FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5540
PEOPLES ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-2642766
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24th Floor, 130 East Randolph Drive, Chicago, Illinois 60601-6207
(Address of principal executive offices) (Zip Code)
(312) 240-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
34,981,497 shares of Common Stock, without par value, outstanding
at January 31, 1997.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(Thousands, except per-share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $343,301 $275,173 $1,124,897 $ 901,659
Transportation 38,929 39,270 128,535 129,332
Other 4,918 3,162 14,768 12,892
-------- -------- ---------- ----------
Total Operating Revenues 387,148 317,605 1,268,200 1,043,883
-------- -------- ---------- ----------
OPERATING EXPENSES:
Gas costs 188,594 129,871 588,598 441,220
Operation 54,159 54,129 220,328 204,501
Maintenance 11,526 10,055 47,113 42,363
Depreciation and amortization 18,451 16,655 72,430 66,545
Taxes - Income 23,344 21,512 58,452 36,888
- State & local revenue 39,295 33,765 126,702 112,239
- Other 5,027 5,073 21,956 21,759
-------- -------- ---------- ----------
Total Operating Expenses 340,396 271,060 1,135,579 925,515
-------- -------- ---------- ----------
OPERATING INCOME 46,752 46,545 132,621 118,368
-------- -------- ---------- ----------
OTHER INCOME AND (DEDUCTIONS):
Interest income 515 2,654 3,282 11,361
Interest on long-term debt
of subsidiaries (8,927) (10,951) (35,803) (45,812)
Other interest expense (915) (1,998) (4,030) (8,081)
Income taxes (81) 926 (6,846) (2,364)
Miscellaneous - net 146 (1,060) 15,588 (329)
-------- -------- --------- --------
Total Other Income
and Deductions (9,262) (10,429) (27,809) (45,225)
-------- -------- --------- --------
NET INCOME $ 37,490 $ 36,116 $ 104,812 $ 73,143
======== ======== ========= ========
Average Shares of Common
Stock Outstanding 34,973 34,928 34,954 34,913
Earnings Per Share of
Common Stock $ 1.07 $ 1.03 $ 3.00 $ 2.10
======== ======== ========= ========
Dividends Declared Per Share $ 0.46 $ 0.45 $ 1.84 $ 1.80
======== ======== ========= ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, December 31,
1996 September 30, 1995
(Unaudited) 1996 (Unaudited)
----------- ------------ -----------
(Thousands)
<S> <C> <C> <C>
PROPERTIES AND OTHER ASSETS
- ---------------------------
CAPITAL INVESTMENTS:
Property, plant and equipment,
at original cost $2,058,831 $2,046,156 $1,999,439
Less - Accumulated depreciation 678,801 665,077 635,123
---------- ---------- ----------
Net property, plant and equipment 1,380,030 1,381,079 1,364,316
Other investments 13,794 12,348 10,391
---------- ---------- ----------
TOTAL CAPITAL INVESTMENTS - NET 1,393,824 1,393,427 1,374,707
---------- ---------- ----------
CURRENT ASSETS:
Cash 8,838 4,684 5,938
Cash equivalents 16,845 33,086 27,399
Receivables -
Customers, net of allowance for
uncollectible accounts of $27,329,
$26,211, and $18,447, respectively 137,503 68,675 130,437
Other 25,330 32,399 7,905
Accrued unbilled revenues 90,766 29,314 68,731
Materials and supplies, at average cost 17,408 16,128 16,242
Gas in storage, at last-in, first-out cost 78,496 65,502 105,367
Gas costs recoverable through rate adjustments 41,951 19,920 4,988
Prepayments 16,836 12,287 1,727
Other 900 900 1,100
---------- ---------- ----------
TOTAL CURRENT ASSETS 434,873 282,895 369,834
---------- ---------- ----------
OTHER ASSETS:
Regulatory assets of subsidiaries 81,931 91,498 71,449
Deferred charges 18,108 15,930 15,048
---------- ---------- ----------
TOTAL OTHER ASSETS 100,039 107,428 86,497
---------- ---------- ----------
TOTAL PROPERTIES AND OTHER ASSETS $1,928,736 $1,783,750 $1,831,038
========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, December 31,
1996 September 30, 1995
(Unaudited) 1996 (Unaudited)
----------- ------------ -----------
(Thousands of Dollars)
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common Stockholders' Equity:
Common stock, without par value
Authorized - 60,000,000 shares
Outstanding - 34,979,929, 34,960,399,
and 34,937,321 shares, respectively $ 278,282 $ 277,881 $ 277,629
Retained earnings 424,704 403,304 384,976
---------- ---------- ----------
Total Common Stockholders' Equity 702,986 681,185 662,605
Long-term debt of subsidiaries,
exclusive of sinking fund payments
and maturities due within one year 527,039 527,064 527,104
---------- ---------- ----------
TOTAL CAPITALIZATION 1,230,025 1,208,249 1,189,709
---------- ---------- ----------
CURRENT LIABILITIES:
Interim loans of subsidiaries 29,025 2,625 12,025
Accounts payable 200,783 147,972 161,827
Dividends payable on common stock 16,091 16,082 15,722
Customer gas service and credit deposits 40,728 42,390 43,897
Sinking fund payments and maturities,
due within one year -
Long-term debt of subsidiaries -- -- 8,000
Accrued taxes 72,420 32,821 63,291
Gas sales revenue refundable through
rate adjustments 15,818 13,921 52,032
Accrued interest 7,155 10,796 7,303
Temporary LIFO liquidation credit 1,603 -- 1,389
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 383,623 266,607 365,486
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily
accelerated depreciation 234,882 230,948 211,899
Investment tax credits being amortized
over the average lives of related property 35,032 35,439 36,638
Other 45,174 42,507 27,306
---------- ---------- ----------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 315,088 308,894 275,843
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,928,736 $1,783,750 $1,831,038
========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
December 31,
------------------
1996 1995
---- ----
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 37,490 $ 36,116
Adjustments to reconcile net income to net cash:
Depreciation and amortization 18,451 16,655
Deferred income taxes and investment tax credits - net 1,379 79
Change in deferred credits and other liabilities 4,816 864
Change in other assets 5,986 (31,017)
Other -- 19
Change in current assets and liabilities:
Receivables - net (61,759) (79,729)
Accrued unbilled revenues (61,452) (47,564)
Materials and supplies (1,280) 224
Gas in storage (12,994) (4,821)
Gas costs recoverable (22,031) 1,217
Accounts payable 52,811 59,450
Customer gas service and credit deposits (1,662) 3,320
Accrued taxes 39,599 35,132
Gas sales revenue refundable 1,897 (27,470)
Accrued interest (3,641) (5,494)
Temporary LIFO liquidation credit 1,603 1,389
Prepayments (4,549) 575
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,336) (41,055)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures of subsidiaries - construction (15,874) (19,784)
Other assets 632 12,583
Other capital investments (2,203) (43)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (17,445) (7,244)
-------- --------
FINANCING ACTIVITIES:
Interim loans of subsidiaries - net 26,400 11,125
Trust fund - bond redemption -- 237
Retirement of long-term debt of subsidiaries (25) (90,770)
Dividends paid on common stock (16,082) (15,711)
Proceeds from issuance of common stock 401 516
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,694 (94,603)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,087) (142,902)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,770 176,239
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,683 $ 33,337
======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
Peoples Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Peoples Energy Corporation (Company) and its wholly
owned subsidiaries, The Peoples Gas Light and Coke Company
(Peoples Gas), North Shore Gas Company (North Shore Gas), Peoples
District Energy Corporation (Peoples District Energy), Peoples
Energy Services Corporation, Peoples Energy Resources Corp., and
Peoples NGV Corp., and comprise the assets, liabilities, revenues,
expenses, and underlying common stockholders' equity of these
companies. Income is principally derived from the Company's
utility subsidiaries, Peoples Gas and North Shore Gas. The
statements have been prepared by the Company in conformity with
the rules and regulations of the Securities and Exchange
Commission (SEC) and reflect all adjustments that are, in the
opinion of management, necessary to present fairly the results for
the interim periods herein and to prevent the information from
being misleading.
Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to SEC
rules and regulations. Therefore, the statements should be read
in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996. Certain items
previously reported for the prior periods have been reclassified
to conform with the presentation in the current periods.
The business of the Company's utility subsidiaries is
influenced by seasonal weather conditions because a large element
of the utilities' customer load consists of gas used for space
heating. Weather-related deliveries can, therefore, have a
significant positive or negative impact on net income.
Accordingly, the results of operations for the interim periods
presented are not indicative of the results to be expected for all
or any part of the balance of the current fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
2A Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2B Revenue Recognition
Gas sales revenues are recorded on the accrual basis for all gas
delivered during the month, including an estimate for gas
delivered but unbilled at the end of each month.
2C Regulated Operations
Peoples Gas' and North Shore Gas' utility operations are
subject to regulation by the Illinois Commerce Commission
(Commission). Regulated operations are accounted for in
accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of
Regulation." This standard controls the application of generally
accepted accounting principles for companies whose rates are
determined by an independent regulator such as the Commission.
Regulatory assets represent certain costs that are expected to be
recovered from customers through the ratemaking process. When
incurred, such costs are deferred as assets in the balance sheet
and subsequently recorded as expenses when those same amounts are
reflected in revenues.
2D Income Taxes
The Company follows the liability method of accounting for
deferred income taxes. Under the liability method, deferred
income taxes have been recorded using currently enacted tax rates
for the differences between the tax basis of assets and
liabilities and the basis reported in the financial statements.
Due to the effects of regulation on Peoples Gas and North Shore
Gas, certain adjustments made to deferred income taxes are, in
turn, debited or credited to regulatory assets or liabilities.
2E Statement of Cash Flows
For purposes of the balance sheet and the statement of cash
flows, the Company considers all short-term liquid investments
with maturities of three months or less to be cash equivalents.
<TABLE>
Income taxes and interest paid (excluding capitalized
interest) were as follows:
<CAPTION>
For the three months
ended December 31, 1996 1995
-----------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $ 3,877 $ 1,451
Interest paid 13,201 16,946
</TABLE>
2F Recovery of Gas Costs, Including Charges for Transition Costs
Under the tariffs of Peoples Gas and North Shore Gas, the
difference for any month between costs recoverable through the Gas
Charge and revenues billed to customers under the Gas Charge is
refunded to or recovered from customers. Consistent with these
tariff provisions, such difference for any month is recorded
either as a current liability or as a current asset (with a contra
entry to Gas Costs).
The Commission conducts annual proceedings regarding, for each
gas utility, the reconciliation of revenues from the Gas Charge
and related costs incurred for gas. In such proceedings, costs
recovered by a utility through the Gas Charge are subject to
challenge. Such proceedings regarding Peoples Gas and North Shore
Gas for fiscal years 1995 and 1996 are currently pending before
the Commission.
Pursuant to Federal Energy Regulatory Commission (FERC) Order
636 and successor orders, pipelines are allowed to recover from
their customers so-called transition costs. These costs arise
from the restructuring of pipeline service obligations required by
the 636 Orders. The utilities are currently recovering pipeline
charges for transition costs through the Gas Charge. (See Notes
3A and 3B.)
3. RATES AND REGULATION
3A Utility Rate Proceedings
Peoples Gas' Rate Order. On November 8, 1995, the Commission
issued an order approving changes in rates of Peoples Gas that are
designed to increase annual revenues by approximately $30.8
million, exclusive of additional charges for revenue taxes.
Peoples Gas was allowed a rate of return on original-cost rate base
of 9.19 per cent, which reflects an 11.10 per cent cost of common
equity. The new rates were implemented on November 14, 1995. A
group of industrial transportation customers have appealed the
Commission's order to the Illinois Appellate Court. Any change
made by the Appellate Court would have a prospective effect only.
North Shore Gas' Rate Order. On November 8, 1995, the Commission
issued an order approving changes in rates of North Shore Gas that
are designed to increase annual revenues by approximately $5.6
million, exclusive of additional charges for revenue taxes. North
Shore Gas was allowed a rate of return on original-cost rate base
of 9.75 per cent, which reflects an 11.30 per cent cost of common
equity. The new rates were implemented on November 14, 1995. A
group of industrial transportation customers has appealed the
Commission's order to the Illinois Appellate Court. Any change
made by the Appellate Court would have a prospective effect only.
