SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
[PUBLIC SERVICE COMPANY]
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA,
INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 31, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the next annual meeting of shareholders of
Public Service Company of North Carolina, Incorporated (the "Company") will be
held at the corporate office of the Company, 400 Cox Road, Gastonia, North
Carolina on Friday, January 31, 1997, at 9:00 a.m. for the following purposes:
1. To elect three directors, each to serve for a three-year term
expiring in 2000 or until their successors are elected and qualified;
2. To approve the Company's 1997 Nonqualified Stock Option Plan;
3. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending September 30, 1997;
and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed December 10, 1996 as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
meeting.
For the Board of Directors
/s/ Charles E. Zeigler, Jr.
CHARLES E. ZEIGLER, JR.
Chairman, President and
Chief Executive Officer
December 9, 1996
THE FORM OF PROXY IS ENCLOSED TO ENABLE YOU TO VOTE YOUR SHARES AT THE
MEETING. YOU ARE URGED TO PROMPTLY MARK, SIGN, DATE AND RETURN THE PROXY IN THE
ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
THIS IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR
PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE. IF YOU ATTEND THE MEETING
IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE YOUR SHARES IN PERSON IF YOU SO
CHOOSE.
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA,
INCORPORATED
400 Cox Road
Post Office Box 1398
Gastonia, North Carolina 28053-1398
---------------
Proxy Statement
---------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Public Service Company of North Carolina,
Incorporated (the "Company") for use at the annual meeting of shareholders of
the Company to be held on Friday, January 31, 1997, at 9:00 a.m., and at any
adjournment thereof. Unless the context requires otherwise, all references in
this Proxy Statement to the Company refer to Public Service Company of North
Carolina, Incorporated and its subsidiaries. This Proxy Statement and the
accompanying proxy card are first being mailed to shareholders on or about
December 20, 1996.
Only shareholders of record at the close of business on December 10, 1996
are entitled to vote at the meeting. As of November 30, 1996, the Company had
outstanding 19,296,374 shares of Common Stock, which shares constitute the only
class of stock of the Company entitled to notice of, and to vote at, the
meeting. As of the same date, the Company had approximately 11,500 shareholders
of record.
All proxies that are properly executed and received prior to the meeting
will be voted at the meeting. If a shareholder specifies how the proxy is to be
voted on any of the business to come before the meeting, the proxy will be voted
in accordance with such specification. If no specification is made, the proxy
will be voted for the election of directors and the approval of proposals two,
three and four. A shareholder may revoke a proxy, to the extent it has not been
exercised, at any time prior to its exercise, by giving written notice to the
Secretary of the Company, by executing and delivering a proxy with a later date
or by voting in person at the meeting. If a shareholder is a participant in the
Company's Stock Purchase and Automatic Dividend Reinvestment Plan, the enclosed
proxy includes any full and fractional shares held in his or her account.
Directors are elected by a plurality of the votes cast by the holders of
the Common Stock of the Company at a meeting at which a quorum is present.
"Plurality" means that the individuals who receive the largest number of votes
cast are elected as directors up to the maximum number of directors to be chosen
at the meeting. Consequently, any shares not voted (whether by abstention,
broker non-vote or otherwise) have no impact in the election of directors except
to the extent the failure to vote for an individual results in another
individual receiving a larger number of votes.
The cost of soliciting proxies will be borne by the Company, including
expenses incurred in connection with preparing and mailing this Proxy Statement.
Such expenses will include charges by brokers, banks or their nominees, other
custodians and fiduciaries for forwarding proxy material to the beneficial
owners of shares held in the name of a nominee. The Company expects to solicit
proxies primarily by mail, but certain officers and employees of the Company may
also solicit in person, by telephone, telegram or other means without additional
compensation for their services other than their regular salaries. Additionally,
the Company has retained Georgeson & Co. to solicit proxies in the same manner,
at an anticipated cost to the Company of approximately $25,000.
ELECTION OF DIRECTORS
On July 25, 1996, the Board of Directors (the Board), approved a decrease
in the size of the Company's Board from 12 to 11, such decrease to become
effective
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as of the date of the Company's annual meeting on January 31, 1997. Upon the
effectiveness of such decrease, the Board will be divided into three classes
comprised of: (i) three directors who are nominees for election with terms
expiring in 2000; (ii) four directors whose terms expire in January 1998; and
(iii) four directors whose terms expire in January 1999. At the annual meeting,
three directors are to be elected to serve until the Company's annual meeting to
be held in January 2000 or until their successors are elected and qualified.
Three directors whose terms expire at this year's annual meeting have been
nominated by the Board to succeed themselves for terms expiring in January 2000.
They are William A. V. Cecil, H. Max Craig, Jr., and G. Smedes York. One
director whose term is expiring, B. Frank Matthews, II, is retiring from the
Board under its mandatory retirement policy and will not stand for reelection or
be replaced. Each of the three nominees has consented to being named in the
Proxy Statement and to serve if elected. If, prior to the annual meeting, any
one of the nominees should become unable to serve, the proxies solicited hereby
will be voted for such additional person as shall be designated by the Board.
The other eight members of the Board whose terms do not expire this year will
continue to serve in such capacity until their terms expire and their successors
are elected and qualified.
Set forth below is a table showing the names and ages of the three nominees
for election and of the eight continuing members of the Board, together with
biographical information on each of them for the past five years.
Name, Age and Year
First Became a Director Biographical Information
- -------------------------- -------------------------------------------------
NOMINEES FOR ELECTION AS DIRECTORS WHOSE TERMS EXPIRE IN 2000
WILLIAM A. V. CECIL (68) Chairman and President, The Biltmore Company,
Director since 1985 which owns and operates the Biltmore House and
Gardens in Asheville, North Carolina.
H. MAX CRAIG, JR. (65) Chairman of the Board and President, Gaston
Director since 1974 County Dyeing Machine Company, a manufacturer of
textile machinery; President, H. M. Craig Metal
and Supply Company, Stanley, North Carolina;
and Director, First Citizens Bancshares,
Incorporated, the holding company for First
Citizens Bank and Trust Company.
G. SMEDES YORK (55) President and Treasurer, York Properties, Inc.
Director since 1984 and Sam Bass Camera Shop, Inc.; President, York
Inns, Inc., Raleigh, North Carolina.
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999
BERT COLLINS (62) President and Chief Executive Officer, North
Director since 1993 Carolina Mutual Life Insurance Company, an
insurance company located in Durham, North
Carolina; and Director, Wachovia Bank.
JOHN W. COPELAND (61) President, Ruddick Corporation, the holding
Director since 1996 company for American & Efird, Inc., Harris-
Teeter, Inc. and Jordan Graphics Inc.;
President and Director, Copeland Business
Service, Inc.; and Director, First Union
National Bank, Charlotte, North Carolina.
D. WAYNE PETERSON (60) President, National Integrated Services, Sprint,
Director since 1996 Kansas City, Missouri, a major domestic and
international telecommunications company.
CHARLES E. ZEIGLER, JR. (50) Chairman, President and Chief Executive Officer
Director since 1988 of the Company.
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<PAGE>
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1998
WILLIAM C. BURKHARDT (59) President and Chief Executive Officer of Austin
Director since 1989 Quality Foods, Inc., Cary, North Carolina, a
baker and distributor of Austin Quality Snacks.
VAN E. EURE (41) Co-owner, General Manager and President, The
Director since 1993 Angus Barn, Ltd., which owns a restaurant
located in Raleigh, North Carolina.
WILLIAM L. O'BRIEN, JR. (57) Senior Vice President, O'Brien/Atkins
Director since 1986 Associates, P.A., an architectural and
engineering firm located in Research Triangle
Park, North Carolina.
BEN R. RUDISILL, II (53) President and Treasurer, Rudisill Enterprises,
Director since 1996 Inc., Gastonia, North Carolina, a beverage
distributor and food broker;
Co-owner and Vice President, Tar
Heel Leasing Company, an auto and
equipment leasing company.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the number of shares of Common Stock of the Company
beneficially owned by the directors, the Chief Executive Officer, the other
executive officers named in the Summary Compensation Table, and the directors
and executive officers as a group, on November 30, 1996.
