<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:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NIPSCO Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
LOGO NIPSCO INDUSTRIES, INC.
801 E. 86th Avenue . Merrillville, IN 46410 . (219) 853-5200
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING
March 9, 1998
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 Westin Hotel, 50 South Capitol Avenue,
Indianapolis, Indiana, on Wednesday, April 8, 1998, at 10:00 a.m., Eastern
Standard Time, for the following purposes:
(1) to elect four members of the Board of Directors, each for a term of
three years;
(2) to consider and vote upon an amendment to the Company's Articles of
Incorporation to increase the authorized number of the Company's Common Shares
from 200,000,000 to 400,000,000; 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 26, 1998, will be entitled to vote at the
meeting. The stock transfer books will not close.
The Company has approximately 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 so 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" ALL OF THE NOMINEES FOR DIRECTOR AND "FOR" APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION. IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE ANNUAL MEETING, THE PERSONS NAMED IN THE ACCOMPANYING
PROXY WILL VOTE THE SHARES REPRESENTED BY SUCH PROXIES ON SUCH MATTERS IN
ACCORDANCE WITH THEIR BEST JUDGMENT.
The proxy statement and form of proxy are first being sent to shareholders
on March 9, 1998. 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 and the Tax Deferred Savings Plan, will
be represented on one 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.
STOCK SPLIT--
All references throughout this Proxy Statement to number of shares reported
including per share amounts, stock option data, restricted share awards and
market price of Common Shares have been restated to reflect the two-for-one
stock split as if it had occurred at the beginning of
1
<PAGE>
the earliest period. The stock split was paid February 20, 1998 to holders of
record as of the close of business on January 30, 1998.
VOTING SECURITIES--
The close of business on February 26, 1998, 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 26, 1998, the Company
had issued and outstanding Common Shares owned by approximately
shareholders of record. Each Common Share is entitled to one vote on 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 of election will determine whether or not a quorum is present. A
plurality of the votes cast at the meeting is required to elect a director.
The affirmative vote of a majority of the votes cast is required to approve
the proposal to amend the Articles of Incorporation. Votes cast by proxy or in
person at the meeting will be tabulated by the judges of election appointed
for the meeting. Abstentions and broker non-votes will be treated as shares
that are present, in person or by proxy, for the purposes of determining the
presence of a quorum at the Annual Meeting. Abstentions and broker non-votes
will not be counted as votes cast on any matter presented at the Annual
Meeting. As a result, abstentions and broker non-votes will not have any
effect on Proposals 1 and 2, other than in determining the existence of a
quorum.
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Board of Directors is composed of ten 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 Steven C.
Beering, James T. Morris and Denis E. Ribordy, each for a term of three years.
In addition, upon recommendation of the Nominating and Compensation Committee,
the Board of Directors has nominated Carolyn Y. Woo to replace Ernestine M.
Raclin, who is retiring with the grateful thanks of the Board of Directors at
the expiration of her term. 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.
2
<PAGE>
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.
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN
FOR PAST FIVE YEARS AND PRESENT DIRECTOR
DIRECTORSHIPS HELD SINCE
----------------------------------- --------
NOMINEES FOR TERMS TO EXPIRE IN 2001
<S> <C>
Steven C. Beering, 65-President of Purdue University, West Lafayette,
Indiana. Dr. Beering is also a director of Arvin Industries, Inc.,
American United Life Insurance Company and Eli Lilly and Company.... 1986
James T. Morris, 54, Chairman and Chief Executive Officer, IWC
Resources Corporation, Indianapolis, Indiana. Mr. Morris is also a
director of Paul Harris Stores, Inc. and National City Bank
(Indianapolis)...................................................... 1997
Denis E. Ribordy, 68, Vice Chairman of the Chicago Motor Club,
Chicago, Illinois; 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
Carolyn Y. Woo, 43, Gillen Dean and Siegfried Professor, College of
Business Administration, University of Notre Dame, South Bend,
Indiana. Ms. Woo is also a director of Bindley Western Industries,
Inc................................................................. --
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Arthur J. Decio, 67-Chairman of the Board and Chief Executive Officer
and
Director of Skyline Corporation, Elkhart, Indiana, a manufacturer of
manufactured housing and recreational vehicles. Mr. Decio is also a
director of Quality Dining, Inc. and St. Joseph Capital Corporation. 1991
Gary L. Neale, 58-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. Mr. Neale is also a director
of Modine Manufacturing Company and Chicago Bridge and Iron Company. 1991
Robert J. Welsh, 62-Chairman, President and Chief Executive Officer
of Welsh, Inc., Merrillville, Indiana, a marketer of petroleum
products through convenience stores and travel centers. Mr. Welsh is
also a director of NBD Indiana, Inc................................. 1988
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATIONS HAS BEEN
FOR PAST FIVE YEARS AND PRESENT DIRECTOR
DIRECTORSHIPS HELD SINCE
----------------------------------- --------
DIRECTORS WHOSE TERMS EXPIRE IN 1999
<S> <C>
Ian M. Rolland, 64-Chairman and Chief Executive Officer, and
President since January 1, 1997, of Lincoln National Corporation,
Fort Wayne, Indiana, an insurance and financial services firm. Mr.
