<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NIPSCO Industries, Inc.
.............................................................................
(Name of Registrant as Specified In Its Charter)
Richard M. Schumacher
..............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $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: _/
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
_/ Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] 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:
......................................................
Notes:
<PAGE>
LOGO
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING
March 11, 1994
To the Holders of Common Shares of
NIPSCO Industries, Inc.:
The annual meeting of the shareholders of NIPSCO Industries, Inc. (the
Company), will be held at the Century Center, 120 South St. Joseph Street,
South Bend, Indiana, on Wednesday, April 13, 1994, at 10 a.m., Eastern Standard
Time, for the following purposes:
(1) to elect three members of the Board of Directors, each for a term of
three years;
(2) to consider and vote upon approval of the Company's 1994 Long-Term
Incentive Plan (the "1994 Incentive Plan"); and
(3) to transact any other business that may properly come before the meeting
or any adjournment or adjournments thereof.
Shareholders of record on February 22, 1994, will be entitled to vote at the
meeting. The stock transfer books will not close.
The Company has approximately 40,800 common shareholders of record. In order
that there may be proper representation at the meeting, each shareholder is
requested to vote, sign and mail the enclosed proxy at once. If sufficient
proxies are not obtained, an adjournment will be necessary. Please help avoid
the expense and delay of adjourning the meeting by mailing your proxy promptly.
Shareholders attending the meeting may vote in person and in such cases proxies
they have signed will not be voted.
In order to facilitate arrangements for the meeting, we would like to know in
advance how many shareholders expect to attend in person. If you plan to
attend, please indicate in the space provided on the proxy card.
Please Vote, Date, Sign and Return the Enclosed Proxy Promptly.
LOGO
Nina M. Rausch
Secretary
<PAGE>
PROXY STATEMENT
THE ACCOMPANYING PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY AND IS REVOCABLE BY THE SHAREHOLDER. The common shares, no par
value of the Company ("Common Shares") represented by the proxies will be voted
as directed, but in the absence of direction, proxies will be voted for the
nominees and for approval of the 1994 Incentive Plan. The proxy statement and
form of proxy are first being sent to shareholders on March 11, 1994. The
expense of this solicitation will be borne by the Company. It is intended that
the original solicitation of proxies by mail and a reminder letter may be
supplemented by telephone, telegraph and personal solicitation by officers and
regular employees of the Company or its subsidiaries. In addition, the Company
has retained Morrow & Co., Inc., for a fee of $8,000 plus reimbursement of
expenses, to aid in the solicitation of proxies. Requests will also be made of
brokerage houses and other nominees and fiduciaries to forward proxy material
at the expense of the Company to the beneficial owners of stock held of record
by such persons.
All of a shareholder's shares registered in the same name, including those
held for the shareholder as a participant in the Company's Automatic Dividend
Reinvestment and Share Purchase Plan, will be represented on one proxy. The
only exceptions are shares held for employees of the Company and its
subsidiaries in the Tax Deferred Savings Plans, for which each affected
employee will receive a separate proxy.
Proxies may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation of proxies may be accomplished by
delivering an instrument of revocation or a duly executed proxy bearing a later
date to the Secretary of the Company or by attending the meeting and voting in
person. Attendance at the meeting will not in and of itself revoke a proxy.
If you are planning to attend the meeting in person, please indicate in the
space provided on the proxy card, so that the Company may facilitate
arrangements.
VOTING SECURITIES--
The close of business on February 22, 1994, is the date for the determination
of the number of shares outstanding and of shareholders entitled to notice of
and to vote at the meeting. As of February 22, 1994, the Company had issued and
outstanding 65,602,001 Common Shares owned by approximately 40,800 shareholders
of record. Each common share is entitled to one vote upon each matter voted
upon.
A quorum of shareholders is necessary to take action at the Annual Meeting. A
majority of the outstanding Common Shares, represented in person or by proxy,
will constitute a quorum of shareholders at the Annual Meeting. The judges will
determine whether or not a quorum is present and will treat abstentions as
shares that are present and entitled to vote for purposes of determining
1
<PAGE>
the presence of a quorum. If a broker indicates on a proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote
with respect to that matter.
A plurality vote of the shares represented at the meeting is required to
elect a director. The 1994 Incentive Plan will be approved if the votes cast
favoring the plan exceed the votes cast opposing the plan. Votes cast by proxy
or in person at the meeting will be tabulated by the judges of election
appointed for the meeting. For purposes of determining the approval of the
matters submitted to the holders of Common Shares for a vote, abstentions will
not be considered.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS--
The Company's Board of Directors is composed of nine directors who are
divided into three classes. One class is elected each year for a term of three
years. Upon recommendation of the Nominating and Compensation Committee, the
Board of Directors has nominated for reelection as directors Arthur J. Decio,
Gary L. Neale and Robert J. Welsh, Jr., each for a term of three years. The
Board of Directors does not anticipate that any of the nominees will be unable
to serve, but if such a situation should arise the proxies will be voted in
accordance with the best judgment of the person or persons acting thereunder.
The following chart gives information about nominees (who have consented to
being named in the proxy statement and to serve if elected) and incumbent
directors. The dates shown for service as a director include service as a
director of Northern Indiana Public Service Company (Northern Indiana), prior
to the March 3, 1988 share exchange with the Company. All of the Company's
current directors are also the directors of Northern Indiana, now a wholly-
owned subsidiary of the Company.
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN
FOR PAST FIVE YEARS AND PRESENT DIRECTOR
DIRECTORSHIPS HELD SINCE
----------------------------------- --------
<S> <C>
NOMINEES FOR TERMS TO EXPIRE IN 1997
Arthur J. Decio, 63--Chairman of the Board and Chief Executive
Officer and Director of Skyline Corporation, Elkhart, Indiana, a
manufacturer of manufactured housing and recreational vehicles...... 1991
Gary L. Neale, 54--Chairman, President and Chief Executive Officer of
the Company and of Northern Indiana since March 1, 1993; prior
thereto, Executive Vice President of the Company, and President and
Chief Operating Officer of Northern Indiana. Prior to August 15,
1989, Mr. Neale was Chairman, President and Chief Executive Officer
of Planmetrics, Inc., a consulting and computer software firm.
Mr. Neale is also a director of Modine Manufacturing Company........ 1991
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN
FOR PAST FIVE YEARS AND PRESENT DIRECTOR
DIRECTORSHIPS HELD SINCE
----------------------------------- --------
<S> <C>
NOMINEES FOR TERMS TO EXPIRE IN 1997--(CONTINUED)
Robert J. Welsh, Jr., 58--President and Chief Executive Officer of
Welsh Oil, Inc., Merrillville, Indiana, a marketer of petroleum
products through convenience stores and travel centers. Mr. Welsh is
also a director of NBD Indiana, Inc., Indianapolis.................. 1988
DIRECTORS WHOSE TERMS EXPIRE IN 1995
Steven C. Beering, 61--President of Purdue University, West
Lafayette, Indiana.
Dr. Beering is also a director of Arvin Industries, Inc., American
United Life
Insurance Company, Eli Lilly and Company and Space Industries
International, Inc.................................................. 1986
Ernestine M. Raclin, 66--Chairman of the Board, 1st Source
Corporation, a bank holding company, and 1st Source Bank, South
Bend, Indiana which is located in North Central Indiana............. 1983
Denis E. Ribordy, 64--Retired President of Ribordy Drugs, Inc.,
Merrillville, Indiana, a retail drugstore chain. Mr. Ribordy is also
a director of Mercantile National Bank of Indiana................... 1981
DIRECTORS WHOSE TERMS EXPIRE IN 1996
Ian M. Rolland, 60--Chairman and Chief Executive Officer of Lincoln
National Corporation, Fort Wayne, Indiana, an insurance and
financial services firm since January 1, 1992 (previously President
and Chief Executive Officer) and Chairman and Chief Executive
Officer of The Lincoln National Life Insurance Company.
Mr. Rolland is also a director of Lincoln National Corporation,
Tokheim Corporation, Norwest Corporation and Norwest Bank Fort
Wayne, N.A.......................................................... 1978
Edmund A. Schroer, 66--Consultant to the Company; retired March 1,
1993 as Chairman, President and Chief Executive Officer of the
Company and Chairman and Chief Executive Officer of Northern
Indiana. Mr. Schroer is also a director of Harris Bankcorp, Inc.,
Harris Trust and Savings Bank and Bankmont Financial Corp........... 1977
John W. Thompson, 44--IBM Vice President and General Manager --
Marketing, IBM United States, White Plains, New York. IBM is a
worldwide corporation, whose offerings include services, software,
systems, products and technologies.
Mr. Thompson is a director of IBM Credit Corporation. .............. 1993
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS--
The Board of Directors of the Company met ten times during 1993. The Board
has the following six standing committees: the Executive Committee, the Audit
Committee, the Nominating and
3
<PAGE>
Compensation Committee, the Environmental Affairs Committee, the Public Affairs
and Employment Committee and the Corporate Governance Committee.
During 1993, each director attended at least 92% of the combined total number
of the Company's Board meetings and the meetings of the respective committees
on which each was a member.
The Executive Committee has the authority to act on behalf of the Board at
such times as is reasonably necessary when the Board is not in session. The
Committee did not meet in 1993. Mr. Neale is Chairman and Messrs. Rolland,
Ribordy, Decio and Welsh are members of the Committee.
The Audit Committee met five times in 1993. The Committee has reviewed and
made recommendations to the Board with respect to the engagement of the
independent public accountants, both for 1993 and 1994, and the fees relating
to audit services and other services performed by them. The Committee meets
with the independent public accountants and officers responsible for Company
financial matters. Members of the Committee in 1993 were Mr. Rolland, Chairman,
and Messrs. Decio, Schroer, and Thompson.
The Nominating and Compensation Committee met four times in 1993. The
Committee advises the Board with respect to nominations of Directors and the
salary, compensation and benefits of directors and officers of the Company. Mr.
Ribordy was Chairman of the Committee, and Dr. Beering, Mrs. Raclin and Mr.
Welsh were members during 1993. The Committee considers nominees for Directors
recommended by shareholders. The Company's By-laws require that shareholders
who desire to nominate a person for election as a director at the 1995 annual
meeting must deliver a written notice to the Secretary of the Company by
November 14, 1994. The notice of nomination must set forth (i) the name, age
and address of each nominee proposed, (ii) the principal occupation or
employment of the nominee, (iii) the number of Company Common Shares
beneficially owned by the nominee, and (iv) such other information concerning
the nominee as would be required, under the rules of the Securities and
Exchange Commission, in a proxy statement soliciting proxies for the election
of the nominee. The nomination notice must also include the nominating
shareholder's name and address and the number of Common Shares beneficially
owned by the shareholder. The shareholder must also furnish the signed consent
of the nominee to serve as a director, if elected.
The Environmental Affairs Committee met twice during 1993. The Committee
reviews the status of environmental compliance of the Company, and considers
Company public policy issues. Members of the Committee in 1993 were Mr. Welsh,
Chairman, Dr. Beering, and Messrs. Decio and Schroer.
