<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Peoples Energy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PEOPLES ENERGY CORPORATION
[LOGO]
Notice of Annual Meeting of Shareholders
and Proxy Statement
February 27, 1998 at 11:00 a.m.
Harris Trust and Savings Bank
Eighth Floor -- Auditorium
115 S. LaSalle Street
Chicago, Illinois
<PAGE>
PEOPLES ENERGY CORPORATION - 130 East Randolph Drive - Chicago, Illinois 60601
RICHARD E. TERRY
Chairman of the Board
December 31, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Peoples Energy Corporation, to be held on Friday, February 27, 1998. The meeting
will begin at 11:00 a.m. in the auditorium on the eighth floor of Harris Trust
and Savings Bank, located at 115 S. LaSalle Street, Chicago, Illinois.
It is important that your shares be represented at this meeting. Therefore,
whether or not you plan to attend, please sign the enclosed proxy and return it
promptly in the envelope provided. If you attend the meeting, you may, at your
discretion, withdraw your proxy and vote in person.
If you plan to attend the meeting, please save the admission ticket that is
attached to your proxy and present it at the door.
Let me again urge you to return your proxy at your earliest convenience.
Sincerely,
[SIGNATURE]
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 27, 1998
The regular Annual Meeting of Shareholders of PEOPLES ENERGY CORPORATION
will be held in the auditorium on the eighth floor of Harris Trust and Savings
Bank, located at 115 S. LaSalle Street, Chicago, Illinois, at 11:00 a.m., on
Friday, February 27, 1998, for the following purposes:
1. To elect directors of Peoples Energy Corporation.
2. To approve amendments to the Long-Term Incentive Compensation Plan.
3. To ratify the appointment of independent public accountants.
4. To act upon such other matters as may properly come before the meeting.
All shareholders, whether or not they expect to be present at the meeting,
are requested to sign, date, and mail the accompanying proxy in the envelope
enclosed with this Notice. Shareholders who are present at the meeting may
withdraw their proxies and vote in person.
If you plan to attend the meeting, please save the admission ticket that is
attached to your proxy and present it at the door. Attendance at the meeting
will be limited to shareholders of record as of the record date and their guests
or their authorized representatives, not to exceed two per shareholder, and to
guests of the Company.
Shareholders of record as of December 30, 1997, will be entitled to vote at
the meeting and at any adjournment thereof.
EMMET P. CASSIDY
Secretary
Chicago, Illinois
December 31, 1997
<PAGE>
PEOPLES ENERGY CORPORATION - 130 East Randolph Drive - Chicago, Illinois 60601
December 31, 1997
PROXY STATEMENT
This Proxy Statement is being mailed to shareholders on or about December
31, 1997, in connection with the solicitation of proxies on behalf of the Board
of Directors of Peoples Energy Corporation (the Company), to be voted at the
Annual Meeting of Shareholders of the Company. The meeting will be held at 11:00
a.m. on Friday, February 27, 1998, in the auditorium on the eighth floor of
Harris Trust and Savings Bank, located at 115 S. LaSalle Street, Chicago,
Illinois. The shares represented by the proxies received are to be voted in
accordance with the specifications contained in the proxy. Proxies are revocable
at any time prior to use.
The Company has borne the cost of preparing, assembling, and mailing this
proxy soliciting material. In addition to solicitation by mail, there may be
incidental personal solicitations made by directors, officers, and regular
employees of the Company. The cost of solicitation, including payments to
brokers, nominees, or fiduciaries who mail such material to their clients, will
be borne by the Company.
The Company has retained Corporate Investor Communications, Inc., 111
Commerce Road, Carlstadt, New Jersey, to assist with the solicitation of proxies
from certain shareholders, for which services Corporate Investor Communications
will receive a fee that is expected to be about $6,500, plus reimbursement for
certain expenses.
OUTSTANDING VOTING SECURITIES
Only holders of common shares of record as of December 30, 1997, are
entitled to vote at the meeting or any adjournment thereof. As of December 30,
1997, there were outstanding 35,159,468 shares of common stock of the Company.
The Annual Report of the Company for the fiscal year ended September 30,
1997, including financial statements, is being mailed on or about December 31,
1997, together with this Proxy Statement, to all shareholders of record as of
December 30, 1997.
CUMULATIVE VOTING RIGHTS
In the election of directors, shareholders have cumulative voting rights.
Cumulative voting rights consist of the right to vote, in person or by proxy,
the number of shares owned by the shareholder for as many persons as there are
directors to be elected, or to cumulate said shares and give one candidate as
many votes as the number of directors multiplied by the number of his or her
shares shall equal, or to distribute such number of votes among the candidates
as he or she shall think fit.
ITEM 1. ELECTION OF DIRECTORS
All directors are to hold office for a term of one year or until their
respective successors shall be duly elected. The affirmative vote of a plurality
of the votes cast at the Annual Meeting by holders of common stock entitled to
vote is required for the election of each nominee as a director. Unless
otherwise specified, votes represented by the proxies will be cast equally for
the election of the below-named nominees to the office of director; however, the
votes may be cast cumulatively for less than the entire number of nominees if
any situation arises that, in the opinion of the proxy holders, makes such
action necessary or desirable. If any of the nominees should be unable to serve
or will not serve, which is not anticipated, management reserves discretionary
authority to vote for a substitute.
1
<PAGE>
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
WILLIAM J. BRODSKY, 53. Director since July 1997. Chairman and
[PHOTO] Chief Executive Officer (1997) of The Chicago Board Options
Exchange. Prior to that, Mr. Brodsky was President and CEO of The
Chicago Mercantile Exchange (1985-1997).
PASTORA SAN JUAN CAFFERTY, 57. Director since 1988. Professor,
since 1985, at the University of Chicago, Chicago, Illinois, where
[PHOTO] she has been on the faculty since 1971. Mrs. Cafferty is also a
director of Kimberly-Clark Corporation, Harris Bankcorp, Inc. and
its subsidiary Harris Trust and Saving Bank, and Waste Management,
Inc.
J. BRUCE HASCH, 59. Director since 1987. President and Chief
[PHOTO] Operating Officer (1990) of the Company. Mr. Hasch is also
President, Chief Operating Officer (1990), and a director (1986) of
The Peoples Gas Light and Coke Company and North Shore Gas Company,
subsidiaries of the Company engaged primarily in the purchase,
storage, distribution, sale, and transportation of natural gas.
Prior to becoming President, Mr. Hasch was Executive Vice President
(1985-1990) of the Company and its subsidiaries and Vice President
(1981-1985) of both subsidiary companies. Mr. Hasch has been an
employee of the Company and/or its subsidiaries since 1960,
including 16 years with Natural Gas Pipeline Company of America, a
former subsidiary.
HOMER J. LIVINGSTON, JR., 62. Director since 1989. President and
Chief Executive Officer (1993-1995), until his retirement in May
[PHOTO] 1995, of the Chicago Stock Exchange, Chicago, Illinois. Prior to
that, Mr. Livingston was Chairman of the Board and Chief Executive
Officer (1988-1992) of H. Livingston & Company, L.P. Mr. Livingston
is also a director of American National Can Corp., and Everen
Capital Corp.
WILLIAM G. MITCHELL, 66. Director since 1982. Vice Chairman (1986)
and Director (1977), until his retirement in May 1987, of Centel
[PHOTO] Corporation, Chicago, Illinois, a telephone utility and
business-related communications firm. Prior to becoming Vice
Chairman, Mr. Mitchell was President (1977-1986) of Centel. Mr.
Mitchell is also a director of The Sherwin-Williams Company, The
Northern Trust Corporation, The Northern Trust Company, and The
Interlake Corporation.
2
<PAGE>
<TABLE>
<C> <S>
EARL L. NEAL, 69. Director since 1985. Principal, since 1955, of
Earl L. Neal & Associates, Chicago, Illinois, a private law firm.
[PHOTO] During 1983, Mr. Neal was Chairman of the Board of First Federal
Savings and Loan Association of Chicago, Chicago, Illinois. Mr. Neal
is also a director of Chicago Title and Trust Company, Chicago Title
Insurance Company, Lincoln National Corporation, and First
Chicago/NBD Corporation.
RICHARD E. TERRY, 60. Director since 1984. Chairman of the Board
[PHOTO] and Chief Executive Officer (1990) of the Company. Mr. Terry is also
Chairman of the Board and Chief Executive Officer (1990), and a
director (1982) of The Peoples Gas Light and Coke Company and North
Shore Gas Company, subsidiaries of the Company engaged primarily in
the purchase, storage, distribution, sale, and transportation of
natural gas. Prior to becoming Chairman, Mr. Terry was President and
Chief Operating Officer (1987-1990), Executive Vice President
(1984-1987), and Vice President and General Counsel (1981-1984) of
the Company and its subsidiaries. Mr. Terry has been an employee of
the Company and/or its subsidiaries since 1972. Mr. Terry is also a
director of Amsted Industries, and Bankmont Financial Corp. and its
subsidiaries, Harris Bankcorp, Inc. and Harris Trust and Savings
Bank.
RICHARD P. TOFT, 61. Director since 1988. Chairman of the Board and
Chief Executive Officer (1996) of Alleghany Asset Management, Inc.,
[PHOTO] Chicago, Illinois, an investment management and advisory service
subsidiary of Alleghany Corp. Mr. Toft is also Chairman of the Board
of Chicago Title and Trust Company. Previously, Mr. Toft was
Chairman of the Board and Chief Executive Officer of Chicago Title
and Trust Company (1992-1996). Mr. Toft is also a director of
Chicago Title Insurance Company, The Cologne Life Reinsurance
Company, and The Chicago Trust Company.
ARTHUR R. VELASQUEZ, 59. Director since 1985. Chairman, President
and Chief Executive Officer, since 1989, of Azteca Foods, Inc.,
[PHOTO] Chicago, Illinois, a Mexican food products company. Prior to that,
Mr. Velasquez was President and Chief Executive Officer (1971-1987)
of Azteca Corn Products Corporation. Mr. Velasquez was also
President of CID Broadcasting, Inc. (1980-1995) and President of
Crescent Communications of California, Inc. (1993-1995). Mr.
Velasquez is also a director of Arvin Industries, Inc., and LaSalle
National Corporation.
</TABLE>
3
<PAGE>
MEETINGS AND FEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during fiscal 1997. All incumbent
directors attended at least 91% or more of the aggregate number of meetings of
the Board and of those committees on which such directors served.