FERC Order 636 Cost Recovery. In 1994, the Commission issued
orders providing for the full recovery of pipeline charges for FERC
Order 636 transition costs from Peoples Gas' and North Shore Gas'
gas service customers. The Commission directed that gas supply
realignment (GSR) costs (one of the four categories of transition
costs) be recovered on a uniform volumetric basis from all
transportation and sales customers. A group of industrial
transportation customers has filed a petition with the Illinois
Supreme Court appealing the Commission's orders. If the Illinois
Supreme Court accepts the appeal, any changes made by it to the
Commission's orders would have a prospective effect only. (See
Notes 2F and 3B.)
3B FERC Orders 636, 636-A, and 636-B
FERC Order 636 and successor orders require pipelines to make
separate rate filings to recover transition costs. The utilities
are subject to charges for transition cost recovery by Natural Gas
Pipeline Company of America (Natural). Under a Stipulation and
Agreement filed by Natural and approved by FERC, Natural's charges
to the utilities for GSR transition costs (the largest category of
such costs for Peoples Gas and North Shore Gas) are subject to a
cap of approximately $103 million for Peoples Gas and $25 million
for North Shore Gas. Peoples Gas and North Shore Gas are currently
recovering transition costs through the Gas Charge. At December
31, 1996, Peoples Gas and North Shore Gas have made payments of
$76.8 million and $18.8 million, and have accrued an additional
$26.2 million and $6.2 million, respectively, toward the caps.
The 636 Orders are not expected to have a material effect on
financial position or results of operations of the Company or its
subsidiaries. (See Notes 2F and 3A.)
4. ENVIRONMENTAL MATTERS
4A Former Manufactured Gas Plant Operations
The Company's utility subsidiaries, their predecessors, and
certain former affiliates operated facilities in the past at
multiple sites for the purpose of manufacturing gas and storing
manufactured gas (Manufactured Gas Sites). In connection with
manufacturing and storing gas, various by-products and waste
materials were produced, some of which might have been disposed of
rather than sold. Under certain laws and regulations relating to
the protection of the environment, the subsidiaries might be
required to undertake remedial action with respect to some of
these materials. Three of the Manufactured Gas Sites are discussed
in more detail below. Peoples Gas and North Shore Gas, under the
supervision of the Illinois Environmental Protection Agency (IEPA),
are conducting investigations of 29 Manufactured Gas Sites. These
investigations may require the utility subsidiaries to perform additional
investigation and remediation. The investigations are in a
preliminary stage and are expected to occur over an extended period
of time.
In 1990, North Shore Gas entered into an Administrative Order on
Consent (AOC) with the United States Environmental Protection
Agency (EPA) and the IEPA to implement and conduct a remedial
investigation/feasibility study (RI/FS) of a Manufactured Gas Site
located in Waukegan, Illinois, where manufactured gas and coking
operations were formerly conducted (Waukegan Site). The RI/FS is
comprised of an investigation to determine the nature and extent of
contamination at the Waukegan Site and a feasibility study to
develop and evaluate possible remedial actions. North Shore Gas
entered into the AOC after being notified by the EPA that North
Shore Gas, General Motors Corporation (GMC) and Outboard Marine
Corporation were each a potentially responsible party (PRP) under
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA) with respect to the
Waukegan Site. A PRP is potentially liable for the cost of any
investigative and/or remedial work that the EPA determines is
necessary. Other parties identified as PRPs did not enter into the
AOC.
Under the terms of the AOC, North Shore Gas is responsible for
the cost of the RI/FS. North Shore Gas believes, however, that it
will recover a significant portion of the costs of the RI/FS from
other entities. GMC has agreed to share equally with North Shore
Gas in funding of the RI/FS cost, without prejudice to GMC's or
North Shore Gas' right to seek a lesser cost responsibility at a
later date.
Peoples Gas has observed what appear to be gas purification
wastes on a Manufactured Gas Site in Chicago, formerly called the
110th Street Station, and property contiguous thereto (110th Street
Station Site). Peoples Gas has fenced the 110th Street Station
Site and is conducting a study under the supervision of the IEPA to
determine the feasibility of a limited removal action.
The current owner of a site in Chicago, formerly called Pitney
Court Station, filed suit against Peoples Gas in federal district
court under CERCLA. The suit seeks recovery of the past and future
costs of investigating and remediating the site and an order
directing Peoples Gas to remediate the site. Peoples Gas is
contesting this suit.
The utility subsidiaries are accruing and deferring the costs
they incur in connection with all of the Manufactured Gas Sites,
including related legal expenses, pending recovery through rates or
from insurance carriers or other entities. At December 31, 1996,
the total of the costs deferred by the subsidiaries, net of
recoveries and amounts billed to other entities, was $17.4 million.
This amount includes an estimate of the costs of completing the
studies required by the EPA at the Waukegan Site and the
investigations being conducted under the supervision of the IEPA
referred to above. The amount also includes an estimate of the
costs of remediation at the Waukegan Site and at the 110th Street
Station site in Chicago, at the minimum amount of the current
estimated range of such costs. The costs of remediation at the
other sites cannot be determined at this time. While each
subsidiary intends to seek contribution from other entities for the
costs incurred at the sites, the full extent of such contributions
cannot be determined at this time.
Peoples Gas and North Shore Gas have filed suit against a number
of insurance carriers for the recovery of environmental costs
relating to the utilities' former manufactured gas operations. The
suit asks the court to declare that the insurers are liable under
policies in effect between 1937 and 1986 for costs incurred or to
be incurred by the utilities in connection with their five
Manufactured Gas Sites in Chicago and Waukegan. The utilities are
also asking the court to award damages stemming from the insurers'
breach of their contractual obligation to defend and indemnify the
utilities against these costs. At this time, management cannot
determine the timing and extent of the subsidiaries' recovery of
costs from their insurance carriers. Accordingly, the costs
deferred at December 31, 1996 have not been reduced to reflect
recoveries from insurance carriers.
Costs incurred by Peoples Gas or North Shore Gas for
environmental activities relating to former manufactured gas
operations will be recovered from insurance carriers or other
entities or through rates for utility service. Accordingly,
management believes that the costs incurred by the subsidiaries in
connection with former manufactured gas operations will not have a
material adverse effect on financial position or results of
operations of the subsidiaries. Peoples Gas and North Shore Gas
are recovering the costs of environmental activities relating to
the utilities' former manufactured gas operations, including
carrying charges on the unrecovered balances, under rate mechanisms
approved by the Commission. At December 31, 1996, the subsidiaries
had recovered $10.2 million of such costs through rates.
4B Former Mineral Processing Site in Denver, Colorado
In 1994, North Shore Gas received a demand from the S.W.
Shattuck Chemical Company, Inc. (Shattuck), a responsible party
under CERCLA, for reimbursement, indemnification and contribution
for response costs incurred at a former mineral processing site in
Denver, Colorado. Shattuck is a wholly owned subsidiary of
Salomon, Inc. (Salomon). The demand alleges that North Shore Gas
is a successor-in-interest to certain companies that were allegedly
responsible during the period 1934-1941 for the disposal of mineral
processing wastes containing radium and other hazardous substances
at the site. The cost of the remedy at the site has been estimated
by Shattuck to be approximately $31 million. Salomon has provided
financial assurance for the performance of the remediation at the
site.
North Shore Gas does not believe that it has liability for the
response costs, but cannot determine the matter with certainty. At
this time, North Shore Gas cannot reasonably estimate what range of
loss, if any, may occur. In the event that North Shore Gas
incurred liability, it would pursue reimbursement from insurance
carriers, other responsible parties, if any, and through its rates
for utility service.
North Shore Gas filed a declaratory judgment action against
Salomon in the District Court for the Northern District of
Illinois. The suit asks the court to declare that North Shore Gas
is not liable for response costs incurred or to be incurred at the
Denver site. Salomon has filed a counterclaim for costs incurred
and to be incurred by Salomon and Shattuck with respect to the
site.
4C Gasoline Release in Wheeling, Illinois
In June 1995, North Shore Gas received a letter from the IEPA
informing North Shore Gas that it was not in compliance with
certain provisions of the Illinois Environmental Protection Act
which prohibit water pollution within the State of Illinois. On
November 14, 1995, the Illinois Attorney General filed a complaint
in the Circuit Court of Cook County naming North Shore Gas and four
other parties as defendants. The complaint alleges that the
violations are the result of a gasoline release that occurred in
Wheeling, Illinois in June 1992 when a contractor who was
installing a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company. North
Shore Gas is contesting this suit. Management does not believe the
outcome of this suit will have a material adverse effect on
financial position or results of operations of the Company or North
Shore Gas.
5. COVENANTS REGARDING RETAINED EARNINGS
North Shore Gas' indenture relating to its first mortgage bonds
contains provisions and covenants restricting the payment of cash
dividends and the purchase or redemption of capital stock. At
December 31, 1996, such restrictions amounted to $11.6 million out
of North Shore Gas' total retained earnings of $69.6 million;
accordingly, $58 million are available for the payment of cash
dividends and the purchase or redemption of capital stock.
6. EXPIRATION OF GAS STORAGE CONTRACTS
Peoples Gas and North Shore Gas had certain natural gas storage
contracts with Natural that expired on or before December 1, 1995.
Associated with the expiration of the contracts, the utilities
realized a gain, after income taxes, of approximately $8.9 million
for the 12 months ended December 31, 1996.
7. TAX MATTERS
On September 30, 1993, the Company received notification from
the Internal Revenue Service (IRS) that settlement of past income
tax returns had been reached for fiscal years 1978 through 1990.
The IRS settlement resulted in payments of principal and interest
to the Company in 1994 in total amount of approximately $28
million, or $21.6 million after income taxes. Both Peoples Gas and
North Shore Gas received regulatory authorization to defer the
recognition of the settlement amount in income for fiscal year
1993, and to recognize their respective portions of the settlement
amount in income for fiscal years 1994 and 1995. Each utility
represented to the Commission that, having received this accounting
authorization, it would not file a request for an increase in base
rates before December 1994.
As a result of the Commission's accounting authorization,
Peoples Gas and North Shore Gas amortized to operation expense
approximately $9.8 million, or $7.5 million after income taxes, for
the 12 months ended December 31, 1995. The effect was to offset
increases in costs that the utilities would incur during the
period.
8. LONG-TERM DEBT
8A Interest-Rate Adjustments
The rate of interest on the City of Joliet 1984 Series C Bonds,
which are secured by Peoples Gas' Adjustable-Rate First Mortgage
Bonds, Series W, is subject to adjustment annually on October 1.
Owners of the Series C Bonds have the right to tender such bonds at
par during a limited period prior to that date. Peoples Gas is
obligated to purchase any such bonds tendered if they cannot be
remarketed. All Series C Bonds that were tendered prior to October
1, 1996, have been remarketed. The interest rate on such bonds is
3.95 per cent for the period October 1, 1996, through September 30,
1997.
The rate of interest on the City of Chicago 1993 Series B Bonds,
which are secured by Peoples Gas' Adjustable-Rate First Mortgage
Bonds, Series EE, is subject to adjustment annually on December 1.
Owners of the Series B Bonds have the right to tender such bonds at
par during a limited period prior to that date. Peoples Gas is
obligated to purchase any such bonds tendered if they cannot be
remarketed. All Series B Bonds that were tendered prior to
December 1, 1996, have been remarketed. The interest rate on such
bonds is 3.70 per cent for the period December 1, 1996, through
November 30, 1997.
Peoples Gas classifies these adjustable-rate bonds as long-term
liabilities, since it would refinance them on a long-term basis if
they could not be remarketed. In order to ensure its ability to do
so, on February 1, 1994, Peoples Gas established a $37.4 million
three year line of credit with The Northern Trust Company, which
has since been extended to January 31, 1999.
8B Bonds Redeemed
On December 29, 1995, Peoples Gas redeemed, from general
corporate funds, approximately $87 million aggregate principal
amount of the City of Joliet's 1984 Gas Supply Revenue Refunding
Bonds, Series A and B, which were secured by Peoples Gas' Series U
and V First and Refunding Mortgage Bonds.