The Public Affairs and Employment Committee met once in 1993. The Committee
advises the Board regarding charitable and political contributions, employment
policies, shareholder proposals
4
<PAGE>
concerning matters of general public interest and consumer and utility industry
related issues. Members of the Committee in 1993 were Mrs. Raclin, Chairman,
and Messrs. Rolland, Ribordy and Thompson.
The Corporate Governance Committee met once in 1993. The Committee consists
of all members of the Board who are not also officers. The Committee meets once
a year to evaluate/advise the Board regarding the performance of the Board of
Directors and each of its members and the nature and amount of information
flowing between the Board, management and shareholders. Mr. Rolland was
Chairman of the Committee in 1993.
COMPENSATION OF DIRECTORS--
Each director who is not receiving a salary from the Company is paid $15,000
per year, $3,000 annually per standing committee on which the director sits,
$1,000 annually for each committee chairmanship, $750 for each Board meeting
attended, and $750 per committee meeting attended. Each director of the Company
who is also a director of any Company subsidiary, including Northern Indiana,
does not receive compensation for services as a director of such Company
subsidiary. Under a deferred compensation arrangement, directors may have their
fees deferred in the current year and credited to an interest-bearing account
or to a phantom stock account for payment in the future.
The Company's Nonemployee Director Retirement Plan provides a retirement
benefit for each nonemployee director of the Company who has completed at least
five years of service on the Board. The benefit will be the annual retainer for
Board service in effect at the time of the Director's retirement from the
Board, to be paid for the lesser of ten years or the number of years of service
as a nonemployee director of the Company.
The Company's Nonemployee Director Stock Incentive Plan provides for grants
of restricted Common Shares to nonemployee directors of the Company. Initial
grants were made in 1992, following shareholder approval of the plan, at the
level of 250 shares for each year of service as a director, and 1,000 shares to
each director elected or reelected. A grant of 1,000 shares each will be made
in the future to each person, other than an employee of the Company, who is
elected or reelected as a director of the Company. The grants of restricted
shares vest in 20% annual increments, with full vesting five years after the
date of award.
An Agreement with Mr. Schroer, as amended by the Board of Directors on
October 24, 1990, provides that, for a period of three years beginning March 1,
1993, he is to be engaged by the Company as an independent consultant for an
annual fee of $200,000. In the event of death during the term of the consulting
contract, his survivor is entitled to such fees for the remainder of the three
year term. The Agreement provides for severance payments equal to amounts
remaining due for the consulting period in the event the consulting agreement
is terminated at any time by the Company (other than for Good Cause) or due to
death or disability, or if Mr. Schroer voluntarily terminates the agreement
with Good Reason.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is aware of the following beneficial owner of more than 5% of its
Common Shares, as of December 31, 1993.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
Franklin Resources, Inc. 4,317,700 shares total; 6.6%
777 Mariners Island Blvd. includes 4,317,300 shares with
San Mateo, CA 94404 sole voting power and 400
shares with shared voting
power.(/1/)
</TABLE>
- --------
(/1/As)reported in a statement on Schedule 13G filed by such person with the
Securities and Exchange Commission.
The following table sets forth information as to the beneficial ownership of
Common Shares, as of January 31, 1994, for each of the named directors,
nominees for director and executive officers, and for all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NAME OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(/1/)
---------------- --------------------
<S> <C>
Steven C. Beering.............................. 2,872
Arthur J. Decio................................ 2,250
Gary L. Neale.................................. 82,996(/2/)
Ernestine M. Raclin............................ 9,402
Denis E. Ribordy............................... 23,963(/3/)
Ian M. Rolland................................. 5,910
Edmund A. Schroer.............................. 45,039
John W. Thompson............................... 1,135
Robert J. Welsh, Jr............................ 4,000
Stephen P. Adik................................ 58,702(/2/)
John W. Dunn................................... 52,832(/2/)
William R. Elliott............................. 17,299
Joseph L. Turner, Jr........................... 48,136(/2/)
All directors and executive officers as a
group......................................... 541,866(/2/)
</TABLE>
- --------
(/1/The)number of shares owned includes shares held in the Company's Automatic
Dividend Reinvestment and Share Purchase Plan, the Tax Deferred Savings
Plan (the "401(k) Plan"), and restricted shares awarded under the Long-Term
Incentive Plan (the "Incentive Plan") and Nonemployee Director Stock
Incentive Plan, where applicable. The percentage of Common Shares owned by
all directors and officers as a group does not exceed one percent of the
Common Shares outstanding.
6
<PAGE>
(/2/The)totals include shares for which the following executive officers have a
right to acquire beneficial ownership, within 60 days after January 31,
1994, by exercising stock options granted under the Incentive Plan; Gary L.
Neale--50,000 shares; Stephen P. Adik--35,600 shares; John W. Dunn--29,000
shares; Joseph L. Turner, Jr.--30,000 shares; and all executive officers as
a group--277,700 shares.
(/3/Mr.)Ribordy disclaims beneficial ownership of 100 shares owned by his wife.
EXECUTIVE COMPENSATION
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION--
The Nominating and Compensation Committee's (the "Compensation Committee")
compensation policy for all executive officers, including the persons who
served as Chief Executive Officer of the Company during 1993 and the four other
most highly compensated officers of the Company (the "Named Officers"), is
designed to relate total compensation (defined as base salary, incentive bonus
and long-term, stock-based compensation) to corporate performance. The
Compensation Committee has implemented a "pay-for-performance" program which is
designed to position the Company's executive compensation competitively, and to
ensure corporate performance to create additional shareholder value. The
Compensation Committee discusses and considers executive compensation matters,
then makes recommendations to the full Board of Directors, which takes the
final action on such matters. The Board accepted all of the Compensation
Committee's recommendations in 1993.
The Compensation Committee has engaged an independent, nationally known,
compensation consulting firm, Hewitt Associates ("Hewitt"), to advise it and
provide surveys of comparative compensation practices for a group of similarly
sized electric, gas or combination utility companies approximately half of
which are located in the Midwest. The 1992 executive compensation comparative
group (for consideration of 1993 compensation) consisted of 26 companies from
which data was available to Hewitt and which were believed to be competitors of
the Company for executive talent. The comparative compensation group is subject
to change if information about any company included in the group is not
available, it is determined that the utility companies included in the group
are no longer competitors for executive talent, or different utility companies
are determined to be competitors. The Company's comparative compensation group
is not the same as the corporations which make up the Dow Jones Utilities Index
in the Stock Price Performance Graph included in this proxy statement.
The Compensation Committee considers the surveys provided by Hewitt in
determining base salary, incentive bonus and long-term stock-based
compensation. The Compensation Committee's philosophy is to set conservative
base salaries while providing performance-based variable
7
<PAGE>
compensation to allow total compensation to fluctuate according to the
Company's earnings. Long-term incentive awards are stock-based (e.g., stock
options or restricted stock awards) to emphasize long-term stock price
appreciation and the concomitant increased shareholder value. In 1993, total
compensation of the executive officers, including the Chief Executive Officer,
was targeted at or near the 75th percentile of the comparative compensation
group. Total compensation only reaches this goal if the Company meets its
target earnings tests and increased stock price objectives. Base salaries of
the executive officers, as a group, constituted approximately 50% of total
target compensation.
In establishing Mr. Neale's base salary for 1993, the Compensation Committee
reviewed information provided by Hewitt regarding the chief executive officer
compensation practices of the comparative compensation group of 26 comparative
utilities described above. The Compensation Committee determined to set base
salary near the median salary of the comparative group, giving regard to Mr.
Neale's proven abilities and record with the Company since joining as Executive
Vice President and Chief Operating Officer in 1989. As with the other executive
officers, Mr. Neale's total compensation was targeted at about the 75th
percentile of the comparative compensation group, if the Company met its
targeted financial goals. The result of the Compensation Committee's
determination as to Mr. Neale's total compensation package was that
approximately 50% of Mr. Neale's total compensation was performance based and
at risk, based on the Company's earnings per share and Northern Indiana's pre-
tax operating income. The Compensation Committee noted that this compensation
would only be realized if specific financial benchmarks were reached by the
Company.
Annual incentive awards for all executive officers are determined in
accordance with the 1993 Senior Management Incentive Plan (the "Bonus Plan").
The Bonus Plan sets forth a formula established at the beginning of each fiscal
year by the Compensation Committee for awarding incentive bonuses, based upon
the Company's financial performance. In 1993, the formula was based upon both
the Company's earnings per share and the pre-tax operating income of Northern
Indiana. The weighting of the formula for awarding the Chief Executive
Officer's bonus was as follows: 80% on the Company's earnings per share and 20%
on Northern Indiana's pre-tax operating income at threshold and target levels;
and 75% on the Company's earnings per share and 25% on pre-tax operating income
at the maximum bonus level. The bonus for the Named Officers (other than the
Chief Executive Officer) and certain other executive officers was based 75% on
the Company's earnings per share and 25% on Northern Indiana's pre-tax income;
and the bonus for all other executive officers was based 66 2/3% on the
Company's earnings per share and 33 1/3% on Northern Indiana's pre-tax income.
Bonuses awarded to the Named Officers (including the Chief Executive Officer)
and certain other executive officers are based on overall corporate financial
performance, rather than individual performance of the executive. In the case
of all other executive officers, individual performance can reduce an incentive
bonus that would otherwise be payable under the Bonus Plan.
8
<PAGE>
The Bonus Plan has threshold, target and maximum bonus levels. Executive
officers are not eligible to receive a bonus if the threshold level is not
reached. Each of the executive officers is eligible to receive the following
percentages of base salary as a bonus if the threshold, target and maximum
levels are attained, as follows:
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM
--------- ------ -------
<S> <C> <C> <C>
Chief Executive Officer............................ 25% 50% 60%
Named Officers and Certain Other Executive Officers
.................................................. 20% 40% 60%
All Other Executive Officers....................... 15% 30% 45%
</TABLE>
The percentage bonus opportunity levels have remained constant since inception
of the Bonus Plan in 1990; however, the required financial performance levels
of the Company necessary to attain the threshold, target and maximum bonus
levels have been increased annually.
Executive officers are also eligible to receive awards under the Company's
Incentive Plan. Under the Incentive Plan, stock options, stock appreciation
rights, performance units, restricted stock awards and supplemental cash
payments may be awarded. Only stock options were awarded in 1993. Base salaries
of the executive officers, awards under the Incentive Plan, and the Company's
total compensation target are considered in establishing long-term incentive
awards. Options granted to executive officers are valued using the Black-
Scholes option pricing model at the time of grant for purposes of determining
the number of options to be granted to reach total target compensation. In
1993, the Chief Executive Officer was granted options based on these
considerations. The compensation value of stock options depends on actual stock
price appreciation.
The Compensation Committee recommended that the Board of Directors approve
the 1994 Incentive Plan. Approval of the 1994 Incentive Plan by the
shareholders of the Company will enable the Compensation Committee to implement
a policy which would permit the Company to deduct compensation paid to certain
executive offices thereunder under the recently enacted provisions of Section
162(m) of the Internal Revenue Code (the "Code").
