<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY 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 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 Rule 14a-11(c) or Rule 14a-12
PSI ENERGY, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
PSI ENERGY, INC.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (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:
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<PAGE> 2
PSI ENERGY, INC.
1000 East Main Street
Plainfield, Indiana 46168
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 20, 1995
To the Shareholders of
PSI Energy, Inc.:
Notice is Hereby Given that the Annual Meeting of Shareholders of PSI
Energy, Inc. will be held at the Cincinnati Club Building, 30 Garfield Place,
Cincinnati, Ohio, on Thursday, April 20, 1995 at 10:00 a.m., Eastern Daylight
Saving Time, for the purposes of:
(1) amending the Amended Articles of Consolidation to permit the
shareholders, in addition to the directors, to amend the bylaws;
(2) the election of seven directors;
and transacting such other business as may legally come before the meeting.
Only shareholders of record at the close of business on Tuesday,
February 21, 1995, will be entitled to vote at the meeting and at any
adjournment 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.
PSI Energy, Inc.
By Cheryl M. Foley, Secretary
Dated: March 29, 1995
<PAGE> 3
PSI ENERGY, INC.
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being mailed on or about March 29, 1995
to the shareholders of PSI Energy, Inc., an Indiana corporation ("PSI Energy"),
in connection with its Annual Meeting of Shareholders to be held on April 20,
1995, or any adjournment or postponement of such meeting (the "Annual
Meeting"). The Annual Report to Shareholders of CINergy Corp., a Delaware
corporation (the "Company"), including financial statements, for the year ended
December 31, 1994 accompanies the mailing of this Information Statement.
On June 1, 1988, PSI Energy, through a restructuring, became the
operating subsidiary of PSI Resources, Inc. ("PSI"). In the restructuring, all
outstanding shares of PSI Energy's common stock were exchanged for common stock
of PSI.
Effective October 24, 1994 (the "Effective Date"), the business
combination (the "Merger") of PSI and The Cincinnati Gas & Electric Company, an
Ohio corporation ("CG&E"), was consummated and the Company became the holding
company for PSI Energy and CG&E. Pursuant to the Merger, the former common
stock holders of PSI and CG&E became holders of common stock of the Company.
PSI Energy is an operating utility primarily engaged in providing electric
service in north central, central, and southern Indiana. CG&E is an operating
utility primarily engaged in providing electric and gas service in the
southwestern portion of Ohio and, through its principal subsidiary, The Union
Light, Heat and Power Company ("Union Light"), in adjacent areas in Kentucky.
The Company also owns all the stock of CINergy Services, Inc. ("CINergy
Services") and CINergy Investments, Inc. ("CINergy Investments"). CINergy
Services provides management, financial, administrative, engineering, legal and
other services to the Company, PSI Energy, CG&E and CINergy Investments. The
Company conducts its non-regulated businesses through CINergy Investments and
its subsidiaries.
As a result of the Merger, the Company became the owner of all of the
53,913,701 outstanding shares of PSI Energy's common stock. There remain
outstanding 5,117,737 shares of PSI Energy's cumulative preferred stock as of
the close of business on February 21, 1995 which also have certain voting
rights as described herein.
Since the Company's ownership represents more than 96% of the total
votes that could be cast at the Annual Meeting, and since shareholders do not
have cumulative voting rights and the Company intends to vote in favor of the
proposals contained herein, 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 the Annual Meeting. 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 21, 1995 (the "Record Date") will be entitled 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 the Record Date, 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 . . . . . . . . 799,812 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. The only person or group known by management of PSI Energy to be
the beneficial owner of more than 5% of any series of PSI Energy's cumulative
preferred stock as of December 31, 1994, is set forth in the following table.
This information is based on the most recently available report filed with the
Securities and Exchange Commission pursuant to the requirements of Regulation
13D-G under the Securities Exchange Act of 1934 (the "1934 Act") and
transmitted to management of PSI Energy or the Company by the filing person.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
<S> <C> <C>
Cumulative Preferred Stock Series 7.44%
(par value $25 per share)
Wellington Management Company 400,000 shares(1) 10.00%
75 State Street
Boston, Massachusetts 02109
</TABLE>
(1) Holder reports having shared dispositive power with respect to all shares,
and sole voting, shared voting, and sole dispositive powers with respect to
none of these shares.
SECURITY OWNERSHIP OF MANAGEMENT
The beneficial ownership of the outstanding shares of the Company's
common stock held by each director-nominee and named executive officer (as the
latter is defined on page 12), and of units equal to one share of the
Company's common stock paid as compensation to non-employee directors, as of
December 31, 1994 is set forth in the following table.
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<PAGE> 5
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial Owner(1) of Beneficial Ownership (2) Units(3)
- - ------------------------ ----------------------- -----
<S> <C> <C>
James K. Baker 13,605 shares
Michael G. Browning 18,835 shares 2,172
John A. Hillenbrand, II 28,259 shares 1,878
J. Wayne Leonard 60,259 shares
John M. Mutz 13,992 shares
Jon D. Noland 66,621 shares
Jackson H. Randolph 23,549 shares
James E. Rogers 212,147 shares
Van P. Smith 17,390 shares
All directors and executive 629,205 shares
officers as a group (representing 0.41% of the class)
</TABLE>
- - ---------------------
(1) No individual listed beneficially owned more than 0.14% of the
outstanding shares of common stock.
(2) Includes shares which the individual listed has the right to acquire
within 60 days pursuant to the exercise of stock options in the following
amounts: Mr. Baker - 12,787; Mr. Browning - 12,787; Mr. Hillenbrand -
12,787; Mr. Leonard - 51,150; Mr. Mutz - 12,787; Mr. Noland - 51,150; Mr.
Rogers - 179,025; and Mr. Smith - 12,787.
(3) Each unit represents one share of the Company's common stock credited to
the account of the respective directors as of December 31, 1994 under the
Company's Directors' Deferred Compensation Plan.
BUSINESS TO COME BEFORE THE MEETING
The only businesses expected to be presented at the Annual Meeting are
(i) a proposal to amend the Amended Articles of Consolidation to permit the
shareholders of PSI Energy to amend the bylaws of PSI Energy (defined as "the
Corporation" below under the subheading Proposed Amendment of Amended Articles
of Consolidation) and (ii) the election of seven directors to serve until the
next annual meeting of shareholders and until their successors are duly chosen
and qualified.
