED STOCK ALL OTHER
---------------------- AWARD(S)(1)(2) OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (#) (3)($)
- --------------------------- --------- ---------- ---------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 1994 $ 421,250 $ 117,100 $ 113,281 14,400 $ 12,638
Chairman and Chief 1993 415,000 30,400 110,413 14,600 12,277
Executive Officer 1992 375,000 0 113,944 17,800 11,272
J. Bruce Hasch 1994 304,500 75,300 73,438 9,400 9,135
President and Chief 1993 300,000 19,600 71,844 9,600 9,324
Operating Officer 1992 271,500 0 74,031 11,600 8,688
Michael S. Reeves 1994 229,500 47,800 47,656 6,200 6,885
Executive Vice 1993 226,100 12,400 46,131 6,200 6,783
President 1992 217,400 0 47,638 7,400 6,522
James Hinchliff 1994 229,500 47,800 47,656 6,200 6,885
Senior Vice President 1993 226,100 12,400 46,131 6,200 6,783
and General Counsel 1992 217,400 0 47,638 7,400 6,522
Patrick J. Doyle, Jr. 1994 179,050 29,600 29,688 3,800 5,372
Subsidiary 1993 176,400 7,700 29,494 4,000 5,292
Vice President 1992 168,400 0 30,256 4,800 5,052
<FN>
- --------------------------
(1) Restricted stock awards are valued at the closing market price as of the
date of grant. The total number of restricted shares held by the named
executive officers and the aggregate market value of such shares at
September 30, 1994 were as follows: Mr. Terry, 11,080 shares, valued at
$290,850; Mr. Hasch, 7,190 shares, valued at $188,738; Mr. Reeves, 5,070
shares, valued at $133,088; Mr. Hinchliff, 5,070 shares, valued at $133,088
; and Mr. Doyle, 2,955 shares, valued at $77,569. Dividends are paid on the
restricted shares at the same time and at the same rate as dividends paid
to all shareholders of common stock. Aggregate market value is based on a
per share price of $26.25, the closing price of the Company's stock on the
New York Stock Exchange on September 30, 1994.
(2) Restricted stock awards granted to date vest in equal annual increments
over a five-year period. If a recipient's employment with the Company
terminates, other than by reason of death, disability, or retirement after
attaining age 65, the recipient forfeits all rights to the unvested portion
of the restricted stock award. In addition, the Compensation-Nominating
Committee (and with respect to the CEO, the Outside Directors Committee)
may, in its sole discretion, accelerate the vesting of any restricted stock
awards granted under the Long-Term Incentive Compensation Plan. Total
restricted stock awarded to the named individuals for 1992 constitutes
12,175 shares, of which 2,435 shares vested in 1993; 2,435 shares vested in
1994; 2,435 shares will vest in 1995; 2,435 shares will vest in 1996; and
the remaining 2,435 shares will vest in 1997. Total restricted stock
awarded to the named individuals for 1993 constitutes 10,050 shares, of
which 2,010 shares vested in 1994; 2,010 shares will vest in 1995; 2,010
shares will vest in 1996; 2,010 shares will vest in 1997; and the remaining
2,010 shares will vest in 1998. Total restricted stock awarded to the named
individuals for 1994 constitutes 9,975 shares, of which 1,995 shares will
vest in 1995; 1,995 shares will vest in 1996; 1,995 shares will vest in
1997; 1,995 shares will vest in 1998; and the remaining 1,995 shares will
vest in 1999.
(3) Company contributions to the Capital Accumulation Plan accounts of the
named executive officers during the above fiscal years. Employee
contributions under the plan are subject to a maximum limitation under the
Internal Revenue Code of 1986. The Company pays an employee who is subject
to this limitation an additional 50 cents for each dollar that the employee
is prevented from contributing solely by reason of such limitation. The
amounts shown in the table above reflect, if applicable, this additional
Company payment.
</TABLE>
8
<PAGE>
OPTIONS/SAR GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
% OF TOTAL OPTIONS/
OPTIONS/SARS SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN FISCAL BASE PRICE PRESENT VALUE
NAME (#)(1) YEAR (2) ($/SH) EXPIRATION DATE ($)(3)
- -------------------------- ------------ -------------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Richard E. Terry 14,400 14% $ 30.88 06-Oct-03 $57,168
Chairman and Chief
Executive Officer
J. Bruce Hasch 9,400 9 30.88 06-Oct-03 37,318
President and Chief
Operating Officer
Michael S. Reeves 6,200 6 30.88 06-Oct-03 24,614
Executive Vice President
James Hinchliff 6,200 6 30.88 06-Oct-03 24,614
Senior Vice President and
General Counsel
Patrick J. Doyle, Jr. 3,800 4 30.88 06-Oct-03 15,086
Subsidiary Vice President
<FN>
- --------------------------
(1) The grant of an Option enables the recipient to purchase Company common
stock at a purchase price equal to the fair market value of the shares on
the date the Option is granted. The grant of an SAR enables the recipient
to receive, for each SAR granted, cash in an amount equal to the excess of
the fair market value of one share of Company common stock on the date the
SAR is exercised over the fair market value of such common stock on the
date the SAR was granted. Options or SARs that expire unexercised become
available for future grants. Before an Option or SAR may be exercised, the
recipient must complete 12 months of continuous employment subsequent to
the grant of the Option or SAR. Options and SARs may be exercised within 10
years from the date of grant, subject to earlier termination in case of
death, retirement, or termination of employment.
(2) Based on 52,700 Options and 52,700 SARs granted to all employees during
fiscal 1994.
(3) Present value is determined using a variation of the Black-Scholes Model.