The Compensation Committee believes that its overall executive compensation
program has been successful in providing competitive compensation sufficient to
attract and retain highly qualified executives, while at the same time
encouraging increased performance from the executive officers which creates
additional shareholder value.
Nominating and Compensation
Committee
Denis E. Ribordy, Chairman
Steven C. Beering
Ernestine M. Raclin
Robert J. Welsh, Jr.
January 28, 1994
9
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative
total shareholder return on Common Shares, during the years 1988 through 1993,
with the cumulative total return on the Standard & Poor's 500 Stock Index and
the Dow Jones Utilities Average, assuming the investment of $100 on December
31, 1988 and the reinvestment of dividends.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG NIPSCO, S&P 500 INDEX AND DOW JONES UTILITIES AVERAGE
<CAPTION>
Measurement Period S&P D J UTIL.
(Fiscal Year Covered) NIPSCO 500 INDEX AVERAGE
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-
12/31/88 $100 $100 $100
FYE 12/31/89 $146.82 $131.60 $135.53
FYE 12/31/90 $151.67 $127.56 $129.38
FYE 12/31/91 $218.05 $166.34 $149.02
FYE 12/31/92 $235.78 $179.00 $155.02
FYE 12/31/93 $305.33 $197.00 $169.98
</TABLE>
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS--
Summary. The following table sets forth all annual and long-term compensation
for the years 1993, 1992 and 1991 paid to the Named Officers. The compensation
shown includes all compensation paid for services to the Company and its
subsidiaries, including Northern Indiana.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------------
AWARDS
------------------
SECU-
OTHER RITIES ALL
ANNUAL RESTRICT- UNDER- OTHER
COMPEN- ED STOCK LYING COMPEN-
NAME AND PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ SATION
POSITION YEAR ($) ($)(/1/) ($)(/2/) ($)(/3/) SARS(#) ($)(/4/)
------------------ ---- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Neale, Chair-
man, 1993 $400,000 $206,000 $ 1,475 $ 0 25,000 10,479
President and Chief 1992 275,000 91,658 656 0 10,000 5,560
Executive Officer(/5/) 1991 275,000 122,000 0 345,000 15,000 4,330
Edmund A. Schroer, 1993 70,834 38,604 73,625 0 0 481
Chairman, President
and 1992 425,000 141,653 233 0 0 969
Chief Executive Offi-
cer(/5/) 1991 425,000 204,000 0 345,000 25,000 0
Stephen P. Adik, 1993 185,000 87,875 476 0 8,000 2,877
Senior Vice President and 1992 185,000 49,340 871 0 6,000 2,294
Chief Financial Offi-
cer 1991 185,000 72,150 0 172,500 9,000 1,186
William R. Elliott, 1993 157,000 74,575 1,057 0 8,000 4,626
Vice President 1992 157,000 41,872 316 0 6,000 3,136
1991 157,000 61,230 0 172,500 9,000 1,683
Joseph L. Turner, Jr., 1993 157,000 74,575 1,028 0 8,000 2,263
Vice President 1992 157,000 41,872 583 0 6,000 2,519
1991 157,000 61,230 0 172,500 9,000 1,905
John W. Dunn, 1993 157,000 74,575 834 0 8,000 951
Senior Vice President 1992 157,000 41,872 435 0 6,000 1,219
1991 157,000 61,230 0 172,500 9,000 1,065
</TABLE>
- --------
(/1/All)bonuses are paid pursuant to the Bonus Plan. The Bonus Plan is designed
to supplement a conservative base salary with incentive bonus payments if
target earnings objectives are attained. The target aggregate payout for
the Bonus Plan for the Named Officers was $497,817, and the maximum
aggregate payout for the Named Officers was $676,100. See "Nominating and
Compensation Committee Report on Executive Compensation."
11
<PAGE>
(/2/In)accordance with the applicable Securities and Exchange Commission rules,
the amounts shown for each of the Named Officers (other than Mr. Schroer)
do not include perquisites and other personal benefits, as the amount of
such benefits is less than 10% of each Named Officer's total salary and
bonus. The compensation reported in 1993 for Mr. Schroer represents amounts
paid in lieu of unused vacation, $71,923 (paid in accordance with the
Company's typical retirement policies); financial advisory services, $550;
and the value of personal use of a Company car, $825.
(/3/Restricted)shares are valued at the closing market price as of date of
grant. Except as described below, restrictions on shares awarded during
1991 lapse five years from the date of grant and become up to 100% vested
based on the amount of appreciation of the Company's Common Share price
during the 5-year restriction period. Restricted shares are prorated in the
event of retirement, death or disability during the restriction period.
There is a 2-year holding period for the shares after the restrictions
lapse. Pursuant to the Change in Control and Termination Agreement between
the Company and Mr. Schroer, 35,500 of Mr. Schroer's shares vested in whole
at his retirement on March 1, 1993, and 15,000 shares vested on that date
based on stock price appreciation. Restricted shares held (assuming 100%
vesting) and aggregate market value at December 31, 1993 (based on the
average of the high and low prices as reported in The Wall Street Journal
on that date) were as follows: Mr. Neale, 30,000 shares valued at $982,500;
Mr. Schroer, 0 shares; Messrs. Adik, Elliott, Turner and Dunn, 15,000
shares each valued at $491,250. Dividends on the restricted shares are paid
to the Named Officers.
(/4/For)1993, the compensation reported represents Company contributions to the
401(k) Plan and the dollar value of the remainder of the premiums paid by
the Company on behalf of the Named Officer (the "premium value") and the
cost of the term life insurance coverage under the Company's Supplemental
Life Insurance Plan, a split-dollar life insurance plan: Mr. Neale--$854
401(k) Plan, $8,797 premium value, and $828 term insurance cost; Mr.
Schroer--$481 401(k) Plan; Mr. Adik--$998 401(k) Plan, $1,542 premium
value, and $337 term insurance cost; Mr. Elliott--$999 401(k) Plan, $2,986
premium value, and $641 term insurance cost; Mr. Turner, Jr.--$1,217
premium value, and $1,046 term insurance cost; and Mr. Dunn--$653 premium
value, and $298 term insurance cost.
(/5/Mr.)Schroer retired as Chairman, President and Chief Executive Officer of
the Company on March 1, 1993. Mr. Neale became Chairman, President and
Chief Executive Officer on that date.
12
<PAGE>
Option Grants in 1993. The following table sets forth grants of options to
purchase Common Shares of the Company made during 1993 to the Named Officers.
No stock appreciation rights were awarded during 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS GRANTED
SARS TO EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME (#)(/1/) YEAR ($/SH)(/2/) DATE VALUE(/3/)
- ---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........... 25,000 8.7% $33.19 08/24/2003 $128,000
Edmund A. Schroer....... 0
Stephen P. Adik......... 8,000 2.8% 33.19 08/24/2003 40,960
William R. Elliott...... 8,000 2.8% 33.19 08/24/2003 40,960
Joseph L. Turner, Jr.... 8,000 2.8% 33.19 08/24/2003 40,960
John W. Dunn............ 8,000 2.8% 33.19 08/24/2003 40,960
</TABLE>
- --------
(/1/All)options granted in 1993 are fully exercisable commencing one year from
the date of grant. Vesting may be accelerated as a result of certain events
relating to a change in control of the Company. The exercise price and tax
withholding obligation related to exercise may be paid by delivery of
already owned Common Shares or by reducing the number of Common Shares
received on exercise, subject to certain conditions.
(/2/All)options were granted at the average of high and low prices as reported
in The Wall Street Journal on the date of grant.
(/3/Grant)date present value is determined using the Black-Scholes option
pricing model. The assumptions used in the Black-Scholes option pricing
model were as follows: volatility: 12.936% (calculated using daily Common
Share prices for the twelve-month period preceding the date of grant),
risk-free rate of return: 5.68% (the rate for a ten-year U.S. treasury),
dividend yield: $1.32, option term: ten years, vesting: 100% one year after
date of grant, and turnover: 4% (the number of options never exercised as a
result of termination of employment not resulting from death, disability or
retirement). No assumptions relating to non-transferability or risk of
forfeiture were made. Actual gains, if any, on option exercises and Common
Shares are dependent on the future performance of the Company's Common
Shares and overall market conditions. There can be no assurance that the
amounts reflected in this table will be achieved.
13
<PAGE>
Option Exercises in 1993. The following table sets forth certain information
concerning the exercise of options or stock appreciation rights ("SARs") during
1993 by each of the Named Officers and the number and value of unexercised
options and SARs at December 31, 1993.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
EXERCISE REALIZED ------------------------------ ------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE(/1/) EXERCISABLE UNEXERCISABLE(/2/)
- ---- -------- -------- ----------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Neale........... 0 $ 0 50,000 25,000 $603,749 0
Edmund A. Schroer....... 65,000 482,811 0 0 0 0
Stephen P. Adik......... 0 0 35,600 8,000 484,399 0
William R. Elliott...... 30,000 318,187 0 8,000 0 0
Joseph L. Turner, Jr. 0 0 30,000 8,000 362,247 0
John W. Dunn............ 1,000 15,000 29,000 8,000 346,811 0
</TABLE>
- --------
(/1/Includes)some SARs granted in tandem with options.
(/2/Represents)the difference between the option exercise price and $32.75, the
average of high and low prices of the Company's Common Shares as reported
in The Wall Street Journal on December 31, 1993.
PENSION PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN--
The following table shows estimated annual benefits, giving effect to the
Company's Supplemental Executive Retirement Plan (as described below), payable
upon retirement to persons in the specified remuneration and years-of-service
classifications.
14
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$200,000........................... $ 79,500 $106,000 $106,000 $116,000 $116,000
250,000........................... 102,000 136,000 136,000 148,500 148,500
300,000........................... 124,500 166,000 166,000 181,000 181,000
350,000........................... 147,000 196,000 196,000 213,500 213,500
400,000........................... 169,500 226,000 226,000 246,000 246,000
450,000........................... 192,000 256,000 256,000 278,500 278,500
500,000........................... 214,500 286,000 286,000 311,000 311,000
550,000........................... 237,000 316,000 316,000 343,500 343,500
600,000........................... 259,500 346,000 346,000 376,000 376,000
650,000........................... 282,000 376,000 376,000 408,500 408,500
700,000........................... 304,500 406,000 406,000 441,000 441,000
750,000........................... 327,000 436,000 436,000 473,500 473,500
</TABLE>
The credited years of service for the officers shown in the Summary
Compensation table, pursuant to the Supplemental Plan, are as follows: Gary L.
Neale--19 years; Edmund A. Schroer--26 years; Stephen P. Adik--15 years;
William R. Elliott--21 years; Joseph L. Turner, Jr.--22 years; and John W.
Dunn--22 years.