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 assure that the shareholders of the
Corporation, in addition to the directors of the Corporation, have the
capability to amend the bylaws of the Corporation.
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<PAGE> 6
To accomplish this under the Indiana Business Corporation Act, it will
be necessary to delete existing Division L(V) of the Articles in its entirety
and amend Division L(V) to provide in its entirety as follows:
"The bylaws of the Corporation may be altered, amended or repealed, in
whole or in part, and new bylaws may be adopted, at any annual,
regular or special meeting of the shareholders of the Corporation or
at any annual, regular or special meeting of the board of directors of
the Corporation by the affirmative vote of a majority of the board of
directors; provided, however, that the board of directors of the
Corporation may not unilaterally amend any bylaws which were amended
by the affirmative vote of the shareholders of the Corporation within
the preceding twenty-four months."
Currently, the bylaws of the Corporation may be amended only by the
Board. This amendment to the Articles will permit the shareholders to amend
the bylaws as well, thus affording the shareholders the opportunity to be more
involved in and to exert more control over the corporate procedures and other
matters governed by the bylaws of the Corporation.
The proposed amendment to the Articles must be approved by a majority
of the votes cast by holders of the outstanding shares of common and 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. The Company intends to vote all of the outstanding shares of
common stock of PSI Energy in favor of the foregoing amendment to the Articles
and, since the Company's ownership of such common stock represents over 96% of
the voting power of PSI Energy, the adoption of the foregoing amendment by PSI
Energy's shareholders is assured.
ELECTION OF DIRECTORS
Effective March 3, 1995, by resolution adopted by the Board, the
bylaws of PSI Energy were amended to provide that the Board consist of not less
than one and not more than seven persons. Previously, the bylaws of PSI Energy
had provided that the Board shall consist of not less than nine nor more than
fifteen persons and the Board had consisted of twelve directors.
The Board has set the size of the Board at seven and has nominated the
individuals listed below for election as directors, all of whom are presently
members of the Board and, with the exception of Mr. Randolph, were elected by
shareholders at the 1994 annual meeting. Mr. Randolph became a director of PSI
Energy as of the Effective Date. All of the proposed nominees have signified
their willingness to serve, if elected.
The Board would like to acknowledge Messrs.Hugh A. Barker, Kenneth M.
Duberstein, Emerson Kampen, J. Wayne Leonard, and Melvin Perelman, each of whom
is presently a director but not standing for re-election as a director at the
Annual Meeting. The
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<PAGE> 7
Board would also like to acknowledge Mr. Robert L. Thompson who resigned from
the Board as of the Effective Date. Their advice and support have been
sincerely appreciated.
Directors will be elected at the Annual Meeting by a plurality of the
votes cast. In tabulating the vote, abstentions and broker non-votes, if any,
will be disregarded and have no effect on the outcome of the vote. The Company
intends to vote all of the outstanding shares of common stock of PSI Energy in
favor of nominees set forth below and, since the Company's ownership of such
common stock represents over 96% of the voting power of PSI Energy, the
election of such nominees is assured.
Except as otherwise noted, the principal occupation or employment of
each individual set forth below has been such individual's principal occupation
or employment for the past five years and no such individual holds another
position or office with the Company or any of its subsidiaries.
JAMES K. BAKER
Director since 1986. Age 63
Mr. Baker is Chairman of the Board of Arvin Industries, Inc., which is engaged
in the manufacturing of automotive parts. He is a director of NBD Bancorp,
Inc., Space Industries International, Inc., Tokheim Corporation, GEON Company,
and Amcast Industrial Corp.
MICHAEL G. BROWNING
Director since 1990. Age 48
Mr. Browning is Chairman and President of Browning Investments, Inc., which is
engaged in real estate ventures. Until December 30, 1994, he was also
President of Browning Real Estate, Inc., the general partner of various real
estate investment partnerships. Mr. Browning is a director of Conseco, Inc.
JOHN A. HILLENBRAND, II
Director since 1985. Age 63
Mr. Hillenbrand principally serves as Chairman, President and Chief Executive
Officer of Glynnadam, Inc., a personal investment holding company. He is also
Chairman of Able Body Corporation and Nambe' Mills, Inc., and Vice Chairman of
Pri-Pak, Inc. Mr. Hillenbrand is a director of Hillenbrand Industries, Inc.
and National City Bank, Indiana.
5
<PAGE> 8
JOHN M. MUTZ
Director since 1991. Age 59
Member - Executive Committee
Mr. Mutz has served as President of PSI Energy since October 1994. He was
President of PSI from October 1993 until October 1994. Prior to joining PSI,
Mr. Mutz was president of the Lilly Endowment, Inc., in Indianapolis, from 1989
to 1993 and previously served as lieutenant governor of 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. Mr. Mutz is a
director of ADESA Corporation, CCP Insurance, Inc., and National City Bank,
Indiana.
JACKSON H. RANDOLPH
Director since 1994. Age 64
Chairman - Executive Committee
Mr. Randolph has served as Chairman of the Board and Chief Executive Officer of
the Company, PSI Energy, CINergy Investments, CINergy Services and CG&E since
October 1994 (and of Union Light since January 1995). He was Chairman of the
Board, President and Chief Executive Officer of CG&E from May 1993 until
October 1994 (and of Union Light from June 1993 until January 1995); previously
he served as President and Chief Executive Officer of CG&E and Union Light.
Mr. Randolph is a director of Cincinnati Financial Corporation, PNC Bank Corp.,
and PNC Bank, Ohio, N.A.
JAMES E. ROGERS
Director since 1988. Age 47
Member - Executive Committee
Mr. Rogers has served as Vice Chairman, President and Chief Operating Officer
of the Company and CINergy Services, and Vice Chairman and Chief Operating
Officer of PSI Energy, CINergy Investments, and CG&E since October 1994 (and
Vice Chairman and Chief Operating Officer of Union Light since January 1995).