The model assumes: a) that Options and SARs are exercised two years after
the date of grant -- the average time Options and SARs were held by
recipients under the Company's Long-Term Incentive Compensation Plan over
the past ten years; b) use of an interest rate equal to the interest rate
on a U.S. Treasury security with a maturity date corresponding to the
assumed exercise date; c) a level of volatility calculated using weekly
stock prices for the two years prior to the date of grant; d) that no
adjustments were made for an expected dividend yield; and e) that no
adjustments were made for non-transferability or risk of forfeiture. This
is a theoretical value for the Options and SARs. The amount realized from
an Option or an SAR ultimately depends on the market value of the Company's
stock at a future date.
</TABLE>
9
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS AT
YEAR-END (#) FISCAL YEAR-END ($)(1)
SHARES ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 0 $ 0.00 14,600 14,400 $ 0.00 $ 0.00
Chairman and Chief
Executive Officer
J. Bruce Hasch 0 0.00 9,600 9,400 0.00 0.00
President and Chief
Operating Officer
Michael S. Reeves 0 0.00 6,200 6,200 0.00 0.00
Executive Vice President
James Hinchliff 0 0.00 6,200 6,200 0.00 0.00
Senior Vice President and
General Counsel
Patrick J. Doyle, Jr. 0 0.00 4,000 3,800 0.00 0.00
Subsidiary Vice President
<FN>
- --------------------------
(1) At the close of the fiscal year, none of the Options and SARs reported
above were in-the-money.
</TABLE>
10
<PAGE>
PENSION PLAN TABLE
The following table illustrates various annual straight-life benefits at
normal retirement (age 65) for the indicated levels of average annual
compensation and various periods of service, assuming no future changes in the
Company's pension benefits. The compensation used in the computation of annual
retirement benefits is substantially equivalent to the salary and bonus reported
in the Summary Compensation Table. The benefit amounts shown reflect reduction
for applicable Social Security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
AVERAGE ANNUAL COMPENSATION 20 25 30 35 40
------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$150,000............................. $ 55,351 $ 69,189 $ 83,027 $ 92,402 $ 101,777
200,000............................. 75,351 94,189 113,027 125,527 138,027
250,000............................. 95,351 119,189 143,027 158,652 174,277
300,000............................. 115,351 144,189 173,027 191,777 210,527
350,000............................. 135,351 169,189 203,027 224,902 246,777
400,000............................. 155,351 194,189 233,027 258,027 283,027
450,000............................. 175,351 219,189 263,027 291,152 319,277
500,000............................. 195,351 244,189 293,027 324,277 355,527
550,000............................. 215,351 269,189 323,027 357,402 391,777
600,000............................. 235,351 294,189 353,027 390,527 428,027
650,000............................. 255,351 319,189 383,027 423,652 464,277
</TABLE>
Average annual compensation is the average 12-month compensation for the
highest 60 consecutive months of the last 120 months of service prior to
retirement. Compensation is total salary paid to an employee by the Company
and/or its subsidiary companies, including bonuses under the Company's
Short-Term Incentive Compensation Plan, pre-tax contributions under the
Company's Capital Accumulation Plan, pre-tax contributions under the Company's
Health and Dependent Care Spending Accounts Plan, and pre-tax contributions for
life and health care insurance, but excluding moving allowances, exercise of
stock options and SARs, and other compensation that has been deferred.
As of September 30, 1994, the credited years of retirement benefit service
for the individuals listed in the Summary Compensation Table were as follows:
Mr. Terry, 30 years; Mr. Hasch, 34 years; Mr. Reeves, 38 years; Mr. Hinchliff,
22 years; and Mr. Doyle, 30 years. The benefits shown in the foregoing table are
subject to maximum limitations under the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Should
these benefits at the time of retirement exceed the then-permissible limits of
the applicable Act, the excess would be paid by the Company as supplemental
unfunded pensions. The benefits shown give effect to these supplemental pension
benefits.
11
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
COMPOSITION OF COMMITTEES
The Compensation-Nominating Committee (Committee) is appointed by the Board
from the membership of the non-employee directors. The Outside Directors
Committee is composed of all directors who are not officers or employees of the
Company or its subsidiaries.
OFFICER COMPENSATION GENERALLY
The Board has established a comprehensive officer compensation program
designed to provide equitable and generally competitive cash compensation and
incentives to its officers so as to attract and retain skilled and experienced
officers. Officer compensation is comprised of cash compensation, consisting of
base salary and bonus, and long-term compensation, consisting of non-qualified
stock options (Options), stock appreciation rights (SARs) and restricted stock
awards. The Board annually reviews the competitiveness of each component of
compensation and total compensation with the assistance of the Committee and a
nationally recognized compensation firm (Independent Consultant).
In 1993, the Internal Revenue Code of 1986, as amended, was amended to add
Section 162(m). Section 162(m) places a limit of $1,000,000 on the amount of
certain compensation that may be deducted by the Company in any year with
respect to certain of the Company's highest paid executives. At this time, it is
not anticipated that any Company executive officer will receive compensation in
excess of the Section 162(m) limit. The Committee will continue to monitor this
situation and will determine an appropriate policy if future circumstances
change.
BASE SALARY
Salaries for elected officers are established by the Board based on
recommendations of the Committee. The Committee's recommendations are based on
advice and information from the Independent Consultant, a compensation report
prepared by the Human Resources Division of the Company's wholly owned utility
subsidiary, The Peoples Gas Light and Coke Company, and, for officers other than
the Chairman of the Board and Chief Executive Officer (CEO), the recommendations
of the CEO.
