<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant /X/
Check the appropriate box:
/X/ Preliminary information statement
/ / Definitive information statement
PSI Energy, Inc.
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(Name of Registrant as Specified in Its Charter)
Bowne of Chicago, Inc.
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(Name of Person(s) Filing Information Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14c-5(g)
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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pursuant to Exchange Act Rule 0-11:1
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(4) Proposed maximum aggregate value of transaction:
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/ / 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 registrations statement number, or
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(1) Amount previously paid:
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1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
PSI ENERGY, INC.
1000 East Main Street
Plainfield, Indiana 46168
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL
20, 1994
To the Shareholders of
PSI Energy, Inc.
Notice Is Hereby Given that the Annual Meeting of Shareholders of
PSI Energy, Inc. (hereinafter called "PSI Energy") will be held
at 1000 East Main Street, Plainfield, Indiana, on Wednesday,
April 20, 1994, at 10:00 a.m., local time, to consider and vote
upon the following matters, all of which are more completely set
forth in the accompanying Information Statement.
The items of business for the Annual Meeting are:
(1) amending the Amended Articles of Consolidation (the Articles)
to comply with the interpretative policy adopted by the New York
Stock Exchange;
(2) the election of twelve directors; and
(3) transacting such other business as may legally come before
the meeting.
The transfer books of PSI Energy will not be closed. Only
shareholders of record at the close of business on February 22,
1994, will be entitled to vote at any adjournment(s) or
postponement(s) thereof.
Proxies will not be solicited for this meeting and you are
requested not to send us a proxy. Shareholders are welcome to
attend the meeting in person and cast their votes by ballot on
the issues presented at the meeting.
A copy of the 1993 Annual Report to Shareholders of PSI
Resources, Inc. (the "Company") and its subsidiaries, including
PSI Energy, including financial statements, for the year ended
December 31, 1993, was mailed to shareholders prior to or
concurrently with the mailing of the accompanying Information
Statement.
PSI Energy, Inc.
By Cheryl M. Foley, Secretary
Dated March 16, 1994
<PAGE> 3
PSI ENERGY, INC.
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is furnished by the Board of Directors
of PSI Energy, Inc., an Indiana Corporation ("PSI Energy"), in
connection with the Annual Meeting of Shareholders to be held at
1000 East Main Street, Plainfield, Indiana 46168 on Wednesday,
April 20, 1994, at 10:00 a.m., local time, and any adjournment(s)
or postponement(s) of such meeting (the "Annual Meeting"). At the
Annual Meeting, shareholders will consider and vote upon a
proposal to amend the Amended Articles of Consolidation to comply
with the interpretative policy adopted by the New York Stock
Exchange and the election of twelve directors. This Information
Statement is first being sent or given to holders of PSI Energy's
voting securities on or about March 16, 1994.
At the close of business on June 1, 1988, PSI Energy became a
subsidiary of PSI Resources, Inc. (the "Company") and, at that
time, all outstanding shares of PSI Energy's common stock were
exchanged for common stock of the Company. As a result, the
Company owns all 53,913,701 outstanding shares of PSI Energy's
common stock. However, there remains outstanding 5,118,335 shares
of Energy's cumulative preferred stock as of the close of
business on February 22, 1994.
Since the Company's ownership represents more than 96% of the
total votes that could be cast at the meeting, and since
shareholders do not have cumulative voting rights, approval of
the matters set forth herein is assured. Therefore, the Board of
Directors of PSI Energy (the "Board") considered it inappropriate
to solicit proxies for PSI Energy's Annual Meeting of
Shareholders. Please be advised, therefore, that this is only an
Information Statement. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY. However, if you wish to
vote your shares of cumulative preferred stock you may do so by
attending the meeting in person and casting your vote by a ballot
which will be provided for that purpose.
<PAGE> 4
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Only holders of record of PSI Energy's voting securities at the
close of business on February 22, 1994 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. The
outstanding voting securities of PSI Energy are divided into two
classes: common stock and cumulative preferred stock. The class
of cumulative preferred stock has been further issued in six
series. The shares outstanding as of February 22, 1994 and the
vote to which each share is entitled, are as follows:
<TABLE>
<CAPTION>
Class Shares Outstanding Votes Per Share
<S> <C> <C>
Common Stock (without par value) 53,913,701 1 vote
Cumulative Preferred Stock
Par Value $100 per share 800,410 1 vote
Par Value $25 per share 4,317,925 1/4 vote
</TABLE>
As noted above, the Company owns all the outstanding common stock
of PSI Energy. No persons or groups are known by management of
PSI Energy to be the beneficial owners of more than 5% of PSI
Energy's cumulative preferred class of stock.
SECURITY OWNERSHIP OF MANAGEMENT
None of the directors or executive officers of PSI Energy owns
any shares of PSI Energy's common stock or cumulative preferred
class of stock.
The following sets forth the beneficial ownership of the
Company's common stock by the executive officers named in the
compensation tables set forth below as of December 31, 1993:
<TABLE>
<CAPTION>
Common Stock(1)
<S> <C>
James E. Rogers............................. 198,196
Jon D. Noland............................... 62,542
J. Wayne Leonard............................ 56,812
Larry E. Thomas............................. 61,396
Cheryl M. Foley............................. 54,912
</TABLE>
(1) Pursuant to Rule 13d-3 under the 1934 Act, these
amounts include (i) with respect to Mr. Rogers, 175,000
shares which Mr. Rogers has the right to acquire within
60 days pursuant to the exercise of stock options and
(ii) with respect to each of Messrs. Noland, Leonard,
Thomas and Ms. Foley, 50,000 shares which each of such
individuals has the right to acquire within 60 days
pursuant to the exercise of stock options. These
amounts also include shares held for the account of the
named executive officers in the PSI Energy Employees'
401(k) Savings Plan consisting of 1,452 shares for Mr.
Rogers, 1,761 shares for Mr. Noland, 1,862 shares for
Mr. Leonard and 2,040 shares for Mr. Thomas.
The beneficial ownership of the Company's common stock by
PSI Energy's directors, and of theoretical "units" equal to one
share of the Company's common stock paid as compensation to PSI
Energy's directors, as of December 31, 1993 is set forth below.
<PAGE> 5
<TABLE>
<CAPTION>
Name Common Stock (2) Units(3)
<S> <C> <C>
Michael G. Browning............................. 18,413 142
J. Wayne Leonard................................ 56,812
John A. Hillenbrand, II......................... 27,625 94
Emerson Kampen.................................. 15,500
Van P. Smith.................................... 17,000
John M. Mutz.................................... 12,731
James E. Rogers................................. 198,196
Robert L. Thompson.............................. 12,500
James K. Baker.................................. 13,300
Hugh A. Barker.................................. 37,162 85
Kenneth M. Duberstein........................... 12,700
Melvin Perelman................................. 22,425 142
</TABLE>
(2) Pursuant to Rule 13d-3 of the 1934 Act, amounts set forth
include shares which the directors have the right to acquire
within 60 days pursuant to the exercise of stock options.
Such shares, with respect to each director, equal: Mr.
Browning-12,500; Mr. Leonard-50,000; Mr. Hillenbrand-12,500;
Mr. Kampen-12,500; Mr. Smith-12,500; Mr. Mutz-12,500; Mr.
Rogers-175,000; Mr. Thompson-6,500; Mr. Baker-12,500; Mr.
Barker-12,500; Mr. Duberstein-12,500 and Mr. Perelman-12,500.
With respect to Mr. Barker and Mr. Mutz, their shares also
include 3,043 and 31 shares held for their account in the
PSI Energy Employees' 401(k) Savings Plan, respectively.
(3) "Units" in the above listing of directors refers to
theoretical units equal to one share of the Company's common
stock credited to the account of the respective directors as
of December 31, 1993, under the Company's Deferred
Compensation Plan for Directors. For a summary of the plan,
see "Directors' Compensation" below.
As of December 31, 1993, all directors and executive officers
as a group beneficially owned 683,306 shares of the
Company's common stock, or less than 2% of the class.