He was Chairman and Chief Executive Officer of PSI from October 1993 until
October 1994; during the years 1988-1993, he was Chairman, President and Chief
Executive Officer. Mr. Rogers was also Chairman, President and Chief Executive
Officer of PSI Energy from October 1988 until October 1994. He is a director
of Bankers Life Holding Corporation, Duke Realty Investments, Inc., and NBD
Bank, N.A.
6
<PAGE> 9
VAN P. SMITH
Director since 1986. Age 66
Mr. Smith is Chairman of Ontario Corporation which is engaged in
the manufacturing of aircraft engine components. He is a director of each of
the subsidiaries of Ontario Corporation, Lilly Industries, Inc., Meridian
Insurance Group, Inc., and Meridian Mutual Insurance Co.
MEETINGS AND COMMITTEES OF THE BOARD
During the year ended December 31, 1994, the Board held seven
meetings. All directors except Emerson Kampen attended more than 75% of the
aggregate number of Board and committee meetings which they were eligible to
attend. Committees of the boards of directors of PSI and PSI Energy were as
follows:
the Audit Committee, which met twice during 1994, whose principal
functions were to recommend to the Board a firm of independent
certified public accountants to conduct audits of the accounts and
affairs of PSI and PSI Energy; to review the scope and results of
audits, as well as the accounting procedures, internal controls, and
accounting and financial reporting policies and practices of PSI and
PSI Energy, with the independent certified public accountants; and to
make such reports and recommendations to the Board as it deemed
appropriate;
the Compensation and Nominating Committee, which met four times during
1994, whose principal functions were to establish PSI's and PSI
Energy's compensation philosophy, the compensation of the chief
executive officer and all other executive officers, and fees of
directors; to recommend and administer compensation plans for all
executive officers and key employees; to establish qualifications
desired in prospective nominees to the Board; and to make
recommendations to the Board of persons to fill vacancies on the
Board; and
the Executive Committee; the Finance Committee; and the
Public Policy Committee.
Effective March 3, 1995, by resolutions adopted by the Board, all
former committees of the Board were abolished and a new Executive Committee was
formed, and all powers previously vested in any former committee of the Board
was vested in the Executive Committee. The Executive Committee is the only
standing committee of the Board.
The Executive Committee is empowered to exercise, in the intervals
between Board meetings, the full powers of the Board in the management of the
business and affairs of PSI Energy, including the power to declare dividends
and distributions in a manner consistent with the Indiana Business Corporation
Act. The number of Executive Committee members is fixed at three; the members
are Jackson H. Randolph, James E. Rogers, and John M. Mutz.
7
<PAGE> 10
DIRECTORS' COMPENSATION
Effective March 3, 1995, the Board approved a recommended decrease in
directors' retainer and meeting attendance fees.
Under the revised arrangement, directors who are not employees (the
"non-employee directors") will receive an annual retainer fee of $8,000 plus a
fee of $1,000 for each Board meeting attended; however, any director of PSI
Energy who also serves as a director of the Company or any of its affiliates
shall neither receive such annual retainer fee, nor any compensation for
attendance at any Board meeting that is held concurrently or consecutively with
a meeting of the Company's board of directors. Each nominee as a non-employee
director of PSI Energy (Messrs. Baker, Browning, Hillenbrand, and Smith) is
currently also a director of the Company. Directors who are also employees of
the Company or any of its subsidiaries (Messrs. Mutz, Randolph, and Rogers)
will receive no remuneration for their services as directors.
Under the Company's Directors' Deferred Compensation Plan, each
non-employee director of the Company or any of its subsidiaries may defer fees
and have them accrued either in cash or in units representing shares of Company
common stock. If deferred in such units, the stock will be distributed to the
director at the time of retirement from the appropriate board. Amounts
deferred in cash will be paid at the same time.
Under the Company's Retirement Plan for Directors, non-employee
directors with five or more years of service will receive annual compensation
in an amount equal to the annual Board fees in effect at the time of
termination of service as a director, paid for as many years as the director
served on the Board. This plan covers non-employee directors serving on the
boards of directors of the Company, CINergy Services, CG&E or PSI Energy.
Prior service by non-employee directors of CG&E, PSI, or PSI Energy as of the
Effective Date will be credited under this plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In 1994 the executive compensation program of PSI was administered by
the Compensation and Nominating Committee (the "PSI Committee") of the Board.
The Committee established PSI Energy's compensation philosophy and the
compensation of the Chief Executive Officer and all other executive officers
prior to the Effective Date. After the Effective Date, it is the
responsibility of the Compensation Committee of the Company's board of
directors (the "CINergy Committee") to establish the compensation for the Chief
Executive Officer and all other executive officers. The PSI Committee also
administered compensation plans for all executive officers and key employees.
The PSI Committee was composed of Messrs. Van P. Smith (Chairman), Michael G.
Browning, Kenneth M. Duberstein, and Melvin Perlman, each of whom was an
independent, non-employee director of PSI. The CINergy Committee is composed
of Messrs. Smith (Chairman), Browning,
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<PAGE> 11
George C. Juilfs, and John J. Schiff, Jr., each of whom is an independent,
non-employee director of the Company.
Compensation Philosophy
PSI's executive compensation philosophy sought to provide a total
compensation program that would attract, retain, and motivate the high quality
employees needed to provide superior service to its customers and to maximize
returns to its shareholders.
PSI's executive compensation program sought to link executive and shareholder
interests through both cash-based and equity-based incentive plans, in order to
reward both corporate and individual performance and balance short-term and
long-term considerations.
It was PSI's goal to provide the opportunity for its executive
officers, including its chief executive officer, to earn total compensation
that was commensurate with their contribution to the success of PSI and that
was above the 50th percentile level of comparable utilities based on revenue
and trending toward the pay practices of a broader range of American companies
with comparable revenue.
PSI's executive compensation program consisted of three components:
base salary, annual cash incentive opportunities, and long-term equity-based
incentive opportunities.
Under the terms of the Merger Agreement, certain executive
compensation and benefit plans of PSI and PSI Energy were to be adopted and
implemented by the Company as of the Effective Date. On October 18, 1994, the
Company adopted, effective as of the Effective Date, the Stock Option Plan,
Performance Shares Plan, Annual Incentive Plan, and Executive Supplemental Life
Insurance Program (the "Board approved plans"). Each of these plans is
substantially similar to its predecessor PSI or PSI Energy plan. Each PSI or
PSI Energy predecessor plan was merged into and became a part of the Company
plan which bears the same name.