The Committee evaluates the competitiveness of the Company's elected officer
salaries in light of competitive market data for comparable companies, primarily
gas distribution companies having revenues of similar size to those of the
Company. Officer salaries are established by reference to salary range midpoints
that are set slightly above the average for the comparison companies. Actual
salaries may be above or below the midpoint, depending upon the length of
incumbency, the performance of job responsibilities and other factors. The
information used by the Committee is derived from market data collected and
surveys prepared by the Human Resources Division and the Independent Consultant.
The Committee considers the recommendations of the CEO (for officers other than
the CEO), as well as market data, in making its recommendations. The Committee's
recommendations consider not only the general competitiveness of the elected
officers' salary ranges and proposed salaries, but also take into account each
individual officer's performance of his job responsibilities.
For fiscal 1994, the Board accepted the Committee's recommendation and
approved a base salary increase for Mr. Terry of $6,250. The Committee's
recommendation was based on helping to maintain the market competitiveness of
Mr. Terry's base salary, while being consistent with the salary budgets for 1994
for other officers and other management employees, and was considered sufficient
in light of the full implementation of award opportunities under The Short-Term
Incentive Compensation Plan discussed below.
SHORT-TERM INCENTIVE COMPENSATION PLAN
In October 1992, the Board approved a new Short-Term Incentive Compensation
Plan (STIC Plan). The STIC Plan replaced a former plan that provided for awards
on a more subjective basis. The Board adopted the STIC Plan based on competitive
considerations and in order to make a portion of executive cash compensation
directly
12
<PAGE>
related to the Company's short-term performance. The STIC Plan was implemented
on a phased basis, with maximum award opportunities for fiscal 1993 limited to
50 percent of the STIC Plan's design maximums. For fiscal 1994, the 50 percent
design maximum limitation was removed.
The STIC Plan provides that cash bonuses may be awarded to officers of the
Company and its subsidiaries based on levels of achievement under performance
measures established at the beginning of each fiscal year. The purposes of the
STIC Plan are: (i) to provide meaningful incentives to participants that will
benefit shareholders and customers through improvement in performance in areas
of strategic concern to the Company; (ii) to provide competitive levels of
compensation to enable the Company to attract and retain people who are able to
make a significant contribution to the Company's success; and (iii) to encourage
teamwork and cooperation in the achievement of Company goals.
The STIC Plan is administered by the Committee. At the beginning of each
fiscal year, the Committee identifies the officers who will be participants for
the year and establishes award opportunities for each participant based on the
participant's salary range midpoint. The Committee also establishes performance
measures and aligns the measures with award opportunities for each participant.
Awards are computed at the end of each year on the basis of achievement of the
performance measures. The final awards are based on these computed amounts,
adjusted at the Committee's discretion for all participants other than the CEO,
and at the Outside Directors Committee's discretion with respect to the CEO. The
Committee decided that for fiscal 1994, awards would be paid under the STIC Plan
only if the Company achieved dividend coverage on a weather normalized basis for
the year and did not reduce its common stock dividend during the year.
For fiscal year 1994, awards for certain participants, including Mr. Terry,
were based entirely on corporate performance measures. Other participants'
awards were based partly on corporate performance measures and partly on
individual or divisional performance measures. The Committee established the
corporate performance measures under two categories -- financial and
customer-oriented -- with two measures within each category. The STIC Plan award
opportunities were divided evenly among the four measures. Return on equity and
interest coverage ratio were the two financial measures; gas costs and operation
and maintenance (O&M) expenses were the two customer-oriented measures. The
Company's performance under each measure was ranked with the performance of
other comparable gas utilities for the 12 months ended June 30, 1994. An award
percentage for each performance measure was determined by the Company's rank
within the applicable comparator group. Companies in the financial measure
comparator group were those that the Company believes are often cited by
investment analysts as alternate investment opportunities to the Company. The
comparator companies used under the gas cost measure all serve large midwestern
urban areas within a five hundred mile radius of Chicago. Companies outside the
region were excluded because of differences in pipeline access, storage
availability, and seasonal and peak-day requirements that affect gas costs. The
comparator group selected for the O&M cost performance measure consisted of
companies that serve major metropolitan areas in the midwest or the eastern
United States.
The award percentages determined under the corporate performance measures
were then added together, resulting in a composite award percentage of 46.25
percent of the maximum award opportunity for each participant, including Mr.
Terry, whose award was based solely on corporate performance measures. Based on
these results, the Committee recommended, and the Outside Directors Committee
approved, an award to Mr. Terry of $117,100.
LONG-TERM INCENTIVE COMPENSATION PLAN
The Long-Term Incentive Compensation Plan (LTIC Plan) is administered by the
Committee for employees other than the CEO and, with respect to the CEO, by the
Outside Directors Committee. The Committee has the duty to select the
individuals to whom Options, SARs and restricted stock awards, or combinations
thereof, will be granted, determine the amount and the extent of such
individuals' participation, interpret provisions of the plan, and promulgate,
amend and rescind rules for its administration. With respect to the CEO, the
Outside Directors Committee prescribes the form and content of Options, SARs and
restricted stock granted after December 2,
13
<PAGE>
1992, and in the case of Options, SARs and restricted stock awards granted
before and after such date is authorized to interpret the plan, to prescribe,
amend or rescind rules relating to it, and to make all other determinations
necessary or advisable for the plan's administration.
The purpose of the LTIC Plan is to align the interests of key employees with
those of shareholders, thereby increasing those employees' interest in the
financial success and growth of the Company. In selecting employees who receive
awards under the LTIC Plan, the Committee considers the individual's position
and responsibilities, nature of service to the Company, and past, present and
potential contributions to the success of the Company.