On February 1, 1996, North Shore Gas redeemed $8 million
aggregate principal amount of its Series I First Mortgage Bonds
using the proceeds of a short-term bank loan as well as other
monies of North Shore Gas.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Net Income
Net income increased $1.4 million, to $37.5 million, for the
current three-month period, due mainly to rate increases that went
into effect on November 14, 1995 for Peoples Gas and North Shore
Gas (see Note 3A of the Notes to Consolidated Financial
Statements). In addition, net income benefited from increased
other operating revenues, lower pension expenses, and reduced
interest expense. These increases were partially offset by higher
provisions for depreciation and amortization expense and for
uncollectible accounts as well as lower interest income and a
decline in natural gas deliveries arising principally from energy
conservation measures.
Net income increased $31.7 million, to $104.8 million, for the
current 12-month period, due primarily to the full calendar year's
effect of the aforementioned rate increases and to weather that was
8 per cent colder than in the year-ago period. In addition, net
income benefited from a one-time gain associated with the
expiration of certain natural gas storage contracts (see Note 6 of
the Notes to Consolidated Financial Statements), lower pension
expenses, and reduced interest expense. These increases were
partly offset by higher operation and depreciation and amortization
expenses, the prior period's recognition of a federal income tax
settlement (see Note 7 of the Notes to Consolidated Financial
Statements), and lower interest income.
<TABLE>
A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:
<CAPTION>
Three Months Ended 12 Months Ended
December 31, 1996 December 31,1996
Increase/(Decrease) Increase/(Decrease)
from Prior Period from Prior Period
------------------ -------------------
(Thousands of dollars) Amount Per Cent Amount Per Cent
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenues (a) $5,290 3.4 $62,476 12.7
Operation and maintenance expenses 1,501 2.3 20,577 8.3
Depreciation and amortization expense 1,796 10.8 5,885 8.8
Income taxes 1,832 8.5 21,564 58.5
Other income and deductions (1,167) (11.2) (17,416) (38.5)
Net Income 1,374 3.8 31,669 43.3
- ---------------------------------------------------------------------------------
<FN>
(a) Operating revenues, net of gas costs and revenue taxes.
</TABLE>
Net Operating Revenues
Gross revenues of Peoples Gas and North Shore Gas are affected
by changes in the unit cost of the subsidiaries' gas purchases and
do not include the cost of gas supplies for customers who purchase
gas directly from producers and marketers rather than from the
subsidiaries. The direct customer purchases have no effect on net
income because the utilities provide transportation service for
such gas volumes and recover margins similar to those applicable to
conventional gas sales. Changes in the unit cost of gas do not
significantly affect net income because the utilities' tariffs
provide for dollar-for-dollar recovery of gas costs. (See Note 2F
of the Notes to Consolidated Financial Statements.) The utilities'
tariffs also provide for dollar-for-dollar recovery of the cost of
revenue taxes imposed by the State and various municipalities.
Since income is not significantly affected by changes in revenue
from customers' gas purchases from producers or marketers rather
than from the subsidiaries, changes in gas costs, or changes in
revenue taxes, the discussion below pertains to "net operating
revenues" (operating revenues, net of gas costs and revenue taxes).
The Company considers net operating revenues to be a more pertinent
measure of operating results than gross revenues.
Net operating revenues increased $5.3 million, to $159.3
million, for the current three-month period, due mainly to the
effect of the aforementioned rate increases which improved net
operating revenues by $4.6 million ($2.8 million after income
taxes). Also, net operating revenues increased $1.9 million for
environmental costs recovered through rates and the sale of
interests in certain oil and gas rights ($863,000). These
increases were partly offset by a reduction in natural gas
deliveries reflecting customer conservation measures.
Net operating revenues increased $62.5 million, to $552.9
million, for the current 12-month period, due primarily to the
impact of the rate increases that amounted to $31.8 million ($19.2
million after income taxes). Also, weather that was 8 per cent
colder than the comparable prior period improved net operating
revenues by about $13.2 million ($8 million after income taxes).
See Other Matters - Operating Statistics for details of selected
financial and operating information by gas service classification.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $1.5 million, to
$65.7 million, for the current three-month period, due mainly to
increases of $1.5 million for the provision for uncollectible
accounts, which resulted largely from greater sales revenues, and
$1.9 million for environmental costs recovered through rates.
These increases were partially offset by decreased pension expenses
of $1.3 million, primarily resulting from changes in actuarial
assumptions.
Operation and maintenance expenses increased $20.6 million, to
$267.4 million, for the current 12-month period, due principally to
the reduction of expense of $9.8 million resulting from the prior
period's recognition of an IRS settlement. (See Note 7 of the
Notes to Consolidated Financial Statements.) Also, the provision
for uncollectible accounts increased $6.4 million, due mostly to
higher sales revenues attributable to colder weather and increased
rates. In addition, increases between periods resulted from
maintenance of mains ($4.7 million), environmental costs recovered
through rates ($5.1 million), reengineering costs ($1.8 million),
and outside services ($2.5 million). These increases were offset,
in part, by decreased pension expenses of $12.3 million, reflecting
a net gain from the settlement of portions of pension plan
obligations and changes in actuarial assumptions.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $1.7 million, to
$18.5 million, and $5.9 million, to $72.4 million, for the current
three- and 12-month periods, respectively, due primarily to the
amortization of costs associated with the closing of Peoples Gas'
synthetic natural gas-making (SNG) Plant and depreciable property
additions.
Income Taxes
Income taxes, exclusive of taxes in other income and deductions,
increased $1.8 million, to $23.3 million, and $21.6 million, to
$58.5 million, for the current three- and 12-month periods,
respectively, due principally to higher pre-tax income.
Other Income and Deductions
Other income and deductions decreased $1.2 million for the
current three-month period, due primarily to less interest on
long-term debt in connection with the early redemption of first
mortgage bonds (see Note 8B of the Notes to Consolidated Financial
Statements) and to decreased interest on amounts refundable to
customers. These decreases were partially offset by lower interest
income reflecting lower cash balances available for investment.
Other income and deductions decreased $17.4 million for the
current 12-month period, due principally to less interest on
long-term debt reflecting the aforementioned bond redemptions and
decreased interest on amounts refundable to customers.
Additionally, the current period includes the gain of $8.9 million,
after income taxes, associated with the expiration of certain
natural gas storage contracts, (See Note 6 of the Notes to
Consolidated Financial Statements). These decreases were partially
offset by lower interest income due to lower cash balances.
Other Matters
Effect of Weather. Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a
significant positive or negative impact on net income, cash
position, and coverage ratios.
Accounting Standards. In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". This statement requires recognition of impairment
losses on long-lived assets when an asset's book value may not be
recoverable. For regulated companies, the statement requires that
regulatory assets be probable of recovery at every balance sheet
date. This statement requires adoption no later than the Company's
1997 fiscal year. The Company does not expect the adoption of SFAS
No. 121 to have a material effect on its financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement requires companies to
either recognize compensation costs measured at fair value
attributable to employee stock options or similar equity
instruments at the grant date in net income, or, in the
alternative, provide pro forma footnote disclosure on net income
and earnings per share. This statement requires adoption no later
than the Company's 1997 fiscal year. The Company anticipates
electing the pro forma footnote disclosure provisions of this
statement in 1997. Implementation is not expected to have a
material effect on pro forma net income or earnings per share.
FERC Order 636 Costs. In 1992, the FERC issued Order 636 and
successor orders that required substantial restructuring of the
service obligations of interstate pipelines. (See Notes 2F, 3A,
and 3B of the Notes to Consolidated Financial Statements.)
In 1994, the Commission entered orders providing for full
recovery by Peoples Gas and North Shore Gas of FERC Order 636
transition costs from the Companys' respective gas service
customers. The Commission's orders have been appealed to the
Illinois Supreme Court. (See Notes 2F, 3A, and 3B of the Notes to
Consolidated Financial Statements.)
Reengineering Project. Peoples Gas and North Shore Gas are
reengineering their business processes with the goal of increasing
efficiency, responsiveness to customer needs, and cost
effectiveness.
Large Volume Gas Service Agreements. Peoples Gas has entered into
gas service contracts with certain large volume customers under a
specific rate schedule approved by the Commission. These contracts
were negotiated to overcome the potential threat of bypassing the
utility's distribution system. The impact on the net income of
Peoples Gas as a result of these contracts is not material.
<TABLE>
Operating Statistics. The following table represents gas
distribution margin components:
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating Revenues (thousands):
Gas Sales
Residential $291,483 $233,776 $ 940,807 $ 760,065
Commercial 43,574 33,982 151,186 116,627
Industrial 8,244 7,415 32,904 24,967
-------- -------- ---------- ----------
343,301 275,173 1,124,897 901,659
Transportation
Residential 11,454 12,344 36,243 39,758
Commercial 15,241 16,677 49,815 53,362
Industrial 9,388 10,249 35,198 36,212
Contract Pooling 2,446 -- 6,879 --
Other 400 -- 400 --
-------- -------- ---------- ----------
38,929 39,270 128,535 129,332
-------- -------- ---------- ----------
Other Revenues 4,918 3,162 14,768 12,892
-------- -------- ---------- ----------
Total Operating Revenues 387,148 317,605 1,268,200 1,043,883
Less _ Gas Costs 188,594 129,871 588,598 441,220
_ Revenues Taxes 39,295 33,765 126,702 112,239
-------- -------- ---------- ----------
Net Operating Revenues $159,259 $153,969 $ 552,900 $ 490,424
======== ======== ========== ==========
Deliveries (MDth):
Gas Sales
Residential 46,666 47,793 153,001 141,546
Commercial 7,669 7,417 27,642 23,708
Industrial 1,575 1,825 6,553 5,678
-------- -------- ---------- ----------
55,910 57,035 187,196 170,932
-------- -------- ---------- ----------
Transportation (a)
Residential 8,814 8,862 26,473 26,578
Commercial 12,712 13,772 41,401 44,210
Industrial 11,482 12,144 42,704 42,019
Other 10 -- 10 --
-------- -------- ---------- ----------
33,018 34,778 110,588 112,807
-------- -------- ---------- ----------
Total Gas Sales
and Transportation 88,928 91,813 297,784 283,739
======== ======== ========== ==========
Margin per Dth delivered $ 1.79 $ 1.68 $ 1.86 $ 1.73
<FN>
(a)Volumes associated with contract pooling revenues are
included in their respective customer classes.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Indenture Restrictions. North Shore Gas' indenture relating to its
first mortgage bonds contains provisions and covenants restricting
the payment of cash dividends and the purchase or redemption of
capital stock. At December 31, 1996, such restrictions amounted to
$11.6 million out of North Shore Gas' total retained earnings of
$69.6 million; accordingly, $58 million are available for the
payment of cash dividends and the purchase of redemption of capital
stock. (See Note 5 of the Notes to Consolidated Financial
Statements.)
Rate Order. On November 8, 1995, the Commission issued orders
approving changes in rates of Peoples Gas and North Shore Gas.
(See Note 3A of the Notes to Consolidated Financial Statements.)
Environmental Matters. The Company's utility subsidiaries are
conducting environmental investigations and work at certain sites
that were the location of former manufactured gas operations. (See
Note 4A of the Notes to Consolidated Financial Statements.)
In 1994, North Shore Gas received a demand from a responsible
party under CERCLA for reimbursement, indemnification and
contribution for response costs incurred at a former mineral
processing site in Denver, Colorado. North Shore Gas filed a
declaratory judgment action asking the court to declare that North
Shore Gas is not liable for response costs relating to the site.
(See Note 4B of the Notes to Consolidated Financial Statements.)
On November 14, 1995, the Illinois Attorney General filed a
complaint in the Circuit Court of Cook County naming North Shore
Gas and four other parties as defendants. The complaint alleges
violations arising out of a gasoline release that occurred in
Wheeling, Illinois in June 1992 when a contractor who was
installing a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company. North
Shore Gas is currently contesting this suit. (See Note 4C of the
Notes to Consolidated Financial Statements.)
District Energy. Peoples District Energy is a 50 per cent
participant in a partnership, Trigen-Peoples District Energy
Company, that provides district energy services to the McCormick
Place Exposition and Convention Center in Chicago, Illinois. The
other partner is a subsidiary of Trigen Energy Corporation
(Trigen), a company whose primary business is constructing and
operating district energy facilities. Neither the partnership nor
its partners are regulated as a public utility. The Company and
Trigen have provided a joint and several limited guarantee to the
owner and operator of McCormick Place and also have certain limited
obligations to the partnership's lender under a Sponsors Support
and Equity Contribution Agreement.