Directors who are not employees receive an annual retainer of $25,000 and a
meeting fee of $1,000 for each Board and each committee meeting attended. In
addition, any non-employee director who serves as chairman of a committee of the
Board receives a $3,000 annual retainer. Officers of the Company who serve on
the Board receive no compensation as directors.
The Company offers non-employee directors an opportunity to defer their
director's compensation. Under the Directors Deferred Compensation Plan, a
director may elect to defer the receipt of compensation earned as a director
until a future date and to receive such compensation at that time in the form of
cash, Company common stock, or a combination of both. An election to defer, or
to cease to defer, compensation earned as a director of the Company is effective
only with respect to compensation earned in the calendar year following the year
in which the election is made, but in no event with respect to compensation
earned within six months after the date on which the election is made.
A bookkeeping account is maintained for each participant. The account
reflects the amount of cash and/or the number of share equivalents to which the
participant is entitled under the terms of the plan.
The account of a participant who elects to defer compensation in the form of
cash is credited with the dollar amount of compensation so deferred on each date
that the participant is entitled to payment for services as a director. Interest
on the cash balance of the account is computed and credited quarterly as of
March 31, June 30, September 30, and December 31 of each year at the prime
commercial rate in effect at Harris Trust and Savings Bank, Chicago, Illinois.
The account of a participant who elects to defer compensation in the form of
stock is credited with share equivalents on each date that the participant is
entitled to payment for services as a director. The number of share equivalents
so credited is determined by dividing the compensation so deferred by the mean
price of a share of Company common stock on the New York Stock Exchange on such
date. Additional share equivalents are credited to the director's account on
each date that the Company pays a dividend on the common stock. During the
fiscal year ended September 30, 1997, plan participants as a group were credited
with 2,844.643 share equivalents for compensation deferred in the form of stock,
with an average per-share base price of $35.19. During the same period, such
participants were credited with $13,648.40 for compensation deferred in the form
of cash.
COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors of the Company during
fiscal 1997 were the Audit, Compensation-Nominating, Public Policy, and
Executive Committees.
The Audit Committee makes recommendations to the Board concerning the
appointment of the Company's independent public accountants and reviews with the
accountants the scope and nature of the audit engagement, the fees for services
performed by the firm, and the results of the completed audit. The Committee
also reviews and discusses with the internal audit department, management, and
the Board, such matters as accounting policies, internal controls, and
procedures for preparation of financial statements. In addition, the Committee
oversees the selection of independent public accountants to perform audits of
certain Company-sponsored employee benefit plans and reviews reports regarding
the results of such audits. The members of the Audit Committee are Messrs.
Velasquez (Chairman), Brodsky, Langenberg, Mitchell, Toft, and Mrs. Cafferty.
Due to mandatory retirement at age 70, Mr. Langenberg will not be standing for
re-election to the Board. The Committee held two meetings in fiscal 1997.
The Compensation-Nominating Committee considers and makes recommendations to
the Board concerning salary compensation for elected officers of the Company and
its subsidiaries. The Committee
4
<PAGE>
also considers, reviews and grants awards under the Company's Long-Term
Incentive Compensation Plan (LTIC Plan) and Short-Term Incentive Compensation
Plan (STIC Plan) to officers (and, with respect to the LTIC Plan, other key
employees) of the Company and its subsidiaries other than the Chief Executive
Officer. With respect to the Chief Executive Officer, the Committee considers,
reviews and makes awards under the LTIC Plan and the STIC Plan subject to the
approval of the non-employee directors of the Board.
The Committee also makes recommendations to the Board regarding nominees for
election as members of the Board of the Company. The Committee will consider
written recommendations from shareholders of the Company regarding potential
nominees for election as directors. To be considered for inclusion in the slate
of nominees proposed by the Board at the next Annual Meeting of Shareholders of
the Company, such recommendations should be received in writing by the Secretary
of the Company no later than November 16, 1998. In addition, the Committee
maintains, with the approval of the Board, formal criteria for selecting
directors and also considers other matters, such as the size and composition of
the Board, directors' compensation, benefits, and other forms of remuneration.
The members of the Compensation-Nominating Committee are Messrs. Neal
(Chairman), Brodsky, Langenberg, Livingston, Mitchell, and Toft. The Committee
held three meetings in fiscal 1997.
The Public Policy Committee prepares reports to the Board and provides
advice to management on major public issues affecting the Company or the gas
industry in general. The Committee also considers and makes recommendations to
the Board regarding the Company's Contributions Program and Budget and reviews
and monitors corporate policy with respect to charitable and philanthropic
giving. Members of the Public Policy Committee are Messrs. Livingston
(Chairman), Neal, Velasquez, and Mrs. Cafferty. The Committee held two meetings
in fiscal 1997.
The Executive Committee, in the recess of the Board, has the authority to
act upon most corporate matters that require Board approval. The members of the
Executive Committee are Messrs. Terry (Chairman), Mitchell (Vice Chairman),
Brodsky, Langenberg, Livingston, Neal, Toft, Velasquez, and Mrs. Cafferty. The
Committee held no meetings in fiscal 1997.
5
<PAGE>
SHARE OWNERSHIP OF DIRECTOR NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership, as of November 30, 1997, of the Company's Common Stock by (a) each
director, the Chief Executive Officer and the four most highly paid executive
officers of the Company and (b) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AS OF NOVEMBER
DIRECTORS & OFFICERS 30, 1997(1)
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
Kenneth S. Balaskovits...................................................................... 12,238(2)(3)
William J. Brodsky.......................................................................... 2,500
Pastora San Juan Cafferty................................................................... 2,800
J. Bruce Hasch.............................................................................. 46,656(2)(3)
James Hinchliff............................................................................. 31,005(2)(3)
Homer J. Livingston, Jr..................................................................... 8,448(4)
William G. Mitchell......................................................................... 21,104(4)
Earl L. Neal................................................................................ 21,248(4)
Thomas M. Patrick........................................................................... 19,554(2)(3)
Richard E. Terry............................................................................ 76,717(2)(3)
Richard P. Toft............................................................................. 7,729(4)
Arthur R. Velasquez......................................................................... 5,174(4)
Directors and executive officers as a group................................................. 326,454
</TABLE>
- ------------------------
(1) The total shares held by all directors and executive officers as a group
comprise less than one percent of the Company's outstanding common stock.
Unless otherwise indicated, each individual has sole voting and investment
power with respect to the shares of common stock attributed to him or her in
the table.
(2) Includes shares of restricted stock awarded under the Long-Term Incentive
Compensation Plan of the Company, the restrictions on which had not lapsed
as of November 30, 1997, as follows: Messrs. Balaskovits, 3,585; Hasch,
8,025; Hinchliff, 4,925; Patrick, 4,125; Terry, 14,685; and all executive
officers as a group, 41,620. Owners of shares of restricted stock have the
right to vote such shares and to receive dividends thereon, but have no
investment power with respect to such shares until the restrictions thereon
lapse.
(3) Includes shares that the following have a right to acquire within 60 days
following November 30, 1997, through the exercise of Options granted under
the Long-Term Incentive Compensation Plan of the Company: Messrs.
Balaskovits, 2,600; Hasch, 9,600; Hinchliff, 6,300; Patrick, 8,300; Terry,
23,400; and all executive officers of the Company as a group, 83,600.
(4) Includes 7,448; 8,824; 19,276; 7,429; and 5,174 shares to which Messrs.
Livingston, Mitchell, Neal, Toft, and Velasquez, respectively, are
prospectively entitled pursuant to the Directors Deferred Compensation Plan
of the Company.
6
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation and grants of stock options, stock appreciation rights and
restricted stock awards under the Company's Long-Term Incentive Compensation
Plan. All compensation was paid by the Company and its subsidiaries for services
in all capacities during the three fiscal years set forth below to (i) the Chief
Executive Officer and (ii) the four most highly paid executive officers of the
Company other than the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
------------------------------
RESTRICTED
ANNUAL COMPENSATION STOCK ALL OTHER
---------------------- AWARD(S)(1)(2) OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (#) (3)($)
- ---------------------------------- --------- ---------- ---------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 1997 $ 548,500 $ 237,900 $ 152,663 17,800 $ 16,455
Chairman and Chief 1996 473,500 191,600 145,722 21,200 14,205
Executive Officer 1995 455,300 137,200 137,119 21,400 12,354
J. Bruce Hasch 1997 345,900 106,700 84,525 9,800 10,377
President and Chief 1996 332,600 86,000 80,803 11,800 9,978
Operating Officer 1995 319,800 61,500 76,606 11,800 9,594
James Hinchliff 1997 260,700 67,700 54,338 6,400 7,821
Senior Vice President 1996 250,700 54,500 51,797 7,600 7,521
and General Counsel 1995 241,100 39,000 48,925 7,600 7,233
Thomas M. Patrick 1997 231,600 67,700 54,338 6,400 6,948
Executive Vice President 1996 186,800 31,900 33,150 4,800 5,604
1995 176,800 39,200 30,900 4,800 5,304
Kenneth S. Balaskovits 1997 210,400 53,100 43,988 5,200 6,312
Vice President 1996 172,500 25,700 33,150 4,800 5,175
and Controller 1995 162,700 24,200 30,900 4,800 4,881
</TABLE>
- ------------------------
(1) Restricted stock awards are valued at the closing market price as of the
date of grant. The total number of restricted shares held by the named
executive officers and the aggregate market value of such shares at
September 30, 1997, were as follows: Mr. Terry, 14,020 shares, valued at
$528,378.75; Mr. Hasch, 7,990 shares, valued at $301,123.13; Mr. Hinchliff,
5,130 shares, valued at $193,336.88; Mr. Patrick, 3,830 shares, valued at
$144,343.13; and Mr. Balaskovits, 3,455 shares, valued at $130,210.31.
Dividends are paid on the restricted shares at the same time and at the same
rate as dividends paid to all shareholders of common stock. Aggregate market
value is based on a per share price of $37.6875, the closing price of the
Company's stock on the New York Stock Exchange on September 30, 1997.