Rolland is also a director of Lincoln National Corporation, Tokheim
Corporation, and Norwest Corporation................................ 1978
Edmund A. Schroer, 70-Retired March 1, 1993 as Chairman, President
and Chief Executive Officer of the Company and Chairman and Chief
Executive Officer of Northern Indiana............................... 1977
John W. Thompson, 48-General Manager-IBM North America of IBM
Corporation, White Plains, New York. IBM is a worldwide corporation,
whose offerings include services, software systems, products and
technologies. Mr. Thompson is also a director of Fortune Brands
Inc................................................................. 1993
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS--
The Board of Directors of the Company met ten times during 1997. The Board
has the following six standing committees: the Executive Committee, the Audit
Committee, the Nominating and Compensation Committee, the Environmental
Affairs Committee, the Public Affairs and Employment Committee and the
Corporate Governance Committee.
During 1997, each director attended at least 75% of the combined total
number of the Company's Board meetings and the meetings of the respective
committees on which he or she was a member, except for Ian M. Rolland who
attended 72% of his total meetings.
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 1997. Mr. Neale was Chairman and Messrs. Decio,
Ribordy, Rolland and Welsh were members of the Committee in 1997.
The Audit Committee met five times in 1997. The Committee has reviewed and
made recommendations to the Board with respect to the engagement of the
independent public accountants, both for 1997 and 1998, and the fees relating
to audit services and other services performed by them. The Committee meets
with the independent public accountants and officers
4
<PAGE>
responsible for Company financial matters. Members of the Committee in 1997
were Mr. Rolland, Chairman, and Messrs. Decio, Schroer and Thompson.
The Nominating and Compensation Committee met twice in 1997. 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 1997. 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 1999 annual
meeting must deliver a written notice to the Secretary of the Company by
November 9, 1998. 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 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 1997. The Committee
reviews the status of environmental compliance of the Company, and considers
Company public policy issues. Members of the Committee in 1997 were Mr. Welsh,
Chairman, Dr. Beering and Messrs. Decio and Schroer.
The Public Affairs and Employment Committee met twice in 1997. The Committee
advises the Board regarding charitable and political contributions, employment
policies, shareholder proposals concerning matters of general public interest
and consumer and utility industry related issues. Members of the Committee in
1997 were Mrs. Raclin, Chairman, and Messrs. Morris, Ribordy, Rolland and
Thompson.
The Corporate Governance Committee met once in 1997. 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 1997.
5
<PAGE>
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. Directors of the Company do
not receive any additional compensation for services as a director of any
Company subsidiary, including Northern Indiana. 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 an amount equal
to 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 500 shares for each year of service as a director, and 2,000
restricted Common Shares have been granted to each nonemployee director
elected or reelected since that date. A grant of 2,000 shares 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.
During 1997, Mr. Morris was awarded a grant of 666 restricted Common Shares
under the Company's 1988 Long-Term Incentive Plan. The restricted shares will
vest in 20% increments per year, and otherwise have terms that mirror
restricted shares awarded under the Nonemployee Director Stock Incentive Plan.
Mr. Morris is not eligible for awards under the Nonemployee Director Plan.