BUSINESS TO COME BEFORE THE MEETING
As of this date, the only business expected to be presented at
the meeting is a proposal to amend the Amended Articles of
Consolidation to comply with the interpretative policy adopted by
the New York Stock Exchange and the election of twelve directors
to serve until the next annual meeting of shareholders and until
their successors are duly elected and qualified.
<PAGE> 6
PROPOSED AMENDMENT OF AMENDED ARTICLES OF CONSOLIDATION
The board has unanimously approved, and recommends that the
shareholders vote to approve, an amendment to the Amended
Articles of Consolidation (the Articles) to comply with the
interpretative policy adopted by the New York Stock Exchange.
To accomplish this, it will be necessary to amend
Subdivision G(I)(iv) in its entirety to provide as follows:
"If and when dividends payable on the Cumulative Preferred
Stock shall be in default in an amount equivalent to or greater
than four (4) full quarter-yearly dividends on all shares of all
series of the Cumulative Preferred Stock then outstanding, then
at the annual or a special meeting of shareholders held as soon
as practicable thereafter and each subsequent meeting at which
directors are elected, in each case held prior to such time as
all dividends in default on the Cumulative Preferred Stock shall
have been paid or declared and set aside for payment, the record
holders of all shares of the Cumulative Preferred Stock, voting
separately as one class, shall elect the smallest number of
directors necessary to constitute a majority of the full board of
directors, the record holders of all shares of the Preference
Stock, voting separately as one class, shall elect two (2)
members of the board of directors, and the record holders of the
Common Stock, voting separately as a class, shall elect the
remaining directors of the Corporation.
This amendment modifies Subdivision G(I)(iv) to provide that
an annual or special meeting to provide director representation
for the Cumulative Preferred Stock must be held as soon as
practicable after occurrence of the default specified in such
Subdivision. In its current form, Subdivision G(I)(iv) only
specifies that such director representation be afforded at each
meeting of shareholders at which directors are elected.
Approval of the proposed amendment to the Articles will be
adopted by a plurality of the votes actually cast by holders of
the Common Stock and the Cumulative Preferred Stock voting
together. In tabulating the vote, abstentions and broker non-
votes, if any, will be disregarded and have no effect on the
outcome of the vote.
ELECTION OF DIRECTORS
The Board has nominated the individuals listed below for
election as directors, all of whom are presently members of the
Board and have been elected previously by the shareholders. All
of the proposed nominees have signified their willingness to
serve, if elected.
A plurality vote is required to elect directors. In
tabulating the vote, abstentions and broker non-votes, if any,
will be disregarded and have no effect on the outcome of the
vote.
Except as otherwise noted, the principal occupation or employment
of each individual set forth in the following tables has been
such individual's principal occupation or employment for the past
five years and no such individual holds another position or
office with PSI Energy.
<PAGE> 7
<TABLE>
<CAPTION>
Names, Ages, Principal Occupations and Selected Information
<S> <C>
James K. Baker Chairman and Director,
Director since 1986. Age 62 Arvin Industries, Inc.,
Chairman--Finance Committee Automotive Parts Manufacturing
Member-Executive Committee Columbus, Indiana
</TABLE>
Mr. Baker is a director of the Company, NBD Bancorp Inc., Space
Industries International, Tokheim, Geon Company and Amcast Industrial
Corp. He is Chairman of the Board of Trustees of DePauw University and
is active in various civic organizations. During 1990-1991, Mr. Baker
served as chairman of the U.S. Chamber of Commerce. PSI Energy has
established individual lines of credit with various banks, one of
which is NBD Bank, N.A. with a commitment of $5 million. As of
December 31, 1993, PSI Energy had borrowings of $5 million from NBD
Bank, N.A.
<TABLE>
<S> <C>
Hugh A. Barker Retired President of the Company
Director since 1968. Age 68 and RetiredChairman of
Member--Finance Committee PSI Energy
and Audit Committee
</TABLE>
Mr. Barker is a director of the Company, Bank One, Indianapolis, N.A.
and the Indiana Chamber of Commerce. PSI Energy has established
individual lines of credit with various banks, one of which is Bank
One, with a commitment of $5 million. As of December 31, 1993, PSI
Energy had no borrowings under the Bank One line of credit.
<TABLE>
<S> <C>
Michael G. Browning Chairman and President,
Director since 1990. Age 47 Browning Investments, Inc.
Member-Compensation and Nominating Real Estate Ventures,
Committee and Public Policy Committee Carmel, Indiana
</TABLE>
Mr. Browning is also president of Browning Real Estate, Inc., the general
partner of various real estate investment partnerships. Mr. Browning
is a director of the Company, PSI Investments, Inc., PSI Argentina, Inc.,
Conseco, Inc., and Sunshine Group, Inc. Mr. Browning is involved as a director
or trustee of various community organizations. Mr. Browning was formerly
the chairman and president of Fidelity Corp., an Indiana one-bank holding
company.
<TABLE>
<S> <C>
Kenneth M. Duberstein Chairman and Chief Executive
Director since 1990. Age 49 Officer, The Duberstein Group,
Member-Compensation and Nominating Inc., Planning and Consulting
Committee and Public Policy Committee Services, Washington, D.C.
</TABLE>
Mr. Duberstein is a director of the Company, PSI_Foundation,_Inc.,
McDonnell Douglas Corporation, the Kennedy Center for the Performing
Arts and the Ford's Theatre. He is a member of the Board of Governors
of the American Stock Exchange, a trustee of Franklin and Marshall
College and active in various civic organizations. He held key
positions in the Reagan Administration, including Chief of Staff.
<PAGE> 8
<TABLE>
<CAPTION>
Names, Ages, Principal Occupations and Selected Information
<S> <C>
John A. Hillenbrand, II Chairman, President and
Director since 1985. Age 62 Chief Executive Officer,
Chairman-Public Policy Committee Glynnadam, Inc., Personal
Member-Executive Committee Investment Holding Company,
Batesville, Indiana
</TABLE>
Mr. Hillenbrand is also the chairman of Able Body Corporation and
Nambe' Mills, Inc. and the vice chairman of Pri-Pak, Inc. Mr.
Hillenbrand is a director of the Company, Hillenbrand Industries,
Inc., Hillenbrand Foundation, National City Trust Company and National
City Bank, Indiana. He is also co-chairman of the Indiana Economic
Development Council, a director of the Indiana Chamber of Commerce,
and Chairman of the Natural Resource Foundation.
<TABLE>
<S> <C>
Emerson Kampen Chairman, President and
Director since 1986. Age 66 Chief Executive Officer, Great
Chairman-Audit Committee Lakes Chemical Corporation,
Member-Executive Committee Industrial and Specialty Chemicals,
West Lafayette, Indiana
</TABLE>
Dr. Kampen is a director of the Company, Great Lakes Chemical
Corporation and its subsidiaries, Inland Steel Industries, Inc., NBD
Bank, N.A., Lafayette Life Insurance Company and the Indiana
University Foundation. Dr. Kampen is a trustee of Purdue University
and a director and the vice chairman of the Indiana Chapter of the
Newcomen Society of the United States. He is active in civic and
community affairs both at the state and local levels. PSI Energy has
established individual lines of credit with various banks, one of
which is NBD Bank, N.A. with a commitment of $5 million. As of
December 31, 1993, PSI Energy had borrowings of $5 million from NBD
Bank, N.A.
<TABLE>
<S> <C>
J. Wayne Leonard Senior Vice President and
Director since 1993. Age 43 Chief Financial Officer of the
Company and Senior Vice
President and Chief Financial
Officer of PSI Energy,
1989 to the present
</TABLE>
Mr. Leonard is a director of the Company, PSI Foundation, Inc., PSI
Argentina, Inc. and PSI Investments, Inc. Mr. Leonard joined the
Company in 1973 and held various financial positions before being
promoted to Chief Financial Officer in March 1989.