The Company has retained an independent compensation and benefits
consulting firm to conduct a study of existing executive compensation program
structures and to assist the CINergy Committee as it formulates an integrated
Company compensation philosophy, including the elements of compensation and the
mix of base salary, annual and long-term incentives. The consulting firm will
also advise as to the retention, modification, or replacement of the Board
approved plans and as to plan design and administration generally.
Annual Cash Incentive Plan
For 1994, PSI executive officers were eligible for incentives under
PSI's Annual Incentive Plan. Approximately 140 key PSI employees participated
in the plan in 1994 and were granted cash awards to the extent that certain
pre-determined corporate and individual goals were attained during that year.
Graduated standards for achievement were developed to encourage each employee's
contribution. The potential awards ranged from 6.5% to 55% of the annual
salary of the participant (including deferred compensation) depending upon the
achievement levels and the participant's position. The PSI Committee reviewed
and approved both the plan goals at the beginning of the year and the
achievements at the end of the year.
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<PAGE> 12
In 1994, PSI's 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, 1995, attributable to the corporate goals was
based on 1994 achievement in two areas: (1) operating income so as to maximize
PSI's return on equity; and (2) fuel cost per million BTU. The operating
income goal accounted for 37.5% and the fuel cost goal constituted 12.5% of the
total possible award.
In 1994, incentive awards for each executive officer who was a PSI
employee reflected individual achievement as well as PSI's attainment of its
corporate goals. Individual performance goals for each PSI executive varied
from executive to executive; however, all related to the achievement of PSI's
overall strategic mission of becoming a premier general energy services
company.
For each executive officer who was a PSI employee, the PSI Committee
assessed the extent to which each person contributed toward the accomplishment
of PSI's mission in 1994. Although its determinations were subjective, the
Committee believed that its assessment accurately measured the performance of
each executive officer. Based upon the extraordinary efforts of the executive
officers in 1994 leading to the consummation of the Merger, the PSI Committee
determined that the maximum available award was payable.
For 1995, the Company's Annual Incentive Plan will use a combination
of corporate and individual goals. Corporate goals will account for 50% of the
total possible award and achievement of individual goals will make up the
balance. The corporate goals for 1995 will be based in two areas: (1) earnings
per share; and (2) non-fuel O&M merger savings.
The earnings per share goal will account for 37.5% and the merger
savings goal will constitute 12.5% of the total possible award. For 1995,
approximately 400 key employees will participate in the plan. The potential
awards will range up to a maximum of 55% of the participant's annual salary,
depending upon the achievement levels and the participant's position.
Other Compensation Decisions
The PSI Committee, at its discretion, could award other forms of
compensation in recognition of outstanding service to PSI or any of its
subsidiaries. Consistent with that philosophy, the PSI Committee approved in
1994 special performance awards for Messrs. Rogers and Leonard (as set forth in
footnotes to the Summary Compensation Table) for exemplary performance
associated with consummation of the Merger.
Long-Term Incentive Plan and Stock Option Plan
The Company's Performance Shares Plan (the "Performance Shares Plan")
is a long-term incentive plan developed to reward officers and other key
employees for contributing to long-term success by achieving corporate and
individual goals approved by the Committee. The executive officers named in
the compensation tables participate in this plan, and the same corporate and
individual goals used in the Company's Annual Incentive Plan are applicable to
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<PAGE> 13
this plan. The potential award opportunities are established in the same
manner as the Annual Incentive Plan, with the minimum award opportunities
ranging from 13.33% to 36.66% of annual salary for the full performance cycle.
Performance cycles consist of overlapping four year periods. Because the
former PSI Energy Performance Shares Plan was merged into the Company's
Performance Shares Plan on the Effective Date, the then existing PSI Energy
performance cycles of 1992-1995 and 1994-1997 are the current performance
cycles under the Company's plan.
The Company's executive officers and other key employees are also
eligible for grants under the Company's Stock Option Plan. The Plan is
designed to align executive compensation with shareholder interests. Both
non-qualified and incentive stock options have been granted under the plan.
Options vest at the rate of 20% per year over a five-year period from the date
of grant and may be exercised over a ten-year term.
Chief Executive Officer
Mr. Randolph's 1994 base salary was determined pursuant to an
employment agreement with the Company dated December 11, 1992, as amended and
restated as of the Effective Date (see Employment Agreements and Severance
Arrangements on page 18). For 1994, Mr. Randolph also received incentive
compensation under the CG&E Key Employee Annual Incentive Plan in the amount of
$255,750, of which 57% was based on achievement of CG&E goals and 43% was based
upon the CG&E Management Compensation Committee's determination of his
achievement of individual goals. Mr. Randolph also was granted an option to
purchase 250,000 shares of the Company's common stock on the Effective Date at
a price of $22.875.
Mr. Roger's 1994 base salary was determined pursuant to an employment
agreement with PSI Energy dated May 17, 1990 as modified prior to February 17,
1993, which agreement was superseded by an employment agreement with the
Company as amended and restated July 2, 1993, but effective as of the Effective
Date (see Employment Agreements and Severance Arrangements on page 18). For
1994, Mr. Rogers also received incentive compensation under PSI's Annual
Incentive Plan in the amount of $265,729, of which 50% was based on achievement
of PSI corporate goals and the balance was based upon the PSI Committee's
determination of his individual goal achievement. Mr. Rogers also was granted
an option to purchase 250,000 shares of the Company's common stock on the
effective date at a price of $22.875.
Summary
The CINergy Committee is reviewing the compensation philosophies of
PSI and CG&E in order to determine the CINergy Committee's philosophy.