The grant of an Option enables the recipient to purchase Company common
stock at a purchase price equal to the fair market value of the shares on the
date the Option was granted. The grant of an SAR entitles the recipient to
receive, for each SAR granted, cash in an amount equal to the excess of the fair
market value of one share of Company common stock on the date the SAR is
exercised over the fair market value of such common stock on the date the SAR
was granted. Before an Option or SAR may be exercised, the recipient must
complete 12 months of continuous employment subsequent to the grant of the
Option or SAR. Options and SARs may be exercised within 10 years from the date
of grant, subject to earlier termination in case of death, retirement, or
termination of employment for other reasons.
The grant of a restricted stock award entitles the recipient to vote the
shares of Company common stock covered by such award and to receive dividends
thereon. The recipient may not transfer or otherwise dispose of such shares
until the restrictions thereon lapse. Restricted stock awards granted to date
vest in equal annual increments over a five-year period from the date of grant.
If a recipient's employment with the Company terminates, other than by reason of
death, disability or retirement after attaining age 65, the recipient forfeits
all rights to the unvested portion of the restricted stock award. In addition,
the Committee (and, with respect to the CEO, the Outside Directors Committee)
may, in its sole discretion, accelerate the vesting of any restricted stock
awards granted under the LTIC Plan.
Grants of Options, SARs and restricted stock are made by the Committee by
general application of the LTIC Plan guidelines. The Committee also considers
the recommendations of the CEO for recipients other than the CEO. Under the
guidelines, the number of Options and SARs is determined for recipients by
applying percentages of salary range midpoints (this percentage varies with the
recipient's position in the Company), and dividing that amount by the Company's
common stock price on or shortly before the date on which Options and SARs will
be granted. To the extent restricted stock is awarded, the recipient's Options
and SARs that would otherwise be granted are reduced at the rate of two Options
and two SARs for each share of restricted stock granted. The Committee's
practice has been to limit an award of restricted stock for a recipient to
one-quarter of the total shares of Options and SARs under the guidelines. All
awards under the LTIC Plan are subject to the discretion and approval of the
Committee. Each year, prior to Committee approval, the Independent Consultant
reviews the LTIC Plan and evaluates the appropriateness of the continued use of
the plan, its guidelines and the value of the grants to be made thereunder.
Based on the application of the guideline formula and the recommendation of
the Independent Consultant, the Committee recommended, and the Outside Directors
Committee approved, awards to Mr. Terry of 7,200 Options, 7,200 SARs, and 3,625
shares of restricted stock.
Submitted by:
<TABLE>
<CAPTION>
THE COMPENSATION-NOMINATING COMMITTEE THE OUTSIDE DIRECTORS COMMITTEE
<S> <C>
Frederick C. Langenberg Pastora San Juan Cafferty
Homer J. Livingston, Jr. Franklin A. Cole
William G. Mitchell Frederick C. Langenberg
Earl L. Neal Homer J. Livingston, Jr.
Richard P. Toft William G. Mitchell
Earl L. Neal
Richard P. Toft
Arthur R. Velasquez
</TABLE>
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
Company common stock to the cumulative total return of the S&P 500 Index and the
S&P Utility Index over a five-year period ending September 30, 1994. The graph
assumes that the value of investment in Company common stock and each index was
$100 on September 30, 1989 and that all dividends were reinvested.
[PERFORMANCE GRAPH FILED UNDER COVER FORM SE]
15
<PAGE>
ITEM 2. AMENDMENTS TO THE LONG-TERM INCENTIVE COMPENSATION PLAN
The Long-Term Incentive Compensation Plan was adopted by the Board of
Directors of the Company and approved by shareholders effective as of January
26, 1979. The plan was subsequently amended with approval of shareholders
effective November 30, 1981, February 28, 1986 and February 23, 1990. The Board,
on December 7, 1994, further amended the plan as described below, subject to
shareholder approval at this meeting.
THE PLAN
The following is a brief description of the plan.
Under the plan, executive officers, officers and executive management
employees of the Company and its subsidiaries may be granted non-qualified stock
options ("Options"), stock appreciation rights ("SARs") and restricted stock
awards, or combinations thereof. The grant of an Option enables the recipient to
purchase Company common stock at a purchase price equal to the fair market value
of the shares on the date the Option is granted. Payment for the shares
purchased can be made in cash and/or common stock of the Company at the time or
times the Option is exercised. Any such common stock submitted in payment for an
Option is valued at the mean between the highest and lowest quoted selling price
on the New York Stock Exchange on the date of exercise. The grant of an SAR
enables the recipient to receive, for each SAR granted, cash in an amount equal
to the excess of the fair market value of one share of Company common stock on
the date the SAR is exercised over the fair market value of such common stock on
the date the SAR was granted. If Options or SARs expire, the unexercised Options
or SARs will be available for future grants. Before an Option or SAR may be
exercised, the recipient must complete 12 months of continuous employment
subsequent to the grant of the Option or SAR. Under the plan, Options and SARs
may be exercised within ten years from the date of grant, subject to earlier
termination in case of death, retirement or termination of employment. The grant
of a restricted stock award entitles the recipient to vote the shares of Company
common stock covered by such award and to receive dividends thereon. The
recipient may not transfer or otherwise dispose of such shares until the
restrictions thereon lapse. Restricted stock awards granted to date vest in
equal annual increments over a five-year period from the date of grant. If a
recipient's employment with the Company terminates, other than by reason of
death, disability or retirement after attaining age 65, the recipient forfeits
all rights to the unvested portion of the restricted stock award. In addition,
the Compensation-Nominating Committee ("Committee") (other than with respect to
the CEO) may, in its sole discretion, accelerate the vesting of any restricted
stock awards granted under the plan. Effective December 7, 1994, with respect to
the CEO, the Committee may accelerate the vesting of any restricted stock awards
granted under the plan, subject to the approval by the majority of those
directors who are not officers or employees of the Company or its subsidiaries
("Outside Directors").