<PAGE> 9
<TABLE>
<CAPTION>
Names, Ages, Principal Occupations and Selected Information
<S> <C>
John M. Mutz President of the Company
Director since 1991. Age 58 October 1993 to present
</TABLE>
Mr. Mutz is a director of the Company, PSI Investments, Inc., PSI
Argentina, Inc., PSI Foundation, Inc. and PSI Recycling, Inc. He is
also a director of National City Bank, Indiana, CCP Insurance, Inc.
and ADESA Corporation. Prior to joining the Company, Mr. Mutz was
president of the Lilly Endowment, Inc., in Indianapolis, from 1989 to
1993 and previously served as lieutenant governor for the State of
Indiana from 1981 to 1988. While in office, he was president of the
Indiana Senate, headed up the Department of Commerce and the
Department of Employment and Training Services, and served as
Commissioner of Agriculture.
<TABLE>
<S> <C>
Melvin Perelman, Ph.D. Retired Executive Vice President,
Director since 1980. Age 63 Eli Lilly and Company,
Member-Compensation and Nominating Pharmaceuticals,
Committee and Finance Committee Indianapolis, Indiana
</TABLE>
Dr. Perelman was executive vice president of Eli Lilly and Company, an
Indianapolis pharmaceuticals manufacturer, until his retirement in
1993. He was also president of Lilly Research Laboratories. He is a
director of the Company and PSI Argentina, Inc.
<TABLE>
<S> <C>
James E. Rogers Chairman and Chief Executive
Director since 1988. Age 46 Officer of the Company and
Chairman-Executive Committee Chairman, President and Chief
Executive Officer of PSI Energy,
October 1988 to present.
</TABLE>
Mr. Rogers is a director of the Company, PSI Investments, Inc., PSI
Argentina, Inc., PSI Foundation, Inc., PSI Recycling, Inc., NBD Bank,
N.A., Bankers Life Holding Corporation and of the U.S., Indiana and
Indianapolis Chambers of Commerce. He is also a director of numerous
industry, civic, academic and community organizations. Prior to
joining the Company, Mr. Rogers held various executive positions with
several gas pipeline subsidiaries of Enron Corp., Houston, Texas, from
1985 to 1988. PSI Energy has established individual lines of credit
with various banks, one of which is NBD Bank, N.A. with a commitment
of $5 million. As of December 31, 1993, PSI Energy had borrowings of
$5 million from NBD Bank, N.A.
<TABLE>
<S> <C>
Van P. Smith Chairman of the Board and
Director since 1986. Age 65 President, Ontario Corporation,
Chairman_Compensation and
Nominating Committee Aircraft Engine Components,
Member-Executive Committee Muncie, Indiana
</TABLE>
Mr. Smith is a director of the Company, each of the subsidiaries of
Ontario Corporation, Lilly Industries, Inc., Meridian Insurance Group,
Inc., Meridian Mutual Insurance Co. and the American Auto_mobile
Association. He is chairman of the board of trustees of Colgate
University and a trustee of Catholic University of America. He is a
director of t he Indiana Chamber of Commerce and former chairman of
the board of the U.S. Chamber of Commerce.
<PAGE> 10
<TABLE>
<CAPTION>
Names, Ages, Principal Occupations and Selected Information
<S> <C>
Robert L. Thompson, Ph.D. President and Chief Executive
Director since 1987. Age 48 Officer, Winrock International,
Member-Audit Committee Nonprofit Institution,
Morrilton, Arkansas
</TABLE>
Dr. Thompson is a director of the Company, the Vigoro Corporation,
Chicago, IL and the National Cooperative Bank, Washington, D.C. He is
also a member of the International Policy Council on Agriculture and
Trade. Dr. Thompson served as Dean of Agriculture at Purdue University
from March 1987 to July 1993, as Assistant Secretary for Economics,
U.S. Department of Agriculture, from May 1985 to February 1987, and
as Senior Staff Economist on the President's Council of Economic
Advisers from August 1983 to May 1985.
MEETINGS AND COMMITTEES OF THE BOARD
During the year ended December 31, 1993, the Board held 16
meetings. All directors attended at least 84% of the aggregate Board
meetings and meetings of committees on which they serve with the
exception of Mrs. Shirley Shideler who attended 41% of Board meetings.
Mrs. Shideler was excused from attending meetings that discussed the
IPALCO Enterprises, Inc. (IPALCO) hostile takeover attempt due to a
conflict of interest that arose from her employment with Barnes &
Thornburg and such firm's representation of IPALCO. Committees of the
Boards of PSI Energy and the Company are as follows:
Audit Committee: Two meetings were held in 1993. Its principal
functions are as follows:
<TABLE>
<S> <C>
-- Recommending the independent public accountants to the Board;
-- Reviewing the scope and results of audits with the independent
public accountants;
-- Reviewing the Company's accounting principles and its accounting
and financial reporting policies and practices with the
independent public accountants and management;
-- Reviewing the Company's internal controls and accounting
procedures with the independent public accountants and the
internal auditors;
-- Reviewing annual financial reports with management and the
independent public accountants prior to release by the Company;
and
-- Reviewing the Company's internal auditing program.
</TABLE>
Compensation and Nominating Committee: Seven meetings were held in
1993. Its principal functions are as follows:
<TABLE>
<S> <C>
-- Making recommendations to the Board as to compensation to be
received by the executive officers and the fees of directors of
the Company;
-- Establishing qualifications desired in prospective nominees to
the Board; and
-- Making recommendations to the Board of persons to fill vacancies
on the Board.
</TABLE>
<PAGE> 11
The Compensation and Nominating Committee will consider
nominations for directors submitted by shareholders. Each
recommendation should be accompanied by biographical information
as to age, education and business experience of the proposed
nominee. See "Proposals by Shareholders" below.
Other regular committees of the Board include the Executive
Committee, the Finance Committee and the Public Policy Committee.
The Company would like to acknowledge three members of the
Board: Mr. Stuart Eizenstat, who resigned in September to become
U.S. Ambassador to the European Community, and Mr. Shelton Hannig
and Mrs. Shirley Shideler, who retired at year-end. Their advice
and support have been sincerely appreciated.
REPORT OF THE COMPENSATION AND NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation and Nominating Committee (the "Committee")
of the Board, in addition to its responsibility to nominate
officers and directors for the Company, formulates and
administers the Company's compensation and benefit policies and
makes recommendations to the full Board regarding the Company's
short-term and long-term incentive plans. The Committee is
composed entirely of independent outside (non employee)
directors. The Committee considers PSI Energy's and the Company's
compensation decisions together.
COMPENSATION PHILOSOPHY.
The Company's fundamental compensation philosophy is to
provide a total compensation program that will attract, retain,
and motivate the high quality employees needed to provide
superior service to our customers and maximize returns to our
shareholders. Over the last few years, the Committee has
redesigned the Company's Executive Compensation Program to link
executive and shareholder interests through equity-based and
incentive-based plans, which reward both corporate and individual
performance and balance short-term and long-term considerations.
A long-term corporate strategic plan was developed in 1990
and is reviewed and updated annually. The philosophy of the
strategic plan is that the interests of shareholders, customers
and employees are intertwined and optimal value for the whole is
created by maximizing value for each stakeholder group. Factors
such as low rates, satisfied customers, close and responsive
community relationships, excellence in overall service,
environmental stewardship, and a well-trained, highly-motivated
and innovative team of employees have been identified as factors
critical to the Company's success and are incorporated as
specific elements of the strategic plan. These factors form the
basis for goals and objectives that are developed on a yearly
basis for both the Company as a whole and for individual
executives. The Executive Compensation Program then incorporates
these goals and objectives into performance measures, against
which each executive officer is evaluated and upon which his or
her incentive compensation is determined. In 1993, the Company
performance measures were based on operating income and fuel cost
per million Btu. (See Annual Cash Incentive Plan on page for
more details.) The individual goals are described below.