The Company has adopted a Directors' Charitable Gift Program for nonemployee
directors. Under the program, the Company makes a donation to one or more
eligible tax-exempt organizations as designated by each eligible director. The
Company contributes up to an aggregate of $125,000 as designated by
nonemployee directors having served as a director of the Company for at least
five years and up to $250,000 as designated by those having served ten years
or more. Organizations eligible to receive a gift under the program include
charitable organizations and educational institutions located in Indiana and
educational institutions that the director attended or for which he or she
serves on its governing board. Individual directors
6
<PAGE>
derive no financial benefit from the program, as all deductions relating to
the charitable donations accrue solely to the Company. All current nonemployee
directors are eligible to participate in the program.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--
On March 25, 1997, the Company acquired IWC Resources Corporation, an
Indiana corporation ("IWC"). Mr. James T. Morris was Chairman of the Board,
Chief Executive Officer and President of IWC and held IWC common shares.
Pursuant to the acquisition transaction, Mr. Morris received Company Common
Shares and cash in exchange for his IWC common shares in the same proportion
as other IWC shareholders. In connection with the IWC acquisition transaction,
Mr. Morris was appointed to serve as a director of the Company, IWC entered
into a three-year employment agreement with Mr. Morris, guaranteed by the
Company, and Mr. Morris entered into a covenant not to compete with the
Company. The employment agreement provides Mr. Morris base compensation and
certain performance-based bonuses. For 1997, Mr. Morris earned base
compensation of $360,535, a completion bonus related to the merger of
$1,158,573 and performance-based bonuses of $1,371,787. In consideration of
Mr. Morris' covenant not to compete, he will be paid $3,318,756. Some of the
foregoing payments were deferred and interest totaling $298,548 was paid to
Mr. Morris in 1997 in respect of deferred payments. Mr. Morris also received
for 1997 an annual deferred compensation payment, payable at termination of
his employment, of $10,829, the amount the Company would have contributed to
its defined benefit pension plan had Mr. Morris participated in the plan, and
Mr. Morris was awarded a supplemental annual pension benefit of $43,643, which
amount included the amount previously payable to Mr. Morris under the IWC
defined benefit plan adjusted for actuarial and plan-provided discounts.
Certain of the above payments may be increased in respect of taxes payable.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The Company is not aware of any beneficial owner of more than 5% of its
Common Shares, as of January 31, 1998.
The following table sets forth information as to the beneficial ownership of
Common Shares, as of January 31, 1998, for each of the directors and named
executive officers, and for all directors and executive officers as a group.
All Common Share information has been restated to reflect the two-for-one
stock split to shareholders of record on January 30, 1998, payable February
20, 1998.
<TABLE>
<CAPTION>
NAME OF
BENEFICIAL AMOUNT AND NATURE OF
OWNER BENEFICIAL OWNERSHIP(/1/)
---------- -------------------------
<S> <C>
Steven C. Beering.............................. 6,352
Arthur J. Decio................................ 8,500
James T. Morris................................ 36,970
Gary L. Neale.................................. 460,236(/2/)
Ernestine M. Raclin............................ 23,010(/3/)
Denis E. Ribordy............................... 55,000(/4/)
Ian M. Rolland................................. 16,132
Edmund A. Schroer.............................. 25,800
John W. Thompson............................... 4,878
Robert J. Welsh................................ 12,000
Carolyn Y. Woo................................. 0
Stephen P. Adik................................ 235,652(/2/)
Patrick J. Mulchay............................. 171,988(/2/)
Jeffrey W. Yundt............................... 194,502(/2/)
Joseph L. Turner............................... 121,762(/2/)
All directors and executive officers as a
group......................................... 1,851,415
</TABLE>
- --------
(/1/) The number of shares owned includes shares held in the Company's
Automatic Dividend Reinvestment and Share Purchase Plan, shares held in
the Company's Tax Deferred Savings Plan (the "401(k) Plan") and
restricted shares awarded under the Company's 1988 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 is approximately 1.49 percent of the
Common Shares outstanding.