Bonds Redeemed. On December 29, 1995, Peoples Gas redeemed, from
general corporate funds, approximately $87 million aggregate
principal amount of the City of Joliet's 1984 Gas Supply Revenue
Bonds, Series A and B, which were secured by Peoples Gas' Series U
and V First and Refunding Mortgage Bonds. (See Note 8B of the
Notes to Consolidated Financial Statements.)
On February 1, 1996, North Shore Gas redeemed $8 million
aggregate principal amount of its Series I First Mortgage Bonds
using the proceeds of a short-term bank loan as well as other
monies of North Shore Gas. (See Note 8B of the Notes to
Consolidated Financial Statements.)
Credit Lines. The utility subsidiaries have lines of credit of
$129.4 million. At December 31, 1996, the utility subsidiaries had
unused credit available from banks of $100.4 million.
Interest Coverage. The fixed charges coverage ratios for Peoples
Gas for the 12 months ended December 31, 1996, and for fiscal 1996
and 1995 were 5.23, 4.84, and 2.76, respectively.
The corresponding coverage ratios for North Shore Gas for the
same periods were 6.10, 5.62, and 2.93, respectively.
Dividends. On February 5, 1997, the Directors of the Company voted
to increase the regular quarterly dividend on the Company's common
stock to 47 cents per share from 46 cents per share previously in
effect. The annualized dividend rate now amounts to $1.88 per
share.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 of the Notes to Consolidated Financial Statements
for a discussion pertaining to environmental matters.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description of Document
------- --------------------------------------------
10(a) Severance Agreement Between the Company and
Richard E. Terry dated as of December 4,
1996.
10(b) Severance Agreement Between the Company and
J. Bruce Hasch dated as of December 4,
1996.
10(c) Severance Agreement Between the Company and
Michael S. Reeves dated as of December 4,
1996.
10(d) Severance Agreement Between the Company and
James Hinchliff dated as of December 4,
1996.
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended
December 31, 1996
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Peoples Energy Corporation
--------------------------
(Registrant)
February 12, 1997 By: /s/ K. S. BALASKOVITS
----------------- ------------------------------
(Date) K. S. Balaskovits
Vice President and Controller
(Same as above)
------------------------------
Principal Accounting Officer
SEVERANCE AGREEMENT
BETWEEN
PEOPLES ENERGY CORPORATION
AND
RICHARD E. TERRY
Chairman and Chief Executive Officer
THIS AGREEMENT, effective as of December 4, 1996, by and
between Peoples Energy Corporation, an Illinois corporation and
Richard E. Terry, Chairman and Chief Executive Officer (the
"Executive").
WITNESSETH
WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company; and
WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in Control;
and
WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations
in the event of a Change in Control by entering into this
Agreement with the Executive;
NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
1. Definitions.
"AAA" shall have the meaning set forth in paragraph 5 of
this Agreement.
"Affiliate" shall mean the subsidiaries of PEC and other
entities controlled by such subsidiaries.
"Agreement" shall mean this Severance Agreement.
"Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
"Board" shall mean the Board of Directors of PEC.
"Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a meeting
of the Board at which the Executive is provided an opportunity to
be heard.
"Change in Control" shall mean:
(i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934 Act)
("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of PEC, or
(B) actual knowledge by PEC of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to
make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner, directly
or indirectly, of twenty (20) percent or more of the outstanding
stock of PEC;
(ii) purchase by any Person, other than PEC or a
wholly-owned subsidiary of the Company, of shares pursuant to a
tender or exchange offer to acquire any stock of PEC (or
securities convertible into stock) for cash, securities or any
other consideration provided that, after consummation of the
offer, such Person is the beneficial owner (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
(iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
PEC (Transfer Transaction), (except where (A) PEC owns all of the
outstanding stock of the transferee entity or (B) the holders of
PEC's common stock immediately prior to the Transfer Transaction
own at least ninety (90) percent of the outstanding stock of the
transferee entity, immediately after the Transfer Transaction), or
(d) any consolidation or merger of PEC where, after the
consolidation or merger, one Person owns one hundred (100) percent
of the shares of stock of PEC (except where the holders of PEC's
common stock immediately prior to such merger or consolidation own
at least ninety (90) percent of the outstanding stock of such
Person immediately after such consolidation or merger); or
(iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the beginning
of the twenty-four (24) month period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
"Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
"Compensation" shall mean the sum of (i) the Executive's
annual rate of salary on the last day the Executive was an
employee of the Company, including any elective contributions made
by the Company on behalf of the Executive that are not includable
in the gross income of the Executive under Section 125 or
402(a)(8) of the Code or any successor provision thereto, and
including any amount of salary that has been deferred by the
Executive, (ii) an award equal to the average of the amounts
awarded to the Executive under the PEC STIC during the three years
preceding termination of employment, and (iii) the economic
equivalent value of any awards received by Executive under the PEC
LTIC in the calendar year preceding termination of employment (as
determined in good faith by the PEC Directors' Compensation-
Nominating Committee).
"Computed Award" shall mean Computed Award as defined in
the PEC STIC.
"Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of employment,
(iii) liquidation, dissolution, consolidation or merger of PEC, or
transfer of all or substantially all of its assets, other than a
transaction or series of transactions in which the resulting or
surviving transferee entity has, in the aggregate, a net worth at
least equal to that of PEC immediately before such transaction and
such resulting or surviving transferee entity expressly assumes
this Agreement and all obligations and undertakings hereunder, or
(iv) reduction, which is more than de minimis, in the Executive's
total compensation (Compensation, perquisites and benefits). It
is understood and agreed by all parties hereto that a reduction in
(a) the amount the Executive receives under PEC STIC, (b) the
awards received by the Executive under the PEC LTIC, or (c) the
prerequisites or benefits of the Executive shall not be deemed a
reduction if such amount received under the PEC STIC, awards
received under the PEC LTIC, or such prerequisites or benefits are
with respect to the PEC STIC, PEC LTIC and prerequisites, greater
than that received by any Company officer and with respect to
benefits, no less than that received by any Company officer. An
event shall not be considered Constructive Discharge unless the
Executive provides written notice to PEC specifying the event
relied upon for Constructive Discharge within six months after the
occurrence of such event. Within thirty days of receiving such
written notice from the Executive, the Company may cure or cause
to be cured the event upon which the Executive claims a
Constructive Discharge and no Constructive Discharge shall have
been considered to have occurred with respect to such event. PEC
and the Executive, upon mutual written agreement, may waive any of
the foregoing provisions which would otherwise constitute a
Constructive Discharge.
"Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
"Effective Date" shall mean December 4, 1996.
"PEC" shall mean Peoples Energy Corporation, an Illinois
corporation.
"PEC Directors' Compensation-Nominating Committee" shall
mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
"PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date, as
amended from time to time or any successor plan.
"PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
"Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
"Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as described
in paragraph 3.a., using as a mortality basis the mortality basis
used by the PEC Retirement Plan for determining benefits, or if
such mortality basis is not available, a mortality basis
determined by the PEC Retirement Plan's consulting actuaries, and
assuming a discount rate equal to the average of the yield on
Thirty (30) year United States Treasury Bonds for the second
calendar month preceding the Executive's termination of employment
as described in paragraph 3.a.
"Rule of Eighty-Five" shall mean the Rule of Eighty-Five
as defined under the PEC Retirement Plan.
"SARs" shall mean SARs as defined under the PEC LTIC.
"Stock Options" shall mean Options as defined under the
PEC LTIC.
"Term" shall mean the term of this Agreement as set
forth in paragraph 2.
"Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date, as
amended from time to time.
2. Term.
This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of:
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
3. Severance Benefit.
a. If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become entitled
hereunder to the beneficiary or estate of the Executive as
described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all nonunion employees, effective
January 1, 1997, or any successor plan, (ii) severance pay in a
lump sum cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e. The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service. For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of
Eighty-Five under the PEC Retirement Plan and PEC SRB (regardless
of whether the Executive so qualifies). All non-vested Options
and SARs awarded to the Executive under the PEC LTIC shall be
deemed vested as of the earlier of the date of a Change in Control
as defined in this Agreement or Change in Control as defined in
the PEC LTIC. The Company shall treat the Executive as employed
by the Company for purposes of exercising Stock Options and SARs
during the Coverage Period. All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed vested
and owned by the Executive as of the earlier of the date of a
Change in Control as defined in this Agreement or a Change in
Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after the
date of such Change in Control. The Executive's termination of
employment with the Company to become an employee of a corporation
which directly or indirectly owns one hundred percent (100%) of or
which is owned one hundred percent (100%) by the Company shall not
be considered a termination of employment for purposes of this
Agreement. The subsequent termination of the Executive's
employment from such corporation, without employment at a company
that is wholly-owned by such corporation, shall be considered a
termination of employment for purposes of this Agreement.
b. During the longer of: (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company shall
pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by an
employer of the Executive other than the Company.
c. (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the Company
which constitute "parachute payments" as defined in Section 280G
of the Code (or any successor provision thereto) ("Parachute
Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount calculated at the highest marginal tax rate
applicable to the Executive for the tax year in which such
payments were paid to the Executive (determined by Independent Tax
Counsel) such that after payment by the Executive of all federal,
state and other taxes (including any Excise Tax) imposed upon the
Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Executive retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the
payments. For purposes of this paragraph 3.c., "Independent Tax
Counsel" shall mean a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits
consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and
shall be reasonably acceptable to PEC, and whose fees and
disbursements shall be paid by PEC.
(ii) If Independent Tax Counsel shall determine
that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that the Executive has
substantial authority not to report any Excise Tax on the
Executive's Federal income tax return. If the Executive is
subsequently required to make a payment of any Excise Tax, then
the Independent Tax Counsel shall determine in the same manner as
a Gross-up Payment the amount (the amount of such additional
payments are referred herein as "Gross-Up Underpayment") of such
payment and any such Gross-Up Underpayment shall be promptly paid
by PEC to or for the benefit of the Executive. The fees and
disbursements of the Independent Tax Counsel shall be paid by PEC.
(iii) The Executive shall notify PEC in writing
within 15 days of any claim by the Internal Revenue Service that, if
successful, would require the payment by PEC of a Gross-Up Payment.
If PEC notifies the Executive in writing that it desires to contest
such claim and that it will bear the costs and provide the
indemnification as required by this subparagraph (iii) of paragraph
3.c., the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and expenses.
The Company shall control all proceedings taken in connection with
such contest; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, PEC shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis calculated at the highest marginal
tax rate applicable to the Executive, from any Excise Tax or
federal and state income tax or other taxes, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such
advance.
(iv) If, after the receipt by the Executive of an
amount advanced by PEC pursuant to subparagraph (iii) of paragraph
3.c., the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall within 10 days pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto).
d. In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
e. The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a. If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated award
for the portion of the Plan Year that the Executive was employed
by the Company. If the Executive has not yet received payment of
his award amount under the STIC for the Plan Year preceding the
Executive's termination, the PEC Directors' Compensation-Nominating
Committee shall determine in good faith, specifically considering
the Executive's Computed Award under the STIC for such Plan Year,
an award amount under the STIC for such Plan Year.
4. Source of Payments.
All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or utilized
by PEC to assure such payments. The Company shall not be required
to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Executive shall have no right, title or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments.
Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and
the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company such right
shall be no greater than the right of an unsecured creditor of the
Company.
5. Litigation Expenses: Arbitration.
a. PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7. In no event shall the Executive be
obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. PEC agrees to pay, upon written
demand therefor by the Executive, all legal fees and expenses
which the Executive may reasonably incur as a result of any
dispute or contest (regardless of the outcome thereof) by or with
the Company or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement, plus in each
case interest at the Federal long-term rate in effect under
Section 1274(d) of the Code, compounded monthly. In any such
action brought by the Executive for damages or to enforce any
provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. The obligation of
the Company under this paragraph 5. shall survive the termination
for any reason of this Agreement (whether such termination is by
the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
b. In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration. The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
or arbitrators within 30 days after the Executive had notified PEC
of his desire to have the question settled by arbitration, then
the arbitrator or arbitrators shall be selected by the American
Arbitration Association (the "AAA") in Illinois upon the
application of the Executive. The determination reached in such
arbitration shall be final and binding on both parties without any
right of appeal of further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. Unless
otherwise agreed by the parties, any such arbitration shall take
place in Illinois, and shall be conducted in accordance with the
Rules of the AAA.