(2) Restricted stock awards granted to date vest in equal annual increments over
a five-year period. If a recipient's employment with the Company terminates,
other than by reason of death, disability, or retirement after attaining age
65, the recipient forfeits all rights to the unvested portion of the
restricted stock award. In addition, the Compensation-Nominating Committee
(and with respect to the CEO, the Compensation-Nominating Committee, subject
to the approval of the non-employee directors) may, in its sole discretion,
accelerate the vesting of any restricted stock awards granted under the
Long-Term Incentive Compensation Plan. Total restricted stock awarded to the
named individuals for 1995 constitutes 12,600 shares, of which 2,520 shares
vested in 1996; 2,520 shares vested in 1997; 2,520 shares will vest in 1998;
2,520 shares will vest in 1999; and the remaining 2,520 shares will vest in
2000. Total restricted stock awarded to the named individuals for 1996
constitutes 12,475 shares, of which 2,495 shares vested in 1997; 2,495
shares will vest in 1998; 2,495 shares will vest in 1999; 2,495 shares will
vest in 2000; and the remaining 2,495 shares will vest in 2001. Total
restricted
7
<PAGE>
stock awarded to the named individuals for 1997 constitutes 11,300 shares,
of which 2,260 shares will vest in 1998; 2,260 shares will vest in 1999;
2,260 shares will vest in 2000; 2,260 shares will vest in 2001; and the
remaining 2,260 shares will vest in 2002.
(3) Company contributions to the Capital Accumulation Plan accounts of the named
executive officers during the above fiscal years. Employee contributions
under the plan are subject to a maximum limitation under the Internal
Revenue Code of 1986. The Company pays an employee who is subject to this
limitation an additional 50 cents for each dollar that the employee is
prevented from contributing solely by reason of such limitation. The amounts
shown in the table above reflect, if applicable, this additional Company
payment.
OPTIONS/SAR GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
% OF TOTAL OPTIONS/
OPTIONS/SARS SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN FISCAL BASE PRICE PRESENT VALUE
NAME (#)(1) YEAR (2) ($/SH) EXPIRATION DATE ($)(3)
- -------------------------------- ------------ -------------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Richard E. Terry 17,800 10.1% $ 34.19 02-Oct-06 $51,620
Chairman and Chief Executive
Officer
J. Bruce Hasch 9,800 5.6 34.19 02-Oct-06 28,420
President and Chief Operating
Officer
James Hinchliff 6,400 3.6 34.19 02-Oct-06 18,560
Senior Vice President and
General Counsel
Thomas M. Patrick 6,400 3.6 34.19 02-Oct-06 18,560
Executive Vice President
Kenneth S. Balaskovits 5,200 2.9 34.19 02-Oct-06 15,080
Vice President and Controller
</TABLE>
- ------------------------
(1) The grant of an Option enables the recipient to purchase Company common
stock at a purchase price equal to the fair market value of the shares on
the date the Option is granted. The grant of an SAR enables the recipient to
receive, for each SAR granted, cash in an amount equal to the excess of the
fair market value of one share of Company common stock on the date the SAR
is exercised over the fair market value of such common stock on the date the
SAR was granted. Options or SARs that expire unexercised become available
for future grants. Before an Option or SAR may be exercised, the recipient
must complete 12 months of continuous employment subsequent to the grant of
the Option or SAR. Options and SARs may be exercised within 10 years from
the date of grant, subject to earlier termination in case of death,
retirement, or termination of employment.
(2) Based on 88,200 Options and 88,200 SARs granted to all employees under
Peoples Energy's Long-Term Incentive Compensation Plan during fiscal 1997.
(3) Present value is determined using a variation of the Black-Scholes Option
Pricing Model. The model assumes: a) that Options and SARs are exercised two
years after the date of grant -- the average time Options and SARs were held
by recipients under the Company's Long-Term Incentive Compensation Plan over
the past ten years; b) use of an interest rate equal to the interest rate on
a U.S. Treasury security with a maturity date corresponding to the assumed
exercise date; c) a level of volatility calculated using weekly stock prices
for the two years prior to the date of grant; d) an expected dividend yield;
and e) that no adjustments were made for non-transferability or risk of
forfeiture. This is a theoretical value for the Options and SARs. The amount
realized from an Option or an SAR ultimately depends upon the excess of the
market value of the Company's stock over the exercise price on the date the
Option or SAR is exercised.
8
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES OPTIONS/SARS AT FISCAL SARS AT FISCAL
ACQUIRED ON YEAR-END (#) YEAR-END ($)
(OPTION/SAR) VALUE --------------------------- ---------------------
NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- --------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 21,200 $178,875 29,000 17,800 $204,790 $62,300
Chairman and Chief
Executive Officer
J. Bruce Hasch 21,400 172,977 9,400 9,800 64,014 34,300
President and Chief
Operating Officer
James Hinchliff 13,800 118,732 6,200 6,400 42,222 22,400
Senior Vice President
and General Counsel
Thomas M. Patrick 2,400 27,900 10,200 6,400 79,574 22,400
Executive Vice
President
Kenneth S. Balaskovits 11,000 97,119 0 5,200 0 18,200
Vice President and
Controller
</TABLE>
- ------------------------
(1) Includes cash-only SARs exercised by the named executive officers in the
following amounts: Mr. Terry, 10,600; Mr. Hasch, 10,700; Mr. Hinchliff,
6,900; Mr. Patrick, 1,200; and Mr. Balaskovits, 5,500.
9
<PAGE>
PENSION PLAN TABLE
The following table illustrates various annual straight-life benefits at
normal retirement (age 65) for the indicated levels of average annual
compensation and various periods of service, assuming no future changes in the
Company's pension benefits. The compensation used in the computation of annual
retirement benefits is substantially equivalent to the salary and bonus reported
in the Summary Compensation Table. The benefit amounts shown reflect reduction
for applicable Social Security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
AVERAGE ANNUAL COMPENSATION 20 25 30 35 40
---------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$150,000.............................. $ 54,682 $ 68,352 $ 82,022 $ 91,397 $ 100,772
200,000.............................. 74,682 93,352 112,022 124,522 137,022
250,000.............................. 94,682 118,352 142,022 157,647 173,272
300,000.............................. 114,682 143,352 172,022 190,772 209,522
350,000.............................. 134,682 168,352 202,022 223,897 245,772
400,000.............................. 154,682 193,352 232,022 257,022 282,022
450,000.............................. 174,682 218,352 262,022 290,147 318,272
500,000.............................. 194,682 243,352 292,022 323,272 354,522
550,000.............................. 214,682 268,352 322,022 356,397 390,772
600,000.............................. 234,682 293,352 352,022 389,522 427,022
650,000.............................. 254,682 318,352 382,022 422,647 463,272
700,000.............................. 274,682 343,352 412,022 455,772 499,522
750,000.............................. 294,682 368,352 442,022 488,897 535,772
800,000.............................. 314,682 393,352 472,022 522,022 572,022
850,000.............................. 334,682 418,352 502,022 555,147 608,272
900,000.............................. 354,682 443,352 532,022 588,272 644,522
</TABLE>
Average annual compensation is the average 12-month compensation for the
highest 60 consecutive months of the last 120 months of service prior to
retirement. Compensation is total salary paid to an employee by the Company
and/or its subsidiary companies, including bonuses under the Company's Short-
Term Incentive Compensation Plan, pre-tax contributions under the Company's
Capital Accumulation Plan, pre-tax contributions under the Company's Health and
Dependent Care Spending Accounts Plan, and pre-tax contributions for life and
health care insurance, but excluding moving allowances, exercise of stock
options and SARs, and other compensation that has been deferred.
As of September 30, 1997, the credited years of retirement benefit service
for the individuals listed in the Summary Compensation Table were as follows:
Mr. Terry, 33 years; Mr. Hasch, 37 years; Mr. Hinchliff, 25 years; Mr. Patrick,
21 years; and Mr. Balaskovits, 30 years. The benefits shown in the foregoing
table are subject to maximum limitations under the Employee Retirement Income
Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as
amended. Should these benefits at the time of retirement exceed the
then-permissible limits of the applicable Act, the excess would be paid by the
Company as supplemental pensions pursuant to the Company's Supplemental
Retirement Benefit Plan. The benefits shown give effect to these supplemental
pension benefits.
SEVERANCE AGREEMENTS
The Company has entered into separate severance agreements with certain key
executives, including each of the executives named in the Summary Compensation
Table. The intent of the severance agreements is to assure the continuity of the
Company's administration and operations in the event of a Change in Control of
the Company (as described below). The severance agreements were developed in
accordance with the advice of outside consultants.
The term of each severance agreement is for the longer of 36 months after
the date in which a Change in Control of the Company occurs or 24 months after
the completion of the transaction approved by shareholders described in (iii)
below of the description of a Change in Control. A Change in Control is defined
as occurring when (i) the Company receives a report on Schedule 13D filed with
the Securities and Exchange Commission pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended, disclosing that any person, group,
corporation, or other entity is the beneficial owner, directly or indirectly,
10
<PAGE>
of 20% or more of the common stock of the Company; (ii) any person, group,
corporation, or other entity (except the Company or a wholly-owned subsidiary),
after purchasing common stock of the Company in a tender offer or exchange
offer, becomes the beneficial owner, directly or indirectly, of 20% or more of
such common stock; (iii) the shareholders of the Company approve (a) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, other than a consolidation or merger in
which holders of the Company's common stock 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; (b) any consolidation or merger in which the Company is the
continuing or surviving corporation, but in which the common shareholders of the
Company immediately prior to the consolidation or merger do not hold at least
90% of the outstanding common stock of the Company; (c) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Company, except where the Company owns all of the outstanding stock of the
transferee entity or the Company's common shareholders immediately prior to such
transaction own at least 90% of the transferee entity or group of transferee
entities immediately after such transaction; or (d) any consolidation or merger
of the Company where, after the consolidation or merger, one entity or group of
entities owns 100% of the shares of the Company, except where the Company's
common shareholders immediately prior to such merger or consolation own at least
90% of the outstanding stock of such entity or group of entities immediately
after such consolidation or merger; or (iv) a change in the majority of the
members of the Company's Board of Directors within a 24-month period, unless
approved by two-thirds of the directors then still in office who were in office
at the beginning of the 24-month period.
Each severance agreement provides for payment of severance benefits to the
executive in the event that, during the term of the severance agreement, (i) the
executive's employment is terminated by the Company, except for "cause" as
defined therein; or (ii) the executive's employment is terminated due to a
constructive discharge, which includes (a) a material change in the executive's
responsibilities, which change would cause the executive's position with the
Company to become of less dignity, responsibility, prestige or scope; (b)
reduction, which is more than de minimis, in total compensation; (c) assignment
without the executive's consent to a location more than 50 miles from the
current place of employment; or (d) liquidation, dissolution, consolidation,
merger, or sale of all or substantially all of the assets of the Company, unless
the successor corporation has a net worth at least equal to that of the Company
and expressly assumes the obligations of the Company under the executive's
severance agreement.