Upon their retirement, regular employees and officers of the Company and its
subsidiaries which adopt the plan (including directors who are also full-time
officers) will be entitled to a monthly pension in accordance with the
provisions of the Company's pension plan, effective as of January 1, 1945. The
directors who are not and have not been officers of the Company are not
included in the pension plan. The pensions are payable out of a trust fund
established under the pension plan with The Northern Trust Bank, trustee. The
trust fund consists of contributions made by the Company and the earnings of
the fund. Over a period of years the contributions are intended to result in
over-all actuarial solvency of the trust fund. The pension plan of the Company
has been qualified as non-discriminatory under Sections 401 and 404 of the
Code.
Pension benefits are determined separately for each participant. The formula
for a monthly payment for retirement at age 65 is 1.7% of average monthly
compensation multiplied by years of service (to a maximum of 30 years) plus
0.6% of average monthly compensation multiplied by years of service over 30.
Average monthly compensation is the average for the 60 consecutive highest-paid
months in the employee's last 120 months of service. Covered compensation is
defined as wages reported as W-2 earnings plus any salary reduction
contributions made under the 401(k) Plan and an amount equivalent to base pay
for certain non-compensated periods of authorized leave of absence, minus any
amounts paid for unused vacations accrued.
15
<PAGE>
The Company also has a Supplemental Executive Retirement Plan for officers.
Participants in the Plan are selected by the Board of Directors. Benefits from
the Plan are to be paid from the general assets of the Company.
The Supplemental Plan provides the larger of (i) 60% of 5-year average pay
less Primary Social Security Benefits (prorated for less than 20 years of
service) or 65% of 5-year average pay less Primary Social Security Benefits for
participants with at least 30 years of service, or (ii) the benefit formula
under the Company's Pension Plan. In either case, the benefit is reduced by the
actual pension payable from the Company's Pension Plan. In addition, the
Supplemental Plan provides certain disability and pre-retirement death benefits
for the spouse of a participant.
CHANGE IN CONTROL AND TERMINATION AGREEMENTS--
On January 23, 1990 the Board of Directors of the Company authorized Change
in Control and Termination Agreements ("Agreements") with Mr. Neale and certain
Vice Presidents of the Company, including the Vice Presidents named in the
Summary Compensation Table (each such person being an "executive"). The Company
believes that these Agreements and related shareholder rights protections are
in the best interests of the shareholders, to insure that in the event of
extraordinary events, totally independent judgment is enhanced to maximize
shareholder value. The Agreements, which are terminable upon three years'
notice, provide for the payment of three times then current annual base salary
and the continuation of certain employee benefits for a period of 36 months
("Severance Period"), if the executive's employment were terminated within 24
months in the event of certain changes in control of the Company. Based on
their 1993 base salaries, the amounts that would be payable to the highest paid
executive officers would be as follows: Gary L. Neale--$1,200,000; Stephen P.
Adik--$555,000; William R. Elliott--$471,000; Joseph L. Turner, Jr.--$471,000;
and John W. Dunn--$471,000.
The executive would receive full benefits under any supplemental retirement
plan of the Company, offset by amounts paid to the executive from any qualified
retirement plans of the Company. All stock options held by the executive would
become immediately exercisable upon the date of termination of employment, and
the restrictions would lapse on all restricted shares awarded to the executive.
If any penalty tax under the Code is imposed on the payment of three times base
salary, the Company would increase the payment to the extent necessary to
compensate the individual for the imposition of such tax.
During the Severance Period, the executive and spouse would continue to be
covered by applicable health or welfare plans of the Company. If the executive
died during the Severance Period, all amounts payable to the executive would be
paid to a named beneficiary. No amounts would be payable under the Agreements
if the executive's employment were terminated by the Company for Good Cause (as
defined in the Agreements).
16
<PAGE>
The Agreement with Mr. Neale also provides for the same severance payments as
above described in the event his employment is terminated at any time by the
Company (other than for Good Cause) or due to death or disability, or if he
voluntarily terminates employment with Good Reason (as defined in the
Agreements).
PROPOSAL 2--APPROVAL OF THE NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
GENERAL
The Board of Directors of the Company has approved, subject to the approval
of the shareholders, the NIPSCO Industries, Inc. 1994 Long-Term Incentive Plan
(the "1994 Incentive Plan"). The 1994 Incentive Plan is a stock-based
compensation plan providing for the grant of incentive stock options ("ISOs")
within the meaning of Section 422(b) of the Code, options not intended to be
ISOs ("nonqualified stock options"), stock appreciation rights ("SARs"),
restricted stock and performance units to officers and other key executives of
the Company who are in positions in which their decisions, actions and counsel
significantly impact profitability. The 1994 Incentive Plan is intended to
recognize the contributions made to the Company by officers and other key
executives who make substantial contributions through their loyalty, ability,
industry and invention, and to improve the ability of the Company to secure,
retain, and motivate such employees upon whom the Company's future earnings
depend, by providing such persons with an opportunity to either acquire or
increase their proprietary interest in the Company or to receive additional
compensation based upon the performance of the Company's Common Shares.
There are 773,000 Common Shares available for future awards under the current
Incentive Plan. The Company intends to continue making awards under the current
Incentive Plan until all Common Shares available for award have been awarded.
The Company believes it has been able to attract highly qualified personnel in
part through the use of the current Incentive Plan, and that it is desirable to
have the continued flexibility to attract additional personnel and to retain
and reward exceptional performance by a broad range of key employees through
continued availability of incentive awards. Approval of the 1994 Incentive Plan
would provide the Company with this continued flexibility.
The 1994 Incentive Plan is intended to satisfy the conditions relating to
administration of employee stock plans set forth in Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Rule 16b-3 provides exemptions for officers and directors from
the "short swing" profit provisions of Section 16(b) under the Exchange Act
with respect to, among other things, the grant of awards under a stock plan.
17
<PAGE>
The terms and conditions of the 1994 Incentive Plan are also intended to
address certain possible limitations on the deductibility of executive
compensation under Section 162(m) of the Code, as amended by the Omnibus Budget
Reconciliation Act of 1993, which was signed into law on August 10, 1993 (the
"Revenue Act"). The Revenue Act limits the deductibility of certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four other executive
officers named in the summary compensation table of the corporation's proxy
statement who are employed by the corporation on the last day of the taxable
year. On December 20, 1993, the Internal Revenue Service published proposed
regulations interpreting the provisions of Section 162(m). However, certain
types of compensation may be excluded from the limitations on deductibility. In
order for compensation granted pursuant to the 1994 Incentive Plan to qualify
for this exception, the material terms of the compensation to be paid must be
disclosed to and approved by shareholders in a separate vote prior to the time
such compensation is awarded under the 1994 Incentive Plan. Under the Revenue
Act and the proposed regulations, compensation which qualifies as "performance-
based" compensation is exempt from the $1 million deductibility limitation.
Compensation resulting from the exercise of stock options is deemed to meet the
performance-based standard if, among other requirements, the maximum number of
options that an individual executive may receive during a specified period is
predetermined. Compensation resulting from restricted stock awards and
performance units is deemed to meet the performance-based standard if the
business criteria on which the performance goal is based and either the maximum
amount of compensation to be paid or the formula used to calculate the amount
of compensation if the performance goal is attained are predetermined.
A brief summary of the Plan follows. This summary should be read in
conjunction with the Plan, a copy of which is attached to this Proxy Statement
as Exhibit A, and which is hereby incorporated by reference herein.
Shares Subject to Awards. The total number of Common Shares of the Company
that may be subject to awards shall be 2,500,000 Common Shares. All awards and
Common Shares available under the 1994 Incentive Plan are subject to adjustment
in the event of a merger, recapitalization, stock dividend, stock split or
other similar change affecting the number of outstanding Common Shares of the
Company. Unpurchased shares subject to an option that lapses or terminates
without exercise and shares subject to restricted stock awards, but never
issued because the conditions of the award were not fulfilled, are available
for future awards. Common Shares delivered in lieu of cash payments or withheld
by the Company are considered to have been used by the 1994 Incentive Plan and
are not available for further option, awards, or such delivery.
Administration. The 1994 Incentive Plan is administered by the Compensation
Committee, which must be composed of two or more directors. All members of the
Compensation Committee must satisfy the disinterested administration
requirements of Rule 16b-3. No members of the Compensation Committee are
eligible to participate in the 1994 Incentive Plan.
18
<PAGE>
The Compensation Committee has the sole power to administer the 1994
Incentive Plan and to make rules to implement the provisions thereof. Subject
to the provisions of the 1994 Incentive Plan, the Compensation Committee's
powers include, but are not limited to, determining the officers and employees
of the Company and any subsidiaries to whom awards shall be granted, and fixing
the size, terms, conditions and timing of all awards. The Compensation
Committee is, however, limited in the number of Common Shares subject to
options and restricted stock awards that may be granted to certain executive
officers of the Company.
The 1994 Incentive Plan provides that the maximum number of options granted
to any person who qualifies as an executive officer named from time to time in
the summary compensation table in the Company's annual meeting proxy statement
sent to shareholders and who is employed by the Company on the last day of the
taxable year (the "SCT Executives"), shall be 25,000 options to purchase Common
Shares per year and 250,000 options to purchase Common Shares during the term
of the 1994 Incentive Plan.
The 1994 Incentive Plan further provides that the maximum number of
restricted stock awards granted to any SCT Executive shall be 75,000 during the
term of the 1994 Incentive Plan and that no more than 25,000 shares of
restricted stock may be awarded in any one year, provided, however, that no
more than 25,000 shares of restricted stock may be awarded in any three-year
period during the term of the 1994 Incentive Plan.
The 1994 Incentive Plan does not establish the maximum number of performance
units that may be awarded to any SCT Executive. If the inclusion of the maximum
number of units to be awarded to any SCT Executive is required for a
performance unit to qualify as performance-based compensation under Section
162(m) of the Code, the Company's present expectation is to propose an
amendment to the 1994 Incentive Plan to shareholders at a subsequent meeting to
satisfy such requirements.
The Compensation Committee retains its discretion as to the timing and amount
of particular awards, and in establishing the limitations on the number of
options and restricted stock awards that may be granted to SCT Executives, is
not obligated to grant options or restricted stock awards equal to either
amount within any year, during the term of the 1994 Incentive Plan, or at any
other time. The limitations may in each case be adjusted in the event of any
stock dividend, recapitalization, stock split or other capital adjustment or
any other transaction materially affecting Common Shares, pursuant to Section
3(b) of the 1994 Incentive Plan.
Eligibility. The Compensation Committee may select as a participant in the
1994 Incentive Plan any executive and managerial employees who are in positions
in which their decisions, actions and counsel significantly impact
profitability. A Director who is not an employee is not eligible to receive
19
<PAGE>
awards under the 1994 Incentive Plan. The determination of who is a participant
and the awards to be granted is made on a year-to-year basis. On January 31,
1994, approximately 125 employees were eligible to participate in the 1994
Incentive Plan.