The plan is solely administered by the Committee for employees other than
the CEO. The Committee has the duty to select the individuals to whom Options,
SARs and restricted stock awards or combinations thereof will be granted,
determine the amount and the extent of such individuals' participation,
interpret provisions of the plan, and promulgate, amend and rescind rules for
its administration. Effective December 7, 1994, with respect to the CEO, the
plan is administered by and the duties described herein are performed by the
Committee, subject to the approval of the majority of Outside Directors.
PROPOSED AMENDMENTS
In order to provide the Company with greater flexibility in attracting,
retaining and motivating strong management employees, the Board of Directors has
amended the plan, subject to shareholder approval, in the following manner: (1)
to extend the final date for the granting of Options, SARs and Restricted Stock
under the plan by five years to October 31, 2000; and (2) to reserve an
additional 400,000 shares of common stock for grant under the plan under Options
or as Restricted Stock and to authorize an additional 400,000 SARs for grant
under the Plan.
Currently, grants under the plan may be made no later than October 31, 1995.
The proposed amendments would extend the time for making such grants to October
31, 2000. In addition, in order to ensure sufficient amounts of available
Options, Restricted Stock grants and SARs, the proposed amendments would
authorize an additional 400,000 shares of common stock to be reserved for grant
under Options or as restricted stock and an additional 400,000 SARs for grant
under the plan.
16
<PAGE>
TAX CONSEQUENCES
The Company has been advised by Hopkins & Sutter, tax counsel to the
Company, that, under the present provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Federal income tax consequences of the plan
are as follows:
STOCK OPTIONS AND SARS
IN GENERAL
A recipient will not realize taxable income at the time of the grant of a
non-qualified stock option (an "Option") under the Plan. However, upon the
exercise of an Option, a recipient who is not subject to the short-swing profit
liability provisions of Section 16(b) of the Securities Exchange Act of 1934
will realize ordinary income in an amount measured by the excess, if any, of the
fair market value of the shares of Peoples Energy Corporation (the "Company")
common stock ("Common Stock") acquired upon exercise over the Option price, and
the Company will be entitled to a corresponding deduction at the same time and
in the same amount. Upon a subsequent disposition of such shares, the recipient
will realize short-term or long-term capital gain or loss depending upon the
recipient's holding period for such shares, with the basis for computing such
gain or loss equal to the Option price plus the amount of ordinary income
realized upon exercise.
A recipient will not realize taxable income at the time of the grant of a
stock appreciation right (an "SAR") under the Plan. Upon exercise, however, such
recipient will realize ordinary income measured by the cash received (including
taxes withheld); and the Company will be entitled to a corresponding deduction
at the same time and in the same amount.
PAYMENT OF OPTION PRICE WITH SHARES OF COMPANY STOCK
The exercise of an Option through the exchange of shares of previously
acquired Company Common Stock will generally be treated as a nontaxable exchange
as to the number of shares given up and the identical number of shares received
under the Option. That number of shares will take the same basis and, for
capital gain purposes, the same holding period as the shares which are given up.
The fair market value of the shares received upon such an exchange which are in
excess of the number given up will be taxed to the recipient at the time of the
exercise as ordinary income. The excess shares will have a new holding period
for capital gain purposes and a basis equal to the fair market value of such
shares determined at the time of exercise.
"CASHLESS" EXERCISES
The so-called "cashless" exercise of an Option under which the number of
shares received under the Option is reduced by that number of shares with a fair
market value equal to the Option price results in taxable ordinary income to the
recipient at the time of exercise in an amount equal to the fair market value of
the shares received. The holding period of such shares for capital gain purposes
will begin on the day following the date of exercise and such shares will have a
basis for tax purposes equal to the fair market value of the shares on the date
of exercise.
RECIPIENTS SUBJECT TO SECTION 16(B) OF SECURITIES EXCHANGE ACT
A recipient who is subject to the short-swing profit liability provisions of
Section 16(b) of the Securities Exchange Act of 1934 and who acquires shares of
Company Common Stock pursuant to the exercise of an Option will generally
realize ordinary income at the time of the later of (a) the exercise of the
Option or (b) the end of a period of six months following the date such Option
was granted, in an amount equal to the excess, if any, of the fair market value
of the Option shares at that time over the Option price. Under the Plan, no
Option may be exercised before the expiration of one year from the date of grant
of such Option, except in the event of a "Change in Control" (as defined in the
Plan). Accordingly, unless a "Change in Control" occurs, a recipient who is
subject to the short-swing profit liability provisions of Section 16(b) of
Securities Exchange Act of 1934 will realize ordinary income in connection with
the exercise of an Option at the same time as other recipients -- that is, at
the time of exercise. The Company will be entitled to a corresponding deduction
equal to the amount of ordinary income realized by the recipient. Such deduction
is allowed in the taxable year of the Company which includes the date of
exercise, if the recipient realizes income at such time, or in the taxable year
of the Company which includes the
17
<PAGE>
end of the recipient's taxable year in which the amount is included in the
recipient's income, if the recipient realizes income after the date of exercise.
For purposes of determining whether the recipient would have long-term or
short-term capital gain upon the subsequent sale of the shares, the recipient's
holding period begins to run on the date the recipient realizes ordinary income.