The principal severance benefits payable under each severance agreement
consist of the following: (i) the executive's base salary and accrued benefits
through the date of termination, including a pro rata portion of awards under
the Company's STIC Plan; (ii) three times the sum of the individual's base
salary, the average of the STIC Plan awards for the prior three years and the
value of the LTIC Plan awards in the prior calendar year; and (iii) the present
value of the executive's accrued benefits under the Company's Supplemental
Retirement Benefits Plan (SRBP) that would be payable upon retirement at normal
retirement age, computed as if the executive had completed three years of
additional service. In addition, the executive will be entitled to continuation
of life insurance and medical benefits for the longer of (a) a period of three
years after termination or (b) a period commencing after termination and ending
when the executive may receive pension benefits without actuarial reduction,
provided that the Company's obligation for such benefits under the severance
agreement shall cease upon the executive's employment with another employer that
provides life insurance and medical benefits. Each severance agreement also
provides that the executive's Options and SARs shall become exercisable upon a
Change in Control and that all Options and SARs shall remain exercisable for the
shorter of (a) three years after termination or (b) the term of such Options and
SARs. Any restricted stock previously awarded to the executive under the LTIC
Plan would vest upon a Change in Control if such vesting does not occur due to a
Change in Control under the terms of the LTIC Plan. The Company is also
obligated under each severance agreement to pay an additional amount to the
executive sufficient on an after-tax basis to satisfy any excise tax liability
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended. The
benefits received by the executive under each agreement are in lieu of benefits
under the Company's termination allowance plan and the executive's benefits
under the SRBP. Each executive would be required to waive certain claims prior
to receiving any severance benefits.
11
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
COMPOSITION OF COMMITTEE
The Compensation-Nominating Committee (Committee) is appointed by the Board
from the membership of the Outside Directors. The Outside Directors are all of
the directors who are not officers or employees of the Company or its
subsidiaries.
OFFICER COMPENSATION GENERALLY
The Board has established a comprehensive officer compensation program
designed to provide equitable and generally competitive cash compensation and
incentives to its officers so as to attract and retain skilled and experienced
officers. Officer compensation is comprised of cash compensation, consisting of
base salary and bonus, and long-term compensation, consisting of non-qualified
stock options (Options), stock appreciation rights (SARs) and restricted stock
awards. The Board annually reviews the competitiveness of each component of
compensation and total compensation with the assistance of the Committee and a
nationally recognized compensation firm (Independent Consultant).
The Committee believes that ownership of Company stock by the Company's
management aligns more closely the interests of management and shareholders. To
encourage appropriate levels of executive stock ownership, the Committee has
adopted ownership guidelines for its officers. The levels of stock ownership
specified by the guidelines range from 3 times the officer's annual base salary
to 1/2 of annual base salary, depending on the officer's position.
BASE SALARY
Salaries for elected officers are established by the Board based on
recommendations of the Committee. The Committee's recommendations are based on
advice and information from the Independent Consultant, a compensation report
prepared by the Human Resources Division of the Company's wholly-owned utility
subsidiary, The Peoples Gas Light and Coke Company, and, for officers other than
the Chairman of the Board and Chief Executive Officer (CEO), the recommendations
of the CEO.
The Committee evaluates the competitiveness of the Company's elected officer
salaries in light of competitive market data for comparable companies, primarily
gas distribution companies having revenues of similar size to those of the
Company. Officer salaries are established by reference to salary range midpoints
that are set slightly above the average for the comparison companies. Actual
salaries may be above or below the midpoint, depending upon the length of
incumbency, the performance of job responsibilities and other factors. The
information used by the Committee is derived from market data collected and
surveys prepared by the Human Resources Division and the Independent Consultant.
The Committee considers the recommendations of the CEO (for officers other than
the CEO), as well as market data, in making its recommendations. The Committee's
recommendations consider not only the general competitiveness of the elected
officers' salary ranges and proposed salaries, but also take into account each
individual officer's performance of his or her job responsibilities.
For fiscal 1997, the Board accepted the Committee's recommendation and
approved a base salary increase for Mr. Terry of $75,000. The Committee's
recommendation was based on the need to maintain the market competitiveness of
Mr. Terry's base salary.
SHORT-TERM INCENTIVE COMPENSATION PLAN
The Short-Term Incentive Compensation Plan (STIC Plan) makes a portion of
executive cash compensation directly related to the Company's short-term
performance.
The STIC Plan provides that cash bonuses may be awarded to officers of the
Company and its subsidiaries based on levels of achievement under performance
measures established at the beginning of
12
<PAGE>
each fiscal year. The purposes of the STIC Plan are: (i) to provide meaningful
incentives to participants that will benefit shareholders and customers through
improvements in performance in areas of strategic concern to the Company; (ii)
to provide competitive levels of compensation to enable the Company to attract
and retain people who are able to make a significant contribution to the
Company's success; and (iii) to encourage teamwork and cooperation in the
achievement of Company goals.
The STIC Plan is administered by the Committee. At the beginning of each
fiscal year, the Committee identifies the officers who will be participants for
the year and establishes award opportunities for each participant based on the
participant's salary range midpoint. The Committee also establishes performance
measures and aligns the measures with award opportunities for each participant.
Awards are computed at the end of each year on the basis of achievement of the
performance measures. The final awards are based on these computed amounts,
adjusted at the Committee's discretion for all participants other than the CEO,
and, with respect to the CEO at the Committee's discretion subject to the
approval of the Outside Directors. The Committee decided that for fiscal 1997,
awards would be paid under the STIC Plan only if the Company achieved dividend
coverage on a weather normalized basis for the year and did not reduce its
common stock dividend during the year.
For fiscal year 1997, awards for certain participants, including Mr. Terry,
were based entirely on corporate performance measures. Other participants'
awards were based partly on corporate performance measures and partly on
individual or divisional performance measures. For Mr. Terry, the STIC Plan
award opportunities were weighted among five corporate measures -- 35 percent of
the award based on earnings per share, 25 percent on gas costs, 20 percent on
return on equity, 10 percent on customer satisfaction and 10 percent on
"nontraditional" income, i.e., income from new products and services offered by
the Company's utility subsidiaries and the activities of the Company's
nonutility subsidiaries. Two measures -- return on equity and gas costs -- rank
the Company's performance in peer group comparisons. The other three measures
rank performance against internally established goals. An award percentage for
each performance measure was determined by the Company's rank within the
applicable comparator group (for return on equity and gas costs) or the
Company's performance compared to the internally established goals (for earnings
per share, customer satisfaction and nontraditional income). Companies in the
comparator group for return on equity were those that the Company believes are
often cited by investment analysts as alternate investment opportunities to the
Company. Companies in the comparator group used for the gas cost measure all
serve large midwestern urban areas within a five hundred mile radius of Chicago.
The award percentages determined under the corporate performance measures
were then added together, resulting in a composite award percentage of 59.1
percent of the maximum award opportunity for Mr. Terry and other participants
whose award opportunity was based solely on corporate performance measures.
Based on these results, the Committee decided upon, and the Outside Directors
approved, an award to Mr. Terry of $237,900.
LONG-TERM INCENTIVE COMPENSATION PLAN
The Long-Term Incentive Compensation Plan (LTIC Plan) is administered by the
Committee for employees other than the CEO and, with respect to the CEO, by the
Committee subject to the approval of the Outside Directors. The Committee has
the duty to select the individuals to whom Options, SARs and restricted stock
awards, or combinations thereof, will be granted, determine the amount and the
extent of such individuals' participation, interpret provisions of the plan, and
promulgate, amend and rescind rules for its administration. With respect to the
CEO, the Committee prescribes the form and content of Options, SARs and
restricted stock granted and is authorized to interpret the plan, to prescribe,
amend or rescind rules relating to it, and to make all other determinations
necessary or advisable for the plan's administration, subject to the approval of
the Outside Directors.
The purpose of the LTIC Plan is to align the interests of key employees with
those of shareholders, thereby increasing those employees' interest in the
financial success and growth of the Company. In
13
<PAGE>
selecting employees who receive awards under the LTIC Plan, the Committee
considers the individual's position and responsibilities, nature of service to
the Company, and past, present and potential contributions to the success of the
Company.
The grant of an Option enables the recipient to purchase Company common
stock at a purchase price equal to the fair market value of the shares on the
date the Option was granted. The grant of an SAR entitles the recipient to
receive, for each SAR granted, cash in an amount equal to the excess of the fair
market value of one share of Company common stock on the date the SAR is
exercised over the fair market value of such common stock on the date the SAR
was granted. Before an Option or SAR may be exercised, the recipient must
complete 12 months of continuous employment subsequent to the grant of the
Option or SAR. Options and SARs may be exercised within 10 years from the date
of grant, subject to earlier termination in case of death, retirement, or
termination of employment for other reasons.
The grant of a restricted stock award entitles the recipient to vote the
shares of Company common stock covered by such award and to receive dividends
thereon. The recipient may not transfer or otherwise dispose of such shares
until the restrictions thereon lapse. Restricted stock awards granted to date
vest in equal annual increments over a five-year period from the date of grant.
If a recipient's employment with the Company terminates, other than by reason of
death, disability or retirement after attaining age 65, the recipient forfeits
all rights to the unvested portion of the restricted stock award. In addition,
the Committee (and, with respect to the CEO, the Committee subject to the
approval of the Outside Directors) may, in its discretion, accelerate the
vesting of any restricted stock awards granted under the LTIC Plan.
Grants of Options, SARs and restricted stock are made by the Committee by
general application of the LTIC Plan guidelines. The Committee also considers
the recommendations of the CEO for recipients other than the CEO. Under the
guidelines, the number of Options and SARs is determined for recipients by
applying percentages of salary range midpoints (this percentage varies with the
recipient's position in the Company), and dividing that amount by the Company's
common stock price on or shortly before the date on which Options and SARs will
be granted. To the extent restricted stock is awarded, the recipient's Options
and SARs that would otherwise be granted are reduced at the rate of two Options
and two SARs for each share of restricted stock granted. The Committee's
practice has been to limit an award of restricted stock for a recipient to
one-quarter of the total shares of Options and SARs under the guidelines. All
awards under the LTIC Plan (except for the CEO) are subject to the discretion
and approval of the Committee. With respect to the CEO, the Committee awards
under the LTIC Plan are subject to the discretion and approval of the Outside
Directors. Each year, prior to Committee approval, the Independent Consultant
reviews the LTIC Plan and evaluates the appropriateness of the continued use of
the plan, its guidelines and the value of the grants to be made thereunder.