Although its philosophy has not been finalized, it is the intent of the
CINergy Committee to emphasize incentive compensation, both short-term and
long-term, in order to tie the interests of the executive officers and the
Company's shareholders. It is anticipated that base salary, annual cash
incentives, and long-term incentives will play an integral part in executive
compensation in the future. Although the Company currently has adopted
executive compensation plans identical to those previously available at PSI and
PSI Energy, the CINergy Committee is
11
<PAGE> 14
reviewing those plans in order to determine the types of plans which will
complement its executive compensation philosophy.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in
August 1993 for compensation earned in 1994 and later. Under the law, income
tax deductions of publicly traded companies may be limited to the extent total
compensation (including base salary, annual bonus, restricted stock awards,
stock option exercises and non-qualified benefits) for certain executive
officers exceeds $1 million in any one year. Under OBRA, the deduction limit
does not apply to payments which qualify as "performance based" or compensation
which is payable under a written contract that was in effect before February
17, 1993. The CINergy Committee will review the application of OBRA to future
compensation; however, it intends to compensate executives on performance
achieved, both corporate and individual.
Prior to the Merger, the PSI Compensation and Nominating Committee was
composed of Messrs. Browning, Duberstein, Perelman and Smith. The CINergy
Compensation Committee is composed of Messrs. Smith, Browning, Juilfs and
Schiff. Messrs. Julifs and Schiff join in this Report as it relates to the
Company. The tables which follow, and accompanying footnotes, reflect the
decisions covered by the above discussion.
Van P. Smith
Michael G. Browning
George C. Juilfs
John J. Schiff, Jr.
Kenneth M. Duberstein
Melvin Perelman
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to PSI
Energy's chief executive officer and to each of its additional four most highly
compensated executive officers (the "named executive officers") for services to
the Company and its subsidiaries, including PSI Energy, during the calendar
years ended December 31, 1994, 1993 and 1992. The data presented includes, for
Mr. Randolph, compensation paid by CG&E and its subsidiaries and, for the
remaining named executive officers, compensation paid by PSI and its
subsidiaries, for the periods prior to the Merger.
12
<PAGE> 15
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- ------------------------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus sation Awards Options/SARs Payouts(1) sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- - ---------------------- ---- --------- -------- ---------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jackson H. Randolph 1994 470,000 255,750 5,719 0 250,000 0 92,724 (2)
Chairman and CEO 1993 425,000 200,000 3,512 0 0 0 84,886
1992 425,000 150,000 3,096 0 0 0 61,292
James E. Rogers 1994 433,144 265,729 64,417 0 250,000 273,720 285,393 (2)
Vice Chairman 1993 402,408 239,324 0 0 0 193,618 83,968
and COO 1992 385,008 239,254 0 0 0 150,287 118,998
John M Mutz(3) 1994 342,380 136,952 3,001 0 100,000 11,436 6,097 (3)
President 1993 81,250 31,281 0 0 0 0 250,334
Jon D. Noland(4) 1994 240,266 77,125 1,660 0 0 95,714 55,112 (5)
Executive 1993 230,092 77,311 0 0 0 81,399 8,129
Vice President 1992 220,904 70,468 0 0 0 63,192 11,770
J. Wayne Leonard 1994 211,208 79,203 32,146 0 100,000 81,132 93,555 (5)
Group Vice President 1993 187,168 92,568 0 0 0 62,210 6,762
and CFO 1992 181,128 57,780 0 0 0 48,313 9,518
</TABLE>
(1) The amounts appearing in this column are the values of the shares and
cash paid out under the Company's Performance Shares Plan as successor to
PSI Energy's Performance Shares Plan. 1994 amounts were earned by the
named executive officers during the four-year cycle from 1990 through
1993 under the PSI Energy Performance Shares Plan, and were paid in
substantially equal installments in 1994 and 1995.
(2) For 1994, amount includes for Messrs. Randolph and Rogers, respectively:
a deferred compensation award in the amount of $50,000 pursuant to the
terms of each officer's Deferred Compensation Agreement; employer
matching contributions under the CG&E and PSI 401(k) Plans of $3,969 and
$8,896; above-market interest on amounts deferred pursuant to the
Deferred Compensation Agreements of $21,211 and $14,559; and benefits
under Split Dollar Life Insurance Agreements of $17,544 and $16,933.
Also includes for Mr. Rogers for 1994 insurance premiums paid with
respect to executive and group-term life insurance, a special performance
award, and relocation compensation in the amounts of $4,530, $120,500,
and $69,975, respectively.
(3) Mr. Mutz served as President of PSI from October 4, 1993 through the
Effective Date, at which time he became President of PSI Energy. Prior
to October 4, 1993, Mr. Mutz served as a non-employee director of PSI and
PSI Energy and was otherwise unaffiliated with the companies. For 1994,
amount set forth as All Other Compensation consists entirely of insurance
premiums paid with respect to executive and group-term insurance.
(4) Mr. Noland retired effective January 1, 1995.
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<PAGE> 16
(5) For 1994, includes for Messrs. Noland and Leonard, respectively:
insurance premiums paid with respect to executive and group-term life
insurance of $4,207 and $920; and employer matching contributions under
the PSI 401(k) Plan of $8,896 and $7,935. Also includes for Mr. Noland
supplemental life insurance of $42,009, and for Mr. Leonard a special
performance award and relocation compensation in the amounts of $50,000
and $34,700, respectively.
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants of
options to purchase the Company's common stock made to the named executive
officers during 1994.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- - -------------------------------------------------------------------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g)
Number of %
Securities of Total
Underlying Options/SARs Exercise
Options/SARs Granted to or Base
Granted Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) Date ($) ($)
---- ------------- -------------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jackson H. Randolph 250,000 20.83% 22.875 10/24/2004 1,579,985 3,491,354
James E. Rogers 250,000 20.83% 22.875 10/24/2004 1,579,985 3,491,354
John J. Mutz 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
Jon D. Noland 0 N/A N/A N/A N/A N/A
J. Wayne Leonard 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
</TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning stock options
held by the named executive officers during 1994. During 1994, none of the
named executive officers exercised any stock options. The table shows the
numbers of shares for which options were held as of December 31, 1994, and the
values for "in-the-money" options, which represent the positive spread between
the exercise prices of outstanding stock options and the market price of the
shares as of December 31, 1994, which was $23.50 per share.