Percent
of
Name Shares (1)(2) Class
William A. V. Cecil ................ 7,614 *
H. Max Craig, Jr. .................. 9,432 *
G. Smedes York ..................... 6,162 *
Bert Collins ....................... 1,150 *
John W. Copeland ................... 2,081 *
D. Wayne Peterson .................. - *
Charles E. Zeigler, Jr. ............ 15,127(3) *
William C. Burkhardt ............... 2,219 *
Van E. Eure ........................ 760 *
William L. O'Brien, Jr. ............ 4,465 *
Ben R. Rudisill, II ................ 500 *
B. Frank Matthews, II .............. 12,860(4) *
Robert D. Voigt..................... 13,240 *
Jerry W. Richardson ................ 10,263 *
Franklin H. Yoho ................... 1,267 *
John D. Grawe ...................... - *
Directors and executive officers
as a group (23 persons) .......... 96,525 1.0%
- ---------------
* Indicates beneficial ownership of less than 1% of the shares of Common
Stock of the Company outstanding on November 30, 1996.
(1) Includes shares, if any, held by each person's spouse.
(2) Includes each person's beneficial interest in full shares of the
Company's Common Stock, if any, credited to his or her account in the
Company's Stock Purchase and Automatic Dividend Reinvestment Plan.
(3) Of this number, 12,020 shares are owned directly by Mr. Zeigler, Jr.,
1,122 shares are owned by Mr. Zeigler, Jr.'s spouse and 1,985 shares are
owned by a trust over which Mr. Zeigler, Jr. as trustee has investment
and voting power.
(4) Of this number, 5,960 shares are owned directly by Mr. Matthews and 6,900
shares are owned by a trust over which Mr. Matthews as co-trustee shares
investment and voting power.
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<PAGE>
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The business of the Company is managed under the direction of the Board.
The Board meets regularly during the year to review the Company's operations,
strategic and business plans, major capital appropriations and other significant
developments affecting the Company and to act on matters requiring Board
approval. It also holds special meetings when important matters require Board
action. Members of senior management attend Board meetings as needed to discuss
the progress and plans relating to their areas of responsibility. During the
fiscal year ended September 30, 1996, there were five meetings of the Board.
Each incumbent director attended at least 75 percent of the aggregate of the
number of such meetings and the total number of meetings of all committees of
the Board on which he or she served with the exception of Mr.Cecil.
Because of the number of matters requiring Board consideration and to make
the most effective use of individual directors' capabilities, the Board has
established committees to devote attention to specific subjects and to assist
the Board in the discharge of its responsibilities. The Board has created an
Executive Committee, an Audit Committee, an Executive Compensation Committee,
and on July 25, 1996, a Retirement Plans Committee. The Company has no
nominating committee. Information about the functions of each committee, its
current members, and the number of meetings held during the fiscal year ended
September 30, 1996, is provided below.
The Executive Committee acts as an advisory committee to the Chairman on
matters relating to the policies and business affairs of the Company and may
recommend nominees to be considered as successors to the Chairman or President
or as a director of the Company. During the intervals between meetings of the
Board, the Executive Committee has the same authority as the Board as to any
matters relating to the ordinary conduct of the business of the Company, but
does not have any authority as to any matters not relating to such ordinary
conduct of business such as, for example, the authority to authorize an
amendment to the Company's Articles of Incorporation or to fill a vacancy on
the Board. The members of the Executive Committee, which did not meet during
the fiscal year ended September 30, 1996, are Charles E. Zeigler, Jr.
(Chairman), William C. Burkhardt, William A. V. Cecil, H. Max Craig, Jr., and
G. Smedes York.
The Audit Committee recommends to the Board the engagement of independent
public accountants, approves the professional services to be rendered by and
considers the possible effect of such services on the independence of the
accountants, determines whether the independent public accountants are
presenting their reports on the Company's financial statements in a competent
and adequate manner, reviews the scope and results of annual examinations and
recommendations of the independent public accountants and determines whether the
internal controls of the Company are adequate. The members of the Audit
Committee, which met two times during the fiscal year ended September 30, 1996,
are William A. V. Cecil (Chairman), Bert Collins, H. Max Craig, Jr., B. Frank
Matthews, II, D. Wayne Peterson, and Ben R. Rudisill, II.
The Executive Compensation Committee recommends to the Board the
compensation of the various officers of the Company that, in the judgment of
such committee's members, should from time to time be fixed by the Board and
performs such other duties as are assigned to it by the Board. The Executive
Compensation Committee also recommends to the Board persons for election as
officers (except Chairman or President) of the Company. The Board has assigned
to such committee the responsibility of administering the Company's Incentive
Compensation Plan and its stock option plans. None of the members of such
committee may be employees of the Company, and none are eligible to receive
options under the Company's stock option plans. The members of the Executive
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<PAGE>
Compensation Committee, which met three times during the fiscal year ended
September 30, 1996, are William C. Burkhardt (Chairman), John W. Copeland, Van
E. Eure, William L. O'Brien, Jr., and G. Smedes York.
The Retirement Plans Committee, which was created on July 25, 1996,
shall serve as the Board's liaison with the Company's Qualified Plans Committee
which is responsible for the administration of all of the Company's qualified
plans (covering employees of the Company's subsidiaries as well as those of the
Company), and shall ensure that the Board's relationship with the Qualified
Plans Committee is cooperative and satisfactory. More specifically, the
Retirement Plans Committee, subject to review by the Board, shall review with
the Qualified Plans Committee and appropriate members of management, and approve
where appropriate: (a) the selection, retention, or termination of independent
auditors and actuaries for the Company's qualified plans; (b) the investment
management of the qualified plans; (c) appropriate investment controls, any
significant recommendations made by the independent auditors or actuaries, and
any other matter of concern to the Committee relating to such plans; and (d) any
significant proposed changes to the qualified plans, the competitiveness of such
plans, and any other matter of concern to the Committee or management relating
to such plans. The members of the Retirement Plans Committee, which did not meet
during the fiscal year ended September 30, 1996, are John W. Copeland
(Chairman), William C. Burkhardt, Bert Collins, H. Max Craig, Jr., and D. Wayne
Peterson.
Compensation of Directors
Directors who are not employees of the Company receive an annual retainer
fee of $18,000, plus $700 for each board and committee meeting attended and
reimbursement of expenses for attending each meeting. The Company maintains a
deferred compensation plan (the "Deferred Compensation Plan") for its outside
directors pursuant to which such directors may elect to defer 50% or more of
their annual compensation, such deferred amount to be credited at the direction
of the participating outside director in the form of cash or stock units.
Pursuant to the Deferred Compensation Plan, during the fiscal year ended
September 30, 1996, the following directors elected to receive credit for stock
units in lieu of cash compensation or to defer receipt of cash compensation.
<TABLE>
<CAPTION>
Value of Value of Cash
Name Stock Units Stock Units Compensation
<S> <C> <C> <C>
Mr. Burkhardt 2,047 $37,614 $ -
Mr. Copeland - - 13,638
Ms. Eure 773 14,212 -
Mr. Pearson (1) - - 6,729
Mr. Peterson 737 13,544 -
Mr. Rudisill 400 7,345 -
Mr. York 773 14,212 -
</TABLE>
(1) Retired from the Board effective January 26, 1996.
Upon retirement from the Board after age 65 and after serving as a
director for eight years or more, a director is entitled to lifetime retirement
compensation equal to the amount of the annual retainer fee in effect on the
date of retirement. The Company's By-laws provide that no director shall be
eligible for reelection who, on the date of his or her proposed election, shall
have reached, or who, within the twelve-month period immediately after such
date, would reach 70 years of age.
Compensation Committee Interlocks and Insider Participation
Effective August 1, 1992, the Company entered into a lease (the "Lease")
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with Pearson's, Inc., a North Carolina corporation. Prior to his retirement from
the Board on January 26, 1996, Mr. Plato P. Pearson, Jr., served as director and
a member of the Executive Committee and the Executive Compensation Committee.
Mr. Pearson is the President, a director and the holder of 4.28 percent of the
outstanding shares of common stock of Pearson's, Inc. The Lease is a
modification and extension of a lease entered into on November 30, 1976 relating
to the lease of an office building located at 1422 Burtonwood Drive in Gastonia,
North Carolina (the "Property"). The Property consists of an approximately
11,313 square foot office building which is utilized by the Company for
commercial offices. Under the terms of the Lease, which expires on July 31,
2002, the Company is obligated to pay rent in the amount of $100,000 per year,
and to pay all ad valorem taxes and special assessments charged against the
Property. The Company believes that payments required to be made under the Lease
are no higher than current fair market lease rates in the geographic area in
which the Property is located and are at least as favorable to the Company as
could be obtained through an unrelated third party.