Stock Options. An ISO or a nonqualified option is the right to purchase, in
the future, the Company's Common Shares at a set price. Under the 1994
Incentive Plan, the purchase price of shares subject to any option, which can
be either an ISO or a nonqualified option, must be at least 100% of the Fair
Market Value of the shares on the date of grant. Fair Market Value is defined
as the mean between the high and low prices of the Company's Common Shares on
the New York Stock Exchange on the date on which the option is granted. On
January 31, 1994, the closing price of the Common Shares on the New York Stock
Exchange was $32.
Each option terminates on the earliest of (a) the expiration of the term,
which may not exceed ten (10) years from the date of grant; (b) ninety days
after the date the option holder's employment or service terminates for any
reason other than disability, death or retirement; or (c) the expiration of
three (3) years from the date an option holder's employment or service
terminates by reason of such option holder's disability, death or retirement.
Each option becomes exercisable no earlier than six months after the date of
grant and no later than ten years after the date of grant. The Compensation
Committee has the discretion to establish the exercise period with respect to
each option granted within the foregoing provisions of the 1994 Incentive Plan.
If an ISO is granted to an employee who then owns, directly or by attribution
under the Code, shares possessing more than 10% of the total combined voting
power of all classes of shares of the Company, the term of the option will not
exceed five (5) years and the exercise price will be at least 110% of the fair
market value of the shares on the date that the option is granted.
An option holder may pay the exercise price for an option (a) in cash, (b) in
cash received from a broker-dealer to whom the holder has submitted an exercise
notice consisting of a fully endorsed option (however, in the case of a holder
subject to Section 16 of the Exchange Act, this payment option shall only be
available to the extent such holder complies with Regulation T issued by the
Federal Reserve Board), (c) by delivering Common Shares having an aggregate
fair market value on the date of exercise equal to the exercise price, (d) by
directing the Company to withhold such number of Common Shares otherwise
issuable upon exercise of such option having an aggregate fair market value on
the date of exercise equal to the exercise price, (e) by such other medium of
payment as the Compensation Committee, in its discretion, shall authorize at
the time of grant, or (f) by any combination of (a), (b) (c), (d) and (e).
20
<PAGE>
Each option will be evidenced by a written option agreement containing
provisions consistent with the 1994 Incentive Plan and such other provisions as
the Compensation Committee deems appropriate. No option granted under the Plan
may be transferred, except by will, the laws of descent and distributions or
pursuant to a qualified domestic relations order.
Restricted Stock Awards. A restricted stock award is the grant of a right to
receive Common Shares of the Company, either immediately or on a future date
upon satisfaction of certain criteria or conditions. The Compensation Committee
has the power to determine whether a recipient of a restricted stock award will
have all of the rights of a shareholder of the Company, including the right to
vote the restricted shares and the right to receive any dividends or other
distributions paid with respect to the shares. Common Shares awarded may not be
transferred or encumbered until the restrictions established by the
Compensation Committee lapse.
The Compensation Committee, in its discretion, will establish the criteria
and conditions upon which participants will be entitled to receive restricted
stock awards under the 1994 Incentive Plan. The Compensation Committee has not
yet established the performance goal or goals which must be attained for
vesting of restricted stock awards. Under the proposed tax regulations,
performance-based compensation must be paid solely on the account of one or
more pre-established objective performance goals. Such goals must be disclosed
to and approved by shareholders prior to the time such compensation is awarded
under the 1994 Incentive Plan. If the inclusion of such pre-established
objective performance goals is required for a restricted stock award to qualify
as performance-based compensation under Section 162(m) of the Code, the Company
will consider whether to submit a proposed amendment to the 1994 Incentive Plan
to shareholders at a subsequent meeting to satisfy such requirements.
In the event of a participant's termination of employment prior to the lapse
of applicable restrictions (other than due to death, disability or retirement),
all shares as to which there still remain unlapsed restrictions shall be
forfeited. Each restricted stock award will be evidenced by a written
restricted stock award agreement containing provisions consistent with the 1994
Incentive Plan and such other provisions as the Compensation Committee deems
appropriate.
Stock Appreciation Rights. A SAR is a right to receive, in the future, all or
a portion of the excess of the Fair Market Value of the Company's Common
Shares, at the time the SAR is exercised, over a specified price not less than
the Fair Market Value of the Company's Common Shares at the date of the grant.
SARs may be granted in tandem with a previously or contemporaneously granted
stock option, or separately from the grant of a stock option. SARs granted
under the 1994 Incentive Plan may not be granted for a period less than one
year nor more than ten years and will be exercisable in whole or in part, at
such time or times and as determined by the Committee six months after the date
of grant.
21
<PAGE>
Performance Units. A performance unit is a right to a future payment, either
in cash or Common Shares, based upon the achievement of pre-established long-
term performance objectives. The Compensation Committee may establish
performance periods of from two to five years, and maximum and minimum
performance targets during the period. The level of achievement of targets will
determine what portion of value of a unit is awarded. Performance targets could
include such measures as return on equity, return on assets, net income and
other financial indicators of the Company's success. The Compensation Committee
has not yet established the performance periods or goals for performance units.
Under the proposed tax regulations, performance goals must be pre-established
and disclosed to and approved by shareholders prior to the time such
compensation is awarded. If the inclusion of such pre-established performance
goals is required for a performance unit to qualify as performance based
compensation under Section 162(m) of the Code, the Company will consider
whether to submit a proposed amendment to the 1994 Incentive Plan to
shareholders at a subsequent meeting to satisfy such requirements.
In the event a participant holding a performance unit ceases to be employed
prior to the end of the applicable performance period by reason of death,
disability or retirement, such participant's units, to the extent earned, shall
be payable at the end of the performance period. Upon any other termination of
employment, participation terminates.
Duration of the 1994 Incentive Plan. No award may be granted under the 1994
Incentive Plan after April 13, 2004.
Awards Granted Under the 1994 Incentive Plan. Awards to be granted under the
1994 Incentive Plan during 1994 to all current Named Officers, all current
executive officers as a group and all employees as a group cannot be determined
at this time. Reference is made to the table entitled "Option/SAR Grants in
Last Fiscal Year" under the heading "Executive Compensation" included above in
this proxy statement, which sets forth the awards granted to Named Officers
under the current Incentive Plan during 1993. The following table sets forth
awards granted under the current Incentive Plan to all executive officers as a
group and all employees of the Company as a group during 1993:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
GROUP OPTIONS PRICE
- ----- --------- --------
<S> <C> <C>
All Executive Officer Group (10 persons)..................... 86,500 $33.19
All Non-executive Officer Employee Group (101 persons)....... 202,000 $33.19
</TABLE>
Provisions Relating to a "Change in Control" of the Company. Notwithstanding
any other provision of the 1994 Incentive Plan, in the event of a "Change in
Control" of the Company, the date upon which each award then outstanding under
the 1994 Incentive Plan first becomes exercisable or vests, as the case may be,
will automatically accelerate to the effective date of the
22
<PAGE>
Change in Control. The Compensation Committee, as constituted before such
Change in Control, is authorized, and has sole discretion, as to any award,
either at the time such award is granted hereunder or any time thereafter, to
take any one or more of the following actions: (a) provide for the exercise of
any such award, for an amount of cash equal to the difference between the
exercise price and the then fair market value of the Common Shares covered
thereby had such award been currently exercisable; (b) provide for the vesting
or termination of the restrictions on any such award; (c) make such adjustment
to any such award then outstanding as the Compensation Committee deems
appropriate to reflect such Change in Control; and (d) cause any such award
then outstanding to be assumed, by the acquiring or surviving corporation,
after such Change in Control.
A "Change in Control" of the Company means the occurrence of any of the
following events: (a) The occurrence of any "Distribution Date," as such term
is defined in Section 3 of the Rights Agreement between the Company and Harris
Trust and Savings Bank dated February 27, 1990, as such may be amended from
time to time; (b) the merger or consolidation or reorganization of the Company
into or with another corporation or other legal person (an "Acquiror") and as a
result of such merger, consolidation or reorganization less than 50% of the
outstanding voting securities or other capital interests of the surviving,
resulting or acquiring corporation or other person are owned in the aggregate
by the stockholders of the Company, directly or indirectly, immediately prior
to such merger, consolidation or reorganization, other than the Acquiror or any
corporation or other person controlling, controlled by or under common control
with the Acquiror; (c) the sale by the Company of all or substantially all of
its business and/or assets to an Acquiror, of which less than 50% of the
outstanding voting securities or other capital interests are owned in the
aggregate by the stockholders of the Company, directly or indirectly,
immediately prior to such sale, other than the Acquiror or any corporation or
other person controlling, controlled by or under common control with the
Acquiror; or (d) the election to the Board, without the recommendation or
approval of the incumbent Board, of the lesser of (i) three Directors or (ii)
Directors constituting a majority of the number of Directors of the Company
then in office.
Termination, Suspension or Modification. The Board or Compensation Committee
may at any time terminate, suspend or modify the 1994 Incentive Plan without
the authorization of shareholders to the extent allowed by law, including
without limitation any rules issued by the Securities and Exchange Commission
under Section 16 of the 1934 Act, insofar as shareholder approval thereof is
not required in order for the 1994 Incentive Plan to continue to satisfy the
requirements of Rule 16b-3 under the 1934 Act. No termination, suspension or
modification of the 1994 Incentive Plan shall adversely affect any right
acquired by any participant under an award granted before the date of such
termination, suspension or modification, unless such participant shall consent;
but it shall be conclusively presumed that any adjustment for changes in
capitalization as provided for therein does not adversely affect any such
right.
23
<PAGE>
Tax Aspects of the 1994 Incentive Plan. The following discussion is intended
to summarize briefly the general principles of Federal income tax law
applicable to each award granted under the 1994 Incentive Plan. A recipient of
an ISO will not recognize taxable income upon either the grant or exercise of
the ISO. The option holder will recognize long-term capital gain or loss on a
disposition of the Common Shares acquired upon exercise of an ISO, provided the
option holder does not dispose of those Common Shares within two years from the
date the ISO was granted or within one year after the Common Shares were
transferred to such option holder (a "disqualifying disposition"). Currently,
for regular Federal income tax purposes, long-term capital gain is taxed at a
maximum rate of 28%, while ordinary income may be subject to a maximum rate of
39%. If the option holder satisfies both of the foregoing holding periods, then
the Company will not be allowed a deduction by reason of the grant or exercise
of an ISO.
As a general rule, if the option holder disposes of the Common Shares in a
disqualifying disposition, the gain recognized will be taxed as ordinary income
to the extent of the difference between (a) the lesser of the fair market value
of the Common Shares on the date of exercise or the amount received for the
Common Shares in the disqualifying disposition, and (b) the adjusted basis of
the Common Shares, and the Company will be entitled to a deduction in that
amount. The gain (if any) in excess of the amount recognized as ordinary income
on a disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the option holder held the Common Shares prior
to the disposition.
The amount by which the fair market value of a Common Share at the time of
exercise exceeds the exercise price will be included in the computation of such
option holder's "alternative minimum taxable income" in the year the option
holder exercises the ISO. Currently, the alternative minimum tax rate is 24%.