14
<PAGE> 17
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
(#) ($)
Shares Acquired Value ----------------- -----------------
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Jackson H. Randolph 0 N/A 0/250,000 0/156,250
James E. Rogers 0 N/A 179,025/250,000 1,931,823/156,250
John M. Mutz 0 N/A 12,787/100,000 92,694/62,500
Jon D. Noland 0 N/A 51,150/0 355,150/0
J. Wayne Leonard 0 N/A 51,150/100,000 355,150/62,500
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth the potential payouts of awards granted
under the Performance Shares Plan to the named executive officers during 1994.
<TABLE>
<CAPTION>
Estimated Future Payouts
under Non-Stock Price-Based Plans
---------------------------------
(a) (b) (c) (d) (e) (f)
Number of Performance or
Shares, Units or Other Period Threshold Target Maximum
Other Rights Until Maturation Shares Shares Shares
Name (#) or Payout (#) (#) (#)
---- ------------------- ------------------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Jackson H. Randolph 6,139 1994-1997 (1) 12,278 (1)
James E. Rogers 7,510 1994-1997 (1) 15,020 (1)
John M. Mutz 3,452 1994-1997 (1) 6,905 (1)
Jon D. Noland 567 1994-1997 (1) 1,135 (1)
J. Wayne Leonard 2,327 1994-1997 (1) 4,653 (1)
</TABLE>
(1) The number of performance shares of the Company's common stock
contingently granted is calculated by determining the award opportunity
in dollars for the performance cycle and dividing this by the per share
price of the common stock at the time of the grant. For the 1994 through
1997 performance period, the award opportunity for participants is
measured in terms of percentages ranging from 13.33% to 36.66% of annual
earnings. The performance shares vest based upon the achievement of
long-term corporate and individual goals established by the Board at the
beginning of
15
<PAGE> 18
the performance period and measured at the end of the cycle. The actual
size of an award is determined by multiplying the amount contingently
granted by a weighted calculation reflecting the extent to which the
aggregate of the pre-established goals has been met. For the 1994
through 1997 performance period, an award of approximately twice the
number of shares as contingently granted will be made if the aggregate of
the pre-established goals are met. There is no minimum (threshold) award
and the Board may enhance the target award in recognition of exemplary
performance or achievement as to individual goals. Awards are made in
cash and Company common stock over a two-year period immediately
following each performance cycle. The amount of an award that is
generally paid in cash is equal to the amount of federal, state and local
income taxes due on each installment, plus, with respect to the second
installment, dividends otherwise payable on such installment.
PENSION BENEFITS
The primary pension benefits payable at retirement to each of the
named executive officers are provided pursuant to the terms of either CG&E's
non-contributory management pension plan (the "CG&E Pension Plan") or PSI
Energy's non-contributory pension plan (the "PSI Energy Pension Plan"). Mr.
Randolph is covered under the terms of the CG&E Pension Plan. Messrs. Rogers,
Mutz, Noland and Leonard are covered under the terms of the PSI Energy Pension
Plan.
Under the terms of the CG&E Pension Plan, the retirement income
payable to a pensioner is 1.3% of final average pay plus 0.35% of final average
pay in excess of covered compensation, times the number of years of credited
service through 30 years, plus 0.1% of final average pay times the number of
years of credited service over 30 years. Final average pay is the average
annual salary, based on July 1 pay rates, during the employee's five
consecutive calendar years producing the highest such average within the last
10 calendar years immediately preceding retirement. Covered compensation is
the average social security taxable wage base over a 35-year period.
Mr. Randolph is also a vested participant in CG&E's Supplemental
Executive Retirement Plan which upon his retirement, death or disability will
provide benefits for a period of 15 years in an annual amount equal to 75% of
his highest annual compensation, reduced by social security benefits and by
amounts received from the CG&E Pension Plan.
The following pension plan table illustrates the estimated annual
benefits payable to Mr. Randolph at normal retirement age 65 for the years of
service indicated under the terms of the CG&E Pension Plan and the supplemental
plan. Compensation utilized to determine benefits under the plans includes
salary and bonus as set forth within the respective columns of the summary
compensation table. Mr. Randolph's estimated credited years of service at
normal retirement age 65 are 37 years.
16
<PAGE> 19
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------------------
Compensation 15 20 25 30 or More
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
$ 200,000 . . . . . . $ 75,000 $ 100,000 $ 125,000 $ 150,000
225,000 . . . . . . 84,375 112,500 140,625 168,750
250,000 . . . . . . 93,750 125,000 156,250 187,500
300,000 . . . . . . 112,500 150,000 187,500 225,000
350,000 . . . . . . 131,250 175,000 218,750 262,500
400,000 . . . . . . 150,000 200,000 250,000 300,000
450,000 . . . . . . 168,750 225,000 281,250 337,500
550,000 . . . . . . 206,250 275,000 343,750 412,500
650,000 . . . . . . 243,750 325,000 406,250 487,500
750,000 . . . . . . 281,250 375,000 468,750 562,500
850,000 . . . . . . 318,750 425,000 531,250 637,500
950,000 . . . . . . 356,250 475,000 593,750 712,500
</TABLE>
The PSI Energy Pension Plan covers all of its employees who meet
certain minimum age and service requirements. Compensation utilized to
determine benefits under the PSI Energy Pension Plan includes substantially all
salaries and annual incentive compensation, including deferred compensation for
Mr. Rogers. PSI Energy Pension Plan benefits are determined under a final
average pay formula with consideration of years of service to a maximum of 30,
age at retirement and the applicable average social security wage base. PSI
Energy also maintains an Excess Benefit Plan, in which Messrs. Rogers, Mutz,
Noland, and Leonard participate, designed to restore pension benefits to those
individuals whose benefits under the PSI Energy Pension Plan would otherwise
exceed the limits imposed by the Internal Revenue Code of 1986, as amended (the
"Code").
The following pension plan table illustrates the estimated annual
benefits payable as a straight-life annuity under both plans to participants
who retire at age 62. Such benefits are not subject to any deduction for
social security or other offset amounts.