During fiscal 1996, the Company paid architectural fees of $60,194 to
O'Brien/Atkins Associates, P.A., an architectural and engineering firm in which
William L. O'Brien, Jr. is employed as Senior Vice President and Director. Mr.
O'Brien does not have any ownership interest in O'Brien/Atkins Associates, P.A.
Effective August 19, 1996, O'Brien/Atkins entered into a contract with a
developer who was hired by the Company to develop a parcel of land.
O'Brien/Atkins will receive $337,128 from this developer for the architectural
design and inspection of this property.
During fiscal 1996, the Company entered into a contract with McDonald-
York for $659,000 for renovations to an office building located in Raleigh,
North Carolina. McDonald-York was paid $225,000 during fiscal 1996. The
renovations are scheduled to be completed by March 31, 1997. Effective October
1, 1996, G. Smedes York entered into a consulting agreement with McDonald-York
whereby he participates in net income before taxes of McDonald-York.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission reports of ownership and changes in ownership of Common Stock.
Officers, directors and greater than 10% beneficial owners are required by
Securities and Exchange Commission regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that, during fiscal 1996, all filing requirements applicable to
its officers, directors and greater than 10% beneficial owners were complied
with.
Report of the Executive Compensation Committee
The Company, under the supervision of the Executive Compensation
Committee of the Board, has developed and implemented merit and incentive
compensation programs which seek to provide a direct relationship between
compensation provided to executive officers, and other eligible employees in the
upper job grades, and corporate business performance. The Executive Compensation
Committee is a standing committee of the Board composed entirely of outside
directors who are not officers or employees of the Company or any of its
subsidiaries and who have no interlocking relationships with the Company's
executive officers.
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<PAGE>
It is the philosophy of the Company's Board to set the base salaries of
executive officers at the average of a financial peer group of other mid-sized
natural gas local distribution companies ("LDCs"), with opportunities to earn
above the average based on excellent individual and corporate performance. This
peer group includes neighboring and other similarly sized LDCs which share
operating and financial characteristics with the Company. The goal of the
Company's executive compensation programs is to create competitive compensation
that will attract and retain quality leadership at the Company and link
compensation directly to corporate performance. Further, the Board believes the
performance on which executive officer compensation is based should be assessed
both on an annual basis and also over a longer period of time to ensure that
executive officers work to support both the Company's current objectives as well
as its strategic objectives.
In the early part of each fiscal year, the Executive Compensation
Committee reviews the Chief Executive Officer's recommended base salary merit
increases for the Company's other executive officers, plus cash incentive plan
and stock option plan awards for those officers and other eligible employees.
Base salary merit increases and cash incentive award recommendations, if any,
are primarily based on corporate operating and financial performance, as well as
on individual performance, for the prior fiscal year. Merit increases are also
based on a review of peer group base salaries and executive officers' individual
contributions to the Company's strategic objectives. Stock option
recommendations, if any, are primarily based on executive officers' and other
eligible employees' individual performance during the prior fiscal year, but
also involve judgments as to each of their contributions to the Company's
strategic objectives. The Executive Compensation Committee then sets
compensation recommendations to the Board following review of (a) the Company's
actual performance as compared to its corporate financial goals for the prior
fiscal year, (b) individual executive officers' and other eligible employees'
actual performance as compared to their individual goals supporting the
Company's financial and operating objectives, (c) the Company's executive
officer compensation levels relative to its peer groups, and (d) periodic
reports from independent compensation consultants regarding the compensation
competitiveness of the Company.
The Executive Compensation Committee also reviews the above types of
compensation for the Chief Executive Officer with the assistance of the
Company's human resources staff and recommends adjustments as deemed appropriate
based on the above compensation review criteria and its expectation as to his
future contributions in leading the Company. The Executive Compensation
Committee's compensation recommendations for all executive officers are acted on
by the Board. If prior fiscal year corporate financial goals are not achieved,
(a) executive officer and other eligible employee cash incentive awards are not
paid, even when individual goals are met, and (b) stock options awards may not
be granted.
Upon evaluating the Company's actual performance as compared to its
fiscal 1996 corporate goals, the Executive Compensation Committee made the
following recommendation which was approved by the Board on November 13, 1996:
to pay 12 executive officers and 102 other eligible employees $612,903,
representing 93.2% of the possible cash incentive pool. This was based on the
attainment of 100% of the earnings per share goal (60% weighting), 66% of the
gross margin growth goal (20% weighting), and 100% of the operating income/gross
margin efficiency goal (20% weighting). These three payout percentages resulted
from achieving the budgeted amounts for the three goals. The minimum attainment
level to earn a 100% payout of the first two goals was 105% of their budgeted
amounts, whereas 100% payout of the third goal resulted if 100% of its budgeted
amount was achieved. Additionally, the Executive Compensation Committee and the
Board approved management's recommendation to continue for fiscal 1997 the
earnings per share (60% weighting), gross margin
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growth (20% weighting), and operating income/gross margin efficiency (20%
weighting) goals, which are linked to growth in shareholder value.
Effective November 13, 1996, stock options totaling 118,967 shares at a
grant price of $16.59 (90% of the $18.44 average between the New York Stock
Exchange high and low trading prices on the grant date) were awarded to 12
executive officers and 102 other eligible employees. These awards and prior
awards have granted almost all of the common shares authorized under the
Company's 1992 Nonqualified Stock Option Plan ("1992 Plan") which is effective
for the five year period from October 1, 1992 through September 30, 1997. The
1992 Plan currently covers 114 key employees of the Company's current 1,150
employees.
On November 13, 1996, upon the recommendation of the Executive
Compensation Committee, the Board approved the Company's 1997 Nonqualified Stock
Option Plan ("1997 Plan") which will be effective for the five year period from
October 1, 1997 through September 30, 2002, subject to shareholder and North
Carolina Utilities Commission approvals. The 1997 Plan has been revised in two
ways to align optionees' goals more closely with shareholders' interest in share
price appreciation for the Company's Common Stock. The 1997 Plan (a) would
eliminate the 1992 Plan's granting of options at a 10% discount from market
price and would price future option grants at market price, and (b) would
eliminate the 1992 Plan's quarterly cash dividend accrual rights over the lives
of outstanding options from any future option grants. The Executive Compensation
Committee examined a Black-Scholes pricing model analysis which estimated that
optionees would receive economically equivalent grants if 2.6 shares were
granted under the 1997 Plan for each share granted under the 1992 Plan. This
equates to 1,560,000 shares reserved for the 1997 Plan, versus 600,000 shares
reserved for the 1992 Plan.
The income statement impact of the 1997 Plan would be limited to minor
administrative expenses and the Company's matching share of any FICA and
Medicare taxes on optionees' ordinary income from exercised options. The
Company's combined FICA and Medicare tax rate is currently 7.65%. The 1992 Plan
incurred these two types of expenses, plus grant price discount and cash
dividend equivalents accrual expenses as follows: fiscal 1993 -- $456,774;
fiscal 1994 -- $210,059; fiscal 1995 -- $181,950; fiscal 1996 -- $526,705; and
fiscal 1997 to date -- $212,951.
New common shares issued by the Company, as a result of options
exercised under the 1997 Plan, would be included in the Company's filed capital
structure to earn an allowed common equity rate of return under future general
rate cases. PSNC is currently on a two-year general rate case cycle. If this
cycle continues, dilution in earnings per share from new shares issued under the
1997 Plan may be for relatively short periods of time.
Lastly, the Company's rapid growth requires periodic infusions of
equity capital to maintain a prudent equity capitalization ratio. The value of
new common shares issued under the 1997 Plan would aid in this process.
For all of the above reasons, the Company's Executive Compensation
Committee recommended to the Board, and the Board recommends to the Company's
shareholders, approval of the 1997 Plan.
This report has been provided by the Executive Compensation Committee:
William C. Burkhardt (Chairman) William O'Brien, Jr.