Based on the application of the guideline formula and the recommendation of
the Independent Consultant, the Committee granted, and the Outside Directors
approved, awards to Mr. Terry of 8,900 Options, 8,900 SARs, and 4,425 shares of
restricted stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended, places a
limit of $1 million on the amount of certain compensation that may be deducted
by the Company in any year with respect to the executive officers named in the
Summary Compensation Table of the proxy statement. Mr. Terry's compensation for
fiscal 1997 exceeded this limit by $152,028. This excess is attributable to the
exercise by Mr. Terry of certain Options and SARs granted to him in prior years
under the LTIC Plan. The amendments to the LTIC Plan recommended in this proxy
statement for shareholder approval will qualify the exercise of Options and SARs
granted prospectively under the LTIC Plan for the corporate tax deduction.
14
<PAGE>
The Committee will continue to monitor the impact of Section 162(m) on the
Company's other compensation programs. The Committee believes it is in the best
interest of the Company's shareholders to retain broader discretion in
determination of performance criteria with respect to other compensation
programs of the Company than that contemplated by regulations of the Internal
Revenue Service.
Submitted by:
THE COMPENSATION-NOMINATING COMMITTEE
Earl L. Neal (Chairman)
William J. Brodsky
Frederick C. Langenberg
Homer J. Livingston, Jr.
William G. Mitchell
Richard P. Toft
15
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
Company common stock to the cumulative total return of the S&P 500 Index and the
S&P Utility Index over a five-year period ending September 30, 1997. The graph
assumes that the value of investment in Company common stock and each index was
$100 on September 30, 1992, and that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
VALUE OF INVESTMENT PEOPLES ENERGY CORPORATION RETURN
<S> <C> <C>
Fiscal Years Peoples Energy Corporation Standard & Poors' 500 Index
Sep-92 $100.00 $100.00
Sep-93 $107.89 $113.00
Sep-94 $94.99 $117.17
Sep-95 $106.56 $152.02
Sep-96 $139.23 $182.93
Sep-97 $162.64 $256.92
<CAPTION>
VALUE OF INVESTMENT
<S> <C>
Standard & Poors' Utilities
Fiscal Years Index
Sep-92 $100.00
Sep-93 $124.43
Sep-94 $108.13
Sep-95 $137.96
Sep-96 $147.37
Sep-97 $168.55
</TABLE>
ITEM 2. AMENDMENTS TO THE LONG-TERM INCENTIVE COMPENSATION PLAN
The Long-Term Incentive Compensation Plan was adopted by the Board of
Directors of the Company and approved by shareholders effective as of January
26, 1979. The plan was subsequently amended with approval of shareholders
effective November 30, 1981, February 28, 1986, February 23, 1990 and February
24, 1995. The Board, on December 3, 1997, further amended the plan as described
below, subject to shareholder approval at this meeting.
16
<PAGE>
THE PLAN
The following is a brief description of the plan. A copy of the plan can be
obtained from the Shareholder Services Department, Peoples Energy Corporation,
P.O. Box 2000, Chicago, Illinois 60601; Telephone (800) 901-8878.
Under the plan, key management employees of the Company and its subsidiaries
may be granted non-qualified stock options ("Options"), stock appreciation
rights ("SARs") and restricted stock awards, or combinations thereof. The grant
of an Option enables the recipient to purchase Company common stock at a
purchase price equal to the fair market value of the shares on the date the
Option is granted. Payment for the shares purchased can be made in cash and/or
common stock of the Company at the time or times the Option is exercised. Any
such common stock submitted in payment for an Option is valued at the mean
between the highest and lowest quoted selling price on the New York Stock
Exchange Composite Transactions on the date of exercise. The grant of an SAR
enables the recipient to receive, for each SAR granted, cash in an amount equal
to the excess of the fair market value of one share of Company common stock on
the date the SAR is exercised over the fair market value of such common stock on
the date the SAR was granted. If Options or SARs expire, the unexercised Options
or SARs will be available for future grants.
Before an Option or SAR may be exercised, the recipient must complete 12
months of continuous employment subsequent to the grant of the Option or SAR.
Under the plan, Options and SARs may be exercised within ten years from the date
of grant, subject to earlier termination in case of death, retirement or
termination of employment. The grant of a restricted stock award entitles the
recipient to vote the shares of Company common stock covered by such award and
to receive dividends thereon. The recipient may not transfer or otherwise
dispose of such shares until the restrictions thereon lapse. Restricted stock
awards granted to date vest in equal annual increments over a five-year period
from the date of grant. If a recipient's employment with the Company terminates,
other than by reason of death, disability or retirement after attaining age 65,
the recipient forfeits all rights to the unvested portion of the restricted
stock award. In addition, the Compensation-Nominating Committee ("Committee")
(other than with respect to the CEO) may, in its sole discretion, accelerate the
vesting of any restricted stock awards granted under the plan. With respect to
the CEO, the Committee may accelerate the vesting of any restricted stock awards
granted under the plan, subject to approval by a majority of those directors who
are not officers or employees of the Company or its subsidiaries ("Outside
Directors"). Upon the occurrence of a change in control of the Company, as
defined in the plan, all Options and SARs granted under the plan shall become
immediately exercisable and all shares of restricted stock granted under the
plan shall become fully vested.
The plan is administered solely by the Committee for employees other than
the CEO. The Committee has the duty to select the individuals to whom Options,
SARs and restricted stock awards or combinations thereof will be granted,
determine the amount and the extent of such individuals' participation,
interpret provisions of the plan, and promulgate, amend and rescind rules for
its administration. With respect to the CEO, the plan is administered by and the
duties described herein are performed by the Committee, subject to the approval
of a majority of Outside Directors.
Up to 1,800,000 shares of common stock may be sold under Options granted
pursuant to the plan or awarded pursuant to restricted stock awards. Up to
1,800,000 SARs may be granted pursuant to the plan. As of November 30, 1997,
478,535 shares remained available under the plan for sale under Options and for
restricted stock awards, and 589,850 SARs remained available for grants under
the plan. In the event there is any change in the common stock of the Company
through the declaration of stock dividends or through a recapitalization
resulting in stock split-ups or combinations or exchanges of shares, or
otherwise, then the number of SARs and shares remaining available for future
grants of Options and restricted stock awards, and the number exercisable under
existing grants of SARs and Options, shall be appropriately adjusted by the
Committee, as will the SAR price and Option price per share.
17
<PAGE>
The Board of Directors may, by resolution, at any time and from time to
time, amend, revise or terminate the plan, except that, without shareholder
approval, no amendment may increase the maximum number of SARs or shares which
may be sold pursuant to Options or covered by restricted stock awards granted
under the plan or reduce the Option price of any Option or the SAR price of any
SAR (except in accordance with the anti-dilution provisions of the plan), change
the class of employees eligible to receive SARs, Options or restricted stock
awards under the plan, or extend the term of the plan. Except as otherwise
specifically provided in the plan, no SAR, Option or restricted stock award
granted under the plan may be thereafter altered or impaired without the consent
of the holder thereof.
TAX CONSEQUENCES
The Company has been advised by Sidley & Austin, tax counsel to the Company,
that, under the present provisions of the Internal Revenue Code of 1986, as
amended, the federal income tax consequences of the plan are as follows:
A recipient will not realize taxable income at the time of the grant of an
Option under the plan. However, upon the exercise of an Option, a recipient who
is not subject to the short-swing profit liability provisions of Section 16(b)
of the Securities Exchange Act of 1934 will realize ordinary income in an amount
measured by the excess, if any, of the fair market value of the shares of the
Company common stock acquired upon exercise over the Option price, and the
Company will be entitled to a corresponding deduction at the same time and in
the same amount. Upon a subsequent disposition of such shares, the recipient
will realize short-term or long-term capital gain or loss depending upon the
recipient's holding period for such shares, with the basis for computing such
gain or loss equal to the Option price plus the amount of ordinary income
realized upon exercise.
A recipient will not realize taxable income at the time of the grant of an
SAR under the plan. Upon exercise, however, such recipient will realize ordinary
income measured by the cash received (including taxes withheld); and the Company
will be entitled to a corresponding deduction at the same time and in the same
amount.
The exercise of an Option through the exchange of shares of previously
acquired Company common stock will generally be treated as a nontaxable exchange
as to the number of shares given up and the identical number of shares received
under the Option. That number of shares will take the same basis and, for
capital gain purposes, the same holding period as the shares which are given up.
The fair market value of the shares received upon such an exchange which are in
excess of the number given up will be taxed to the recipient at the time of the
exercise as ordinary income. The excess shares will have a new holding period
for capital gain purposes and a basis equal to the fair market value of such
shares determined at the time of exercise.
The so-called "cashless" exercise of an Option under which the number of
shares received under the Option is reduced by that number of shares with a fair
market value equal to the Option price results in taxable ordinary income to the
recipient at the time of exercise in an amount equal to the fair market value of
the shares received. The holding period of such shares for capital gain purposes
will begin on the day following the date of exercise and such shares will have a
basis for tax purposes equal to the fair market value of the share on the date
of exercise.
A recipient who is subject to the short-swing profit liability provisions of
Section 16(b) of the Securities Exchange Act of 1934 and who acquires shares of
Company common stock pursuant to the exercise of an Option will generally
realize ordinary income at the time of the later of (a) the exercise of the
Option or (b) the end of a period of six months following the date such Option
was granted, in an amount equal to the excess, if any, of the fair market value
of the Option shares at that time over the Option price. The Company will be
entitled to a corresponding deduction equal to the amount of ordinary income
realized by the recipient. Such deduction is allowed in the taxable year of the
Company which includes the end of the recipient's taxable year in which the
amount is included in the recipient's income.
18
<PAGE>
For purposes of determining whether the recipient would have long-term or
short-term capital gain upon the subsequent sale of the shares, the recipient's
holding period begins to run on the date the recipient realizes ordinary income.
A recipient who is subject to the limitations imposed by Section 16(b) of
the Securities Exchange Act of 1934 and who acquires shares of Company common
stock pursuant to the exercise of an Option may, by filing an election with the
Internal Revenue Service within 30 days of the date of exercise of the Option,
elect to be taxed as if the limitations of Section 16(b) did not apply to him.