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------------------------------
Compensation 5 10 15 20 25 30 35
--------- --------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 . . . . $ 15,270 $ 30,550 $ 45,820 $ 61,090 $ 76,360 $ 91,640 $ 106,910
225,000 . . . . 17,270 34,550 51,820 69,090 86,360 103,640 120,910
250,000 . . . . 19,270 38,550 57,820 77,090 96,360 115,640 134,910
300,000 . . . . 23,270 46,550 69,820 93,090 116,360 139,640 162,910
400,000 . . . . 31,270 62,550 93,820 125,090 156,360 187,640 218,910
450,000 . . . . 35,270 70,550 105,820 141,090 176,360 211,640 246,910
550,000 . . . . 43,270 86,550 129,820 173,090 216,360 259,640 302,910
650,000 . . . . 51,270 102,550 153,820 205,090 256,360 307,640 358,910
750,000 . . . . 59,270 118,550 177,820 237,090 296,360 355,640 414,910
850,000 . . . . 67,270 134,550 201,820 269,090 336,360 403,640 470,910
950,000 . . . . 75,270 150,550 225,820 301,090 376,360 451,640 526,910
</TABLE>
The estimated credited years of service at age 62 for the executive
officers covered
17
<PAGE> 20
under the terms of the PSI Energy Pension Plan are as follows: Mr. Rogers,
21.44 years; Mr. Mutz, 3.39 years; and Mr. Leonard, 30 years. Mr. Noland
retired effective January 1, 1995 with 11.53 credited years of service.
Messrs. Rogers, Mutz and Noland also participate in the PSI Energy
Supplemental Retirement Plan, which is designed to provide coverage to
employees, designated by the Board, who will not otherwise qualify for full
retirement benefits under the PSI Energy Plan. The benefit provided by the PSI
Energy 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 PSI Energy Plan, reduced by the actual benefit provided
by the PSI Energy Plan and the Excess Benefit 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. Under the PSI
Energy Supplemental Retirement Plan, the annual retirement benefit payable to
Mr. Noland is $38,418, and the estimated annual benefit payable at age 62 is
$140,000 for Mr. Rogers and $39,375 for Mr. Mutz.
The Company has an Executive Supplemental Life Insurance Program,
which provides key management personnel, including the named executive
officers, with either post-retirement life insurance coverage or deferred
compensation. A participant in the program may elect either to continue life
insurance coverage after retirement or to receive the total amount of coverage
in the form of deferred compensation payable in 10 equal annual installments
beginning at age 62 or retirement, whichever is later. An employee who elects
to receive deferred compensation will receive, at the later of age 62 or
retirement only deferred compensation payments, and his or her life insurance
coverage will be cancelled at that time. Coverage is $50,000 for participants
with annual base salaries of less than $100,000; $100,000 for participants
with annual base salaries between $100,000 and $200,000; and $150,000 for
participants with annual base salaries over $200,000. The annual retirement
benefit payable to Mr. Noland, and the estimated annual benefit payable, at the
later of age 62 or retirement, to each of the remaining four named executive
officers, is $15,000 per year over ten years.
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company entered into individual employment agreements with Mr.
Randolph and Mr. Rogers (each sometimes hereinafter individually referred to as
the "Executive") as of the Effective Date.
Pursuant to his employment agreement, Mr. Randolph will serve as
Chairman and Chief Executive Officer of the Company until November 30, 1995,
and then will retire from the position of Chief Executive Officer but will
continue to serve as Chairman of the Board of the Company until November 30,
2000. Mr. Rogers will serve as Vice Chairman, President and Chief Operating
Officer of the Company until November 30, 1995, and thereafter will serve as
Vice Chairman, President and Chief Executive Officer. Mr. Rogers' agreement is
for a term of three years; however, on each annual anniversary date it may,
with
18
<PAGE> 21
notice, be automatically extended for an additional year.
During the terms of their agreements, Messrs. Randolph and Rogers will
receive minimum annual base salaries of $465,000 and $422,722, respectively.
Each will also be paid an annual incentive cash award of up to 55% of his
annual salary pursuant to the Company's Annual Incentive Plan, and will be
eligible to participate in all other incentive, stock option, performance
award, savings, retirement and welfare plans applicable generally to Company
employees and executives.
If the Executive's employment terminates as a result of death, his
beneficiary will receive a lump sum cash amount equal to the sum of (a) the
Executive's annual base salary through the termination date to the extent not
previously paid, (b) a pro rata portion of the benefit under the Company's
Annual Incentive Plan calculated based upon the termination date and (c) any
compensation previously deferred but not yet paid to the Executive (with
accrued interest or earnings thereon) and any unpaid accrued vacation pay. In
addition to these accrued amounts, if the Company terminates the Executive's
employment without "cause" or the Executive terminates his employment for "good
reason" (as each is defined in the employment agreements), the Company will pay
to the Executive (a) a lump sum cash amount equal to the present value of his
annual base salary and benefit under the Company's Annual Incentive Plan
payable through the end of the term of employment, at the rate and applying the
same goals and factors in effect at the time of notice of such termination, (b)
the value of all benefits to which the Executive would have been entitled had
he remained in employment until the end of the term of employment under the
Company'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 the Executive and his family through the end of the term
of employment. If the Executive's employment is terminated by the Company for
cause or by the Executive without good reason, the Executive will receive
unpaid annual base salary accrued through the termination date and any accrued
deferred compensation.
Mr. Mutz has an employment agreement pursuant to which he will serve
as President of, and will be nominated for election as a director of, PSI
Energy until October 4, 1998. Commencing October 4, 1996, the term of the
employment agreement may be extended for one additional year upon mutual
agreement. During the term of his agreement, Mr. Mutz will receive a minimum
annual base salary of $330,000, will be eligible to receive an annual incentive
cash award of up to 40% of his annual base salary pursuant to the Company's
Annual Incentive Plan, will be eligible to participate in all other incentive,
stock option, performance award, savings, retirement and welfare plans
applicable generally to Company employees and executives, and will receive
other fringe benefits. In connection with his participation in the PSI Energy
Supplemental Retirement Plan, Mr. Mutz's employment agreement provides that he
will be vested in his benefit (calculated including a profession transition
allowance of $250,000 paid in 1993) at a rate of 20% per year of service
beginning in 1994 without offset for other retirement benefits, and will be
guaranteed a benefit thereunder based on its current terms even if the plan
subsequently is amended to reduce
19
<PAGE> 22
benefits or is terminated.