John W. Copeland G. Smedes York
Van E. Eure
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EXECUTIVE COMPENSATION
The Summary Compensation Table below includes compensation paid by the
Company for services rendered for the fiscal years ended September 30, 1996,
1995 and 1994 for the Chief Executive Officer and the four other most highly
compensated executive officers (as of September 30, 1996) as determined by total
salary and bonus payments.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Other Annual Awards All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Options (#) Compensation (3)
- --------------------------- ---- ---------- ------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Zeigler, Jr. 1996 $271,380 $51,685 $76,576 5,889 $4,500
Chairman, President and 1995 256,200 29,455 30,523 7,559 4,500
Chief Executive Officer 1994 237,003 55,800 70,798 7,298 3,375
Robert D. Voigt 1996 132,000 25,153 - 3,539 3,960
Senior Vice President -- 1995 124,896 14,275 15,954 4,538 3,747
Corporate Development and 1994 115,620 27,100 40,157 4,407 3,469
Chief Financial Officer
Jerry W. Richardson 1996 131,700 25,096 - 2,949 3,951
Senior Vice President -- 1995 131,700 11,205 16,606 3,750 3,951
Engineering 1994 124,604 22,400 40,590 3,635 3,738
Franklin H. Yoho 1996 126,900 24,183 - 3,539 3,807
Senior Vice President -- 1995 116,750 13,695 30,238 4,538 3,503
Marketing and Gas Supply 1994 98,482 29,700 5,175 4,407 2,954
John D. Grawe 1996 126,900 24,183 37,296 (4) 3,539 2,855
Senior Vice President -- 1995 111,675 23,695 4,012 (4) 4,538 -
Operations 1994 - - - - -
</TABLE>
(1) Includes for the years indicated amounts contributed on a pre-tax basis
to the Special Savings and Retirement Plan (the Company's 401(k) plan)
by each of the named executive officers.
(2) Includes for the years indicated the difference between the price paid
by the named executive officers for Common Stock of the Company
purchased from the Company upon the exercise of stock options and the
fair market value of such Common Stock. Also includes for the years
indicated the amount paid to the named executive officers for dividend
equivalents accrued from the grant date.
(3) Consists of for the years indicated contributions by the Company to the
Special Savings and Retirement Plan.
(4) Reflects reimbursement of moving expenditures for the indicated year.
Option Grants in Last Fiscal Year
The following table shows stock options granted in the fiscal year ending
September 30, 1996 to the Chief Executive Officer and the four other most highly
compensated executive officers (as of September 30, 1996):
<TABLE>
<CAPTION>
Individual Grants (1)
% of
Total Grant
Number of Options Date
Securities Granted Market Present
Underlying to Exercise Price on Value
Options Employees or Base Date of (Black-
Granted in Fiscal Price Grant Expiration Scholes)
Name (#) Year ($/Sh) ($/Sh) Date (2)
- ---- ---------- --------- -------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Charles E. Zeigler, Jr. .......... 6,220 5.2% $14.29 $15.88 11/17/00 $42,234
Robert D. Voigt .................. 3,738 3.1 14.29 15.88 11/17/00 25,381
Jerry W. Richardson .............. 2,576 2.2 14.29 15.88 11/17/00 17,491
Franklin H. Yoho ................. 3,738 3.1 14.29 15.88 11/17/00 25,381
John D. Grawe .................... 3,738 3.1 14.29 15.88 11/17/00 25,381
</TABLE>
(1) All options were granted on November 17, 1995 with an exercise price
equal to 90 percent of the average high and low closing price on the
grant date, as reported on the New York Stock Exchange. An optionee
must remain employed by the Company for at least two years from the
date of grant before the right to exercise an option accrues. Options
become fully and immediately exercisable in the event of a change in
control of the Company, and in the event of an optionee's retirement,
disability or death. No option may be exercised more than five years
from the date of its grant. With respect to options granted on November
17, 1995,
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<PAGE>
dividend equivalents will accrue quarterly on shares subject to such
options and are paid by the Company annually at the end of each option
year if the Company's closing Common Stock price on the dividend record
date with respect to such quarter exceeds $18.38 per share.
(2) The values shown in this column have been calculated through standard
application of the Black-Scholes pricing model. A risk free interest
rate of 7.10%, a volatility rate of 15% and a dividend yield of 5.10%
is assumed. The actual value an executive officer receives from a stock
option is dependent on future market conditions, and there can be no
assurance that the amount reflected as "Grant Date Present Value" will
actually be realized. In addition, the value shown does not take into
account risk factors such as nontransferability, possible non-payment
of dividend equivalents and limits on exercise.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
The following table shows the aggregated stock option exercises in the
fiscal year ended September 30, 1996 and the stock option values for the Chief
Executive Officer and the four other most highly compensated executive officers
(as of September 30, 1996):
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options at FY-End (#) Options at FY-End ($)
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Zeigler, Jr. ........ 12,126 $76,576 17,102 13,779 $59,713 $76,609
Robert D. Voigt ................ - - 14,724 8,276 40,308 46,015
Jerry W. Richardson ............ - - 15,068 6,326 40,150 34,911
Franklin H. Yoho ............... - - 8,084 8,276 29,641 46,015
John D. Grawe .................. - - - 3,738 - 22,690
</TABLE>
EMPLOYEE RETIREMENT PLANS
The table below illustrates the approximate amounts of annual normal
retirement benefits payable under the Company's retirement plans.
<TABLE>
<CAPTION>
Annual Benefits at Retirement with
Average Years of Credited Service
---------------------------------------------
Compensation 10 15 20 25 30 35
- ------------ ------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
$120,000 $25,208 $ 37,811 $ 50,415 $ 63,019 $ 75,623 $ 88,226
140,000 29,708 44,561 59,415 74,269 89,123 103,976
160,000 34,208 51,311 68,415 85,519 102,623 119,726
180,000 38,708 58,061 77,415 96,769 116,123 135,476
200,000 43,208 64,811 86,415 108,019 129,623 151,226
220,000 47,708 71,561 95,415 119,269 143,123 166,976
240,000 52,208 78,311 104,415 130,519 156,623 182,726
260,000 56,708 85,061 113,415 141,769 170,123 198,476
280,000 61,208 91,811 122,415 153,019 183,623 214,226
300,000 65,708 98,561 131,415 164,269 197,123 229,976
320,000 70,208 105,311 140,415 175,519 210,623 245,726
340,000 74,708 112,061 149,415 186,769 224,123 261,476
</TABLE>
-10-
<PAGE>
The Company has a noncontributory, defined benefit retirement plan (the
"Retirement Plan") and a benefit restoration plan (the "Restoration Plan")
(collectively, the "Retirement Plans"), which cover all full-time employees,
including officers, upon their attaining age 21 and completing one year of
service. The purpose of the Restoration Plan is to provide certain employees
with retirement benefits which they otherwise would have received under the
Retirement Plan formula but which may not be paid to them under the Retirement
Plan due to limitations on benefits imposed by the Internal Revenue Code.
A participant in the Retirement Plans becomes fully vested prior to normal
retirement at age 65 upon the completion of five years of service. Benefits are
also provided under the Retirement Plans in the event of early retirement at or
after age 55 and the completion of at least ten years of service and in the
event of retirement for disability after completion of five years of service.
Benefits under the Retirement Plans are based upon application of a formula to
the specified average compensation and years of credited service (up to a
maximum of 35 years) at normal retirement age. Benefit amounts are computed on a
straight life annuity basis. Compensation covered by the Retirement Plans
consists of the amount shown as "Salary" in the Summary Compensation Table. The
benefits are not subject to any deduction for social security payments.
Estimated credited years of service under the Retirement Plans for the
individuals named in the Summary Compensation Table are as follows: Charles E.
Zeigler, Jr., 9.8 years, Robert D. Voigt, 21.2 years, Jerry W. Richardson,
28.0 years, Franklin H. Yoho, 7.6 years, and John D. Grawe, 1.8 years.
PERFORMANCE GRAPH
The line graph set forth below charts performance (on an annual basis) of
an investment in the Company's Common Stock against each of the Standard &
Poor's 500 Index (the "S&P 500 Index") and the Standard & Poor's Utilities Index
(the "S&P Utilities Index"), in each case assuming an investment of $100 on
September 30, 1991 and cumulation and reinvestment of all dividends paid
thereafter through September 30, 1996. The following graph is presented pursuant
to rules of the Securities and Exchange Commission. The stock price performance
comparisons below shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this graph by reference, and shall not otherwise be deemed filed
under such acts. While total stockholder return is an important criterion of
corporate performance, it is subject to the vagaries of the equity market, which
affect common stock price performance. There can be no assurance that the
Company's Common Stock price performance will continue into the future with the
same or similar trends depicted in the graph below.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Graph appears here.