If such an election is made, the Company will be entitled to a deduction equal
to the amount of ordinary income realized by the recipient. Such deduction is
allowed in the taxable year of the Company which includes the end of the
recipient's taxable year in which the amount is included in the recipient's
income. Any subsequent disposition of the shares will result in capital gain or
loss with the holding period beginning on the day following the date of
exercise. In determining the amount of gain or loss, the recipient's basis will
be the fair market value of the shares on the date of exercise.
A recipient will not realize taxable income at the time of grant of a
restricted stock award, assuming that the restrictions constitute a substantial
risk of forfeiture for federal income tax purposes. Upon the vesting of shares
of Company common stock subject to an award, the recipient will realize ordinary
income in an amount equal to the excess of the fair market value of such shares
at such time over the amount paid by the recipient, if any. The Company will be
entitled to a deduction equal to the amount of ordinary income realized by the
recipient. Such deduction is allowed in the taxable year of the Company which
includes the end of the recipient's taxable year in which the amount is included
in the recipient's income. Dividends paid to the recipient during the
restriction period will be taxable as compensation income to the recipient at
the time paid and will be deductible at such time by the Company. The recipient
of a restricted stock award may, by filing an election with the Internal Revenue
Service within 30 days of the date of grant of the restricted stock award, elect
to be taxed at the time of grant of the award on the excess of the then fair
market value of the shares of Company common stock over the amount paid by the
recipient, if any, in which case (1) the Company will be entitled to a deduction
equal to the amount of ordinary income realized by the recipient (such deduction
is allowed in the taxable year of the Company which includes the end of the
recipient's taxable year in which the amount is included in the recipient's
income), (2) dividends paid to the recipient during the restriction period will
be taxable as dividends to the recipient and not deductible by the Company, and
(3) there will be no further tax consequences to either the recipient or the
Company when the restrictions lapse.
Upon exercise of an Option or the vesting of shares included in a restricted
stock award, the Company is obligated to withhold against the recipient's
federal and state income and employment tax liability. Payment of the
withholding obligation can be made from other amounts due from the Company to
the recipient or with shares of Company common stock owned by the recipient. If
the recipient elects to tender shares of Company common stock or to reduce the
number of shares the recipient is otherwise entitled to receive to satisfy the
withholding obligation, the shares tendered or reduced will be treated as having
been sold to the Company.
PROPOSED AMENDMENTS
As discussed in the Report on Executive Compensation contained in this proxy
statement, Section 162(m) of the Internal Revenue Code of 1986, as amended,
places a limit of $1 million on the amount of certain compensation that may be
deducted by the Company in any year with respect to any of the executive
officers named in the Summary Compensation Table of the proxy statement. This
limitation does not apply to "performance-based compensation." Options and SARs
may qualify as performance-based compensation if granted pursuant to a plan
approved by shareholders which, among other things, provides for a maximum limit
on the number of shares underlying such awards that may be granted to any
participant over a specified period. Accordingly, the Board has amended the
plan, subject to shareholder
19
<PAGE>
approval, to provide for limits on the number of Options and SARs that may be
granted to a participant in any fiscal year, as described below.
The proposed amendments provide that no more than 60,000 Options and 60,000
SARs may be granted under the plan to any participant in any fiscal year,
subject to the anti-dilution adjustments provided for in the current plan (e.g.,
stock split-ups or combinations). If these limitations are approved by
shareholders, the Company will be able to exclude from the Section 162(m)
limitation its compensation expenses incurred with respect to Options and SARs
granted under the plan subsequent to such approval, thereby assuring that the
Company may deduct such expenses for federal income tax purposes.
The Committee does not expect a change in its practice of determining grants
of Options and SARs as a result of the proposed amendments. The maximum number
of Options and SARs established by the amendments are designed to provide the
Company with flexibility to attract and retain talented employees while
complying with the provisions of Section 162(m) to preserve the deductibility of
performance-based compensation paid to the executives named in the Summary
Compensation Table of the proxy statement.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of common stock
of the Company will be required for approval of the foregoing amendments to the
plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENTS TO THE LONG-TERM INCENTIVE COMPENSATION PLAN.
ITEM 3. APPOINTMENT OF AUDITORS
Shareholders will be asked to ratify the recommendation of the Audit
Committee and the appointment by the Board of Directors of Arthur Andersen LLP
as the independent public accountants for the Company and its subsidiaries for
the fiscal year ending September 30, 1998. Arthur Andersen LLP has been engaged
as the independent public accountants of the Company or The Peoples Gas Light
and Coke Company since 1932.
A representative of Arthur Andersen LLP is expected to be present at the
meeting and will be available to respond to appropriate questions or to make a
statement if said representative so desires.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPOINTMENT.
OTHER MATTERS
Management does not know of any matters to be presented at the meeting other
than those mentioned in the Notice of Annual Meeting of Shareholders. However,
if other matters come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote said proxy in accordance with their
judgment on such matters.
SHAREHOLDER PROPOSALS
Any proposals by shareholders that are intended to be presented for action
at the 1999 Annual Meeting of Shareholders of the Company must be received by
the Company by September 2, 1998, to be considered for inclusion in the proxy
statement and form of proxy relating to such meeting.
EMMET P. CASSIDY
Secretary
December 31, 1997
20
<PAGE>
LONG-TERM INCENTIVE COMPENSATION PLAN
Effective February 22, 1990
(Amended December 2, 1992, December 7, 1994, February 24, 1995, November 1,
1996, as of December 4, 1996 and as of February 27, 1998)
1. PURPOSE
The purpose of the Long-Term Incentive Compensation Plan ("the
Plan") is to attract, retain and motivate strong management employees by
providing additional incentive to key employees of Peoples Energy Corporation
(the "Company") and its Subsidiaries (as defined by paragraph 13) to acquire
a proprietary interest in the business of the Company and its Subsidiaries
and by encouraging the interest of such persons in the financial success and
growth of the Company. The Plan contemplates the granting of non-qualified
stock options (i.e. options which are not "statutory" within the meaning of
Section 1.421-7(b) of the regulations under the Internal Revenue Code of
1986, as amended) ("Options"), Stock Appreciation Rights ("SARs") or
restricted stock awards, or combinations thereof. A key employee may be
granted and may hold one or more Options, SARs, restricted stock awards or
any combination thereof under this Plan.
2. ADMINISTRATION
(a) GENERALLY
Except to the extent that this Plan applies to the Chief Executive
Officer, this Plan shall be administered solely by the Compensation-Nominating
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall be
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composed of not less than three persons who shall be appointed by the Board of
Directors of the Company (the "Board") from the membership of the Board. No
person who is an officer or employee of the Company or a Subsidiary shall be a
member of the Committee nor shall any person be a member of the Committee whose
membership would disqualify any transactions made under the Plan from complying
with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934
(the "1934 Act") or any successor rule thereunder. Except to the extent that
this Plan applies to the Chief Executive Officer, the Committee is solely
authorized to prescribe the form and content of Options, SARs and restricted
stock awards to be granted under the Plan, to interpret the Plan, to prescribe,
amend or rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for its administration.
(b) CHIEF EXECUTIVE OFFICER
With respect to the Chief Executive Officer, this Plan shall be
administered by the Committee subject to the approval of the majority of all
members of the Board (including members of the Committee) who are not officers
or employees of the Company or a Subsidiary and who are Non-Employee Directors
as defined under Rule 16b-3 under the 1934 Act (the "Outside Directors"). The
Outside Directors shall not include any person whose inclusion would disqualify
any transactions made under the Plan from complying with the requirements of
Rule 16b-3 under the 1934 Act or any successor rule thereunder. With respect
to the Chief Executive Officer, the Committee is authorized to prescribe the
form and content of Options, SARs and restricted stock
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- 3 -
awards to be granted under the Plan to interpret the Plan, to prescribe,
amend, or rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for its administration, subject to the
approval of the majority of the Outside Directors. All references to the
"Committee" contained in any provision of paragraphs 3 through 13 of this Plan
shall, to the extent that such provision applies to the Chief Executive
Officer, be deemed and construed to mean the Committee, the decisions of which
shall be subject to the approval of the majority of the Outside Directors.
3. INCENTIVE AWARDS
Under the Plan participants may be granted any one or more of the
following:
(a) OPTIONS: non-qualified stock options to purchase stock of the
Company at a purchase price of 100 percent of the fair market
value of such Common Stock on the date that the Option is
granted. The stock under Options granted under the Plan shall
be shares of the Company's authorized but unissued common stock,
without par value ("Common Stock").
(b) SARS: a right to receive, for each SAR granted, cash in an
amount equal to the excess of the fair market value of one share
of the Common Stock of the Company on the date the SAR is
exercised
<PAGE>
- 4 -
over the fair market value of such Common Stock on the date
the SAR is granted.
(c) RESTRICTED STOCK AWARDS: shares of Common Stock which are
restricted as provided in paragraph 8.
Up to 1,800,000 shares of Common Stock (500,000 originally authorized
under the Plan plus an additional 500,000 authorized for grant by the
stockholders on February 28, 1986 plus an additional 400,000 authorized for
grant by the stockholders on February 23, 1990 plus an additional 400,000
authorized for grant by the stockholders on February 24, 1995) may be sold
under Options granted pursuant to the Plan or awarded pursuant to restricted
stock awards granted under the Plan, provided that the number of shares
available for sale or award hereunder shall be subject to adjustment as
provided in paragraph 9. Up to 1,800,000 SARs (1,000,000 originally authorized
under the Plan plus an additional 400,000 authorized for grant by the
shareholders on February 23, 1990 plus an additional 400,000 authorized for
grant by the stockholders on February 24, 1995) may be granted pursuant to the
Plan, provided that the number of SARs available for granting hereunder shall
be subject to adjustment as provided in paragraph 9.
If an Option or SAR ceases to be exercisable in whole or in part by
reason of the expiration of the term of the Option or SAR, the termination of
the employment of the recipient or the waiver by a recipient of the right to
exercise an Option or SAR, the shares or SAR which were subject to such
exercise but as to which
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- 5 -
the recipient has not exercised, shall again become available for further
grants under the Plan. If a restricted stock award is forfeited in whole
or in part by reason of the termination of the employment of the recipient
before such award has become fully vested, the shares which were subject to
such restricted stock award but which were not vested shall again become
available for further grants under the Plan.