6. Tax Withholding.
The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
7. Waiver and Releases.
a. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following: (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
b. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by this
reference made a part hereof.
8. Amendment of Trust and Deposit of Assets.
On or before December 31, 1996, PEC shall amend the
Trust to provide that within ten (10) business days after the date
of a Change in Control, PEC shall deposit cash into the Trust, in
an amount equal to the following: (a) the payment obligations of
PEC under the Peoples Energy Corporation's Executive Deferred
Compensation Plan as in effect on the Effective Date, as amended
from time to time or any successor plan, and (b) the accrued
benefits of the participants, as of the date of the Change in
Control, under the PEC SRB, Part A and Part B.
9. Outplacement Services.
Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
10. Entire Understanding.
This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement between
the Company and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
11. Severability.
If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
12 Consolidation, Merger, or Sale of Assets.
If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
13. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
a. to PEC:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
Attention: E. P. Cassidy, Secretary
b. to the Executive:
Richard E. Terry
Chairman and Chief Executive Officer
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
or to such other address as either party shall have previously
specified in writing to the other.
14. No attachment.
Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of
no effect. Notwithstanding the preceding sentence, the Executive
may, by giving notice to PEC during the Executive's lifetime,
designate a beneficiary or beneficiaries to whom the severance
benefits described in paragraph 3.a. shall be transferred in the
event of the Executive's death. Any such designation may be
revoked or changed by the Executive at any time and from time to
time by similar notice. If there is no such designated
beneficiary living upon the death of the Executive or if all such
designated beneficiaries die prior to the receipt by the Executive
of the referenced severance benefits, such severance benefits
shall be transferred to the Executive's surviving spouse or, if
none, then such severance benefits will be transferred to the
estate or personal representative of the Executive. If the
Company, after reasonable inquiry, is unable to determine within
twelve months after the Executive's death whether any designated
beneficiary of the Executive did in fact survive the Executive,
such beneficiary shall be conclusively presumed to have died prior
to the Executive's death.
15. Binding Agreement.
This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
16. Modification and Waiver.
This Agreement may not be modified or amended except
by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
17. Headings of No Effect.
The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
18. Governing Law.
This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
IN WITNESS WHEREOF, PEC has caused this Agreement to
be executed by its officers thereunto duly authorized, and the
Executive has signed this Agreement, all effective as of the date
first above written.
PEOPLES ENERGY CORPORATION
By: /s/ HOMER J. LIVINGSTON, JR.
---------------------------------------
Director and Chairman of the
Compensation-Nominating Committee
of the Board of Directors
By: /s/ RICHARD E. TERRY
--------------------------------------------
Richard E. Terry
Chairman and Chief Executive Officer
EXHIBIT A
TO SEVERANCE AGREEMENT
BETWEEN PEOPLES ENERGY CORPORATION AND
EXECUTIVE, DATED DECEMBER 4, 1996
RELEASE AGREEMENT
This Agreement is entered into on this ____ day of
_______________, between Richard E. Terry, Chairman and Chief
Executive Officer ("Executive") and Peoples Energy Corporation on
behalf of Peoples Energy Corporation and any affiliate and
successor or successors to Peoples Energy Corporation.
1. In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive, dated
as of December 4, 1996, ("Severance Agreement") Executive waives,
releases and forever discharges PEC (including its current and
former affiliated companies, and their current and former officers,
directors, employees and agents) from all claims which he may have
against PEC (including its current and former affiliated companies,
and their current and former officers, directors, employees and
agents) arising out of the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act
of 1964, the Illinois Human Rights Act, or any other federal, state
or local statute, regulation, ordinance, or doctrine of common law
prohibiting discrimination on the basis of disability or age or
race or gender or on any other substantially similar basis.
2. The Executive acknowledges that, prior to his
execution of this Agreement, he was encouraged to review it with
counsel or anyone else of his choosing. Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.
The Company encourages the Executive to consult with an
attorney regarding this Agreement, accordingly, the offer contained
in the Severance Agreement will remain open for twenty-one (21)
days. If after review, the Executive wishes to accept, he should
sign this document and return it to the Secretary of Peoples Energy
Corporation. This Release will not become effective until seven
days thereafter, and if the Executive changes his mind within that
period, he may revoke this Release by notifying the Secretary of
Peoples Energy Corporation. The Executive understands and agrees
that no benefits will be paid or provided to the Executive under
the Severance Agreement prior to the receipt by PEC of this release
executed by the Executive.
PEOPLES ENERGY CORPORATION:
By: ___________________________________ _______________________
Date
By: ___________________________________ ________________________
Richard E. Terry Date
SEVERANCE AGREEMENT
BETWEEN
PEOPLES ENERGY CORPORATION
AND
J. BRUCE HASCH
President and Chief Operating Officer
THIS AGREEMENT, effective as of December 4, 1996, by and
between Peoples Energy Corporation, an Illinois corporation and J.
Bruce Hasch, President and Chief Operating Officer (the
"Executive").
WITNESSETH
WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company; and
WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in Control;
and
WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations
in the event of a Change in Control by entering into this
Agreement with the Executive;
NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
1. Definitions.
"AAA" shall have the meaning set forth in paragraph 5 of
this Agreement.
"Affiliate" shall mean the subsidiaries of PEC and other
entities controlled by such subsidiaries.
"Agreement" shall mean this Severance Agreement.
"Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
"Board" shall mean the Board of Directors of PEC.
"Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a meeting
of the Board at which the Executive is provided an opportunity to
be heard.
"Change in Control" shall mean:
(i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934 Act)
("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of PEC, or
(B) actual knowledge by PEC of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to
make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner, directly
or indirectly, of twenty (20) percent or more of the outstanding
stock of PEC;
(ii) purchase by any Person, other than PEC or a
wholly-owned subsidiary of the Company, of shares pursuant to a
tender or exchange offer to acquire any stock of PEC (or
securities convertible into stock) for cash, securities or any
other consideration provided that, after consummation of the
offer, such Person is the beneficial owner (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
(iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
PEC (Transfer Transaction), (except where (A) PEC owns all of the
outstanding stock of the transferee entity or (B) the holders of
PEC's common stock immediately prior to the Transfer Transaction
own at least ninety (90) percent of the outstanding stock of the
transferee entity, immediately after the Transfer Transaction), or
(d) any consolidation or merger of PEC where, after the
consolidation or merger, one Person owns one hundred (100) percent
of the shares of stock of PEC (except where the holders of PEC's
common stock immediately prior to such merger or consolidation own
at least ninety (90) percent of the outstanding stock of such
Person immediately after such consolidation or merger); or
(iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the beginning
of the twenty-four (24) month period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
"Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
"Compensation" shall mean the sum of (i) the Executive's
annual rate of salary on the last day the Executive was an
employee of the Company, including any elective contributions made
by the Company on behalf of the Executive that are not includable
in the gross income of the Executive under Section 125 or
402(a)(8) of the Code or any successor provision thereto, and
including any amount of salary that has been deferred by the
Executive, (ii) an award equal to the average of the amounts
awarded to the Executive under the PEC STIC during the three years
preceding termination of employment, and (iii) the economic
equivalent value of any awards received by Executive under the PEC
LTIC in the calendar year preceding termination of employment (as
determined in good faith by the PEC Directors' Compensation-
Nominating Committee).
"Computed Award" shall mean Computed Award as defined in
the PEC STIC.
"Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of employment,
(iii) liquidation, dissolution, consolidation or merger of PEC, or
transfer of all or substantially all of its assets, other than a
transaction or series of transactions in which the resulting or
surviving transferee entity has, in the aggregate, a net worth at
least equal to that of PEC immediately before such transaction and
such resulting or surviving transferee entity expressly assumes
this Agreement and all obligations and undertakings hereunder, or
(iv) reduction, which is more than de minimis, in the Executive's
total compensation (Compensation, perquisites and benefits). It
is understood and agreed by all parties hereto that a reduction in
(a) the amount the Executive receives under PEC STIC, (b) the
awards received by the Executive under the PEC LTIC, or (c) the
prerequisites or benefits of the Executive shall not be deemed a
reduction if such amount received under the PEC STIC, awards
received under the PEC LTIC, or such prerequisites or benefits are
with respect to the PEC STIC, PEC LTIC and prerequisites greater
than that received by any Company officer of lesser rank and with
respect to benefits, no less than that received by any Company
officer of lesser rank. An event shall not be considered
Constructive Discharge unless the Executive provides written
notice to PEC specifying the event relied upon for Constructive
Discharge within six months after the occurrence of such event.
Within thirty days of receiving such written notice from the
Executive, the Company may cure or cause to be cured the event
upon which the Executive claims a Constructive Discharge and no
Constructive Discharge shall have been considered to have occurred
with respect to such event. PEC and the Executive, upon mutual
written agreement, may waive any of the foregoing provisions which
would otherwise constitute a Constructive Discharge.
"Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
"Effective Date" shall mean December 4, 1996.
"PEC" shall mean Peoples Energy Corporation, an Illinois
corporation.
"PEC Directors' Compensation-Nominating Committee" shall
mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
"PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date, as
amended from time to time or any successor plan.
"PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
"Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
"Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as described
in paragraph 3.a., using as a mortality basis the mortality basis
used by the PEC Retirement Plan for determining benefits, or if
such mortality basis is not available, a mortality basis
determined by the PEC Retirement Plan's consulting actuaries, and
assuming a discount rate equal to the average of the yield on
Thirty (30) year United States Treasury Bonds for the second
calendar month preceding the Executive's termination of employment
as described in paragraph 3.a.
"Rule of Eighty-Five" shall mean the Rule of Eighty-Five
as defined under the PEC Retirement Plan.
"SARs" shall mean SARs as defined under the PEC LTIC.
"Stock Options" shall mean Options as defined under the
PEC LTIC.
"Term" shall mean the term of this Agreement as set
forth in paragraph 2.
"Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date, as
amended from time to time.
2. Term.
This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of:
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
3. Severance Benefit.
a. If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become entitled
hereunder to the beneficiary or estate of the Executive as
described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all nonunion employees, effective
January 1, 1997, or any successor plan, (ii) severance pay in a
lump sum cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e. The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service. For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of
Eighty-Five under the PEC Retirement Plan and PEC SRB (regardless
of whether the Executive so qualifies). All non-vested Options
and SARs awarded to the Executive under the PEC LTIC shall be
deemed vested as of the earlier of the date of a Change in Control
as defined in this Agreement or Change in Control as defined in
the PEC LTIC. The Company shall treat the Executive as employed
by the Company for purposes of exercising Stock Options and SARs
during the Coverage Period. All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed vested
and owned by the Executive as of the earlier of the date of a
Change in Control as defined in this Agreement or a Change in
Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after the
date of such Change in Control. The Executive's termination of
employment with the Company to become an employee of a corporation
which directly or indirectly owns one hundred percent (100%) of or
which is owned one hundred percent (100%) by the Company shall not
be considered a termination of employment for purposes of this
Agreement. The subsequent termination of the Executive's
employment from such corporation, without employment at a company
that is wholly-owned by such corporation, shall be considered a
termination of employment for purposes of this Agreement.
b. During the longer of: (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company shall
pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by an
employer of the Executive other than the Company.
c. (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the Company
which constitute "parachute payments" as defined in Section 280G
of the Code (or any successor provision thereto) ("Parachute
Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount calculated at the highest marginal tax rate
applicable to the Executive for the tax year in which such
payments were paid to the Executive (determined by Independent Tax
Counsel) such that after payment by the Executive of all federal,
state and other taxes (including any Excise Tax) imposed upon the
Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Executive retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the
payments. For purposes of this paragraph 3.c., "Independent Tax
Counsel" shall mean a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits
consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and
shall be reasonably acceptable to PEC, and whose fees and
disbursements shall be paid by PEC.