Plot points are as follows:
<TABLE>
<CAPTION>
Cumulative Total Return
9/91 9/92 9/93 9/94 9/95 9/96
<S> <C> <C> <C> <C> <C> <C>
Public Service Company of North Carolina, Inc. $100 $163 $174 $144 $168 $202
S&P 500 Index $100 $111 $125 $130 $169 $203
S&P Utilities Index $100 $114 $142 $124 $158 $169
</TABLE>
-11-
<PAGE>
SHAREHOLDER PROPOSALS AND NOMINATIONS
Shareholder proposals relating to the Company's 1998 annual meeting of
shareholders must be received by the Company no later than August 22, 1997, to
be considered for inclusion in the proxy statement to be furnished to
shareholders in connection with the solicitation of proxies by the Board for use
at such meeting.
The Executive Committee will consider nominees for the Board recommended by
shareholders. Recommendations by shareholders must be forwarded to the Secretary
of the Company and must identify the nominee by name and provide pertinent
information concerning his or her background and experience. A shareholder
recommendation must be received at least 90 days prior to the date of the annual
meeting of shareholders, which is regularly held on the last Friday in January.
Shareholders should send their proposals and names of proposed nominees to
the attention of the Company's Secretary at the Company's corporate office, 400
Cox Road, Post Office Box 1398, Gastonia, North Carolina 28053-1398.
PROPOSAL TO APPROVE THE 1997 NONQUALIFIED STOCK OPTION PLAN
On November 13, 1996, the Board adopted, subject to approval by the
stockholders of the Company, and the North Carolina Utilities Commission
("NCUC"), the "Public Service Company of North Carolina, Incorporated 1997
Nonqualified Stock Option Plan" ("1997 Plan") for full-time key employees of the
Company and its Subsidiaries. The 1997 Plan authorizes the granting of
nonqualified options to purchase shares of Common Stock of the Company.
The purpose of the 1997 Plan is to encourage equity ownership in the
Company by its key employees, to aid the Company in attracting and retaining
strong management employees, and to stimulate the efforts of key employees by
giving appropriate recognition, in addition to salaries and incentive awards, to
the ability and industry that contribute materially to the success of the
businesses of the Company.
The Board believes that the granting of options under the Company's
1992 Nonqualified Stock Option Plan ("1992 Plan") has been a significant factor
in attracting and retaining the competent and experienced executive management
and other key employees that the Company and its Subsidiaries require. Under the
terms of the 1992 Plan, however, no options to purchase Common Stock may be
granted after September 30, 1997. The Board believes that additional shares of
Common Stock should be made available for the grant of options after September
30, 1997, in order to provide an appropriate incentive program for the key
employees of the Company and its Subsidiaries. Accordingly, the Board recommends
that the stockholders approve the 1997 Plan.
Summary of the 1997 Plan. Under the 1997 Plan, options may be granted
beginning October 1, 1997, to purchase up to a maximum of One Million Five
Hundred Sixty Thousand (1,560,000) shares of the Company's Common Stock, but no
one individual may receive options to purchase more than Two Hundred Thirty-four
Thousand (234,000) shares in total. Shares underlying options that are canceled,
expire, or terminate unexercised will again be available for the grant of
additional options within the limits provided by the 1997 Plan. No options may
be granted under the 1997 Plan after September 30, 2002.
The 1997 Plan differs from the 1992 Plan in several respects and is
designed to provide further assurance that the goals of the eligible employees
will align closely with those of the Company's shareholders. First, the option
price has been increased from not less than 90% of the average market price on
the date of the grant to 100% of such price on the date of the grant. Second,
the cash dividend equivalents which were provided under a separate plan that is
a companion to the 1992 Plan will be eliminated for options granted under the
1997 Plan; however, cash dividend equivalents will continue to accrue on options
granted under the 1992 Plan to the extent permitted by the companion plan
providing for cash dividend equivalents. These changes are designed to make the
1997 Plan more of an equity ownership plan with total optionee income dependent
upon an appreciation in the price of the Company's common stock. While the 1992
Plan is structured as an equity ownership plan, the Board believes that it has
-12-
<PAGE>
tended to operate in some respects more as a long-term cash incentive plan than
as an equity ownership plan because options were granted at 90% of the market
price and the cash dividend equivalents provided income to the optionees. As
structured, the 1997 Plan will subject the eligible employees to the same risks
as shareholders and offer them the same share price appreciation rewards. With
the elimination of the cash dividend equivalents and the increase in the option
price to 100% of the market price, eligible employees will recognize value from
their granted stock options only if the price of the Company's common stock
increases between the date of the grant and the date on which the options are
exercised, which generally is from two years to five years after the date of the
grant. At the Board's discretion, the number of shares granted annually would be
linked to the Company's financial performance, so that less than the total
number of shares in the 1997 Plan might be granted over its five-year life.
As a result of these changes, the Board has increased the number of
shares that may be granted under the 1997 Plan to 1,560,000 shares as compared
to 600,000 shares under the 1992 Plan. The increase in the number of shares that
may be granted (2.6 times the number of shares that could be granted under the
1992 Plan) is designed to make the 1997 Plan the economic equivalent of the 1992
Plan for the optionees. The increase in the number of shares that could be
granted was determined using an accepted financial formula known as the
Black-Scholes pricing model. This formula considers the projected increase in
the price of the Company's common stock over the life of an option and the cash
dividends that are projected to be accrued during the five-year life of the
option.
The 1997 Plan will also save the Company significant expense per year,
as compared to the 1992 Plan (refer to page 8). Under the 1992 Plan, the Company
incurs expense in the form of cash dividend equivalents on the options granted
and the 10% discount in the prices of the granted options. Options granted under
the 1992 Plan will continue to accrue cash dividend equivalents in accordance
with the terms of the separate dividend equivalents plan. Options granted under
the 1997 Plan will not accrue dividend equivalents nor will they be subject to
any grant price discounts from market value.
The 1997 Plan is administered by the Executive Compensation Committee
of the Board, the members of which are ineligible to participate in the 1997
Plan, and which, subject to the terms of the 1997 Plan, has the authority to
select the eligible employees to whom options will be granted and to determine
the number of shares covered by each option. The Executive Compensation
Committee also establishes the exercise price of each option at the time of
grant, which may not be less than the greater of the fair market value or par
value of the Company's Common Stock as of the date of grant. It is currently
estimated that one hundred seven (107) employees will be eligible to participate
in the 1997 Plan, including Messrs. Zeigler, Jr., Voigt, Richardson, Yoho, and
Grawe, although the grants of options to such persons, the number of such
options, and the number of options to be granted to all key employees of the
Company are matters within the Executive Compensation Committee's discretion.
Each option granted will require the optionee to remain in continuous
employment with the Company or a Subsidiary for a period of at least two years
from the date of grant before the option becomes exercisable with the exception
that all options will become fully and immediately exercisable upon a change in
control of the Company or upon retirement, death or disability of the optionee.
No option may be exercised after the expiration of five years from the date of
grant. In the event that an option is exercisable in installments, the right
to purchase shares pursuant to the exercise of such option will be cumulative.
An option may be exercised by payment of cash to the Company, or the
surrender of shares of the Company's Common Stock, or a combination of cash and
such shares.
Options are not transferable except by will or pursuant to the
applicable laws of descent and distribution. Upon the termination of an
optionee's employment for any reason other than retirement, death, or
disability, all options held by the optionee shall be exercisable only to the
extent the options were exercisable at the time employment was terminated and
prior to the earlier of the expiration dates of such options or three months
from the date of termination of employment. Upon the termination of an
optionee's employment on account of retirement, death, or disability, all
options held by the optionee at the date of termination will be exercisable in
full, whether or not exercisable on the date of termination, until the earlier
of (i) the
-13-
<PAGE>
expiration dates of such options or (ii) one year from the date of termination
of employment.
The Board may terminate, suspend, or amend the 1997 Plan at any time
except that stockholder approval is required for any amendment to the extent
required to (i) comply with the "performance-based compensation exception" from
the $1.0 million deduction limitation set forth in Section 162(m) of the
Internal Revenue Code, (ii) satisfy the conditions set forth in Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended
("1934 Act"), or (iii) comply with the listing requirements of any national
securities exchange on which the Common Stock is listed.
The 1997 Plan is contingent on the NCUC granting authority to the
Company to issue One Million Five Hundred Sixty Thousand (1,560,000) shares of
Common Stock pursuant to the 1997 Plan and, if approved by the NCUC, such shares
will be registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. As of December 4, 1996, the market value of
one share of Common Stock was $18.75.