A recipient who is subject to the limitations imposed by Section 16(b) of
the Securities Exchange Act of 1934 and who acquires shares of Company Common
Stock pursuant to the exercise of an Option before the end of a period of six
months following the date such Option was granted may, by filing an election
with the Internal Revenue Service within 30 days of the date of exercise of the
Option, elect to be taxed at the time of exercise as if the limitations of
Section 16(b) did not apply to him. If such an election is made, the Company
will be entitled to a deduction equal to the amount of ordinary income realized
by the recipient. Such deduction is allowed in the taxable year of the Company
which includes the end of the recipient's taxable year in which the amount is
included in the recipient's income. Any subsequent disposition of the shares
will result in capital gain or loss with the holding period beginning on the day
following the date of exercise. In determining the amount of gain or loss, the
recipient's basis will be the fair market value of the shares on the date of
exercise.
RESTRICTED STOCK AWARDS
A recipient will not realize taxable income at the time of grant of a
restricted stock award, assuming that the restrictions constitute a substantial
risk of forfeiture for Federal income tax purposes. Upon the vesting of shares
of Company Common Stock subject to an award, the recipient will realize ordinary
income in an amount equal to the excess of the fair market value of such shares
at such time over the amount paid by the recipient, if any. The Company will be
entitled to a deduction equal to the amount of ordinary income realized by the
recipient. Such deduction is allowed in the taxable year of the Company which
includes the end of the recipient's taxable year in which the amount is included
in the recipient's income. Dividends paid to the recipient during the
restriction period will be taxable as compensation income to the recipient at
the time paid and will be deductible at such time by the Company. The recipient
of a restricted stock award may, by filing an election with the Internal Revenue
Service within 30 days of the date of grant of the restricted stock award, elect
to be taxed at the time of grant of the award on the excess of the then fair
market value of the shares of Company Common Stock over the amount paid by the
recipient, if any, in which case (1) the Company will be entitled to a deduction
equal to the amount of ordinary income realized by the recipient (such deduction
is allowed in the taxable year of the Company which includes the end of the
recipient's taxable year in which the amount is included in the recipient's
income), (2) dividends paid to the recipient during the restriction period will
be taxable as dividends to the recipient and not deductible by the Company, and
(3) there will be no further tax consequences to either the recipient or the
Company when the restrictions lapse.
INCOME TAX WITHHOLDING
Upon a recipient's realization of income, the Company is obligated to
withhold against the recipient's Federal and state income and employment tax
liability. Payment of the withholding obligation can be made from other amounts
due from the Company to the recipient or with shares of Company Common Stock
owned by the recipient. If the recipient elects to tender shares of Company
Common Stock or to reduce the number of shares the recipient is otherwise
entitled to receive to satisfy the withholding obligation, the shares tendered
or reduced will be treated as having been sold to the Company.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of common stock
of the Company will be required for approval of the foregoing amendments to the
plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENTS TO THE LONG-TERM INCENTIVE COMPENSATION PLAN.
18
<PAGE>
ITEM 3. AMENDMENTS TO THE ARTICLES OF INCORPORATION
PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION TO LIMIT LIABILITY OF
DIRECTORS AND TO PROVIDE FOR INDEMNIFICATION AND THE ADVANCEMENT OF EXPENSES
The Board of Directors recommends that the shareholders approve a proposal
to amend the Articles of Incorporation of the Company by adding Article Ten and
Article Eleven. Article Ten would limit the personal liability of the Company's
directors to the Company and its shareholders for monetary damages arising from
breach of fiduciary duty. The proposed amendment is authorized by a change to
the Illinois Business Corporation Act of 1983 (Business Corporation Act) that
became effective January 1, 1994. Article Eleven would require the Company to
indemnify and advance expenses to any person who is made a party to any action,
suit or proceeding by reason of such person acting as a director, officer or
employee of the Company or serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, and would permit the Company
to extend similar indemnification and advancement of expenses to any agent of
the Company if approved by resolution of the Board of Directors. The Board of
Directors believes that the proposed amendments will assist the Company in
attracting and retaining qualified individuals to serve as directors of the
Company.
BACKGROUND
LIMITATION OF DIRECTOR LIABILITY. Until the amendment of the Business
Corporation Act, effective January 1, 1994, Illinois was one of the few states
that had not taken action to protect corporate directors who acted in good
faith, but were nevertheless threatened with substantial liability from
negligence claims. As a result of the change in the law, an Illinois corporation
is now able to provide its directors with liability protection similar to that
available from companies incorporated in the vast majority of other states,
including Delaware. Liability is not limited under Illinois law if the acts or
omissions of directors are in bad faith, involve intentional wrongdoing, violate
certain statutory provisions, or result in a transaction from which the director
derives an improper personal benefit.
INDEMNIFICATION. Illinois law regarding the indemnification of directors,
officers and persons serving in other corporate capacities was amended,
effective January 1, 1994, to provide more flexibility to corporations in the
advancement of expenses incurred in connection with the defense of lawsuits
brought against such persons. The current By-Laws of the Company already provide
for the required indemnification of such persons while acting in their corporate
capacities to the fullest extent permitted by the Business Corporation Act. The
proposed amendment would add such a provision to the Articles of Incorporation.
The proposed amendment to the Articles of Incorporation would also require the
advancement of expenses incurred in the defense of such lawsuits to directors
and officers and employees of the Company, and allows the Company to advance
such expenses to agents upon resolution of the Board of Directors.
The Company currently maintains liability insurance policies that indemnify
Company directors and officers, the directors, officers and employees of its
subsidiaries, and the trustees of its employee benefit plans.