<PAGE> 12
With passage of the Energy Policy Act in 1992, competition
within the utility industry is upon us. These competitive forces
require a set of management skills that is broader and more
diversified than was previously required in the utility industry.
The Company must follow the compensation practices and trends of
general industry companies so that it can attract and retain
superior performers. Accordingly, the Committee researches and
takes into account both utility-specific and general industry
data in setting compensation levels and benefit programs.
Within this context, it is the Committee's goal to provide
the opportunity for the Company's executive officers, including
its CEO, to earn total compensation that is commensurate with
their contribution to the success of the Company and that is
above the 50th percentile level of comparable utilities and
trending toward the pay practices of a broader range of U.S.
companies with comparable revenues.
In 1992, an independent compensation and benefits consulting
firm was retained to conduct a comprehensive study of the
Company's Executive Compensation Program structure and pay levels
in comparison to the market. The study compared the Company's
Executive Compensation Program to comparative groups of 20
utility companies and 24 general industrial companies. The peer
groups used for compensation analysis include 4 utilities that
are included in the Standard & Poor's (S&P) Electric index and
16 general industry companies that are included in the S&P 500
index. These indexes are used for stock performance comparison
in the performance graph included in this proxy statement (see
page ____). The compensation analysis peer groups were selected
based upon comparable revenue size with the Company and
availability of survey data. Findings of the 1992 study were
presented to the Committee for its review. Based on these
findings, the Committee established compensation levels in line
with the guidelines discussed above.
The Company's Executive Compensation Program consists of
three components: base salary, annual cash incentive
opportunities and long-term incentive opportunities in the form
of stock. Over the last few years, the Company has increased the
relative weighting of variable incentive compensation in
proportion to the total compensation package. In 1993, an
average of 40.4% of the total compensation of Company executive
officers consisted of variable incentive compensation. In 1993,
48.9% of Mr. Rogers' total compensation consisted of variable
incentive compensation.
BASE SALARIES
Base salaries are set at competitive levels determined by
market studies (salary levels in 1993 reflect the findings of
the market studies described above and are near the 50th
percentile of utility companies and, in some cases,
approximating the average of the two competitive groups) and
reflect the levels needed to attract and retain superior
performers. Annual increases to base salaries generally reflect
average increases in the utility industry and general industry.
In most instances, the Company's executive officers are given
identical percentage increases. Promotional increases or equity
adjustments to reflect changes in the market or in
responsibilities may be appropriate from time to time. In 1993,
the average increase in base salaries of the Company's executive
officers was 4.2%, with a range of 4.0 to 5.2%. In general,
however, superior performance is reflected in the increasingly
important variable pay portion of the executive compensation
package.
<PAGE> 13
With respect to Mr. Rogers, the majority of his base salary
in 1993 was determined pursuant to an employment agreement with
the Company dated May 17, 1990 (see "Employment Contracts and
Termination of Employment and Change in Control Arrangements"
below) as modified prior to February 17, 1993. Mr. Rogers was
given a base salary increase of 4% in 1993. The Committee granted
this increase based upon Mr. Rogers' base salary comparison
pursuant to the market study described above and Mr. Rogers'
outstanding leadership role both in the industry and with regard
to the significant contributions the Company has made in the
communities it serves, as evidenced by the highest level of
satisfaction ever registered by our customers in a satisfaction
survey and the outstanding performance of the Company's common
stock as displayed in the performance graph on page ___.
ANNUAL CASH INCENTIVE PLAN
The PSI Energy Annual Incentive Plan (the "Plan" or the
"Annual Incentive Plan") was developed to provide additional
incentive for superior performance. The Committee believes that
incentives focus and motivate a management team to strive for
excellence and to achieve, through both teamwork and individual
initiative, levels of performance that otherwise would not have
been reached. The Company's customers and its shareholders are
the beneficiaries of these enhanced accomplishments.
Approximately 150 key employees currently participate in the
Plan, and are granted cash awards to the extent that certain
predetermined corporate and individual goals are attained during
the applicable calendar year. Graduated standards for achievement
are developed to encourage each employee's contribution. The
potential awards range from 6.5% to 55% of the annual salary of
the participant, depending upon the achievement levels and the
participant's position. Under his employment agreement, Mr.
Rogers has the ability to receive 55% of his annual salary as
awards under the Plan if his performance goals are met. The
Committee reviews and approves both the Plan goals at the
beginning of the year and the achievements at the end of the
year.
In 1993, the Plan used a combination of corporate and
individual goals. Achievement of corporate goals accounted for
50% of the total possible award while achievement of individual
goals constituted the remainder. The portion of the payout in
March 1994 attributable to the corporate goals was based on 1993
achievement in two areas: (1) operating income so as to maximize
the Company's return on equity; and (2) fuel cost per million
Btu, which made up over 41% of total operating expense in 1993
and is a key element in maintaining the Company's low-cost
position in the industry. The operating income goal accounted for
37.5% and the fuel cost goal constituted 12.5% of the total
possible award.
The 1993 incentive awards reflect individual achievement as
well as the Company's attainment of corporate goals. The 1993
individual performance goals for the executives varied from
executive to executive; however, all related to achievement of
the Company's overall strategic mission of becoming a premier
regional energy services company.
<PAGE> 14
In awarding these payments, the Committee considered the
additional achievements by the Company, outlined below, as a
result of the efforts of Mr. Rogers and his management team. The
Committee believes these accomplishments are appropriate
considerations in establishing compensation levels for the
executive officers of the Company as they help to secure superior
Company performance as the utility industry moves toward a more
competitive environment.
For Mr. Rogers and each member of the management team, the
Committee assessed the extent to which each person contributed
toward the accomplishment of the Company's strategic mission in
1993. Although its determinations were subjective, the Committee
believes that its assessment accurately measured the performance
of each executive officer. Mr. Rogers was awarded an annual
incentive payment of $239,324 for 1993. This award consisted of
$115,364 in recognition of the Company's corporate goals
discussed above, and $123,960 in recognition of Mr. Rogers'
contributions toward helping the Company achieve superior
performance in 1993.
The Company's achievements in 1993 were reflected in the
gain in total return for shareholders of 39.1%, compared to 10.1%
for the S&P 500 and 12.6% for the S&P Electrics, as depicted in
the performance graph on page ___ of this report. The Company's
most significant accomplishment for its shareholders and
customers in 1993 was progress toward completion of its merger
with The Cincinnati Gas & Electric Co. ("CG&E") (the "CINergy
Merger"). Also in 1993, the Company evaluated an unsolicited bid
by IPALCO for control of the Company's stock and communicated to
shareholders the Board's determination that the offer was not in
the best interests of shareholders, customers, and other
constituencies. IPALCO withdrew its offer after the Company's
shareholders elected the Company's nominees to the Board of
Directors over IPALCO's nominees, by nearly a 2-to1 margin.
Thereafter, the Company and CG&E reached an agreement with IPALCO
to resolve lawsuits and other issues in connection with IPALCO's
opposition to the CINergy Merger and its acquisition offer. At
special meetings in November, the Company and CG&E shareholders
voted overwhelmingly to approve the CINergy Merger. On November
9, 83% of the Company's outstanding shares were voted in favor of
the CINergy Merger. On November 16, over 85% of CG&E's
outstanding shares were voted in favor of the CINergy Merger, far
more than the two-thirds necessary for approval. The goal remains
to complete the CINergy Merger during the third quarter of 1994,
although completion could be delayed further.
On the financial front, in 1993 the Company had earnings of
$1.73 per share. Even after having incurred significant
unexpected charges totalling 37 cents per share (25 cents for
IPALCO defense costs and 12 cents for the settlement of two
outstanding rate orders), earnings were down only 2 cents per
share from 1992. The Company was able to achieve this level of
earnings through stringent cost control efforts across the entire
corporation, motivated by the Company's incentive pay programs,
including its 401(k) incentive matching contribution. The
Company's shareholders earned a return on equity of 14.1% in
1993. This was the fifth highest in the nation in a survey of 80
investor-owned utilities in the U.S. and compared with an
industry average of approximately 11.9%. Additionally,
shareholders enjoyed a dividend increase of 10.7%, compared to
the investor-owned utility industry average of 2.6%.