If an option holder pays alternative minimum tax with respect to the exercise
of an ISO, the amount of such tax paid will be allowed as a credit against
regular tax liability in subsequent years. The option holder's basis in the
Common Shares for purposes of the alternative minimum tax will be adjusted when
income is included in alternative minimum taxable income.
A recipient of a nonqualified stock option will not recognize taxable income
at the time of grant, and the Company will not be allowed a deduction by reason
of the grant. Such an option holder will recognize ordinary income in the
taxable year in which the option holder exercises the nonqualified stock
option, in an amount equal to the excess of the fair market value of the Common
Shares received upon exercise at the time of exercise of such an option over
the exercise price of the option, and the Company will be allowed a deduction
in that amount. Upon disposition of the Common Shares subject to the option, an
option holder will recognize long-term or short-term capital gain or loss,
depending upon the length of time the Common Shares were held prior to
disposition, equal to the difference between the amount realized on disposition
and the option
24
<PAGE>
holder's adjusted basis of the Common Shares subject to the option (which
adjusted basis ordinarily is the fair market value of the Common Shares subject
to the option on the date the option was exercised.)
At the date of grant, the holder of an SAR will not be deemed to receive
income, and the Company will not be entitled to a deduction. On the date of
exercise, the holder of an SAR will realize ordinary income equal to the amount
of cash or the market value of the Common Shares received on exercise. The
Company will be entitled to a corresponding deduction with respect to ordinary
income realized by the holder of an SAR, provided that the Company complies
with applicable withholding tax requirements. Upon the vesting of restricted
stock awards, the holder will realize ordinary income in an amount equal to the
fair market value of the shares at that time.
VOTE REQUIRED FOR APPROVAL
Approval of the 1994 Incentive Plan requires the affirmative vote of the
holders of a majority of the Company's Common Shares present in person or
represented by proxy at the Annual Meeting and entitled to vote. The Board of
Directors recommends voting FOR approval of the 1994 Incentive Plan.
INCLUSION OF SHAREHOLDER PROPOSALS IN PROXY MATERIALS
Any holder of Common Shares who wishes to submit a proposal to be voted upon
by shareholders at the 1995 annual meeting of the Company, and who wishes the
proposal to be included in the Company's proxy materials, must submit the
proposal to the Secretary of the Company by November 14, 1994. The notice must
include a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made. The notice must also
include the nominating shareholder's name and address and the number of Common
Shares beneficially owned by the shareholder. Any proposal submitted will also
be subject to the rules of the Securities and Exchange Commission regarding
shareholder proposals.
COMPLIANCE WITH FORMS 3, 4 AND 5 REPORTING REQUIREMENTS
Based solely upon a review of the Forms 3, 4 and 5 furnished to the Company
pursuant to Rule 16a-3(e) of the Securities Exchange Act of 1934, the Company
is not aware of any director, officer or beneficial holder of 10% of its Common
Shares that failed to file any such reports on a timely basis during 1993.
25
<PAGE>
ANNUAL REPORT AND FINANCIAL STATEMENTS
Attention is directed to the financial statements contained in the Company's
Annual Report for the year ended December 31, 1993. A copy of the Annual Report
has been sent, or is concurrently being sent, to all shareholders of record as
of February 22, 1994.
AVAILABILITY OF FORM 10-K
A copy of the Company's annual report for 1993 to the Securities and Exchange
Commission on Form 10-K, without exhibits, will be provided without charge to
any shareholder or beneficial owner of the Company's shares upon written
request to Nina M. Rausch, Secretary, NIPSCO Industries, Inc., 5265 Hohman
Avenue, Hammond, Indiana 46320.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co. has been selected by the Board of Directors to serve as
the Company's independent public accountants for the year 1994, as they have
served for many years past. A representative of that firm will be present at
the annual meeting and will be given an opportunity to make a statement if he
so desires. The Company has been informed by the representative that he does
not presently intend to make such a statement. The representative will also be
available to respond to questions from shareholders.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters before the
meeting and does not know of any matters which will be brought before the
meeting by others. If any matters properly come before the meeting it is the
intention of the persons named in the enclosed form of proxy to vote the proxy
in accordance with their judgment on such matters.
It is important that proxies be returned promptly. Therefore, shareholders
are urged to vote, date, sign and return the enclosed proxy. No postage need be
affixed if mailed in the United States,
By Order of the Board of Directors
LOGO
Nina M. Rausch
Secretary
Dated: March 11, 1994
26
<PAGE>
EXHIBIT A
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the NIPSCO Industries, Inc. 1994 Long-Term
Incentive Plan (the "Plan") is to further the earnings of NIPSCO Industries,
Inc. (the "Company") and its subsidiaries. The Plan provides long-term
incentives to those officers and key executives who make substantial
contributions by their ability, loyalty, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining, and
motivating management employees of high caliber and potential.
2. ADMINISTRATION. The Plan shall be administered by the Nominating and
Compensation Committee ("Committee") of the Board of Directors of the Company
("Board"). The Committee shall be composed of not fewer than two members of the
Board who are not employed by the Company. No member of the Committee may
exercise discretion with respect to, or participate in, the administration of
the Plan if, at any time, during the twelve-month period prior to such exercise
or participation, he or she has been granted or awarded stock, restricted
stock, stock options, stock appreciation rights or any other derivative
security of the Company or an affiliate thereof under this Plan or any similar
plan of the Company, except as permitted in Rule 16b-3(c)(2)(i)(A) through (D)
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). Members
of the Committee shall be subject to any additional restrictions necessary to
satisfy the requirements for disinterested administration of the Plan as set
forth in Rule 16b-3, as it may be amended from time to time. If at any time any
member of the Committee does not satisfy such disinterested administration
requirements, no awards shall be made under this Plan to any person until such
time as all members of the Committee satisfy such requirements. Subject to the
express provisions of the Plan, the Committee may interpret the Plan,
prescribe, amend and rescind rules and regulations relating to it, determine
the terms and provisions of awards to officers and other key executive
employees under the Plan (which need not be identical) and make such other
determinations as it deems necessary or advisable for the administration of the
Plan. The decisions of the Committee under the Plan shall be conclusive and
binding. No member of the Board or the Committee shall be liable for any action
taken, or determination made, hereunder in good faith. Service on the Committee
shall constitute service as director of the Company so that members of the
Committee shall be entitled to indemnification and reimbursement as directors
of the Company pursuant to its by-laws.
3. COMMON SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of
Section 3(b), the shares that may be issued, or may be the measure of stock
appreciation rights granted, under the Plan shall not exceed in the aggregate
2,500,000 of the common shares without par value of the
1
<PAGE>
Company (the "Common Shares"). Such shares may be authorized and unissued
shares or treasury shares. Except as otherwise provided herein, any shares
subject to an option or right which for any reason expires or is terminated,
unexercised as to such shares, shall again be available under the Plan.
(b) The number of shares of Common Shares subject to the Plan and to Options
granted under the Plan shall be adjusted as follows: (i) in the event that the
number of outstanding shares of Common Shares is changed by any stock dividend,
stock split or combination of shares, the number of shares subject to the Plan
and to awards previously granted thereunder shall be proportionately adjusted,
(ii) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted on an
equitable basis as determined by the Board of Directors, in its sole
discretion, for each share of Common Shares then subject to the Plan and for
each share of Common Shares then subject to an award granted under the Plan,
the number and kind of shares of stock, other securities, cash or other
property to which the holders of Common Shares of the Company are entitled
pursuant to the transaction, and (iii) in the event of any other change in the
capitalization of the Company, the Committee, in its sole discretion, shall
provide for an equitable adjustment in the number of shares of Common Shares
then subject to the Plan and to each share of Common Shares then subject to an
award granted under the Plan.
4. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key executive employees of the Company and its subsidiaries
who are in positions in which their decisions, actions and counsel
significantly impact upon profitability. Directors who are not otherwise
officers or employees shall not be eligible to participate in the Plan.
5. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of stock
options (both options designed to satisfy statutory requirements necessary to
receive favorable tax treatment pursuant to any present or future legislation
and options not designed to so qualify), incentive stock options, stock
appreciation rights, performance units or shares, and restricted shares or such
combinations of the above as the Committee may in its discretion deem
appropriate.
6. SECTION 162(M) LIMITATIONS. Subject to Section 3(b) of the Plan, the
maximum number of Options granted to any person who qualifies as an executive
officer named from time to time in the summary compensation table in the
Company's annual meeting proxy statement and who is employed by the Company on
the last day of the taxable year (the "SCT Executives") shall be 25,000 options
to purchase Common Shares per year and 250,000 options to purchase Common
Shares during the term of the Plan. The maximum number of restricted stock
awards granted to any SCT Executive shall be 25,000 shares per year, provided,
however, that no more than 25,000 shares of restricted stock may be awarded in
any three-year period and that the maximum number of shares of restricted stock
granted to any SCT Executive during the term of the Plan shall be 75,000.
2
<PAGE>
7. NONQUALIFIED STOCK OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with this Plan as the Committee
shall approve from time to time, which agreements shall contain in substance
the following terms and conditions:
(A) OPTION PRICE. The purchase price per share deliverable upon the
exercise of an option shall not be less than 100% of the fair market value
of the share on the day the option is granted, as determined by the
Committee. Fair market value shall be the average of the high and low
prices on the New York Stock Exchange Composite Transactions on the date of
the grant.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option
exercise period shall not commence earlier than six months after the date
of the grant of the option nor end later than ten years after the date of
the grant of the option. The Committee shall have the power to permit in
its discretion an acceleration of the previously determined exercise terms,
within the terms of the Plan, under such circumstances and upon such terms
and conditions as it deems appropriate.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any option agreement, the optionee shall pay the purchase price of the
Common Shares upon exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however, in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such insider complies with Regulation
T issued by the Federal Reserve Board), (iii) by delivering Common Shares
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (iv) by directing the Company to withhold such
number of Common Shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant, or (vi)
by any combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable to
NIPSCO Industries, Inc. In the case of payment pursuant to (ii), (iii) or
(iv) above, the optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. In the case of an optionee who is
subject to Section 16 of the 1934 Act and who elects payment pursuant to
(iv) above, the election must be made in writing either (A) within the ten
(10) business days beginning on the third business day following release of
the Company's quarterly or annual summary consolidated statements of
earnings and ending on the twelfth business day following such day, or (B)
at least six (6) months prior to the date of
3
<PAGE>
exercise of such option. In lieu of a separate election governing each
exercise of an option, an optionee may file a blanket election with the
Committee which shall govern all future exercises of options until revoked
by the optionee. The Company shall issue, in the name of the optionee,
stock certificates representing the total number of Common Shares issuable
pursuant to the exercise of any option as soon as reasonably practicable
after such exercise, provided that any Common Shares purchased by an
optionee through a broker-dealer pursuant to clause (ii) above shall be
delivered to such broker-dealer in accordance with 12 C.F.R. (S)
220.3(e)(4) or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that it is
not transferable by the optionee otherwise than by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an optionee
ceases to be an employee for any cause other than death, disability or
retirement, the optionee shall have the right to exercise the option during
its term within a period of thirty days after such termination to the
extent that the option was exercisable at the date of such termination of
employment, or during such other period and subject to such terms as may be
determined by the Committee. In the event that an optionee dies, retires,
or becomes disabled prior to termination of his option without having fully
exercised his option, the optionee or his successor shall have the right to
exercise the option during its term within a period of three years after
the date of such termination due to death, disability or retirement, to the
extent that the option was exercisable at the date of termination due to
death, disability or retirement, or during such other period and subject to
such terms as may be determined by the Committee. For purposes of this
Plan, the term "disability" shall mean disability as defined in the
Company's Long-Term Disability Plan. The Committee, in its sole discretion,
shall determine the date of any disability. The term "retirement" shall
mean retirement as defined in the Company's pension plan.