If Mr. Mutz's employment is terminated as a result of death, for cause
or by him without good reason, he or his beneficiary will be paid a lump sum
cash amount equal to (a) his unpaid annual base salary through the termination
date, (b) a pro rata portion of his Annual Incentive Plan award, (c) his vested
accrued benefits under the Performance Shares Plan, the PSI Energy Pension
Plan, the Excess Benefit Plan and the Supplemental Retirement Plan and (d) any
unpaid deferred compensation (including accrued interest or earnings) and
unpaid accrued vacation pay. If, instead, Mr. Mutz's employment is terminated
prior to a change in control (as defined) without cause or by him for good
reason, he will be paid (a) a lump sum cash amount equal to the present value
of his annual base salary and maximum annual incentive cash award payable
through the end of the term of the agreement, at the rate and applying the same
goals and factors in effect at the time of notice of such termination, (b) the
present value of all benefits to which he would have been entitled had he
remained in employment until the end of the term of the agreement under the
Company's Performance Shares Plan and Executive Supplemental Life Insurance
Program, and PSI Energy's Pension Plan, Excess Benefit Plan, and Supplemental
Retirement Plan, (c) the value of all deferred compensation and all executive
life insurance benefits whether or not then vested or payable and (d) continued
medical and welfare benefits through the end of the term of the agreement.
If Mr. Mutz's employment is terminated after a change in control he
will be paid a lump sum cash payment equal to the greater of (i) three times
the sum of his annual base salary immediately prior to the date of his
termination of employment or, if higher, the date of the change in control,
plus all incentive compensation or bonus plan amounts in effect prior to the
date of his termination of employment or, if higher, prior to the change in
control, and (ii) the present value of all annual base salary, bonuses and
incentive compensation and retirement benefits that would otherwise be due
under the agreement plus deferred compensation and executive life insurance
benefits. In addition, he will be provided life, disability, accident and
health insurance benefits for 36 months, reduced to the extent comparable
benefits are received, without cost, by him.
Mr. Randolph has a severance agreement with the Company which provides
that if, within three years after the Effective Date he terminates his
employment for good cause or his employment is terminated by the Company other
than for disability or cause, the Company will pay him a cash amount equal to
300% of his annualized compensation for the most recent five years ending
before the Effective Date, less $1,000, plus a cash "gross-up" payment equal to
the federal excise tax due on such amount, if any.
DEFERRED COMPENSATION AGREEMENTS
Mr. Randolph and CG&E, and Mr. Rogers and PSI and PSI Energy, have
entered into deferred compensation agreements effective as of January 1, 1992
(the "Deferred Compensation Agreements") pursuant to which, in lieu of granting
to each executive officer a cash increase in base salary, each executive
officer was credited with a $50,000 base salary
20
<PAGE> 23
increase in the form of deferred compensation. Such amount will be deferred
annually, in the case of both Mr. Randolph and Mr. Rogers, for a five-year
period beginning January 1, 1992 and ending December 31, 1996, and in the case
of Mr. Rogers, for an additional five-year period beginning January 1, 1997 and
ending December 31, 2001. The Deferred Compensation Agreements were assumed by
the Company as of the Effective Date.
In general, Mr. Randolph's Deferred Compensation Agreement provides
that if his employment terminates for any reason, other than death or
disability, prior to January 1, 1997, he will receive the total amount of his
deferred income plus interest. If Mr. Randolph's employment terminates on or
after January 1, 1997, he will receive an annual cash benefit of $179,000
payable for a 15-year period beginning January 2001. Proportional benefits
are payable to Mr. Randolph in the event his employment is terminated for death
or disability prior to January 1, 1997.
In general, Mr. Rogers' Deferred Compensation Agreement provides that
if his employment terminates for any reason, other than death, prior to January
1, 1997, he will receive a lump sum cash payment equal to the total amount
deferred for the first five-year period described above plus interest. If Mr.
Rogers' employment terminates for any reason, other than death, on or after
January 1, 1997, he will receive an annual cash benefit over a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2003 nor later than January 2010. The annual cash
benefit amount payable for such 15-year period ranges from $179,000 per year if
payment begins in January 2003, increasing to $554,400 per year if payment
commences in January 2010. Comparable amounts are payable to Mr. Rogers in the
event his employment is terminated for disability prior to January 1, 1997 or
if Mr. Rogers dies (i) prior to January 1, 1997 while employed or disabled, or
(ii) on or after January 1, 1997 but before commencement of payment of the
15-year payments described above; provided, however, if Mr. Rogers becomes
disabled prior to the completion of the first award period, the amounts paid
will be proportionately reduced based on the ratio of the amount deferred to
the date of disability to the total amount that would have been deferred to the
end of the first award period. In addition, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 1997, but before January 1, 2002, he will receive a lump sum cash payment
equal to the total amount deferred during the second five-year period
described above plus interest. Additionally, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 2002, he will receive an additional annual benefit for a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2008 nor later than January 2010. The annual cash
benefit amount payable for such period ranges from $179,000 per year if payment
begins in January 2008, increasing to $247,000 per year if payment begins in
January 2010. Provided that Mr. Rogers is employed on January 1, 1997,
comparable amounts are payable to Mr. Rogers in the event his employment is
terminated for disability prior to January 1, 2002 or if Mr. Rogers dies (i)
prior to January 1, 2002 while employed or disabled, or (ii) on or after
January 1, 2002 but before commencement of payment of benefits; provided,
however, if Mr. Rogers becomes disabled prior to the completion of the second
award period, his payments will be
21
<PAGE> 24
proportionately reduced in the same manner as described above for disability
during the first award period.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Company and its
subsidiaries, including PSI Energy, for the year 1994 were Arthur Andersen LLP,
with offices both in Cincinnati, Ohio and Indianapolis, Indiana. Upon
recommendation of the Audit Committee of the Company's board of directors, this
board employed on January 25, 1995 Arthur Andersen LLP as independent public
accountants for the Company and its subsidiaries for the year 1995.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
In order to be considered for inclusion in PSI Energy's Information
Statement for the 1996 Annual Meeting of Shareholders, proposals from
shareholders must be received by the Secretary of the Company at 139 East
Fourth Street, Cincinnati, Ohio 45202 not later than November 30, 1995.
By Order of the Board of Directors
Cheryl M. Foley
Secretary
Dated: March 29, 1995
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