<PAGE> 15
In the regulatory arena, the Indiana Utility Regulatory
Commission ("IURC") approved PSI Energy's plan for complying with
Phase I of the acid rain provisions of the Clean Air Act
Amendments of 1990. The IURC also approved PSI Energy's emission
allowance banking strategy, which will afford the Company greater
flexibility in developing its Phase II plan. PSI Energy also
filed testimony with the IURC to support its request for an 11.6%
retail rate increase. The rate petition includes a "performance
efficiency plan" which would provide for sharing of common equity
returns from 12.5% to 14.5% between shareholders and customers,
based on PSI Energy's performance on specific measures.
In July 1993, S&P placed PSI Energy's debt ratings on review
with positive implications. In October, S&P evaluated the
business position of 124 electric utilities--assessing each as
above average, average, or below average--and included PSI Energy
among 24 companies with an "above average" business position. A
similar study by Prudential Securities analysts assigned the
Company the fourth-best "competitive risk index" of all utilities
studied and included PSI Energy among "nineteen utilities best
able to cope with the new competitive environment."
The Committee believes that the Company's management team
has made significant progress toward positioning the Company so
as to be successful in the competitive world and that the Annual
Incentive Plan has been an excellent tool to focus the management
team toward this goal.
Long-Term Incentive Plan and Stock Option Plan
The PSI Energy Performance Shares Plan (the "Performance
Shares Plan") is a long-term incentive plan developed to reward
officers for contributing to long-term success by achieving
corporate and individual goals approved by the Committee. The
same corporate and individual goals as used in the Annual
Incentive Plan are applicable to this plan. The potential award
opportunities are established in the same manner as the Annual
Incentive Plan, and the minimum award opportunities range from
6.66% to 36.66% of annual salary for the full performance cycle.
The maximum award opportunity is equal to three times the minimum
award opportunity. Mr. Rogers, under the terms of his employment
agreement, has the ability to receive a minimum of 36.66% of his
annual salary in awards if corporate and individual performance
goals are met. The award paid in 1993 was the second installment
of the award earned by the participants for the cycle which
covered 1990 and 1991. The award was paid in shares of common
stock and cash sufficient to pay any applicable taxes plus cash
or shares equal to the amount of dividends which otherwise would
have been paid if the shares had been distributed in 1992. Mr.
Rogers' installment of the award paid in 1993 for the 1990 to
1991 period was valued at $193,618, which was 42.0%.
As in the Annual Incentive Plan, customers and shareholders
benefit from the management team's accomplishment of these long-
term goals. The same executive officers who participate in the
Annual Incentive Plan also participate in this plan. The
Committee took into account the achievements listed above in
determining payouts under this plan.
<PAGE> 16
The Company's executive officers are also eligible for
grants under the 1989 Stock Option Plan (the "1989 Plan"). The
1989 Plan is designed to align executives' compensation with
shareholder interest. Both non-qualified and incentive stock
options have been granted under the 1989 Plan.
Options vest at the rate of 20% per year over a five-year
period from the date of grant and are available for purchase over
a ten-year term. However, under the terms of the 1989 Plan,
shareholder approval of the CINergy Merger caused an immediate
acceleration of the vesting of all previously non vested options.
Therefore, as of November 9, 1993, all options previously granted
are now vested. No options were granted in 1993 for the executive
officers reported in the compensation table because of grants to
such executive officers made in earlier years.
Other Compensation Decisions
The Committee, at its discretion, may award other forms of
compensation in recognition of outstanding service to the Company
or any of its subsidiaries. Consistent with that philosophy, the
Committee approved in 1993 special performance awards for Mr.
Leonard and Ms. Foley in the amount of $25,000 each. These
payments were based upon Mr. Leonard's and Ms. Foley's exemplary
performance associated with negotiating the CINergy Merger.
Other Compensation Elements
The executive officers, including Mr. Rogers, participate in
the PSI Energy Pension Plan, the PSI Energy Severance Pay Plan,
the PSI Energy Excess Benefit Plan and the PSI Energy Executive
Supplemental Life Insurance Program, and are eligible to
participate in the PSI Energy Employees' 401(k) Savings Plan.
Messrs. Rogers and Noland, and Ms. Foley also participate in the
PSI Energy Supplemental Retirement Plan. Mr. Rogers also has an
employment agreement, a deferred compensation agreement and a
split dollar life insurance agreement with the Company. The
executive officers also receive other customary medical and other
benefits. No compensation decisions were made by the Committee
during 199 3 relating to the participation of executive officers
with respect to these plans, agreements and benefits.
Summary
The Committee has sought to establish total compensation at
a level above the 50th percentile level for comparable utilities
and trending toward the 50th percentile for comparable general
industry U.S. companies, when performance warrants. Additionally,
for the officers reported in the compensation tables, 45.2% of
their total compensation is incentive-driven, which puts such pay
"at risk," therefore adding flexibility and an emphasis on
superior performance.
On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 was signed into law (the "Revenue Act"). The Revenue Act
limits the deductibility of certain compensation in excess of $1
million per year paid by a publicly traded corporation to the
chief executive officer and the four most highly
<PAGE> 17
compensated executive officers other than the chief executive
officer named in the Summary Compensation Table. Under the
Revenue Act, compensation which is payable under a written
contract that was in effect before February 17, 1993, or which
qualifies as "performance-based" compensation is exempt from the
$1 million deductibility limitation.
The Committee is aware of these provisions of the Revenue
Act and will be reviewing their application to the Executive
Compensation Program over the next period. The Committee,
however, intends to continue to compensate executives on
performance achieved, both corporate and individual.
The tables which follow, and accompanying footnotes, reflect
the decisions covered by the above discussion.
Compensation and Nominating Committee
Van P. Smith, Chairman
Kenneth M. Duberstein
Michael G. Browning
Melvin Perelman
*Actions described under "Other Compensation Decisions" as to Mr.
Leonard and Ms. Foley were approved by the Board of Directors.
<PAGE> 18
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
PSI Resources 100 137 134 147 178 248
S&P Electrics 100 133 137 178 188 212
S&P 500 100 132 128 166 179 197
</TABLE>
Assumes $100 invested December 31, 1988, and all dividends
reinvested.
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
The following tables set forth the compensation of the Chief
Executive Officer and each of the four most highly compensated
executive officers for services in all capacities to the Company
and its subsidiaries during 1993 (and with respect to the Summary
Compensation Table, for each of the years 1993, 1992 and 1991).
Most compensation is paid by PSI Energy or from PSI Energy's
benefit plans, although some miscellaneous amounts are paid from
the Company's benefit plans.
<PAGE> 19
I. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Restricted Securities All Other
and Annual Stock Underlying LTIP Compen-
Principal Salary Bonus Compensation Award(s) Options/SARs Payouts1 sation2_
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- ------- ------- ------------ ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
James E. Rogers 1993 402,408 239,324 193,618 83,968 3
Chairman and Chief 1992 385,008 239,254 150,287 118,998
Executive Officer 1991 385,008 192,504 66,429 2,119
Jon D. Noland 1993 230,092 77,311 81,399 8,129
Executive Vice 1992 220,904 70,468 63,192 11,770
President 1991 210,380 65,007 73,174 2,104
J. Wayne Leonard 1993 187,168 92,568 62,210 6,762
Senior Vice President
and 1992 181,128 57,780 48,313 9,518
Chief Financial
Officer 1991 156,250 51,250 22,972 1,563
Larry E. Thomas 1993 187,168 67,568 56,339 6,762
Senior Vice President
and 1992 181,128 57,780 43,736 9,242
Chief Operations
Officer 1991 156,250 47,344 42,489 1,563
(Energy)
Cheryl M. Foley 1993 179,036 89,632 59,866 0
Vice President,
General 1992 173,256 55,269 46,479 2,815
Counsel and Secretary 1991 156,250 48,281 7,680 0
</TABLE>
(1) The amounts appearing in this column are the values of
the shares and cash paid out under the Performance Shares
Plan. The amounts reflected for 1993 were earned by the
named executives during the two-year cycle from 1990 through
1991 under the Performance Shares Plan, paid in
substantially equal installments in 1992 and 1993.