19
<PAGE>
TEXT OF PROPOSED AMENDMENTS
The text of Article Ten and Article Eleven proposed to be added to the
Company's Articles of Incorporation is as follows:
ARTICLE TEN
No director of the corporation shall be liable to the corporation or to
the shareholders of the corporation for monetary damages for breach of
fiduciary duty as a director, provided that this Article Ten shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of the law, (iii) under Section 8.65 of the Illinois
Business Corporation Act of 1983, as amended, or (iv) for any transaction
from which the director derived an improper personal benefit. This Article
Ten shall not eliminate or limit the liability of a director of the
corporation for any act or omission occurring before the date on which this
Article Ten becomes effective. Any repeal or modification of this Article
Ten by the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
ARTICLE ELEVEN
<TABLE>
<S> <C>
Paragraph 1: The corporation shall indemnify, to the fullest extent permitted under the
laws of the State of Illinois and any other applicable laws, as they now
exist or as they may be amended in the future, any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, an action
by or in the right of the corporation), by reason of the fact that he or
she is or was a director, officer or employee of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
Paragraph 2: Expenses incurred by such a director, officer or employee in defending a
civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding to the fullest extent permitted under the laws of the State of
Illinois and any other applicable laws, as they now exist or as they may be
amended in the future.
Paragraph 3: The board of directors may, by resolution, extend the provisions of this
Article Eleven regarding indemnification and the advancement of expenses to
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of
the fact he or she is or was an agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Paragraph 4: The rights provided by or granted under this Article Eleven are not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled.
Paragraph 5: The indemnification and advancement of expenses provided by or granted
under this Article Eleven shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of that person.
</TABLE>
20
<PAGE>
REASONS FOR THE PROPOSED AMENDMENTS
LIMITATION OF DIRECTOR LIABILITY. Directors of Illinois corporations are
required, under Illinois law, to perform their duties in good faith and with
that degree of care that an ordinarily prudent person in a like position would
use under similar circumstances. Directors may rely upon information, opinions
and reports prepared by certain officers or employees, professional advisors, or
committees of the Board. Decisions made on that basis are protected by the
"business judgment rule" and should not be questioned by a court in the event of
a lawsuit challenging such decisions. However, the expense of defending such
lawsuits and the inevitable uncertainties of applying the business judgment rule
to particular facts and circumstances mean, as a practical matter, that
directors are not relieved of the threat of monetary damage awards. The Board of
Directors of the Company, therefore, believes that the proposed amendment should
be adopted in order to assist the Company in continuing to attract and retain
competent, qualified and talented persons to serve as directors.
INDEMNIFICATION. The Board of Directors believes that the changes in the
Illinois statute governing the advancement of expenses make it appropriate at
this time to generally review the provisions of the Company's By-Laws and
Articles of Incorporation governing these matters. The Board of Directors has
therefore voted unanimously to revise the By-Laws provision covering
indemnification and the advancement of expenses to directors, officers,
employees and agents to better reflect the current provisions of Illinois law
and to include such provisions in the Articles of Incorporation. Such provisions
in the By-Laws were amended by the Board of Directors in December, 1994.
Although the By-Laws of the Company currently provide for the indemnification of
and advancement of expenses to directors, officers, employees and agents, the
By-Laws could be changed unilaterally and without notice by the Company's Board
of Directors. The proposed amendment would add such provisions to the Articles
of Incorporation that can only be changed by action of the Company's
shareholders after notice. Provisions regarding indemnification and the
advancement of expenses in the Articles of Incorporation are thus less likely to
be changed than similar provisions in the By-Laws. The enhanced stability,
predictability and security which result from including such provisions in the
Company's Articles of Incorporation will enhance the ability of the Company to
attract and retain competent, qualified and talented persons to serve as
directors.
EFFECT OF THE PROPOSED AMENDMENTS
LIMITATION OF DIRECTOR LIABILITY. The proposed amendment would protect the
Company's directors against personal liability to the Company or its
shareholders for any breach of duty unless a judgment or other final
adjudication adverse to them establishes (i) a breach of the duty of loyalty to
the Company or its shareholders, (ii) acts or omissions in bad faith or
involving intentional misconduct or a knowing violation of the law, (iii) acts
violating the prohibitions contained in Section 8.65 of the Business Corporation
Act against certain improper distributions of assets, or (iv) an improper
personal benefit to a director.
The amendment as proposed would not eliminate the fiduciary duty of
directors, but would eliminate the personal liability of directors for monetary
damages arising out of claims or suits brought by the Company or its
shareholders for certain breaches of that duty. The amendment would only apply
to claims for monetary damages and would not prevent suits seeking injunctive
relief, nor would it in any way limit other types of claims against directors,
such as claims arising under federal or state securities laws.
Shareholders should be aware that, except as indicated, the amendment would
eliminate monetary liability for grossly negligent conduct (including such
conduct in acquisition transactions) and that, in addition to the benefit to the
Company, directors would benefit from the added protection afforded by proposed
Article Ten and thus have a personal interest in the adoption of this Article.
The limitation would only apply prospectively, and would not affect any
liability of directors for any act or omission occurring before the effective
date of the proposed amendment. If approved by shareholders, new Article Ten
would become effective upon the issuance of a certificate of amendment by the
Secretary of State of Illinois, which would be expected shortly following the
annual meeting. The Company knows of no pending or threatened litigation against
any director that would be affected by a limitation on liability such as
proposed Article Ten.
INDEMNIFICATION. The proposed amendment would not change the rights of the
Company's directors, officers, or employees to be indemnified by the Company to
the full extent permitted by the Business Corporation Act, but would give them
such rights under the Company's Articles of Incorporation as well as under the
By-Laws.