8. INCENTIVE STOCK OPTIONS. Incentive stock options shall be evidenced by
stock option agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(A) OPTION PRICE. Except as otherwise provided in Section 8(b), the
purchase price per share of stock deliverable upon the exercise of an
incentive stock option shall not be less than 100% of the fair market value
of the stock on the day the option is granted, as determined by the
Committee.
(B) EXERCISE OF OPTION. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option period
shall not commence earlier than six months after the date of the grant of
the option nor end later than ten years after the date of the grant of the
option. The aggregate fair
4
<PAGE>
market value (determined with respect to each incentive stock option at the
time of grant) of the Common Shares with respect to which incentive stock
options are exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the Company and
its parent and subsidiary corporations) shall not exceed $100,000. If the
aggregate fair market value (determined at the time of grant) of the Common
Shares subject to an option, which first becomes exercisable in any
calendar year exceeds the limitation of this Section 8(b), so much of the
option that does not exceed the applicable dollar limit shall be an
incentive stock option and the remainder shall be a nonqualified stock
option; but in all other respects, the original option agreement shall
remain in full force and effect. As used in this Section 8, the words
"parent" and "subsidiary" shall have the meanings given to them in Section
425(e) and 425(f) of the Internal Revenue Code. Notwithstanding anything
herein to the contrary, if an incentive stock option is granted to an
individual who owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of
its parent or subsidiary corporations, within the meaning of Section
422(b)(6) of the Internal Revenue Code, (i) the purchase price of each
common share subject to the incentive stock option shall be not less than
one hundred ten percent (110%) of the fair market value of the Common
Shares on the date the incentive stock option is granted, and (ii) the
incentive stock option shall expire and all rights to purchase shares
thereunder shall cease no later than the fifth anniversary of the date the
incentive stock option was granted.
(C) PAYMENT FOR SHARES. Except as otherwise provided in the Plan or in
any option agreement, the optionee shall pay the purchase price of the
Common Shares upon exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however, in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such insider complies with Regulation
T issued by the Federal Reserve Board), (iii) by delivering Common Shares
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (iv) by directing the Company to withhold such
number of Common Shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant, or (vi)
by any combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable to
NIPSCO Industries, Inc. In the case of payment pursuant to (ii), (iii) or
(iv) above, the optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. In the case of an optionee who is
subject to Section 16 of the 1934 Act and who elects payment pursuant to
(iv) above, the election must be made in writing either (A)
within the ten (10) business days beginning on the third business day
following release of the
5
<PAGE>
Company's quarterly or annual summary consolidated statements of earnings
and ending on the twelfth business day following such day, or (B) at least
six (6) months prior to the date of exercise of such option. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all future
exercises of options until revoked by the optionee. The Company shall
issue, in the name of the optionee, stock certificates representing the
total number of Common Shares issuable pursuant to the exercise of any
option as soon as reasonably practicable after such exercise, provided that
any Common Shares purchased by an optionee through a broker-dealer pursuant
to clause (ii) above shall be delivered to such broker-dealer in accordance
with 12 C.F.R. (S) 220.3(e)(4) or other applicable provision of law.
(D) TRANSFERABILITY. Each stock option agreement shall provide that it is
not transferable by the optionee otherwise than by will or the laws of
descent or distribution.
(E) RIGHTS UPON TERMINATION OF EMPLOYMENT. In the event that an optionee
ceases to be an employee for any cause other than death, disability or
retirement, the optionee shall have the right to exercise the option during
its term within a period of thirty days after such termination to the
extent that the option was exercisable at the date of such termination of
employment, or during such other period and subject to such terms as may be
determined by the Committee. In the event that an optionee dies, retires,
or becomes disabled prior to termination of his option without having fully
exercised his option, the optionee or his successor shall have the right to
exercise the option during its term within a period of three years after
the date of such termination due to death, disability or retirement, to the
extent that the option was exercisable at the date of termination due to
death, disability or retirement, or during such other period and subject to
such terms as may be determined by the Committee. Notwithstanding the
foregoing, in accordance with Section 422 of the Internal Revenue Code, if
an incentive stock option is exercised more than ninety days after
termination of employment, that portion of the option exercised after such
date shall automatically be a nonqualified stock option, but in all other
respects, the original option agreement shall remain in full force and
effect.
The provisions of this section 8 shall be construed and applied, and (subject
to the limitations of section 20) shall be amended from time to time so as to
comply with Section 422 or its successors of the Internal Revenue Code and
Regulations issued thereunder.
9. STOCK APPRECIATION RIGHTS. Stock appreciation rights shall be evidenced by
stock appreciation right agreements in such form and not inconsistent with this
Plan as the Committee shall approve from time to time, which agreements shall
contain in substance the following terms and conditions:
(A) AWARD. A stock appreciation right shall entitle the grantee to
receive upon exercise the excess of (i) the fair market value of a
specified number of shares of the Company Common
6
<PAGE>
Shares at the time of exercise over (ii) a specified price which shall not
be less than 100% of the fair market value of the shares at the time the
appreciation right was granted, or, if connected with a previously issued
stock option, not less than 100% of the fair market value of the shares at
the time such option was granted. A stock appreciation right may be granted
in connection with all of any portion of a previously or contemporaneously
granted stock option or not in connection with a stock option.
(B) TERM. Stock appreciation rights shall be granted for a period of not
less than one year nor more than ten years, and shall be exercisable in
whole or in part, at such time or times and subject to such other terms and
conditions as shall be prescribed by the Committee at the time of grant,
subject to the following:
(i) No stock appreciation right shall be exercisable in whole or in
part, during the six-month period starting with the date of grant; and
(ii) Stock appreciation rights will be exercisable only during a
grantee's employment except that in the discretion of the Committee a
stock appreciation right may be made exercisable for up to thirty days
after the grantee's employment is terminated for any reason other than
death, disability or retirement. In the event that a grantee dies,
retires, or becomes disabled without having fully exercised his stock
appreciation rights, the grantee or his successor shall have the right
to exercise the stock appreciation rights during their term within a
period of three years after the date of such termination due to death,
disability or retirement to the extent that the right was exercisable
at the date of such termination, or during such other period and
subject to such terms as may be determined by the Committee.
The Committee shall have the power to permit in its discretion an
acceleration of previously determined exercise terms, within the terms
of the Plan, under such circumstances and upon such terms and
conditions as it deems appropriate.
(C) PAYMENT. Upon exercise of a stock appreciation right, payment shall
be made in cash, in the form of Common Shares at Fair Market Value, or in a
combination thereof, as the Committee may determine.
10. PERFORMANCE UNITS. Performance Units ("Units") shall be evidenced by
performance unit agreements in such form and not inconsistent with this Plan as
the Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
(A) PERFORMANCE PERIOD. At the time of award, the Committee shall
establish with respect to each unit award a performance period of not less
than two, nor more than five years.
7
<PAGE>
(B) VALUATION OF UNITS. At the time of award, the Committee shall
establish with respect to each such award a value for each Unit which shall
not thereafter change, or which may vary thereafter determinable from
criteria specified by the Committee at the time of award.
(C) PERFORMANCE TARGETS. At the time of award, the Committee shall
establish maximum and minimum performance targets to be achieved with
respect to each award during the performance period. The participant shall
be entitled to payment with respect to all Units awarded if the maximum
target is achieved during the performance period, but shall be entitled to
payment with respect to a portion of the Units awarded according to the
level of achievement of performance targets, as specified by the Committee,
for performance during the performance period which meets or exceeds the
minimum target but fails to meet the maximum target.
The performance targets established shall relate to corporate, division,
or unit performance and may be established in terms of growth in gross
revenue, earnings per share, ratio of earnings to shareholders' equity or
to total assets or such other performance standards as determined by the
Committee in its discretion. Multiple targets may be used and may have the
same or different weighting, and they may relate to absolute performance or
relative performance as measured against other institutions or divisions or
units thereof.
(D) ADJUSTMENTS. At any time prior to payment of the Units, the Committee
may adjust previously established performance targets and other terms and
conditions, including the corporation's, or division's or unit's financial
performance for Plan purposes, to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions
or divestitures or extraordinary, unusual or non-recurring items or events.
(E) PAYMENTS OF UNITS. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance
targets have been attained for such period as well as the other terms and
conditions established by the Committee. The Committee shall determine
what, if any, payment is due on the Units. Payment shall be made in cash,
in the form of Common Shares at Fair Market Value, or in a combination
thereof, as the Committee may determine.
(F) TERMINATION OF EMPLOYMENT. In the event that a participant holding a
Unit award ceases to be an employee prior to the end of the applicable
performance period by reason of death, disability or retirement, his Units,
to the extent earned under the applicable performance targets, shall be
payable at the end of the performance period in proportion to the active
service of the participant during the performance period, as determined by
the Committee. Upon any other termination of employment, participation
shall terminate forthwith and all outstanding Units held by the participant
shall be cancelled.
8
<PAGE>
(G) OTHER TERMS. The unit agreements shall contain such other terms and
provisions and conditions not inconsistent with this Plan as shall be
determined by the Committee.
11. RESTRICTED STOCK AWARDS. Restricted Stock Awards under the Plan shall be
in the form of Common Shares of the Company, restricted as to transfer and
subject to forfeiture, and shall be evidenced by restricted stock agreements in
such form and not inconsistent with this Plan as the Committee shall approve
from time to time, which agreements shall contain in substance the following
terms and conditions:
(A) RESTRICTION PERIOD. Shares awarded pursuant to this Plan shall be
subject to such terms, conditions, and restrictions, including without
limitation: prohibitions against transfer, substantial risks of
forfeiture, attainment of performance objectives and repurchase by the
corporation or right of first refusal, and for such period or periods
as shall be determined by the Committee at the time of grant. The
Committee shall have the power to permit in its discretion, an
acceleration of the expiration of the applicable restriction period
with respect to any part or all of the shares awarded to a participant.
(B) RESTRICTIONS UPON TRANSFER. Shares awarded, and the right to vote
such shares and to receive dividends thereon, may not be sold,
assigned, transferred, exchanged, pledged, hypothecated, or otherwise
encumbered, except as herein provided, during the restriction period
applicable to such shares. Subject to the foregoing, and except as
otherwise provided in the Plan, the participant shall have all the
other rights of a shareholder including, but not limited to, the right
to receive dividends and the right to vote such shares.