The amounts reflected for 1991 were earned by the named
executives during the three-year cycle from 1987 through
1989 under the Performance Shares Plan (paid in
substantially equal installments in 1990 and 1991). Thus,
Mr. Rogers' LTIP payout for 1992 is greater than that for
1991 because his participation in the three-year cycle from
1987 through 1989 was prorated based upon his employment
date of October 27, 1988, and other factors such as a lower
closing price per share at December 31, 1989, and a higher
annual base salary than when initially hired.
(2) Except where otherwise noted, the amounts in this
column are comprised of employer matching contributions on behalf
of each named executive under the PSI Energy Employees'
401(k) Savings Plan.
(3) The employer matching contribution for Mr. Rogers under
the PSI Energy Employees' 401(k) Saving Plan was $8,129. At
the Board's direction pursuant to the terms of a Deferred
Compensation Agreement effective as of January 1, 1992, Mr.
Rogers received a deferred compensation award in the amount of
$50,000. The above market interest on the deferred
compensation award under the Deferred Compensation Agreement for
1993 is $8,906. The value of benefits under a Split
Dollar Life Insurance Agreement for 1993 is $16,933. The
method used to calculate benefits under this Split Dollar
Life Insurance Agreement has been changed from the method
used last year to more accurately reflect the benefit to Mr. Rogers.
<PAGE> 20
II. OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table shows stock option exercises for the
Company's common stock by named executive officers during 1993.
As reflected in the table, during 1993, none of the named
executive officers exercised any stock options. However, under
the terms of the 1989 Plan, shareholder approval of the CINergy
Merger caused an immediate acceleration of the vesting of all
previously non-vested options. Therefore, as of November 9, 1993,
all previously granted options are now vested. The table shows
the number of shares of exercisable stock options as of December
31, 1993, and the values for "in-the-money" options, which
represent the positive spread between the exercise price of any
outstanding stock option and the price of the shares as of
December 31, 1993, which was $26.50 per share.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Value
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised in-the-money
Options/SARs at Options/SARs at
FY-End (#) FYEnd ($)
----------------- -----------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
------ ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
James E. Rogers................ 0 N/A 175,000/0 2,362,241/0
Jon D. Noland ................. 0 N/A 50,000/0 478,125/0
J. Wayne Leonard............... 0 N/A 50,000/0 478,125/0
Larry E. Thomas................ 0 N/A 50,000/0 478,125/0
Cheryl M. Foley................ 0 N/A 50,000/0 478,125/0
</TABLE>
Directors and certain key employees of the Company and its
subsidiaries are eligible for grants under the 1989 Plan.
The 1989 Plan is administered by the Compensation and
Nominating Committee of the Board, which is composed
entirely of outside (non-employee) directors. Both non
qualified and incentive stock options have been granted
under the 1989 plan. The price per share at which options
are granted is the average of the high and low sale price
of the Company's common stock on the New York Stock
Exchange on the date of the grant. Options generally vest
at the rate of 20% per year over a five-year period from
the date of grant and are available for purchase over a
ten-year term. Vesting, however, is accelerated when
shareholders approve a definitive agreement to merge
or consolidate the Company, such as the agreement regarding
the CINergy Merger. As noted above, the shareholders'
action approving the CINergy Merger on November 9, 1993,
caused an immediate acceleration of the vesting of all
previously non-vested shares.
19
<PAGE> 21
III. LONG-TERM INCENTIVE PLAN
No grants of performance shares were made in 1993 to the
chief executive officer or to any of the other four most
highly compensated executive officers.
IV. PENSION BENEFITS
PSI Energy's non-contributory pension plan (the "Pension
Plan") covers all employees meeting certain minimum age and
service requirements. Compensation utilized to determine
benefits under the plan includes substantially all salaries
and annual incentive compensation, including Mr. Rogers'
$50,000 deferred compensation award, with certain exceptions
such as payments made under the Performance Shares Plan.
Pension Plan benefits are determined under a final average
pay formula with consideration of years of participation to
a maximum of 30, age at retirement and the applicable
average Social Security wage base. The Pension Plan was
amended and restated effective January 1, 1989 to comply
with recently enacted federal laws including the Tax Reform
Act of 1986. PSI Energy also maintains an Excess Benefit
Plan designed to restore pension benefits to those
individuals whose benefits under the Pension Plan would
otherwise exceed the limits imposed by the Internal Revenue
Code of 1986, as amended. Benefits payable as a straight life
annuity under both plans to participants who retire at
age 62 are illustrated in the following table:
Pension Plan Table
<TABLE>
<CAPTION>
Years of Participation
Remuneration 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000............. $ 27,840 $ 37,120 $46,410 $ 55,690 $ 55,690
150,000............. 33,840 45,120 56,410 67,690 67,690
175,000............. 39,840 53,120 66,410 79,690 79,690
200,000............. 45,840 61,120 76,410 91,690 91,690
225,000............. 51,840 69,120 86,410 103,690 103,690
250,000............. 57,840 77,120 96,410 115,690 115,690
300,000............. 69,840 93,120 116,410 139,690 139,690
400,000............. 93,840 125,120 156,410 187,690 187,690
450,000............. 105,840 141,120 176,410 211,690 211,690
500,000............. 117,840 157,120 196,410 235,690 235,690
600,000............. 141,840 189,120 236,410 283,690 283,690
700,000............. 165,840 221,120 276,410 331,690 331,690
800,000............. 189,840 253,120 316,410 379,690 379,690
900,000............. 213,840 285,120 356,410 427,690 427,690
</TABLE>
Benefits reflected in the above table are not subject to any
deduction for social security or other offset amounts.
20
<PAGE> 22
The accredited years of participation under the Pension Plan at age 62
for each of the executive officers reported in the Summary Compensation Table
are as follows:
<TABLE>
<CAPTION>
Accredited Years of
Name Participation at Age 62
<S> <C>
James E. Rogers 21.44
Jon D. Noland 19.53
J. Wayne Leonard 30.00
Larry E. Thomas 30.00
Cheryl M. Foley 20.70
</TABLE>
PSI Energy also has a Supplemental Retirement Plan, which is
designed to provide coverage to employees, designated by the
Board, who have not reached age 62 and will not otherwise qualify
for full retirement benefits under the Pension Plan. Messrs.
Rogers and Noland and Ms. Foley participate in this plan. The
benefit provided by the Supplemental Retirement Plan will be an
amount equal to that which a covered employee with maximum
permitted years of participation (30 years) would have received
under the Pension Plan, reduced by the actual benefit provided by
the Pension Plan and further reduced by benefits the covered
employee will be eligible to receive from retirement plans from
previous self-employment and from previous employers. PSI Energy
has agreed to waive a portion of the reduction of amounts
received by Mr. Noland from retirement plans from his previous
self employment. The estimated annual benefit payable at age 62
to each participant under the Supplemental Retirement Plan is
$99,000 for Mr. Rogers, $49,000 for Mr. Noland and $27,000 for
Ms. Foley.
PSI Energy has an Executive Supplemental Life Insurance
Program, which provides key management personnel with additional
life insurance coverage prior to retirement. For employees with
an annual base salary of less than $100,000, life insurance
coverage is $50,000. For employees with an annual base salary of
more than $100,000, but less than $200,000, life insurance
coverage is $100,000. For employees with an annual base salary of
more than $200,000, life insurance coverage is $150,000. When an
employee becomes a participant in the program, he or she must
elect whether to continue to receive the additional life
insurance coverage after retirement or to receive the total
amount of coverage in the form of deferred compensation in equal,
annual installments over 10 years beginning at age 62 or
retirement, whichever is later. However, employees retiring prior
to age 62 due to job elimination are eligible for payments of
deferred compensation at retirement. The estimated annual benefit
payable upon retirement at age 62 to each of Messrs. Rogers and
Noland is $15,000 per year over 10 years and to each of Messrs.