21
<PAGE>
Directors, officers and employees of the Company would also be entitled, to the
extent permitted by law, to the advancement of expenses incurred in the defense
of lawsuits brought against them as a result of their acting in their corporate
capacities. The amendment would also provide for the indemnification of and
advancement of expenses to persons acting as agents of the Company if authorized
by the Board of Directors by resolution. Under Illinois law, the Company may
advance expenses to a director, officer, employee or agent upon an undertaking
by such person to repay such advances if it shall be ultimately determined that
he or she is not entitled to be indemnified by the Company under Section 8.75 of
the Business Corporation Act. The Board of Directors believes that with respect
to the decision to indemnify or advance expenses to agents, it is in the best
interest of the Company to be able to review such claims on a case-by-case
basis.
If approved by shareholders, new Article Eleven would become effective upon
the issuance of a certificate of amendment by the Secretary of State of
Illinois, which would be expected shortly following the annual meeting. The
Company knows of no pending or threatened litigation against any director,
officer, employee or agent that would be affected by proposed Article Eleven.
VOTE REQUIRED FOR APPROVAL
With respect to this proposal, shareholders may direct their votes be cast
for or against such proposal, or may abstain, by marking the proper box on the
proxy card.
PROXIES SOLICITED BY MANAGEMENT WILL BE VOTED FOR THE PROPOSED AMENDMENTS TO
THE ARTICLES OF INCORPORATION UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE IN
THEIR PROXIES. THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
COMMON STOCK OF THE COMPANY IS REQUIRED FOR APPROVAL OF THE FOREGOING
AMENDMENTS. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE
AGAINST THE PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENTS TO THE ARTICLES OF INCORPORATION.
ITEM 4. APPOINTMENT OF AUDITORS
Shareholders will be asked to ratify the recommendation of the Audit
Committee and the appointment by the Board of Directors of Arthur Andersen LLP
as the independent public accountants for the Company and its subsidiaries for
the fiscal year ending September 30, 1995. Arthur Andersen LLP has been engaged
as the independent public accountants of the Company or The Peoples Gas Light
and Coke Company since 1932.
A representative of Arthur Andersen LLP is expected to be present at the
meeting and will be available to respond to appropriate questions or to make a
statement if said representative so desires.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPOINTMENT.
OTHER MATTERS
Management does not know of any matters to be presented at the meeting other
than those mentioned in the Notice of Annual Meeting of Shareholders. However,
if other matters come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote said proxy in accordance with their
judgment on such matters.
SHAREHOLDER PROPOSALS
Any proposals by shareholders that are intended to be presented for action
at the 1996 Annual Meeting of Shareholders of the Company must be received by
the Company by September 5, 1995, to be considered for inclusion in the proxy
statement and form of proxy relating to such meeting.
EMMET P. CASSIDY
Secretary
January 3, 1995
22
<PAGE>
[LOGO]
PEOPLES ENERGY CORPORATION
Notice of Annual Meeting
of Shareholders and
Proxy Statement
February 24, 1995
11:00 A.M.
Arthur Rubloff Auditorium of
The Art Institute of Chicago
Columbus Drive, between
Monroe Street and
Jackson Boulevard
Chicago, Illinois
<PAGE>
PEOPLES ENERGY CORPORATION
INDICATE YOUR VOTE BY AN (X) IN THE APPROPRIATE BOXES.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1. Election of Directors
P. Cafferty, F. A. Cole, J. B. Hasch For Withheld
F. C. Langenberg, H. J. Livingston, Jr., / / / /
W. G. Mitchell, E. L. Neal, M. S. Reeves,
R. E. Terry, R. P. Toft and A. R. Velasquez
For All
Except Nominee(s) written below
/ /----------------------------
2. Proposed amendments to the For Against Abstain
Long-Term Incentive Compensation / / / / / /
Plan, as amended.
3. Proposed amendments to the For Against Abstain
Articles of Incorporation of / / / / / /
Peoples Energy Corporation.
4. Ratify the appointment of Arthur For Against Abstain
Andersen LLP as independent / / / / / /
public accountants.
- --------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
ALL PROPOSALS.
- --------------------------------------------
Dated ----------------, 1995
- --------------------------------------------
Signature
- --------------------------------------------
Signature
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATION
MADE. IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS.
---
NOTE: Please sign exactly as your name(s) appears. For joint accounts, each
owner should sign. When signing as executor, administrator, attorney, trustee
or guardian, etc., please give your full title.
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND DETACH THE PROXY CARD
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
ADMISSION TICKET
PEOPLES ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, FEBRUARY 24, 1995
11:00 A.M.
THE ART INSTITUTE OF CHICAGO
ARTHUR RUBLOFF AUDITORIUM
COLUMBUS DRIVE BETWEEN MONROE STREET AND JACKSON BOULEVARD
CHICAGO, ILLINOIS
<PAGE>
PEOPLES ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - FEBRUARY 24, 1995
The undersigned hereby appoints J. Bruce Hasch, William G. Mitchell and
Richard E. Terry, and each of them, with power of substitution in each, as
proxies, with the powers the undersigned would possess if personally present,
to vote all of the undersigned's shares of stock in the Company at the Annual
Meeting of Shareholders of the Company to be held in the Arthur Rubloff
Auditorium of The Art Institute of Chicago, Columbus Drive entrance, Chicago,
Illinois, on February 24, 1995, at 11:00 a.m., and at any adjournment thereof,
upon all maters that may properly come before the meeting, including the
matters described in the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement dated January 3, 1995, subject to any directions indicated on
the reverse side of this card. If any of the nominees should be unable to serve
or for good cause will not serve, which is not anticipated, management reserves
discretionary authority to vote for a substitute.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
IMPORTANT- TO BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
Appendix
Photographs of Director nominees for the Board of Peoples Energy Corporation
appear on pages 2-4.