New Plan Benefits Table. Because all awards under the 1997 Plan are
discretionary, benefits under the 1997 Plan are not determinable. The following
number of options, however, were awarded under the 1992 Plan during 1996 to the
following persons and groups:
Name and Position Number of Options
Charles E. Zeigler, Jr.,
Chairman, President and Chief Executive Officer 5,889
Robert D. Voigt,
Senior Vice President - Corporate Development
and Chief Financial Officer 3,539
Jerry W. Richardson,
Senior Vice President - Engineering 2,949
Franklin H. Yoho,
Senior Vice President - Marketing and Gas Supply 3,539
John D. Grawe,
Senior Vice President - Operations 3,539
Executive Group 36,948
Non-Executive Director Group 0
Non-Executive Officer Group 5,305
Other Key Employees 76,714
-------
Total 118,967
Federal Income Tax Treatment. An optionee will not realize any taxable
income upon the grant of an option under the 1997 Plan, and the Company will not
be entitled to any deduction for income tax purposes with respect to the grant.
Except in limited circumstances as discussed below with respect to
optionees who are subject to liability for short-swing profits under Section
16(b) of the 1934 Act, upon the exercise of an option, the excess of the fair
market value of the shares on the exercise date over the option price will be
treated as compensation paid to the optionee for Federal income tax purposes.
The Company will be entitled to a corresponding Federal income tax deduction
for the amount treated as compensation paid to the optionee.
A deferral of the date for determining the amount treated as
compensation paid to the optionee may occur if (i) the optionee is subject to
the short-swing profit liability provisions of the 1934 Act and (ii) the option
is exercised within six months after the date of grant. In this case, the amount
treated as compensation paid to the optionee will be determined on the date six
months after the date the option is granted, regardless of the date of exercise.
To eliminate the effect of the deferral, the optionee may elect under Section
83(b) of the Internal
-14-
<PAGE>
Revenue Code to have the amount treated as compensation determined by reference
to the fair market value of the Common Stock at the time of exercise. Such an
election must be made no later than 30 days after the date the shares are
transferred pursuant to the exercise of the option. It is likely (but not
certain) that the Internal Revenue Service will take the position that an
unrelated purchase of Company shares on or within six months of the date of the
exercise of an option will not cause a deferral of the determination of
compensation income realized upon the exercise of the option, even though such
unrelated purchase will preclude a sale of the Common Stock until the end of the
Section 16(b) liability period associated with such unrelated purchase.
An optionee's tax basis for shares received upon the exercise of an
option will be the sum of the exercise price paid plus the amount of
compensation income treated as received by the optionee as a consequence of the
exercise. Upon the subsequent disposition of shares received upon the exercise
of an option, any amount realized in excess of the optionee's basis generally
will be treated as a capital gain and any amount realized which is less than the
optionee's basis will be treated as a capital loss.
Vote Required. Stockholder approval of the 1997 Plan will require the
affirmative vote of the holders of a majority of the Company's Common Stock
present or represented by proxy and entitled to vote at the January 31, 1997
Annual Meeting, without regard to absentions and broker non-votes. The Board
recommends a vote FOR the 1997 Plan, and proxies solicited by the Board will be
so voted unless stockholders specify otherwise.
RATIFICATION OF SELECTION OF AUDITORS
The Board has selected Arthur Andersen LLP as independent public
accountants to audit the accounts and financial statements of the Company for
the fiscal year ending September 30, 1997. Arthur Andersen LLP has acted for the
Company in this capacity since 1951. A representative of such firm is expected
to attend the annual meeting to answer appropriate questions from shareholders
and to make a statement if he or she so desires.
OTHER MATTERS
The Board of the Company knows of no matters that will be presented for
consideration at the annual meeting other than those set forth in this Proxy
Statement. However, if any other matters shall come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote on such matters
in accordance with their best judgment.
We ask that you promptly execute the enclosed proxy and return it in the
enclosed envelope that requires no postage if mailed in the United States.
For the Board of Directors
/s/ Charles E. Zeigler, Jr.
CHARLES E. ZEIGLER, JR.
Chairman, President and
Chief Executive Officer
December 9, 1996
A COPY OF THE COMPANY'S LATEST ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES
THERETO, WILL BE PROVIDED WITHOUT CHARGE UPON WRITTEN REQUEST TO JACK G. MASON,
TREASURER, PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED, POST OFFICE
BOX 1398, GASTONIA, NORTH CAROLINA 28053-1398.
<PAGE>
*******************************************************************************
APPENDIX A
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 31, 1997
The undersigned hereby appoints CHARLES E. ZEIGLER, JR., WILLIAM A. V.
CECIL and H. MAX CRAIG, JR., and each of them, with full power of substitution,
attorneys and proxies to appear and vote, as indicated below, all of the shares
of Common Stock of Public Service Company of North Carolina, Incorporated that
the undersigned would be entitled to vote at the annual meeting of shareholders
to be held on January 31, 1997 and at any and all adjournments thereof. The
Board of Directors recommends a vote FOR the following items:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors. FOR the nominees FOR the nominees listed below WITHHOLD AUTHORITY to vote for the
listed below except as marked to the contrary nominees listed below
</TABLE>
(Instruction: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
strike a line through the nominee's name in the list below.)
William A. V. Cecil H. Max Craig, Jr. G. Smedes York
2. Proposal to approve the Company's 1997 Nonqualified Stock Option Plan.
FOR AGAINST ABSTAIN
3. Proposal to ratify the selection of Arthur Andersen LLP as independent
public accountants. FOR AGAINST ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof. FOR AGAINST ABSTAIN
(continued and to be signed on reverse side)
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and when
properly executed will be voted in the manner directed herein by the undersigned
shareholder. If no direction is made, this proxy will be voted FOR all nominees
for Director and FOR Proposals 2, 3 and 4.
Signed:
Signed:
Please sign exactly as your name
appears hereon. If the holder is a
corporation or partnership, please
sign its name and add your own name
and title. When signing as attorney,
executor, administrator, trustee or
guardian, please also give your full
title. If shares are held jointly
EACH holder must sign.
Dated:
IMPORTANT: Please mark, sign and date this proxy and return it promptly in the
enclosed envelope. No postage is required if mailed in the United States.
<PAGE>
*******************************************************************************
APPENDIX B
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
1997 NONQUALIFIED STOCK OPTION PLAN
WHEREAS, Public Service Company of North Carolina, Incorporated ("PSNC" or
Company") desires to adopt and establish a stock option plan that will (i) aid
PSNC and its Subsidiaries in attracting and retaining in key positions employees
of superior training, experience, and ability, and (ii) stimulate those
employees and encourage them to have a material proprietary interest in the
economic progress of PSNC and its subsidiaries; and
WHEREAS, PSNC desires that said stock option plan shall be known as the
"Public Service Company of North Carolina, Incorporated 1997 Nonqualified Stock
Option Plan" and become effective as of October 1, 1997;
NOW, THEREFORE, for the purposes aforesaid, PSNC does hereby adopt and
establish, effective as of October 1, 1997, the "Public Service Company of North
Carolina, Incorporated, 1997 Nonqualified Stock Option Plan" (hereinafter
"Plan") consisting of the terms and provisions set forth in Articles I through
VI, as follows:
ARTICLE I
NAME, PURPOSE, CONSTRUCTION AND DEFINITIONS
SECTION 1.1. NAME. The Plan shall be known as the "Public Service Company
of North Carolina, Incorporated 1997 Nonqualified Stock Option Plan."
SECTION 1.2. PURPOSE. The Plan is intended to aid PSNC and its Subsidiaries
in attracting and retaining strong management employees and stimulating their
efforts by giving suitable recognition, in addition to salaries, to the ability
and industry that contribute materially to the success of PSNC and its
Subsidiaries and in connection with the aforesaid to encourage management
employees to have a material proprietary interest in the economic growth and
success of PSNC and its Subsidiaries.
SECTION 1.3. CONSTRUCTION. Article, Section, and paragraph headings have
been inserted in the Plan for convenience of reference only and are to be
ignored in any construction of the provisions hereof. If any provision of the
Plan shall be invalid or unenforceable, the remaining provisions shall
nevertheless be valid, enforceable, and fully effective. It is the intent that
the stock options granted under the Plan shall not qualify as "incentive stock
options" within the meaning of Section 422(b) of the Code, and the Plan shall be
construed and interpreted accordingly. The Plan shall be construed,
administered, regulated, and governed by the laws of the United States to the
extent applicable, and to the extent such laws are not applicable, by the laws
of the State of North Carolina.