Leonard and Thomas and Ms. Foley is $10,000 per year over 10
years.
V. DIRECTORS' COMPENSATION
Effective January 1, 1994, the Board approved a recommended
increase in their retainer fee and board meeting attendance fee.
This increase was a result of comparison of the Company's fees to
other companies of comparable revenue size.
21
<PAGE> 23
Directors who are not employees receive a retainer fee of
$1,500 per month plus a fee of $1,000 for each Board meeting
attended. Non-employee directors who also serve on a regular
committee of the Board receive a retainer fee of $250 per month
for each committee membership plus a fee of $1,000 for each
committee meeting held. Duplicate fees for Board and/or committee
meetings are not paid when the Board of the Company and the Board
of PSI Energy or committees of either Board meet on the same day.
The fee for any Board or committee meeting held via conference
call is $500.
Under the Company's Directors' Deferred Compensation Plan,
which covers the outside directors of the Company and the outside
directors of all of its wholly-owned subsidiaries, a director may
defer any of the above fees and have interest accrued thereon at
a rate that is equivalent to the rate being paid on one-year
certificates-of-deposit by a major Indiana bank on the first
business day of each quarter. During 1993, this rate ranged
between 3.20% and 3.25%. Fees deferred under this plan may also
be deemed to be invested in theoretical "units" of Company common
stock, although participating directors receive no equity
interest in the common stock. Distributions of such deferrals,
however, are made in shares of Company common stock. The number
of units in each account is adjusted to reflect the payment of
dividends when dividends are paid on outstanding shares of
Company common stock.
Under the 1989 Stock Option Plan ("1989 Plan"), each outside
director has been granted a non-qualified stock option to
purchase 12,500 shares of Company common stock. Each new director
who joins the Board is also granted a non-qualified stock option
to purchase 12,500 shares of Company common stock.
In December 1993, as a result of the shareholder vote on
November 9, 1993, which approved the CINergy Merger, the change-
in-control provision of the Director's Deferred Compensation Plan
was triggered and all deferred compensation, both cash and
theoretical units of common stock were paid out to the
participants and all non-vested stock options under the 1989 Plan
vested.
On January 25, 1990, the Company implemented the Retirement
Plan for Directors which, upon retirement, provides non-employee
directors of the Company with five or more years of service on
the Board annual compensation in an amount equal to the
annualized Board fees, excluding committee fees, in effect at the
time of retirement for as many years as the director served on
the Board. Two payments were made under this plan in 1993 in the
amount of $18,750 each to Richard B. Stoner and the late Dr. W.
George Pinnell's beneficiary, Dorothy G. Pinnell.
The Company prepares all required Section 16 filings on
behalf of its directors and officers. To the Company's knowledge,
during the past fiscal year, all Section 16 filing requirements
applicable to its officers, directors and greater than ten-
percent beneficial owners were complied with, except that a Form
4 filing for Dr. Kampen reporting one transaction was
inadvertently filed late.
22
<PAGE> 24
VI. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
The Company and PSI Energy entered into an employment
agreement with Mr. Rogers dated May 17, 1990, which was renewed
on December 31, 1993, and will renew annually, unless prior
notice is provided by either party, for a term ending on the
second anniversary of the date of such renewal.
During the term of the employment agreement, Mr. Rogers will
serve as Chairman and Chief Executive Officer of the Company and
PSI Energy. Mr. Rogers will continue to participate in the Annual
Incentive Plan and Performance Shares Plan. Effective for 1993
and thereafter, his award opportunities under each plan will be
55% of his annual base salary during the year covered by the
award.
Under his employment agreement, Mr. Rogers is entitled to
benefits no less favorable than those available to any other
employee of the Company or PSI Energy. The employment agreement
provides for severance payments of two times Mr. Rogers' most
recent two-year average annual compensation and benefits if (a)
there is a change in control (as defined in the agreement) of the
Company and PSI Energy and an adverse change in his
responsibilities or ( b) he is relieved of his responsibilities
under his employment agreement.
For purposes of his employment agreement, change in control
is defined as the acquisition of 35% or more of the Company's and
PSI Energy's voting stock by a single investor or company (or an
affiliated group of investors and/or companies). However, the
consummation of the CINergy Merger will not trigger severance
payments to Mr. Rogers under this agreement.
Under the terms of the amended merger agreement between the
Company, PSI Energy, CINergy, CINergy Sub and CG&E, such parties
have entered into an employment agreement (as amended) with Mr.
Rogers (the "CINergy Employment Agreement"). The CINergy
Employment Agreement will become effective only upon the
consummation of the CINergy Merger and will terminate on the
third anniversary of the CINergy Merger's effective date;
provided, however, that commencing on each anniversary date of
the effective date, the term of Mr. Rogers' CINergy Employment
Agreement may be extended for one additional year upon mutual
agreement of CINergy and Mr. Rogers. The CINergy Employment
Agreement will supersede the employment agreement with the
Company and PSI Energy.
From the effective date of the Merger, until November 30,
1995, Mr. Rogers will serve as Vice Chairman, President, and
Chief Operating Officer of CINergy, and thereafter will serve as
Vice Chairman, President, and Chief Executive Officer.
During his term of employment, Mr. Rogers will receive an
annual base salary of not less than the greater of $385,000 or
the amount in effect as of the day before the CINergy Merger's
effective date. Mr. Rogers will also be eligible to receive,
based upon the achievement of certain performance objectives, an
annual incentive cash award of up to 55% of his annual base
salary pursuant to a CINergy annual incentive plan (the "CINergy
Annual Incentive Plan"). Mr. Rogers will be eligible to
participate in all other incentive, stock option, performance
award, savings, retirement and welfare plans applicable generally
to CINergy employees, except to the extent that he has waived his
rights.
23
<PAGE> 25
If CINergy terminates the employment of Mr. Rogers without
cause (as defined below), or if he terminates his employment for
good reason (as defined below) or if he dies, CINergy will pay
Mr. Rogers (or his beneficiary, as the case may be) a lump sum
cash amount equal to the sum of (1) his annual base salary
through the termination date to the extent not previously paid,
(2) a pro rata portion of the benefit under the CINergy Annual
Incentive Plan calculated based upon the termination date, and
(3) any compensation previously deferred but not yet paid to him
(with accrued interest or earnings thereon) and any unpaid
accrued vacation pay.
In addition, if CINergy terminates Mr. Rogers' employment
without cause or he terminates his employment for good reason,
CINergy shall also pay to him (a) a lump sum cash amount equal to
the present value of his annual base salary and the benefit under
the CINergy Annual Incentive Plan payable through the end of the
term of employment at the rate, or applying the incentive goals
and factors, as the case may be, in effect at the time of notice
of such termination, (b) the value of all benefits to which he
would have been entitled had he remained in employment until the
end of the term of employment under CINergy's Performance Shares
Plan and Executive Supplemental Life Insurance Program, (c) the
value of all deferred compensation and all executive life
insurance benefits whether or not then vested or payable, and (d)
medical and welfare benefits for him and his family through the
end of the term of employment.
If Mr. Rogers' employment is terminated by CINergy for cause
or by Mr. Rogers without good reason, he will receive earned
and unpaid annual base salary accrued through the termination
date and any compensation previously deferred but not yet paid
to him.
Under the CINergy Employment Agreement, "good reason" means (a)
the reduction of Mr. Rogers' annual base salary, his benefit
opportunity under the CINergy Annual Incentive Plan, or any other
benefit or payment described in the CINergy Employment Agreement,
(b) the change without Mr. Rogers' consent in his title,
authority, duties or responsibilities as specified in the
CINergy Employment Agreement, (c) the required relocation of Mr.