(C) CERTIFICATES. Each certificate issued in respect of shares
awarded to a participant shall be deposited with the Company, or its
designee, and shall bear the following legend:
"This certificate and the shares represented hereby are subject to
the terms and conditions (including forfeiture and restrictions against
transfer) contained in the NIPSCO Industries, Inc. 1994 Long-Term
Incentive Plan and an Agreement entered into by the registered owner.
Release from such terms and conditions shall obtain only in accordance
with the provisions of the Plan and Agreement, a copy of each of which
is on file in the office of the Secretary of said Company."
(D) LAPSE OF RESTRICTIONS. The Agreement shall specify the terms and
conditions upon which any restrictions upon shares awarded under the Plan
shall lapse, as determined by the Committee. Upon the lapse of such
restrictions, Common Shares, free of the foregoing restrictive legend,
shall be issued to the participant or his legal representative.
9
<PAGE>
(E) TERMINATION PRIOR TO LAPSE OF RESTRICTIONS. In the event of a
participant's termination of employment, other than due to death,
disability or retirement, prior to the lapse of restrictions applicable to
any shares awarded to such participant, all shares as to which there still
remains unlapsed restrictions shall be forfeited by such participant
without payment of any consideration to the participant, and neither the
participant nor any successors, heirs, assigns, or personal representatives
of such participant shall thereafter have any further rights or interest in
such shares or certificates.
12. SUPPLEMENTAL CASH PAYMENTS. Subject to the Company's discretion, stock
option, incentive stock option, stock appreciation right, performance unit or
restricted stock agreements may provide for the payment of a supplemental cash
payment to a participant promptly after the exercise of an option or stock
appreciation right, or, at the time of payment of a performance unit or at the
end of a restriction period of a restricted stock award. Supplemental cash
payments shall be subject to such terms and conditions as shall be provided by
the Committee at the time of grant, provided that in no event shall the amount
of each payment exceed:
(a) In the case of an option, the excess of the fair market value of a
common share on the date of exercise over the option price multiplied by
the number of shares for which such option is exercised, or
(b) In the case of a stock appreciation right, performance unit or
restricted stock award, the value of the shares and other consideration
issued in payment of such award.
13. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Common Shares subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an
agreement by the recipient of an award with respect to the disposition of
Common Shares, is necessary or desirable as a condition of, or in connection
with, the granting of such award or the issue or purchase of Common Shares
thereunder, such award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained, free of any conditions not acceptable to the
Committee.
14. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for shares are issued to
him.
15. EMPLOYMENT RIGHTS. Nothing in the Plan or in any agreement entered into
pursuant to the Plan shall confer upon any participant the right to continue in
employment or affect any right which his employer may have to terminate the
employment of such participant.
10
<PAGE>
16. TAX-WITHHOLDING. Whenever the Company proposes or is required to issue or
transfer Common Shares to a participant under the Plan, the Company shall have
the right to require the participant to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares. If
such certificates have been delivered prior to the time a withholding
obligation arises, the Company shall have the right to require the participant
to remit to the Company an amount sufficient to satisfy all federal, state or
local withholding tax requirements at the time such obligation arises and to
withhold from other amounts payable to the participant, as compensation or
otherwise, as necessary. Whenever payments under the Plan are to be made to a
participant in cash, such payments shall be net of any amounts sufficient to
satisfy all federal, state and local withholding tax requirements. In lieu of
requiring a participant to make a payment to the Company in an amount related
to the withholding tax requirement, the Committee may, in its discretion,
provide that at the participant's election, the tax withholding obligation
shall be satisfied by the Company's withholding a portion of the shares
otherwise distributable to the participant, such shares being valued at their
fair market value at the date of exercise, or by the participant's delivering
to the Company a portion of the shares previously delivered by the Company,
such shares being valued at their fair market value as of the date of delivery
of such shares by the participant to the Company. For this purpose, the amount
of required withholding shall be a specified rate not less than the statutory
minimum federal and state withholding rate and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
participant and to the particular transaction. Notwithstanding any provision of
the Plan to the contrary, a participant's election pursuant to the preceding
sentences (a) must be made on or prior to the date as of which income is
realized by the recipient in connection with the particular exercise
transaction, (b) must be irrevocable, and (c) if the election is made by a
participant who is subject to Section 16 of the 1934 Act, must be made in
writing either (A) within the ten (10) business days beginning on the third
business day following the release of the Company's quarterly or annual summary
consolidated statements of earnings and ending on the twelfth business day
following such day, or (B) at least six (6) months prior to the effective date
of the particular exercise transaction. In lieu of a separate election on each
effective date of each exercise transaction, a participant may file a blanket
election with the Committee which shall govern all future exercise transactions
until revoked by the participant.
17. CHANGE IN CONTROL. (a) Effect of Change in Control. Notwithstanding any
of the provisions of the Plan or any agreement evidencing awards granted
hereunder, upon a Change in Control of the Company (as defined in Section
17(b)) all outstanding awards shall become fully exercisable and all
restrictions thereon shall terminate in order that participants may fully
realize the benefits thereunder. Further, the Committee, as constituted before
such Change in Control, is authorized, and has sole discretion, as to any
award, either at the time such award is granted hereunder or any time
thereafter, to take any one or more of the following actions: (i) provide for
the exercise of any
11
<PAGE>
such award for an amount of cash equal to the difference between the exercise
price and the then Fair Market Value of the Common Shares covered thereby had
such award been currently exercisable; (ii) provide for the vesting or
termination of the restrictions on any such award; (iii) make such adjustment
to any such award then outstanding as the Committee deems appropriate to
reflect such Change in Control; and (iv) cause any such award then outstanding
to be assumed, by the acquiring or surviving corporation, after such Change in
Control.
(b) Definition of Change in Control. The term "Change in Control" shall mean
the occurrence, at any time during the specified term of an Option granted
under the Plan, of any of the following events:
(i) The occurrence of any "Distribution Date," as such term is defined in
Section 3 of the Rights Agreement between the Company and Harris Trust and
Savings Bank dated February 27, 1990, as such may be amended from time to
time;
(ii) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person (an "Acquiror") and as a result
of such merger, consolidation or reorganization less than 50% of the
outstanding voting securities or other capital interests of the surviving,
resulting or acquiring corporation or other person are owned in the
aggregate by the shareholders of the Company, directly or indirectly,
immediately prior to such merger, consolidation or reorganization, other
than the Acquiror or any corporation or other person controlling,
controlled by or under common control with the Acquiror;
(iii) The Company sells all or substantially all of its business and/or
assets to an Acquiror, of which less than 50% of the outstanding voting
securities or other capital interests are owned in the aggregate by the
shareholders of the Company, directly or indirectly, immediately prior to
such sale, other than the Acquiror or any corporation or other person
controlling, controlled by or under common control with the Acquiror; or
(iv) The election to the Board, without the recommendation or approval of
the incumbent Board, of the lesser of (i) three Directors or (ii) Directors
constituting a majority of the number of Directors of the Company then in
office.
18. AMENDMENT OR TERMINATION. The Board or the Committee may at any time
terminate, suspend or modify the Plan without the authorization of shareholders
to the extent allowed by law, including without limitation any rules issued by
the Securities and Exchange Commission under Section 16 of the 1934 Act,
insofar as shareholder approval thereof is not required in order for the Plan
to continue to satisfy the requirements of Rule 16b-3 under the 1934 Act. No
termination, suspension or modification of the Plan shall adversely affect any
right acquired by any participant under an award granted before the date of
such termination, suspension or modification, unless
12
<PAGE>
such participant shall consent; but it shall be conclusively presumed that any
adjustment for changes in capitalization as provided for herein does not
adversely affect any such right.
19. EFFECT ON OTHER PLANS. Unless otherwise specifically provided,
participation in this Plan shall not preclude an employee's eligibility to
participate in any other benefit or incentive plan and any awards made pursuant
to this Plan shall not be considered as compensation in determining the
benefits provided under any other plan.
20. DURATION OF THE PLAN. The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of shares or the payment of
cash, but no award shall be granted more than ten years after the date the Plan
is approved by the shareholders, which shall be its effective date of adoption.
13
<PAGE>
NIPSCO INDUSTRIES, INC.
- -------------------------------------------------------------------------------
OFFICERS NOTICE OF ANNUAL
MEETING AND
Gary L. Neale
Chairman President and PROXY STATEMENT
Chief Executive Officer
Stephen P. Adik 1994
Executive Vice President,
Chief Financial Officer, and
Treasurer
Patrick J. Mulchay
Executive Vice President,
Chief Operating Officer,
Electric
Jeffrey W. Yundt
Executive Vice President,
Chief Operating Officer,
Gas
Owen C. Johnson
Vice President,
Human Resources
David A. Kelly
Vice President,
Real Estate and Taxes
Jerry M. Springer
Controller
Dennis E. Senchak
Assistant Treasurer
Nina M. Rausch
Secretary
NIPSCO INDUSTRIES, INC.
5265 Hohman Avenue
Hammond, Indiana 46320-1775 [NIPSCO LOGO]
- -------------------------------------------------------------------------------
<PAGE>
PROXY PROXY
NIPSCO INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS, APRIL 13, 1994
The undersigned hereby appoints Gary L. Neale, Stephen P. Adik and Jerry M.
Springer, or any of them, the attorneys and proxies of the undersigned, with
full power of substitution, for and in the name of the undersigned to represent
and vote the shares of the undersigned at the Annual Meeting of Shareholders of
the Company, to be held at the Century Center, 120 South St. Joseph Street,
South Bend, Indiana, on Wednesday, April 13, 1994, at 10 a.m., EST, and at any
adjournment or adjournments thereof, in accordance with the Notice and Proxy
Statement received upon the matters set forth on the reverse hereof.
UNLESS A CONTRARY POSITION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF DIRECTORS AND "FOR" APPROVAL OF THE 1994 LONG-TERM INCENTIVE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" APPROVAL OF THE LONG-TERM INCENTIVE PLAN.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
- --------------------------------------------------------------------------------
FOR WITHHOLD FOR ALL
1. ELECTION OF DIRECTORS-- / / / / / /
Nominees: Arthur J. Decio,
Gary L. Neale and (Except Nominee(s) written below)
Robert J. Welsh, Jr.
____________________________________________
FOR AGAINST ABSTAIN
2. Approval of the NIPSCO / / / / / /
Industries, Inc. 1994
Long-Term Incentive Plan.
3. Transacting such other business as may
properly come before the meeting or any
adjournment or adjournments thereof.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON,
PLEASE INDICATE THE NUMBER OF SHAREHOLDER(S) [ ]
ATTENDING IN THE FOLLOWING BOX:
Dated: _________________________, 1994
Signature(s) _________________________________________________
______________________________________________________________
Please sign exactly as name appears hereon. Joint owners
should each sign. Where applicable, indicate official
position or representative capacity.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
- --------------------------------------------------------------------------------