SECTION 1.4. DEFINITIONS. Whenever used in the Plan, unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
(a) "Act" means the Securities Exchange Act of 1934, as amended from
time to time.
(b) "Board" or "Board of Directors" means the Board of Directors of
PSNC.
(c) "Change in Control" means and shall be deemed to have occurred if:
(i) any individual, corporation, firm, or other entity, together
with its "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act), or any "group" (which
means persons and entities which act in concert as described
in Section 14(d)(2) of the Act):
(A) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act) of
securities of PSNC representing twenty
1
<PAGE>
percent (20%) or more of the combined voting
power of all outstanding voting securities of
PSNC, or
(B) commences, or announces publicly the intention to
commence, a tender or exchange offer for
securities of PSNC upon the successful
consummation of which such individual,
corporation, firm, or other entity, together with
its "associates" and "affiliates," or such
"group" would be the "beneficial owner" of thirty
percent (30%) or more of the combined voting
power of all outstanding voting securities of
PSNC;
(ii) in any solicitation of proxies from the shareholders
of PSNC, proxies are solicited by or on behalf of an
individual, corporation, firm, or other entity other
than the Board, and upon the conclusion of such
solicitation, nominees of such individual,
corporation, firm, or other entity are elected to
one-half (1/2) or more of the then available
positions on the entire Board;
(iii)the shareholders of PSNC shall approve a merger or
consolidation of PSNC in which PSNC is not the
surviving or continuing corporation or pursuant to
which shares of the Common Stock of PSNC would be
converted into cash, securities, or other property,
other than a merger of PSNC in which the holders the
Common Stock of PSNC immediately before the merger
have the same proportionate ownership of common stock
of the surviving corporation immediately after the
merger; or
(iv) the shareholders of PSNC shall approve the sale of
all or substantially all of PSNC's business and/or
assets to an individual, corporation, firm, or other
entity which is not a wholly-owned subsidiary of
PSNC.
(d) "Code" means the Internal Revenue Code of 1986, and
references thereto shall include the valid Treasury
regulations issued thereunder.
(e) "Committee" means the Executive Compensation Committee of
the Board of Directors, none of the members of which are
eligible to receive options under the Plan.
(f) "Common Stock" means shares of the $1.00 par value common
stock of PSNC and any other stock or securities resulting
from the adjustment thereof or substitution therefor in
accordance with Section 6.1.
(g) "PSNC" or "Company" means Public Service Company of North
Carolina, Incorporated, a North Carolina corporation.
(h) "Continuous Service," with respect to a Key Employee,
means such Key Employee's continuous employment with PSNC
or a Subsidiary and shall include absences from employment
due to vacation, temporary illness, or sickness.
(i) "Disability" means the condition which results when an
individual has become "permanently and totally disabled"
within the meaning of Section 105(d)(4) of the Code.
(j) "Fair Market Value," with respect to a share of Common
Stock from time to time, means the mean between the
highest price and the lowest price at which the Common
Stock shall have been sold regular way on the New York
Stock Exchange (or such other principal securities
exchange on which the Common Stock is traded if the
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Common Stock is no longer traded on the New York Stock
Exchange) as reported in The Wall Street Journal (Eastern
Edition) (or any other similar financial publication
selected by the Committee) for the applicable date or, if
there are no sales on said date, then for the next
preceding date on which there were sales of Common Stock.
(k) "Key Employee" means a regular employee, whether or not a
member of the Board of Directors, of PSNC or a Subsidiary
who is an officer of PSNC or a Subsidiary or in a
managerial or other key position, as determined by the
Committee, and who, in the opinion of the Committee, has
demonstrated a capacity for contributing materially to the
success of the business and operations of PSNC or a
Subsidiary.
(l) "Plan" means the Public Service Company of North Carolina,
Incorporated 1997 Nonqualified Stock Option Plan, as set
forth herein, together with any and all amendments
thereto.
(m) "Retirement" means the termination of a Key Employee's
Continuous Service on or after such Key Employee attains
fifty-five (55) years of age and completes five (5) years
of Continuous Service.
(n) "Stock Option Agreement" means the written agreement
between a Key Employee and PSNC evidencing the grant of an
option under the Plan and setting forth the terms and
conditions thereof.
(o) "Subsidiary" means any corporation (other than PSNC) in an
unbroken chain of corporations beginning with PSNC if each
of the corporations other than the last corporation in
such unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such
unbroken chain.
ARTICLE II
ELIGIBILITY AND GRANT OF OPTIONS
SECTION 2.1. ELIGIBILITY. Only Key Employees shall be eligible to be
granted options to purchase Common Stock under this Plan. The Committee, from
time to time, shall (i) determine those Key Employees to whom stock options
shall be granted, and (ii) grant such options to such Key Employees.
SECTION 2.2. SHARES AVAILABLE FOR OPTION. The Board of Directors shall
reserve for the purposes of the Plan, out of the authorized but unissued Common
Stock, a total of One Million Five Hundred Sixty Thousand (1,560,000) shares of
Common Stock (or the number and kind of shares of stock or other securities
which, in accordance with Section 6.1 of the Plan, shall be substituted for such
shares or to which said shares shall be adjusted). The aggregate number of
shares of Common Stock which may be issued and sold pursuant to options granted
under the Plan shall not exceed One Million Five Hundred Sixty Thousand
(1,560,000) shares, subject to adjustment as provided in Section 6.1. In the
event that an option granted under the Plan to any Key Employee expires or is
terminated unexercised as to any shares covered thereby, such shares shall
thereafter be available for the granting of options under the Plan.
SECTION 2.3. GRANT OF OPTIONS. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select the Key Employees to
whom options shall be awarded and to determine (i) the number of shares to be
covered by each option, (ii) the consideration to PSNC for the granting of each
such option, and (iii) the other conditions of each such option, including
without limitation the conditions, if any, which it may deem appropriate to
ensure that such consideration will be received by, or will accrue to, PSNC. In
the discretion of the Committee, such consideration need not be the same, but
may vary, for options granted under the
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Plan at the same time or from time to time. The Committee may grant more than
one option to a Key Employee under the Plan, and any such option may be in
addition to, or in substitution for, one or more options previously granted;
provided, however, the cumulative total number of shares of Common Stock which
may be issued and sold pursuant to any option or options granted to any one Key
Employee shall not exceed Two Hundred Thirty-four Thousand (234,000) shares,
subject to adjustment as provided in Section 6.1. Any awards under the Plan to
any Key Employee who is subject to the reporting and short-swing profit recovery
requirements of Section 16 of the Act shall be made by the members of the
Committee who are "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) promulgated under Section 16 of the Act.
ARTICLE III
TERMS AND CONDITIONS OF OPTIONS
SECTION 3.1. OPTION PRICE. The Committee shall establish the option price
at the time an option is granted, and such option price shall be the greater of
(i) the Fair Market Value of the shares of Common Stock subject to the option at
the time such option is granted or (ii) the par value of the shares of Common
Stock subject to the option.
SECTION 3.2. TERMS AND CONDITIONS OF OPTIONS.
(a) Each option granted under the Plan by its terms shall require the Key
Employee granted such option to remain in Continuous Service for at least two
(2) years from the date of the grant of such option before the right to exercise
any part of such option will accrue. Notwithstanding the foregoing, all options
previously granted but not yet exercisable shall become fully and immediately
exercisable upon a Change in Control of PSNC and upon an optionee's Retirement,
Disability, or death as provided in Section 3.2(f).
(b) Each option granted under the Plan shall be exercisable in the manner
determined by the Committee at the time of the grant. In the event any option is
exercisable in installments, the right to purchase shares pursuant to the
exercise of the option shall be cumulative so that when the right to purchase
any shares has accrued such shares or any part thereof may be purchased at any
time thereafter until the expiration or termination of the option. Not less than
one hundred (100) shares of Common Stock may be purchased at any one time upon
the exercise of an option unless the number of shares purchased is the total
number purchasable at such time under the option.
(c) The Committee shall determine the term of each option at the time of
the grant; provided, however, no option granted hereunder shall be exercisable
after the expiration of five (5) years from the date it is granted.
(d) Options granted under the Plan shall not be transferable by the
optionee otherwise than by will, or if the optionee dies intestate, by the laws
of descent and distribution of the state of the optionee's domicile at the time
of the optionee's death, and such options shall be exercisable during such
optionee's lifetime only by such optionee.