4. DESIGNATION OF RECIPIENTS AND ALLOTMENT OF SHARES AND SARS
The Committee shall determine and designate from time to time those
key employees of the Company and its Subsidiaries (including officers and
directors employed in capacities other than as directors only) to whom Options,
SARs and restricted stock awards, or any combination thereof, shall be granted
and who shall thereby become recipients. The Committee shall also determine
the number of shares of Common Stock to be optioned, the number of SARs to be
granted and the number of shares of restricted stock to be granted from time to
time to each recipient.
In selecting the key employees to whom Options, SARs or restricted
stock awards, or any combination thereof, shall be granted, as well as in
determining the number of SARs, shares under Option, or shares of restricted
stock to be granted to key employees, the Committee shall weigh the positions
and responsibilities of the individuals being considered, the nature of their
services to the Company, their past, present and potential contributions to the
success of the Company or its Subsidiaries, and such other factors as the
Committee shall deem relevant to accomplish the
<PAGE>
- 6 -
purposes of the Plan; provided, however, that a restricted stock award shall
be granted only in recognition of and as consideration for the performance of
services by the recipient or other consideration received by the Company prior
to the time of grant. Directors of the Company or its Subsidiaries who are not
officers or employees of the Company or its Subsidiaries shall not be eligible
to become recipients under the Plan. No Option, SAR or restricted stock award
shall be granted to any individual possessing more than 5 percent of the total
combined voting power or value of all classes of stock of the Company or of
any of its Subsidiaries. In no event may any individual be granted in excess
of 60,000 Options or in excess of 60,000 SARs during any one fiscal year of
the Company, provided that such maximum number of Options and SARs that may be
granted to any individual in one fiscal year shall be subject to adjustment as
provided in paragraph 9. Each recipient shall agree to continue such
recipient's employee status for such period (not less than one year) as shall
be provided in the Option, SAR or restricted stock award, subject to the right
of the recipient's employer to terminate the recipient's employment at any
time. Options, SARs and restricted stock awards shall contain such conditions
and restrictions as to exercise, the purchase and delivery of shares, and the
forfeiture of shares, and such provisions as to the rights of the Company or
its Subsidiaries, as may be deemed advisable by the Committee.
The Committee may grant Options, SARs or restricted stock awards to
any key employee at any time or from time to time during the period of such
employee's employment under the Plan, in accordance with such determinations as
the Committee
<PAGE>
- 7 -
shall make from time to time. Options, SARs and restricted stock awards need
not contain similar provisions.
5. TERM OF PLAN
No Option, SAR or restricted stock award may be granted under this
Plan after October 31, 2000.
6. OPTION AND SAR PRICE
Shares of the Common Stock of the Company shall be optioned and SARs
shall be granted from time to time at 100 percent of the fair market value of
the Common Stock on the date the Option or SAR is granted (rounded, in the case
of a fraction of a cent, to the nearest full cent above). The day on which the
Committee approves the granting of an Option or SAR shall be considered the
date on which such Option or SAR is granted. The fair market value of the
Common Stock on the date the Option or SAR is granted shall be the mean between
the highest and lowest quoted selling price in the New York Stock Exchange
Composite Transactions on such date or, if such stock was not traded on such
date, on the last preceding date on which such stock was traded.
<PAGE>
- 8 -
7. TERMS OF OPTIONS AND SARS
Each Option or SAR granted under the Plan shall be evidenced by a
written agreement which shall comply with and be subject to the following terms
and conditions:
(a) Full payment for shares purchased shall be made in cash and/or
Common Stock of the Company at the time or times the Option is
exercised in whole or in part. Payment in Common Stock may be
made at the recipient's election by the Company's deducting from
the number of shares otherwise deliverable upon the exercise of
the Option such number of shares of Common Stock as shall have a
value equal to the amount of the Option exercise price.
Any such Common Stock submitted in payment for an Option shall
be valued at the mean between the highest and lowest quoted
selling price of such Common Stock of the Company in the New
York Stock Exchange Composite Transactions on the date of
exercise or, if such stock was not traded on such date, on the
last preceding date on which such stock was traded. No shares
shall be issued pursuant to the exercise of an Option until full
payment thereof has been made and no person shall have any of
the rights of a stockholder with respect to Options held, except
to the extent such
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Options have been exercised and the shares issued to such person.
(b) A recipient's rights to exercise an Option or SAR shall terminate
when the recipient is no longer an employee of the Company or
any of its Subsidiaries unless such recipient's employment is
terminated by reason of such recipient's death, disability or
retirement.
(c) If a recipient dies prior to termination of such recipient's
Option or SAR without having fully exercised such Option or SAR,
the beneficiary or beneficiaries designated by such recipient
pursuant to paragraph 7(f) hereof, or, if no such beneficiary or
beneficiaries have been designated by such recipient or if no
such beneficiary or beneficiaries have survived the recipient,
then the recipient's surviving spouse, or, if the recipient has
no surviving spouse, then the estate of the recipient or any
person who acquires the right to exercise such Option or SAR by
bequest or inheritance or by reason of the death of the
recipient, shall have the right to exercise the Option or SAR
during its term within the eighteen month period after the
recipient's death, but only to the extent such Option or SAR was
exercisable by such recipient immediately prior to such
recipient's death.
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- 10 -
(d) If a recipient's employment is terminated by reason of such
recipient's disability (as determined in the sole discretion
of the Committee) prior to termination of such recipient's
Option or SAR without the recipient's having fully exercised
such Option or SAR, such recipient shall have the right
to exercise the Option or SAR during its term within such period
as may be provided at the time of the grant, not to exceed three
years after termination of employment, but only to the extent
such Option or SAR was exercisable by such recipient immediately
prior to such recipient's termination of employment.
(e) If a recipient retires prior to termination of such recipient's
Option or SAR without having fully exercised such Option or SAR,
such recipient shall have the right to exercise the Option or
SAR during its term within such period as may be provided at the
time of the grant, not to exceed three years after retirement,
but only to the extent such Option or SAR was exercisable by
the recipient immediately prior to such recipient's retirement.
(f) Except as otherwise expressly provided in this paragraph 7(f),
Options and SARs shall not be transferable other than by will
or by the laws of descent and distribution and during a
recipient's lifetime shall be exercisable only by the recipient
or the recipient's
<PAGE>
- 11 -
guardian or legal representative. Notwithstanding the preceding
sentence, a recipient may, by giving notice to the Company during
the recipient's lifetime, designate (i) a beneficiary or
beneficiaries to whom Options or SARs shall be transferred in
the event of the recipient's death, and (ii) the specific number
or proportions of the recipient's Options or SARs to be
transferred to each such designated beneficiary if more than one
beneficiary is properly designated. Any such designation may be
revoked or changed by the recipient at any time and from
time to time by similar notice. If there is no such designated
beneficiary living upon the death of the recipient or if all
such designated beneficiaries die prior to exercise of all of
the recipient's Options and SARs under this Plan, any remaining
Options and SARs shall be transferred to the recipient's
surviving spouse or, if none, then the remaining Options and SARs
will be transferred to the estate or personal representative of
the recipient. If the Company, after reasonable inquiry, is
unable to determine within twelve months after the recipient's
death whether any designated beneficiary of such recipient did
in fact survive the recipient, such beneficiary shall be
conclusively presumed to have died prior to the recipient's
death. Any designated beneficiary, surviving spouse or other
person acquiring any Options or SARs
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pursuant to this paragraph 7(f) shall have the right to exercise
such Options and SARs as set forth in paragraph 7(c), above.
(g) Subject to paragraph 7(k) below, no Option or SAR granted under
this Plan shall be exercisable before the expiration of one year
from the date of grant of such Option or SAR.
(h) Options and SARs granted under this Plan shall contain such
provisions as may be deemed advisable by the Committee.
(i) Subject to paragraph 7(k) below, until a recipient has completed
five years of service, the total number of Options and SARs that
may be exercised by such recipient during the first four years
after such Options and SARs are granted thereto shall not exceed
the following percentages of the number of Options and SARs so
granted:
Years Since Option Percentage of Options
Or SAR Is Granted Or SARs Exercisable
------------------ ---------------------
less than 1 None
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
Notwithstanding the above, the Committee may, in its sole
discretion, accelerate the exercisability under this paragraph
7(i) of any or all Options and/or SARs granted under the Plan.
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(j) In no event shall any Option or SAR granted under the Plan be
exercisable after the expiration of ten years from the date such
Option or SAR is granted.
(k) All outstanding Options and SARs granted under the Plan shall
immediately become exercisable upon the occurrence of a Change
in Control (as defined by paragraph 13).
8. TERMS OF RESTRICTED STOCK AWARDS
Each restricted stock award granted under the Plan shall be evidenced
by a written agreement which shall comply with and be subject to the following
terms and conditions:
(a) Shares of Common Stock covered by a restricted stock award may
not be sold, assigned, transferred or otherwise disposed of, or
mortgaged, pledged or otherwise encumbered until such shares have
become fully vested pursuant to paragraph 8(d) or 8(f).
(b) The recipient of a restricted stock award shall have the right
to vote the shares of Common Stock covered by such award and to
receive dividends thereon, unless and until such shares are
forfeited pursuant to paragraph 8(e).
(c) Shares of Common Stock covered by a restricted stock award will
be held by the Company until such shares have become vested
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- 14 -
pursuant to paragraph 8(d) or 8(f), and will thereupon, subject
to the satisfaction of the withholding obligations described in
paragraph 11, be delivered to the recipient.
(d) Shares of Common Stock covered by a restricted stock award
granted to a recipient shall vest in accordance with the terms
of the grant; provided, however, that shares of Common Stock
covered by a restricted stock award granted to a recipient shall
vest with respect to 100% of the shares covered by the restricted
stock award upon the termination of the recipient's employment by
reason of death, disability (as determined in the sole discretion
of the Committee) or retirement after attaining age 65 (or such
earlier date as determined by the Committee). In addition, the
Committee may, in its sole discretion, accelerate the vesting of
any or all restricted stock awards granted under the Plan. A
recipient may, by giving notice to the Company during the
recipient's lifetime, designate (i) a beneficiary or
beneficiaries to whom shares of restricted stock covered by a
restricted stock award shall be transferred in the event of the
recipient's death, and (ii) the specific number or proportions of
such shares of Common Stock to be transferred to each such
designated beneficiary if more than one beneficiary is properly
designated. Any such designation may be
<PAGE>
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revoked or changed by the recipient at any time and from time to
time by similar notice. If there is no such designated
beneficiary living upon the death of the recipient or if all
such designated beneficiaries die prior to vesting of all shares
of Common Stock covered by a restricted stock award of the
recipient, any remaining shares of Common Stock vesting upon
the recipient's death shall be transferred to the recipient's
surviving spouse or, if none, then the remaining shares so
vesting will be transferred to the estate or personal
representative of the recipient. If the Company, after
reasonable inquiry, is unable to determine within twelve months
after the recipient's death whether any designated beneficiary
of such recipient did in fact survive the recipient, such
beneficiary shall be conclusively presumed to have died prior to
the recipient's death.