Rogers, without his consent, to a location other than his current
location or Cincinnati, or (d) any breach by CINergy or PSI
Energy of any material provision of the CINergy Employment
Agreement and "cause" means the conviction for the commission of
a felony which, at the time of the commission of the felony, has
a materially adverse effect on CINergy or PSI Energy.
On December 11, 1991, the Company's and PSI Energy's Board
of Directors directed pursuant to the terms of a deferred
compensation agreement, as amended (the "Deferred Compensation
Agreement") that, effective January 1, 1992, Mr. Rogers would be
credited with a $50,000 annual base pay increase in the form of
deferred compensation for the five year period from 1992 through
1996. This amount will be further deferred for an additional
five-year period beginning January 1, 1997, and ending December
31, 2001. This deferred compensation award was in lieu of a cash
base pay increase. The purpose of the Deferred Compensation
Agreement is to bring Mr. Rogers' salary more in line with
general industry and to provide an incentive to Mr. Rogers to
continue his employment. Thus, provided that Mr. Rogers remains
employed by PSI Energy as of January 1, 1997, he will receive
fifteen annual payments
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ranging from $179,000 to $554,000 depending upon the date
benefits commence. If Mr. Rogers remains employed by PSI Energy
as of January 1, 2002, he will receive fifteen additional annual
payments ranging from $179,000 to $247,000 depending upon the
date benefits commence.
Also, on December 11, 1991, the Company's and PSI Energy's
Board of Directors directed that PSI Energy would enter into a
split dollar life insurance agreement (the "Split Dollar
Agreement") with Mr. Rogers. Under the Split Dollar Agreement, as
amended, both PSI Energy and Mr. Rogers will contribute toward
the premiums due on the policy. In the event of Mr. Rogers'
death, his beneficiaries will receive death benefits, and, if Mr.
Rogers remains employed by PSI Energy as of December 31, 2002,
PSI Energy will transfer to Mr. Rogers the life insurance policy
on September 1, 2007 (the initial face value of the policy was
approximately $2.7 million). The purpose of the Split Dollar
Agreement is to provide death benefits to Mr. Rogers'
beneficiaries, and to encourage his continued employment with
Energy.
Upon the termination of his employment, without cause or
following a change in control (as defined therein) or, if the
Split Dollar Agreement is not assumed by a successor employer
following a change in control, Mr. Rogers will be entitled to
receive all benefits under his Split Dollar Agreement. A change
in control occurred November 9, 1993 when shareholders approved
the CINergy Merger. If, following a change in control, the
Deferred Compensation Agreement is not assumed by a successor
employer, Mr. Rogers will be entitled to receive all benefits due
as of the end of the first award period under the Deferred
Compensation Agreement. The Split Dollar and Deferred
Compensation Agreements will be assumed by CINergy as of the
CINergy Merger's effective date.
On December 11, 1992, the Company and PSI Energy entered
into severance agreements with each of Messrs. Rogers, Noland,
Leonard and Thomas, and Ms. Foley, which agreements were amended
July 2, 1993 to conform to the new structure of the Merger. Each
agreement extended until December 31, 1993; provided, however,
that the agreements would be automatically extended for an
additional year if the Company or PSI Energy gave timely notice
to the executive and the executive did not object. In December
1993, the Company and PSI Energy notified each executive of its
intent to extend the terms of these agreements. None of the
executives objected. As of the Merger's effective date, CINergy
will assume the Company's and PSI Energy's obligations under each
agreement.
Each agreement provides that, upon the occurrence of a
change in control (as defined therein), if the executive's
employment is terminated by the Company other than for cause (as
defined therein) or if the executive terminates employment for
good reason (as defined therein) within 24 months (36 months in
the case of Mr. Rogers) of the change in control, then either the
Company or PSI Energy will pay to each executive a lump sum cash
payment equal to two times (three times in the case of Mr.
Rogers) the sum of such executive's salary as of the date of the
executive's termination of employment or, if higher, as of the
change in control, plus the bonus amounts in effect immediately
prior to the date of the executive's termination of employment,
or if higher, immediately prior to the change in control. In the
case of Mr. Rogers, in lieu of amounts described above, he will
receive the amounts due under his employment agreement if such
amounts are higher. In addition, either the Company or PSI Energy
will provide life, disability, accident and health insurance
benefits to the executive for 24 months (36 months in the case of
Mr. Rogers) but reduced to the extent comparable benefits are
received, without cost, by the executive.
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Mr. Rogers will not receive benefits for the rights to which he
has waived. If Mr. Rogers receives payments under his severance
agreement that would subject him to any federal excise tax due
under section 280G of the Internal Revenue Code of 1986, as
amended, then Mr. Rogers will also receive a cash "gross-up"
payment so that he would be in the same net after-tax position he
would have been in had such excise tax not been applied. Pursuant
to the terms of the agreements, the CINergy Merger will not
trigger a Change in Control.
The Company has entered into a Master Trust Agreement (the
"Employees' Trust Agreement") with National City Bank, Indiana.
Effective July 1, 1993, the U.S. Trust Company of California,
N.A. became the successor trustee under the Trust Agreement (the
"Trustee") whereby all accrued benefit payments or awards under
the PSI Energy Annual Incentive Plan, the Performance Shares
Plan, the Company's Employee Stock Purchase and Savings Plan,
the 1989 Plan, the PSI Energy Severance Pay Plan, the PSI Energy
Excess Benefit Plan, the PSI Energy Supplemental Retirement Plan
and the PSI Energy Executive Supplemental Life Insurance Program,
will be funded in the event of a "potential change in control"
(as defined therein). Although the final four plans listed do not
contain payment provisions triggered by the occurrence of a
change in control (as defined therein), benefits thereunder will
be funded pursuant to the terms of the Employees' Trust
Agreement. A separate Master Trust Agreement (the "Directors'
Trust Agreement" and, together with the Employees' Trust
Agreement, the "Trust Agreements") with the Trustee provides
similar funding arrangements with respect to the Company's
Directors' Deferred Compensation Plan, the Company's Retirement
Plan for Directors, and the portion of the 1989 Plan applicable
to directors. The Company entered into the Trust Agreements to
help assure its and its subsidiaries' employees and directors
that funds would be available for the future payment of benefits
that the Company and PSI Energy are obligated to make under such
plans, in the event of a change in control. The Trust Agreements
provide for the payment of amounts that may become due under such
plans, subject only to claims of general creditors of the Company
in the event the Company were to become bankrupt or insolvent.
Effective December 1, 1992, the Trust Agreements were
amended to exclude, subject to the Company obtaining the
necessary written consents of affected employees and directors as
required by the Trust Agreements, the CINergy Merger from the
definitions of "potential change in control" and "change in
control" with respect to the non-equity plans. As a result of the
amendments, the benefit plans for which funding under the Trust
Agreements are required with respect to the CINergy Merger
consist of the 1989 Plan, the Company's Employee Stock Purchase
and Savings Plan, the Performance Shares Plan, and the Company's
Directors' Deferred Compensation Plan.
As of December 31, 1993, pursuant to the terms of the Trust
Agreements, an aggregate amount of 1,093,520 shares of the
Company's common stock were held in trust for all employees,
executive officers and directors participating in the 1989 Plan
and the Company's Employee Stock Purchase and Savings Plan.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants for the year
1993 were Arthur Andersen & Co., Bank One Center Tower, 111
Monument Circle, Indianapolis, Indiana. Upon recommendation of
the Audit Committee of the Board, Arthur Andersen & Co. was
employed for the year 1994 by the Board on January 25, 1994.
Representatives of Arthur Andersen & Co. will be present for the
Annual Meeting, will have the opportunity to make a statement and
will be available to respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
In order to be considered for inclusion in the Company's
Proxy Statement for the 1995 Annual Meeting of Shareholders,
proposals from shareholders must be received by the Secretary of
the Company at 1000 East Main Street, Plainfield, Indiana 46168
not later than December 1, 1994.
By Order of the Board of Directors
Cheryl M. Foley
Secretary
Dated , 1994
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