(e) Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend, replace, or renew outstanding options
granted under the Plan, or accept the surrender of outstanding options under the
Plan (to the extent not theretofore exercised) and grant new options in
substitution therefor (to the extent not theretofore exercised). Notwithstanding
the foregoing, however, no modification of an option shall, without the consent
of the affected optionee, alter or impair any rights or obligations under any
option theretofore granted under the Plan.
(f) If the Continuous Service of an optionee shall terminate for any reason
other than by reason of such optionee's Retirement, Disability, or death, then
all options held by such optionee at the time of such termination of Continuous
Service
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shall be exercisable by such optionee but only (i) if and to the extent the same
were exercisable at the time of such termination of Continuous Service, and (ii)
prior to the earlier of (A) the expiration dates of such options or (B) that
date which is three (3) months after the date of such termination of Continuous
Service, such three (3) month period to include the date that such termination
of Continuous Service occurs. If the Continuous Service of an optionee shall
terminate by reason of such optionee's Retirement, Disability or death, then all
options held by such optionee on the date of such termination of Continuous
Service shall be exercisable in full (whether or not exercisable on the date of
such termination) at any time prior to the earlier of (i) the expiration dates
of such options, or (ii) that date which is one (1) year after the date of such
termination of Continuous Service, such one (1) year period to include the date
that such termination of Continuous Service occurs. In the event of an
optionee's death, such optionee's options shall be exercisable, to the extent
herein provided, by the executor or any other person that may be empowered to do
so under such optionee's will, or, if the optionee shall fail to make a
testamentary disposition of said options or shall die intestate, by such
optionee's legal representative.
(g) Each option shall be confirmed by a Stock Option Agreement executed by
PSNC and by the Key Employee to whom such option is granted.
(h) The option price for each share of Common Stock purchased pursuant to
the exercise of each option shall, at the time of the exercise of the option, be
paid in full (i) in cash or (ii) in whole or in part in shares of Common Stock.
If shares of Common Stock are accepted in payment of any part of the option
price, such shares shall be valued at the Fair Market Value of such shares on
the date of exercise. Any shares of Common Stock accepted in payment of any part
of the option price shall not serve to increase the number of shares of Common
Stock otherwise available for issuance under the Plan. Each purchased share
shall be issued and delivered to the person entitled thereto at the principal
office of PSNC.
(i) PSNC shall deduct or withhold, or require a Key Employee to remit
to PSNC, an amount sufficient to satisfy Federal, state, and local
taxes required by law to be withheld with respect to the exercise
of an option under the Plan. In that regard, a Key Employee,
subject to the approval of the Committee, may elect to satisfy
such withholding requirement, in whole or in part, by having PSNC
withhold shares of Common Stock having a Fair Market Value on the
date that the tax is to be determined equal to the amount of such
withholding requirement (or portion thereof). All such elections
shall be irrevocable, made in writing, signed by the Key Employee,
and subject to any restrictions or limitations that the Committee,
in its sole and nonreviewable discretion, determines to be
appropriate.
(j) To the extent that an option is not exercised within the period of
time prescribed in the Plan and the Stock Option Agreement
confirming such option, the option shall lapse and all rights of
the optionee thereunder shall terminate.
ARTICLE IV
COMMITTEE
SECTION 4.1. POWERS OF COMMITTEE. The Committee shall administer the Plan.
The Committee shall have all powers necessary to enable it to carry out its
duties under the Plan properly. Not in limitation of the foregoing, the
Committee shall have the power to construe and interpret the Plan, and to
determine all questions that shall arise thereunder. The Committee shall have
such other and further specified duties, powers, authority, and discretion as
are elsewhere in the Plan either expressly or by necessary implication conferred
upon it. The Committee may appoint such agents,
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who need not be members of the Committee, as it may deem necessary for the
effective performance of its duties, and may delegate to such agents such powers
and duties, whether ministerial or discretionary, as the Committee may deem
expedient or appropriate. The decision of the Committee upon all matters within
the scope of its authority shall be final and conclusive on all persons, except
to the extent otherwise provided by law.
SECTION 4.2. EXPENSES OF COMMITTEE. The reasonable expenses of the
Committee incurred by the Committee in the performance of its duties under the
Plan, including without limitation reasonable counsel fees and the expenses of
other agents, shall be paid by PSNC.
SECTION 4.3. INDEMNIFICATION OF COMMITTEE. The members of the Committee
shall be indemnified by PSNC for any acts or omissions as a member of the
Committee to the full extent permitted under the North Carolina Business
Corporation Act, as amended from time to time.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1. AMENDMENT OF PLAN. PSNC expressly reserves the right, at any
time and from time to time, to amend in whole or in part any of the terms and
provisions of the Plan for whatever reason(s) PSNC may deem appropriate;
provided, however, no amendment may be made without the approval of the
shareholders of PSNC to the extent necessary to comply with (i) the
"performance-based compensation exception" under Section 162(m) of the Code,
(ii) Rule 16b-3 promulgated under Section 16 of the Act or (iii) the listing
requirements of any national securities exchange on which the Common Stock is
listed.
SECTION 5.2. TERMINATION OF PLAN. PSNC expressly reserves the right, at any
time and for whatever reason it may deem appropriate, to terminate the Plan. If
not sooner terminated by PSNC pursuant to the preceding sentence, the Plan shall
continue in effect through September 30, 2002. No options shall be granted under
the Plan following its termination, but options granted before termination of
the Plan may extend beyond such termination in accordance with their terms and
the provisions of the Plan.
SECTION 5.3. EFFECTIVE DATE AND PROCEDURE FOR AMENDMENT OR TERMINATION. Any
amendment to the Plan or termination of the Plan may be retroactive to the
extent not prohibited by applicable law. Any amendment to the Plan or
termination of the Plan shall be made by PSNC by resolution of the Board of
Directors.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. EFFECT OF CERTAIN TRANSACTIONS. In the event that a dividend
shall be declared upon the Common Stock payable in shares of Common Stock, the
number of shares of Common Stock then subject to any such option and the number
of shares reserved for issuance pursuant to the Plan but not yet covered by an
option shall be adjusted by adding to each such share the number of shares which
would be distributable thereon if such share had been outstanding on the date
fixed for determining the shareholders entitled to receive such stock dividend.
In the event that the outstanding shares of Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock or other
securities of PSNC or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger, or
consolidation, then there shall be substituted for each share of Common Stock
subject to any such option and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an option, the number and
kind of shares of stock or other securities into which each
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outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged. In the event there shall be any change, other than as
specified above in this Section 6.1, in the number or kind of outstanding shares
of Common Stock or of any stock or other securities into which such Common Stock
shall have been changed or for which it shall have been exchanged, then if the
Board shall in its sole discretion determine that such change equitably requires
an adjustment in the number or kind of shares theretofore reserved for issuance
pursuant to the Plan but not yet covered by an option and of the shares then
subject to an option or options, such adjustment shall be made by the Committee
and shall be effective and binding for all purposes of the Plan and each Stock
Option Agreement entered into under the Plan. In the case of any such
substitution or adjustment as provided for in this Section 6.1, the option price
in each Stock Option Agreement for each share covered thereby prior to such
substitution or adjustment will be the option price for all shares of stock or
other securities which shall have been substituted for such share or to which
such share shall have been adjusted pursuant to this Section 6.1. No adjustment
or substitution provided for in this Section 6.1 shall require PSNC in any Stock
Option Agreement to issue a fractional share and the total substitution or
adjustment with respect to each Stock Option Agreement shall be limited
accordingly.
SECTION 6.2. COMPLIANCE WITH LAW AND OTHER CONDITIONS. No shares of Stock
shall be issued pursuant to the exercise of any option granted under the Plan
prior to compliance by PSNC, to the satisfaction of its counsel, with all
applicable laws.
SECTION 6.3. NO EMPLOYMENT RIGHTS. Participation in the Plan shall not give
any employee of PSNC any right to remain in the employ of PSNC or upon
termination of employment, any right or interest in the Plan except as expressly
provided herein.
SECTION 6.4. APPROVAL OF PLAN. The effectiveness of this Plan is subject to
(i) its approval and ratification on or before September 30, 1997 by the
shareholders of PSNC and (ii) the approval on or before September 30, 1997 by
the North Carolina Utilities Commission of the issuance of shares of Common
Stock pursuant to options granted under the Plan.
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