(e) In the event of the termination of employment of the recipient
of a restricted stock award other than by reason of death,
disability (as determined in the sole discretion of the
Committee) or retirement after attaining age 65 (or such
earlier date as determined by the Committee) the recipient
will forfeit the shares of Common Stock covered by the
restricted stock award which are not vested.
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- 16 -
(f) All outstanding restricted stock awards granted under the Plan
shall immediately become fully vested upon the occurrence of a
Change in Control (as defined by paragraph 13).
(g) Restricted stock awards granted under this Plan shall contain
such provisions as may be deemed advisable by the Committee.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
In the event there is any change in the Common Stock of the Company
through the declaration of stock dividends, or through recapitalization
resulting in stock split-ups, or combinations or exchanges of shares, or
otherwise, then the number of SARs and shares remaining available for future
grants of Options and restricted stock awards under the Plan and exercisable
under existing grants of SARs and Options shall be appropriately adjusted by
the Committee. Appropriate adjustment shall also be made in the SAR price and
the Option price per share.
10. AMENDMENT
The Board may, by resolution, at any time and from time to time,
amend, revise or terminate this Plan, except that, without stockholder
approval, no amendment shall increase the maximum number of SARs or shares
which may be sold pursuant to Options or covered by restricted stock awards
granted under the Plan or reduce the Option price of any Option or the SAR
price of any SAR (except as provided by
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- 17 -
paragraph 9), change the class of employees eligible to receive SARs, Options
or restricted stock awards under the Plan, or extend the term of the Plan.
Except as otherwise provided in the Plan, no SAR, Option or restricted stock
award previously granted under the Plan may be altered or impaired without the
consent of the holder of the SAR, Option or restricted stock award.
11. TAXES
The Company may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of all federal, state and
local taxes required by law to be withheld with respect to Options, SARs and
restricted stock awards granted pursuant to the Plan including, but not limited
to (a) deducting the amount required to be withheld from any other amount then
or thereafter payable to a recipient or legal representative, and (b) requiring
a recipient or legal representative to pay to the Company the amount required
to be withheld as a condition of releasing shares of Common Stock. In addition,
subject to the Committee's sole discretion and to such rules and regulations as
the Committee shall from time to time establish, a recipient shall be permitted
to satisfy federal, state and local taxes, if any, imposed upon the exercise of
an Option or the vesting of a restricted stock award at a rate up to such
recipient's maximum marginal tax rate with respect to each such tax by (i)
electing to have the Company deduct from the number of shares of Common Stock
otherwise deliverable upon the exercise of an Option or the vesting of a
restricted stock award
<PAGE>
- 18 -
such number of shares of Common Stock as shall have a value equal to the amount
of tax to be withheld, or (ii) delivering to the Company such number of shares
of Common Stock or combination of shares of Common Stock and cash as shall have
a value equal to the amount of tax to be withheld.
12. EFFECTIVE DATE
Any amendment to this Plan requiring shareholder approval shall
become effective upon approval thereof by the holders of a majority of the
Company's outstanding shares of Common Stock, provided such approval occurs
within twelve months of the date such amendment is adopted by the Board. No
SARs or shares of Common Stock shall be issued pursuant to this Plan prior to
compliance with requirements under applicable laws and regulations.
13. DEFINITIONS AND MISCELLANEOUS
(a) For purposes of this Plan, a Subsidiary is any corporation more
than 50 percent of the total combined voting power of which is owned by the
Company or by another corporation qualifying as a Subsidiary within this
definition, or by a combination of any of them.
(b) For purposes of this Plan, a Change in Control means,
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(i) with respect to Options, SARs and restricted stock awards
granted prior to December 4, 1996, that any of the following events described
in this paragraph (i) or in paragraph (ii) below has occurred:
(A) twenty percent (20%) or more of the Company's outstanding
shares of Common Stock have been acquired by any person (as defined by
Section 3(a)(9) of the 1934 Act) other than directly from the Company;
(B) there has been a merger or equivalent combination after which
forty-nine percent (49%) or more of the voting stock of the surviving
corporation is held by persons other than former stockholders of the Company;
or
(C) twenty percent (20%) or more of the directors elected by
stockholders to the Board of Directors of the Company are persons who were
not nominated by management in the most recent proxy statement of the Company.
(ii) with respect to Options, SARs and restricted stock awards
granted on or after December 4, 1996, any of the following events has occurred:
(A) either (1) receipt by the Company 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 1934 Act disclosing that
any person (as such term is used in
<PAGE>
- 20 -
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 the
Company, or (2) actual knowledge by the Company 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 the Company;
(B) purchase by any Person, other than the Company or a
wholly-owned subsidiary of the Company, of shares pursuant to a tender or
exchange offer to acquire any stock of the Company (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 the Company (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of
rights to acquire stock);
<PAGE>
- 21 -
(C) approval by the shareholders of the Company of (1) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of stock of
the Company would be converted into cash, securities or other property, other
than a consolidation or merger of the Company 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 (2)
any consolidation or merger in which the Company is the continuing or
surviving corporation, but in which the common shareholders of the Company
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 the Company), or (3) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of the Company (Transfer Transaction), (except
where (x) the Company owns all of the outstanding stock of the transferee
entity
<PAGE>
- 22 -
or (y) the holders of the Company'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 (4) any consolidation or merger of the Company where, after the
consolidation or merger, one Person owns one hundred (100) percent of the
shares of stock of the Company (except where the holders of the Company'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
(D) 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 the Company'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.
(c) The transfer of an employee from the Company to a Subsidiary
or from a Subsidiary to the Company or another Subsidiary shall not be a
termination of employment or an interruption of continuous employment for the
purposes of this Plan.
<PAGE>
- 23 -
(d) No SAR, Option, restricted stock award, shares of Common Stock
issuable upon the exercise of an Option or cash payable incident to the
exercise of an SAR granted under this Plan shall be transferable or
assignable by anticipation either by the voluntary or involuntary act of the
recipient or by operation of law, or be liable for any debts or liabilities
of the recipient, except as provided herein.
(e) Nothing herein shall entitle any employee to remain in the
employ of the Company or any of its Subsidiaries or affect the right of such
employer to discharge such employee with or without cause.
(f) The right of recipients to designate one or more beneficiaries
pursuant to paragraph 7(f) or paragraph 8(d) shall apply to any and all
Options, SARs or restricted shares granted under the Plan, notwithstanding
anything contained in any written agreement evidencing such grant of Options,
SARs or restricted stock to the contrary.
(g) Notwithstanding anything contained in any written agreement
evidencing a grant of Options or restricted stock made under the Plan prior
to November 1, 1996, recipients of Options or restricted stock may make, on
or after November 1, 1996 at any time at the recipient's discretion, but
subject to such rules and regulations as the Committee may from time to time
establish, one or more
<PAGE>
- 24 -
elections for the Company to withhold from the number of shares of Common
Stock otherwise deliverable pursuant to the exercise of an Option or vesting
of restricted stock in full or partial satisfaction of taxes imposed upon
such exercise or vesting as described in paragraph 11 above; provided,
however, that any such election is made in accordance with the requirements
of Rule 16b-3 under the 1934 Act or any successor rule or regulation so as to
exempt such election and the resulting transaction from Section 16(b) of the
1934 Act.
(h) This Plan shall be construed according to the laws of the
State of Illinois.
<PAGE>
PEOPLES ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS -- FEBRUARY 27, 1998
The undersigned hereby appoints J. Bruce Hasch, William G. Mitchell and
Richard E. Terry, and each of them, with power of substitution in each, as
proxies, with the powers the undersigned would possess if personally present,
to vote all of the undersigned's shares of stock in the Company at the Annual
Meeting of Shareholders of the Company to be held at Harris Trust and Savings
Bank, 115 South LaSalle, Chicago, Illinois, on February 27, 1998, at 11:00
A.M., and at any adjournment thereof, upon all matters that may properly come
before the meeting, including the matters described in the Company's Notice
of Annual Meeting of Shareholders and Proxy Statement dated December 31,
1997, subject to any directions indicated on the reverse side of this card.
If any of the nominees should be unable to serve or for good cause will not
serve, which is not anticipated, management reserves discretionary authority
to vote for a substitute.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
IMPORTANT -- TO BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
PEOPLES ENERGY CORPORATION
PLEASE MARK VOTE IN BOX USING DARK INK ONLY.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors For All Except
W. J. Brodsky, P. Cafferty, For Withheld Nominee(s) written below
J. B. Hasch, H. J. Livingston, Jr.,
W. G. Mitchell, E. L. Neal, R. E. Terry, / / / / / /__________________________
R. P. Toft and A. R. Velasquez.
2. Proposed amendments to For Against Abstain
the Long-Term Incentive / / / / / /
Compensation Plan.
3. Ratify the appointment of For Against Abstain
Arthur Andersen LLP as / / / / / /
independent public accountants.
The Board of Directors recommends a vote FOR all proposals.
</TABLE>
THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE SPECIFICATION MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS.
Dated ___________________________ , 1998
________________________________________
Signature
________________________________________
Signature
NOTE: Please sign exactly as your name(s) appears. For joint accounts,
each owner should sign. When signing as executor, administrator, attorney,
trustee or guardian, etc., please give your full title.
- ------------------------------------------------------------------------------
Your vote is important. Please complete, date, sign and detach the above
proxy card and promptly return it in the enclosed envelope.
ADMISSION TICKET
PEOPLES ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, FEBRUARY 27, 1998
11:00 A.M.
HARRIS TRUST AND SAVINGS BANK
8TH FLOOR AUDITORIUM
115 SOUTH LASALLE STREET
CHICAGO, ILLINOIS
ENTER AT THE SOUTH EAST CORNER OF MONROE AND LASALLE STREETS