(ii) If Independent Tax Counsel shall determine
that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that the Executive has
substantial authority not to report any Excise Tax on the
Executive's Federal income tax return. If the Executive is
subsequently required to make a payment of any Excise Tax, then
the Independent Tax Counsel shall determine in the same manner
as a Gross-up Payment the amount (the amount of such additional
payments are referred herein as "Gross-Up Underpayment") of such
payment and any such Gross-Up Underpayment shall be promptly paid
by PEC to or for the benefit of the Executive. The fees and
disbursements of the Independent Tax Counsel shall be paid by PEC.
(iii) The Executive shall notify PEC in writing
within 15 days of any claim by the Internal Revenue Service that,
if successful, would require the payment by PEC of a Gross-Up Payment.
If PEC notifies the Executive in writing that it desires to contest
such claim and that it will bear the costs and provide the
indemnification as required by this subparagraph (iii) of paragraph
3.c., the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and expenses.
The Company shall control all proceedings taken in connection with
such contest; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, PEC shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis calculated at the highest marginal
tax rate applicable to the Executive, from any Excise Tax or
federal and state income tax or other taxes, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such
advance.
(iv) If, after the receipt by the Executive of an
amount advanced by PEC pursuant to subparagraph (iii) of paragraph
3.c., the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall within 10 days pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto).
d. In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
e. The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a. If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated award
for the portion of the Plan Year that the Executive was employed
by the Company. If the Executive has not yet received payment of
his award amount under the STIC for the Plan Year preceding the
Executive's termination, the PEC Directors' Compensation-Nominating
Committee shall determine in good faith, specifically considering
the Executive's Computed Award under the STIC for such Plan Year,
an award amount under the STIC for such Plan Year.
4. Source of Payments.
All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or utilized
by PEC to assure such payments. The Company shall not be required
to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Executive shall have no right, title or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments.
Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and
the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company such right
shall be no greater than the right of an unsecured creditor of the
Company.
5. Litigation Expenses: Arbitration.
a. PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7. In no event shall the Executive be
obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. PEC agrees to pay, upon written
demand therefor by the Executive, all legal fees and expenses
which the Executive may reasonably incur as a result of any
dispute or contest (regardless of the outcome thereof) by or with
the Company or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement, plus in each
case interest at the Federal long-term rate in effect under
Section 1274(d) of the Code, compounded monthly. In any such
action brought by the Executive for damages or to enforce any
provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. The obligation of
the Company under this paragraph 5. shall survive the termination
for any reason of this Agreement (whether such termination is by
the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
b. In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration. The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
or arbitrators within 30 days after the Executive had notified PEC
of his desire to have the question settled by arbitration, then
the arbitrator or arbitrators shall be selected by the American
Arbitration Association (the "AAA") in Illinois upon the
application of the Executive. The determination reached in such
arbitration shall be final and binding on both parties without any
right of appeal of further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. Unless
otherwise agreed by the parties, any such arbitration shall take
place in Illinois, and shall be conducted in accordance with the
Rules of the AAA.
6. Tax Withholding.
The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
7. Waiver and Releases.
a. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following: (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
b. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by this
reference made a part hereof.
8. Amendment of Trust and Deposit of Assets.
On or before December 31, 1996, PEC shall amend the
Trust to provide that within ten (10) business days after the date
of a Change in Control, PEC shall deposit cash into the Trust, in
an amount equal to the following: (a) the payment obligations of
PEC under the Peoples Energy Corporation's Executive Deferred
Compensation Plan as in effect on the Effective Date, as amended
from time to time or any successor plan, and (b) the accrued
benefits of the participants, as of the date of the Change in
Control, under the PEC SRB, Part A and Part B.
9. Outplacement Services.
Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
10. Entire Understanding.
This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement between
the Company and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
11. Severability.
If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
12 Consolidation, Merger, or Sale of Assets.
If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
13. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
a. to PEC:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
Attention: E. P. Cassidy, Secretary
b. to the Executive:
J. Bruce Hasch
President and Chief Operating Officer
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
or to such other address as either party shall have previously
specified in writing to the other.
14. No attachment.
Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of
no effect. Notwithstanding the preceding sentence, the Executive
may, by giving notice to PEC during the Executive's lifetime,
designate a beneficiary or beneficiaries to whom the severance
benefits described in paragraph 3.a. shall be transferred in the
event of the Executive's death. Any such designation may be
revoked or changed by the Executive at any time and from time to
time by similar notice. If there is no such designated
beneficiary living upon the death of the Executive or if all such
designated beneficiaries die prior to the receipt by the Executive
of the referenced severance benefits, such severance benefits
shall be transferred to the Executive's surviving spouse or, if
none, then such severance benefits will be transferred to the
estate or personal representative of the Executive. If the
Company, after reasonable inquiry, is unable to determine within
twelve months after the Executive's death whether any designated
beneficiary of the Executive did in fact survive the Executive,
such beneficiary shall be conclusively presumed to have died prior
to the Executive's death.
15. Binding Agreement.
This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
16. Modification and Waiver.
This Agreement may not be modified or amended except
by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
17. Headings of No Effect.
The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
18. Governing Law.
This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
IN WITNESS WHEREOF, PEC has caused this Agreement to
be executed by its officers thereunto duly authorized, and the
Executive has signed this Agreement, all effective as of the date
first above written.
PEOPLES ENERGY CORPORATION
By: /s/ HOMER J. LIVINGSTON, JR.
---------------------------------------
Director and Chairman of the
Compensation-Nominating Committee
of the Board of Directors
By: /s/ J. BRUCE HASCH
----------------------------------------------
J. Bruce Hasch
President and Chief Operating Officer
EXHIBIT A
TO SEVERANCE AGREEMENT
BETWEEN PEOPLES ENERGY CORPORATION AND
EXECUTIVE, DATED DECEMBER 4, 1996
RELEASE AGREEMENT
This Agreement is entered into on this ____ day of
_______________, between J. Bruce Hasch, President and Chief
Operating Officer ("Executive") and Peoples Energy Corporation on
behalf of Peoples Energy Corporation and any affiliate and
successor or successors to Peoples Energy Corporation.
1. In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive, dated
as of December 4, 1996, ("Severance Agreement") Executive waives,
releases and forever discharges PEC (including its current and
former affiliated companies, and their current and former officers,
directors, employees and agents) from all claims which he may have
against PEC (including its current and former affiliated companies,
and their current and former officers, directors, employees and
agents) arising out of the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act
of 1964, the Illinois Human Rights Act, or any other federal, state
or local statute, regulation, ordinance, or doctrine of common law
prohibiting discrimination on the basis of disability or age or
race or gender or on any other substantially similar basis.
2. The Executive acknowledges that, prior to his
execution of this Agreement, he was encouraged to review it with
counsel or anyone else of his choosing. Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.
The Company encourages the Executive to consult with an
attorney regarding this Agreement, accordingly, the offer contained
in the Severance Agreement will remain open for twenty-one (21)
days. If after review, the Executive wishes to accept, he should
sign this document and return it to the Secretary of Peoples Energy
Corporation. This Release will not become effective until seven
days thereafter, and if the Executive changes his mind within that
period, he may revoke this Release by notifying the Secretary of
Peoples Energy Corporation. The Executive understands and agrees
that no benefits will be paid or provided to the Executive under
the Severance Agreement prior to the receipt by PEC of this release
executed by the Executive.
PEOPLES ENERGY CORPORATION:
By: ___________________________________ _______________________
Date
By: ___________________________________ ________________________
J. Bruce Hasch Date
SEVERANCE AGREEMENT
BETWEEN
PEOPLES ENERGY CORPORATION
AND
MICHAEL S. REEVES
Executive Vice President
THIS AGREEMENT, effective as of December 4, 1996, by and
between Peoples Energy Corporation, an Illinois corporation and
Michael S. Reeves, Executive Vice President (the "Executive").
WITNESSETH
WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company; and
WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in Control;
and
WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations
in the event of a Change in Control by entering into this
Agreement with the Executive;
NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
1. Definitions.
"AAA" shall have the meaning set forth in paragraph 5 of
this Agreement.
"Affiliate" shall mean the subsidiaries of PEC and other
entities controlled by such subsidiaries.
"Agreement" shall mean this Severance Agreement.
"Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
"Board" shall mean the Board of Directors of PEC.
"Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a meeting
of the Board at which the Executive is provided an opportunity to
be heard.
"Change in Control" shall mean:
(i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934 Act)
("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of PEC, or
(B) actual knowledge by PEC of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to
make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner, directly
or indirectly, of twenty (20) percent or more of the outstanding
stock of PEC;
(ii) purchase by any Person, other than PEC or a
wholly-owned subsidiary of the Company, of shares pursuant to a
tender or exchange offer to acquire any stock of PEC (or
securities convertible into stock) for cash, securities or any
other consideration provided that, after consummation of the
offer, such Person is the beneficial owner (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
(iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
PEC (Transfer Transaction), (except where (A) PEC owns all of the
outstanding stock of the transferee entity or (B) the holders of
PEC's common stock immediately prior to the Transfer Transaction
own at least ninety (90) percent of the outstanding stock of the
transferee entity, immediately after the Transfer Transaction), or
(d) any consolidation or merger of PEC where, after the
consolidation or merger, one Person owns one hundred (100) percent
of the shares of stock of PEC (except where the holders of PEC's
common stock immediately prior to such merger or consolidation own
at least ninety (90) percent of the outstanding stock of such
Person immediately after such consolidation or merger); or
(iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the beginning
of the twenty-four (24) month period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
"Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
"Compensation" shall mean the sum of (i) the Executive's
annual rate of salary on the last day the Executive was an
employee of the Company, including any elective contributions made
by the Company on behalf of the Executive that are not includable
in the gross income of the Executive under Section 125 or
402(a)(8) of the Code or any successor provision thereto, and
including any amount of salary that has been deferred by the
Executive, (ii) an award equal to the average of the amounts
awarded to the Executive under the PEC STIC during the three years
preceding termination of employment, and (iii) the economic
equivalent value of any awards received by Executive under the PEC
LTIC in the calendar year preceding termination of employment (as
determined in good faith by the PEC Directors' Compensation-
Nominating Committee).
"Computed Award" shall mean Computed Award as defined in
the PEC STIC.
"Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of employment,
(iii) liquidation, dissolution, consolidation or merger of PEC, or
transfer of all or substantially all of its assets, other than a
transaction or series of transactions in which the resulting or
surviving transferee entity has, in the aggregate, a net worth at
least equal to that of PEC immediately before such transaction and
such resulting or surviving transferee entity expressly assumes
this Agreement and all obligations and undertakings hereunder, or
(iv) reduction, which is more than de minimis, in the Executive's
total compensation (Compensation, perquisites and benefits). It
is understood and agreed by all parties hereto that a reduction in
(a) the amount the Executive receives under PEC STIC, (b) the
awards received by the Executive under the PEC LTIC, or (c) the
prerequisites or benefits of the Executive shall not be deemed a
reduction if such amount received under the PEC STIC, awards
received under the PEC LTIC, or such prerequisites or benefits are
the same as received by the Company's similarly situated officers.
An event shall not be considered Constructive Discharge unless the
Executive provides written notice to PEC specifying the event
relied upon for Constructive Discharge within six months after the
occurrence of such event. Within thirty days of receiving such
written notice from the Executive, the Company may cure or cause
to be cured the event upon which the Executive claims a
Constructive Discharge and no Constructive Discharge shall have
been considered to have occurred with respect to such event. PEC
and the Executive, upon mutual written agreement, may waive any of
the foregoing provisions which would otherwise constitute a
Constructive Discharge.
"Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
"Effective Date" shall mean December 4, 1996.
"PEC" shall mean Peoples Energy Corporation, an Illinois
corporation.
"PEC Directors' Compensation-Nominating Committee" shall
mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
"PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date, as
amended from time to time, or any successor plan.
"PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
"Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
"Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as described
in paragraph 3.a., using as a mortality basis the mortality basis
used by the PEC Retirement Plan for determining benefits, or if
such mortality basis is not available, a mortality basis
determined by the PEC Retirement Plan's consulting actuaries, and
assuming a discount rate equal to the average of the yield on
Thirty (30) year United States Treasury Bonds for the second
calendar month preceding the Executive's termination of employment
as described in paragraph 3.a.
"Rule of Eighty-Five" shall mean the Rule of Eighty-Five
as defined under the PEC Retirement Plan.
"SARs" shall mean SARs as defined under the PEC LTIC.
"Stock Options" shall mean Options as defined under the
PEC LTIC.
"Term" shall mean the term of this Agreement as set
forth in paragraph 2.
"Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date, as
amended from time to time.
2. Term.
This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of:
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
3. Severance Benefit.
a. If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become entitled
hereunder to the beneficiary or estate of the Executive as
described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all employees, effective January
1, 1997, or any successor plan, (ii) severance pay in a lump sum
cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e. The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service. For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of
Eighty-Five under the PEC Retirement Plan and PEC SRB (regardless
of whether the Executive so qualifies). All non-vested Options
and SARs awarded to the Executive under the PEC LTIC shall be
deemed vested as of the earlier of the date of a Change in Control
as defined in this Agreement or Change in Control as defined in
the PEC LTIC. The Company shall treat the Executive as employed
by the Company for purposes of exercising Stock Options and SARs
during the Coverage Period. All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed vested
and owned by the Executive as of the earlier of the date of a
Change in Control as defined in this Agreement or a Change in
Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after the
date of such Change in Control. The Executive's termination of
employment with the Company to become an employee of a corporation
which directly or indirectly owns one hundred percent (100%) of or
which is owned one hundred percent (100%) by the Company shall not
be considered a termination of employment for purposes of this
Agreement. The subsequent termination of the Executive's
employment from such corporation, without employment at a company
that is wholly-owned by such corporation, shall be considered a
termination of employment for purposes of this Agreement.
b. During the longer of: (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company shall
pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by an
employer of the Executive other than the Company.
c. (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the Company
which constitute "parachute payments" as defined in Section 280G
of the Code (or any successor provision thereto) ("Parachute
Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount calculated at the highest marginal tax rate
applicable to the Executive for the tax year in which such
payments were paid to the Executive (determined by Independent Tax
Counsel) such that after payment by the Executive of all federal,
state and other taxes (including any Excise Tax) imposed upon the
Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Executive retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the
payments. For purposes of this paragraph 3.c., "Independent Tax
Counsel" shall mean a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits
consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and
shall be reasonably acceptable to PEC, and whose fees and
disbursements shall be paid by PEC.
(ii) If Independent Tax Counsel shall determine
that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that the Executive has
substantial authority not to report any Excise Tax on the
Executive's Federal income tax return. If the Executive is
subsequently required to make a payment of any Excise Tax, then
the Independent Tax Counsel shall determine in the same manner
as a Gross-up Payment the amount (the amount of such additional
payments are referred herein as "Gross-Up Underpayment") of such
payment and any such Gross-Up Underpayment shall be promptly paid
by PEC to or for the benefit of the Executive. The fees and
disbursements of the Independent Tax Counsel shall be paid by PEC.
(iii) The Executive shall notify PEC in writing
within 15 days of any claim by the Internal Revenue Service that,
if successful, would require the payment by PEC of a Gross-Up
Payment. If PEC notifies the Executive in writing that it desires
to contest such claim and that it will bear the costs and provide
the indemnification as required by this subparagraph (iii) of
paragraph 3.c., the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and expenses.
The Company shall control all proceedings taken in connection with
such contest; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, PEC shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis calculated at the highest marginal
tax rate applicable to the Executive, from any Excise Tax or
federal and state income tax or other taxes, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such
advance.
(iv) If, after the receipt by the Executive of an
amount advanced by PEC pursuant to subparagraph (iii) of paragraph
3.c., the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall within 10 days pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto).
d. In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
e. The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a. If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated award
for the portion of the Plan Year that the Executive was employed
by the Company. If the Executive has not yet received payment of
his award amount under the STIC for the Plan Year preceding the
Executive's termination, the PEC Directors' Compensation-Nominating
Committee shall determine in good faith, specifically considering
the Executive's Computed Award under the STIC for such Plan Year,
an award amount under the STIC for such Plan Year.
4. Source of Payments.
All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or utilized
by PEC to assure such payments. The Company shall not be required
to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Executive shall have no right, title or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments.
Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and
the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company such right
shall be no greater than the right of an unsecured creditor of the
Company.
5. Litigation Expenses: Arbitration.
a. PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7. In no event shall the Executive be
obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. PEC agrees to pay, upon written
demand therefor by the Executive, all legal fees and expenses
which the Executive may reasonably incur as a result of any
dispute or contest (regardless of the outcome thereof) by or with
the Company or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement, plus in each
case interest at the Federal long-term rate in effect under
Section 1274(d) of the Code, compounded monthly. In any such
action brought by the Executive for damages or to enforce any
provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. The obligation of
the Company under this paragraph 5. shall survive the termination
for any reason of this Agreement (whether such termination is by
the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
b. In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration. The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
or arbitrators within 30 days after the Executive had notified PEC
of his desire to have the question settled by arbitration, then
the arbitrator or arbitrators shall be selected by the American
Arbitration Association (the "AAA") in Illinois upon the
application of the Executive. The determination reached in such
arbitration shall be final and binding on both parties without any
right of appeal of further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. Unless
otherwise agreed by the parties, any such arbitration shall take
place in Illinois, and shall be conducted in accordance with the
Rules of the AAA.
6. Tax Withholding.
The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
7. Waiver and Releases.
a. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following: (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
b. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by this
reference made a part hereof.
8. Amendment of Trust and Deposit of Assets.
On or before December 31, 1996, PEC shall amend the
Trust to provide that within ten (10) business days after the date
of a Change in Control, PEC shall deposit cash into the Trust, in
an amount equal to the following: (a) the payment obligations of
PEC under the Peoples Energy Corporation's Executive Deferred
Compensation Plan as in effect on the Effective Date, as amended
from time to time or any successor plan, and (b) the accrued
benefits of the participants, as of the date of the Change in
Control, under the PEC SRB, Part A and Part B.
9. Outplacement Services.
Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
10. Entire Understanding.
This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement between
the Company and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
11. Severability.
If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
12 Consolidation, Merger, or Sale of Assets.
If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
13. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
a. to PEC:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
Attention: E. P. Cassidy, Secretary
b. to the Executive:
Michael S. Reeves
Executive Vice President
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
or to such other address as either party shall have previously
specified in writing to the other.
14. No attachment.
Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of
no effect. Notwithstanding the preceding sentence, the Executive
may, by giving notice to PEC during the Executive's lifetime,
designate a beneficiary or beneficiaries to whom the severance
benefits described in paragraph 3.a. shall be transferred in the
event of the Executive's death. Any such designation may be
revoked or changed by the Executive at any time and from time to
time by similar notice. If there is no such designated
beneficiary living upon the death of the Executive or if all such
designated beneficiaries die prior to the receipt by the Executive
of the referenced severance benefits, such severance benefits
shall be transferred to the Executive's surviving spouse or, if
none, then such severance benefits will be transferred to the
estate or personal representative of the Executive. If the
Company, after reasonable inquiry, is unable to determine within
twelve months after the Executive's death whether any designated
beneficiary of the Executive did in fact survive the Executive,
such beneficiary shall be conclusively presumed to have died prior
to the Executive's death.
15. Binding Agreement.
This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
16. Modification and Waiver.
This Agreement may not be modified or amended except
by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
17. Headings of No Effect.
The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
18. Governing Law.
This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
IN WITNESS WHEREOF, PEC has caused this Agreement to
be executed by its officers thereunto duly authorized, and the
Executive has signed this Agreement, all effective as of the date
first above written.
PEOPLES ENERGY CORPORATION
By: /s/ HOMER J. LIVINGSTON, JR.
---------------------------------------
Director and Chairman of the
Compensation-Nominating Committee
of the Board of Directors
By: /s/ MICHAEL S. REEVES
---------------------------------
Michael S. Reeves
Executive Vice President
EXHIBIT A
TO SEVERANCE AGREEMENT
BETWEEN PEOPLES ENERGY CORPORATION AND
EXECUTIVE, DATED DECEMBER 4, 1996
RELEASE AGREEMENT
This Agreement is entered into on this ____ day of
_______________, between Michael S. Reeves, Executive Vice
President ("Executive") and Peoples Energy Corporation on behalf of
Peoples Energy Corporation and any affiliate and successor or
successors to Peoples Energy Corporation.
1. In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive, dated
as of December 4, 1996, ("Severance Agreement") Executive waives,
releases and forever discharges PEC (including its current and
former affiliated companies, and their current and former officers,
directors, employees and agents) from all claims which he may have
against PEC (including its current and former affiliated companies,
and their current and former officers, directors, employees and
agents) arising out of the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act
of 1964, the Illinois Human Rights Act, or any other federal, state
or local statute, regulation, ordinance, or doctrine of common law
prohibiting discrimination on the basis of disability or age or
race or gender or on any other substantially similar basis.
2. The Executive acknowledges that, prior to his
execution of this Agreement, he was encouraged to review it with
counsel or anyone else of his choosing. Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.
The Company encourages the Executive to consult with an
attorney regarding this Agreement. If after review, the Executive
wishes to accept, he should sign the document and return it to the
Secretary of Peoples Energy Corporation. This Release will not
become effective until seven days thereafter, and if the Executive
changes his mind within that period, he may revoke this Release by
notifying the Secretary of Peoples Energy Corporation. The
Executive understands and agrees that no benefits will be paid or
provided to the Executive under the Severance Agreement prior to
the receipt by PEC of this release executed by the Executive.
PEOPLES ENERGY CORPORATION:
By: ___________________________________ _______________________
Date
By: ___________________________________ ________________________
Michael S. Reeves Date
SEVERANCE AGREEMENT
BETWEEN
PEOPLES ENERGY CORPORATION
AND
JAMES HINCHLIFF
Senior Vice President and General Counsel
THIS AGREEMENT, effective as of December 4, 1996, by and
between Peoples Energy Corporation, an Illinois corporation and
James Hinchliff, Senior Vice President and General Counsel (the
"Executive").
WITNESSETH
WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company; and
WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in Control;
and
WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations
in the event of a Change in Control by entering into this
Agreement with the Executive;
NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
1. Definitions.
"AAA" shall have the meaning set forth in paragraph 5 of
this Agreement.
"Affiliate" shall mean the subsidiaries of PEC and other
entities controlled by such subsidiaries.
"Agreement" shall mean this Severance Agreement.
"Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
"Board" shall mean the Board of Directors of PEC.
"Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a meeting
of the Board at which the Executive is provided an opportunity to
be heard.
"Change in Control" shall mean:
(i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934 Act)
("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of PEC, or
(B) actual knowledge by PEC of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to
make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner, directly
or indirectly, of twenty (20) percent or more of the outstanding
stock of PEC;
(ii) purchase by any Person, other than PEC or a
wholly-owned subsidiary of the Company, of shares pursuant to a
tender or exchange offer to acquire any stock of PEC (or
securities convertible into stock) for cash, securities or any
other consideration provided that, after consummation of the
offer, such Person is the beneficial owner (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
(iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
PEC (Transfer Transaction), (except where (A) PEC owns all of the
outstanding stock of the transferee entity or (B) the holders of
PEC's common stock immediately prior to the Transfer Transaction
own at least ninety (90) percent of the outstanding stock of the
transferee entity, immediately after the Transfer Transaction), or
(d) any consolidation or merger of PEC where, after the
consolidation or merger, one Person owns one hundred (100) percent
of the shares of stock of PEC (except where the holders of PEC's
common stock immediately prior to such merger or consolidation own
at least ninety (90) percent of the outstanding stock of such
Person immediately after such consolidation or merger); or
(iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the beginning
of the twenty-four (24) month period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
"Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
"Compensation" shall mean the sum of (i) the Executive's
annual rate of salary on the last day the Executive was an
employee of the Company, including any elective contributions made
by the Company on behalf of the Executive that are not includable
in the gross income of the Executive under Section 125 or
402(a)(8) of the Code or any successor provision thereto, and
including any amount of salary that has been deferred by the
Executive, (ii) an award equal to the average of the amounts
awarded to the Executive under the PEC STIC during the three years
preceding termination of employment, and (iii) the economic
equivalent value of any awards received by Executive under the PEC
LTIC in the calendar year preceding termination of employment (as
determined in good faith by the PEC Directors' Compensation-
Nominating Committee).
"Computed Award" shall mean Computed Award as defined in
the PEC STIC.
"Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of employment,
(iii) liquidation, dissolution, consolidation or merger of PEC, or
transfer of all or substantially all of its assets, other than a
transaction or series of transactions in which the resulting or
surviving transferee entity has, in the aggregate, a net worth at
least equal to that of PEC immediately before such transaction and
such resulting or surviving transferee entity expressly assumes
this Agreement and all obligations and undertakings hereunder, or
(iv) reduction, which is more than de minimis, in the Executive's
total compensation (Compensation, perquisites and benefits). It
is understood and agreed by all parties hereto that a reduction in
(a) the amount the Executive receives under PEC STIC, (b) the
awards received by the Executive under the PEC LTIC, or (c) the
prerequisites or benefits of the Executive shall not be deemed a
reduction if such amount received under the PEC STIC, awards
received under the PEC LTIC, or such prerequisites or benefits are
the same as received by the Company's similarly situated officers.
An event shall not be considered Constructive Discharge unless the
Executive provides written notice to PEC specifying the event
relied upon for Constructive Discharge within six months after the
occurrence of such event. Within thirty days of receiving such
written notice from the Executive, the Company may cure or cause
to be cured the event upon which the Executive claims a
Constructive Discharge and no Constructive Discharge shall have
been considered to have occurred with respect to such event. PEC
and the Executive, upon mutual written agreement, may waive any of
the foregoing provisions which would otherwise constitute a
Constructive Discharge.
"Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
"Effective Date" shall mean December 4, 1996.
"PEC" shall mean Peoples Energy Corporation, an Illinois
corporation.
"PEC Directors' Compensation-Nominating Committee" shall
mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
"PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date, as
amended from time to time, or any successor plan.
"PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
"Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
"Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as described
in paragraph 3.a., using as a mortality basis the mortality basis
used by the PEC Retirement Plan for determining benefits, or if
such mortality basis is not available, a mortality basis
determined by the PEC Retirement Plan's consulting actuaries, and
assuming a discount rate equal to the average of the yield on
Thirty (30) year United States Treasury Bonds for the second
calendar month preceding the Executive's termination of employment
as described in paragraph 3.a.
"Rule of Eighty-Five" shall mean the Rule of Eighty-Five
as defined under the PEC Retirement Plan.
"SARs" shall mean SARs as defined under the PEC LTIC.
"Stock Options" shall mean Options as defined under the
PEC LTIC.
"Term" shall mean the term of this Agreement as set
forth in paragraph 2.
"Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date, as
amended from time to time.
2. Term.
This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of:
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
3. Severance Benefit.
a. If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become entitled
hereunder to the beneficiary or estate of the Executive as
described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all employees, effective January
1, 1997, or any successor plan, (ii) severance pay in a lump sum
cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e. The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service. For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of
Eighty-Five under the PEC Retirement Plan and PEC SRB (regardless
of whether the Executive so qualifies). All non-vested Options
and SARs awarded to the Executive under the PEC LTIC shall be
deemed vested as of the earlier of the date of a Change in Control
as defined in this Agreement or Change in Control as defined in
the PEC LTIC. The Company shall treat the Executive as employed
by the Company for purposes of exercising Stock Options and SARs
during the Coverage Period. All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed vested
and owned by the Executive as of the earlier of the date of a
Change in Control as defined in this Agreement or a Change in
Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after the
date of such Change in Control. The Executive's termination of
employment with the Company to become an employee of a corporation
which directly or indirectly owns one hundred percent (100%) of or
which is owned one hundred percent (100%) by the Company shall not
be considered a termination of employment for purposes of this
Agreement. The subsequent termination of the Executive's
employment from such corporation, without employment at a company
that is wholly-owned by such corporation, shall be considered a
termination of employment for purposes of this Agreement.
b. During the longer of: (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company shall
pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by an
employer of the Executive other than the Company.
c. (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the Company
which constitute "parachute payments" as defined in Section 280G
of the Code (or any successor provision thereto) ("Parachute
Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount calculated at the highest marginal tax rate
applicable to the Executive for the tax year in which such
payments were paid to the Executive (determined by Independent Tax
Counsel) such that after payment by the Executive of all federal,
state and other taxes (including any Excise Tax) imposed upon the
Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Executive retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the
payments. For purposes of this paragraph 3.c., "Independent Tax
Counsel" shall mean a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits
consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and
shall be reasonably acceptable to PEC, and whose fees and
disbursements shall be paid by PEC.
(ii) If Independent Tax Counsel shall determine
that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that the Executive has
substantial authority not to report any Excise Tax on the
Executive's Federal income tax return. If the Executive is
subsequently required to make a payment of any Excise Tax, then
the Independent Tax Counsel shall determine in the same manner
as a Gross-up Payment the amount (the amount of such additional
payments are referred herein as "Gross-Up Underpayment") of such
payment and any such Gross-Up Underpayment shall be promptly paid
by PEC to or for the benefit of the Executive. The fees and
disbursements of the Independent Tax Counsel shall be paid by PEC.
(iii) The Executive shall notify PEC in writing
within 15 days of any claim by the Internal Revenue Service that,
if successful, would require the payment by PEC of a Gross-Up Payment.
If PEC notifies the Executive in writing that it desires to contest
such claim and that it will bear the costs and provide the
indemnification as required by this subparagraph (iii) of paragraph
3.c., the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and expenses.
The Company shall control all proceedings taken in connection with
such contest; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, PEC shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis calculated at the highest marginal
tax rate applicable to the Executive, from any Excise Tax or
federal and state income tax or other taxes, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such
advance.
(iv) If, after the receipt by the Executive of an
amount advanced by PEC pursuant to subparagraph (iii) of paragraph
3.c., the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall within 10 days pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto).
d. In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
e. The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a. If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated award
for the portion of the Plan Year that the Executive was employed
by the Company. If the Executive has not yet received payment of
his award amount under the STIC for the Plan Year preceding the
Executive's termination, the PEC Directors' Compensation-Nominating
Committee shall determine in good faith, specifically considering
the Executive's Computed Award under the STIC for such Plan Year,
an award amount under the STIC for such Plan Year.
4. Source of Payments.
All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or utilized
by PEC to assure such payments. The Company shall not be required
to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Executive shall have no right, title or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments.
Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and
the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company such right
shall be no greater than the right of an unsecured creditor of the
Company.
5. Litigation Expenses: Arbitration.
a. PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7. In no event shall the Executive be
obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement. PEC agrees to pay, upon written
demand therefor by the Executive, all legal fees and expenses
which the Executive may reasonably incur as a result of any
dispute or contest (regardless of the outcome thereof) by or with
the Company or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement, plus in each
case interest at the Federal long-term rate in effect under
Section 1274(d) of the Code, compounded monthly. In any such
action brought by the Executive for damages or to enforce any
provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion. The obligation of
the Company under this paragraph 5. shall survive the termination
for any reason of this Agreement (whether such termination is by
the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
b. In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration. The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
or arbitrators within 30 days after the Executive had notified PEC
of his desire to have the question settled by arbitration, then
the arbitrator or arbitrators shall be selected by the American
Arbitration Association (the "AAA") in Illinois upon the
application of the Executive. The determination reached in such
arbitration shall be final and binding on both parties without any
right of appeal of further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. Unless
otherwise agreed by the parties, any such arbitration shall take
place in Illinois, and shall be conducted in accordance with the
Rules of the AAA.
6. Tax Withholding.
The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
7. Waiver and Releases.
a. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following: (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
b. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by this
reference made a part hereof.
8. Amendment of Trust and Deposit of Assets.
On or before December 31, 1996, PEC shall amend the
Trust to provide that within ten (10) business days after the date
of a Change in Control, PEC shall deposit cash into the Trust, in
an amount equal to the following: (a) the payment obligations of
PEC under the Peoples Energy Corporation's Executive Deferred
Compensation Plan as in effect on the Effective Date, as amended
from time to time or any successor plan, and (b) the accrued
benefits of the participants, as of the date of the Change in
Control, under the PEC SRB, Part A and Part B.
9. Outplacement Services.
Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
10. Entire Understanding.
This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement between
the Company and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
11. Severability.
If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
12 Consolidation, Merger, or Sale of Assets.
If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
13. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
a. to PEC:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
Attention: E. P. Cassidy, Secretary
b. to the Executive:
James Hinchliff
Senior Vice President and General Counsel
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
or to such other address as either party shall have previously
specified in writing to the other.
14. No attachment.
Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of
no effect. Notwithstanding the preceding sentence, the Executive
may, by giving notice to PEC during the Executive's lifetime,
designate a beneficiary or beneficiaries to whom the severance
benefits described in paragraph 3.a. shall be transferred in the
event of the Executive's death. Any such designation may be
revoked or changed by the Executive at any time and from time to
time by similar notice. If there is no such designated
beneficiary living upon the death of the Executive or if all such
designated beneficiaries die prior to the receipt by the Executive
of the referenced severance benefits, such severance benefits
shall be transferred to the Executive's surviving spouse or, if
none, then such severance benefits will be transferred to the
estate or personal representative of the Executive. If the
Company, after reasonable inquiry, is unable to determine within
twelve months after the Executive's death whether any designated
beneficiary of the Executive did in fact survive the Executive,
such beneficiary shall be conclusively presumed to have died prior
to the Executive's death.
15. Binding Agreement.
This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
16. Modification and Waiver.
This Agreement may not be modified or amended except
by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
17. Headings of No Effect.
The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
18. Governing Law.
This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
IN WITNESS WHEREOF, PEC has caused this Agreement to be
executed by its officers thereunto duly authorized, and the
Executive has signed this Agreement, all effective as of the date
first above written.
PEOPLES ENERGY CORPORATION
By: /s/ HOMER J. LIVINGSTON, JR.
--------------------------------------
Director and Chairman of the
Compensation-Nominating Committee
of the Board of Directors
By: /s/ JAMES HINCHLIFF
----------------------------------------------
James Hinchliff
Senior Vice President and General Counsel
EXHIBIT A
TO SEVERANCE AGREEMENT
BETWEEN PEOPLES ENERGY CORPORATION AND
EXECUTIVE, DATED DECEMBER 4, 1996
RELEASE AGREEMENT
This Agreement is entered into on this ____ day of
_______________, between James Hinchliff, Senior Vice President and
General Counsel ("Executive") and Peoples Energy Corporation on
behalf of Peoples Energy Corporation and any affiliate and
successor or successors to Peoples Energy Corporation.
1. In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive, dated
as of December 4, 1996, ("Severance Agreement") Executive waives,
releases and forever discharges PEC (including its current and
former affiliated companies, and their current and former officers,
directors, employees and agents) from all claims which he may have
against PEC (including its current and former affiliated companies,
and their current and former officers, directors, employees and
agents) arising out of the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act
of 1964, the Illinois Human Rights Act, or any other federal, state
or local statute, regulation, ordinance, or doctrine of common law
prohibiting discrimination on the basis of disability or age or
race or gender or on any other substantially similar basis.
2. The Executive acknowledges that, prior to his
execution of this Agreement, he was encouraged to review it with
counsel or anyone else of his choosing. Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.
The Company encourages the Executive to consult with an
attorney regarding this Agreement. If after review, the Executive
wishes to accept, he should sign the document and return it to the
Secretary of Peoples Energy Corporation. This Release will not
become effective until seven days thereafter, and if the Executive
changes his mind within that period, he may revoke this Release by
notifying the Secretary of Peoples Energy Corporation. The
Executive understands and agrees that no benefits will be paid or
provided to the Executive under the Severance Agreement prior to
the receipt by PEC of this release executed by the Executive.
PEOPLES ENERGY CORPORATION:
By: ___________________________________ _______________________
Date
By: ___________________________________ ________________________
James Hinchliff Date
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS, AND CONSOLIDATED STATEMENTS
OF CASH FLOWS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,380,030
<OTHER-PROPERTY-AND-INVEST> 13,794
<TOTAL-CURRENT-ASSETS> 434,873
<TOTAL-DEFERRED-CHARGES> 18,108
<OTHER-ASSETS> 81,931
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0
0
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0
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0
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<CASH-FLOW-OPERATIONS> (5,336)
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</TABLE>