(/2/) The totals include shares for which the following executive officers
have a right to acquire beneficial ownership, within 60 days after
January 31, 1998, by exercising stock options
8
<PAGE>
granted under the Incentive Plan: Gary L. Neale--290,000 shares; Stephen
P. Adik--143,200 shares; Patrick J. Mulchay--114,400 shares; Jeffrey W.
Yundt--132,000 shares; Joseph L. Turner--69,000 shares; and all executive
officers as a group--1,018,100 shares.
(/3/) Ms. Raclin will retire as a director of the Company at the expiration of
her term.
(/4/) Mr. Ribordy disclaims beneficial ownership of 200 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 person who
served as Chief Executive Officer of the Company during 1997 and the four
other most highly compensated executive 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 reward performance that creates 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 1997.
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 energy companies, typically electric, gas or combination utility
companies, approximately half of which are located in the Midwest. The 1997
executive compensation comparative group consisted of 21 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 in future years if information about any company included in the group
is not available, if it is determined that any companies included in the group
are no longer competitors for executive talent, or if different energy or
other types of companies are determined to be competitors. The changing nature
of the Company's competitive businesses is expected to require the inclusion
of nonutility companies into the comparative compensation group in future
years. 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.
9
<PAGE>
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 compensation through
the Bonus and Incentive Plans described below to allow total compensation to
fluctuate according to the Company's financial performance. Long-term
incentive awards are stock-based (e.g., stock options or goal-based restricted
stock awards) to emphasize long-term stock price appreciation and the
concomitant increased shareholder value. In 1997, total compensation of the
executive officers, including the Chief Executive Officer, was targeted
between the 50th and the 75th percentile of the comparative compensation
group. Total compensation would reach this level only if the Company met its
earnings per share for the year and its long-term stock price targets. For
those executive officers with significant responsibilities for Northern
Indiana's business, their total compensation is also dependent on Northern
Indiana's pre-tax operating income. Base salaries of the executive officers,
as a group, varied from 40% to 55% of total target compensation.
In establishing Mr. Neale's base salary for 1997, the Compensation Committee
reviewed information provided by Hewitt regarding the chief executive officer
compensation practices of comparative energy companies. 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 strong
performance with the Company since joining it as Executive Vice President and
Chief Operating Officer in 1989. As with the other executive officers, Mr.
Neale's total compensation was targeted to be between the 50th and the 75th
percentile of the comparative compensation group, depending upon the Company's
financial performance. The result of the Compensation Committee's
determination as to Mr. Neale's total compensation package was that more than
50% of Mr. Neale's total compensation was performance based and at risk,
dependent upon the Company's earnings per share and stock price performance.
This compensation would be realized only if specific financial benchmarks were
reached by the Company.
Annual incentive awards for all executive officers are determined in
accordance with the 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. Bonuses awarded to each of the Named
Officers (including the Chief Executive Officer) are based on overall
corporate financial performance, rather than individual performance of the
executive. In 1997, the bonus formula (and the relative weight of the factors
on which it was based) was based upon attaining targets for the Company's
earnings per share and, in the case of executive officers who have significant
responsibilities for Northern Indiana, the pre-tax operating income of
Northern
10
<PAGE>
Indiana. The range of awards and levels of awards (as a percent of base
salary), if financial performance targets are achieved, are as follows:
<TABLE>
<CAPTION>
AWARD IF
RANGE TARGETS MET
-------- -----------
<S> <C> <C>
Chief Executive Officer................................. 0 to 85% 70%
Executive Vice Presidents............................... 0 to 75% 65%
Vice Presidents......................................... 0 to 65% 45%
</TABLE>
The required financial performance levels of the Company necessary to attain
the maximum and target bonus levels have been increased annually since the
inception of the Bonus Plan in 1990. In 1997, the Company's actual earnings
per share were slightly more than targeted.
Executive officers are also eligible to receive awards under the Company's
Long-Term Incentive Plan. Under the Long-Term Incentive Plan, stock options,
stock appreciation rights, performance units, restricted stock awards and
supplemental cash payments may be awarded. Stock options and restricted stock
awards were awarded in 1997. Base salaries of the executive officers, prior
awards under the Long-Term Incentive Plan, and the Company's total
compensation target are considered in establishing long-term incentive awards.
Options and restricted stock awards 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 1997, the number of options and restricted shares granted to
the Chief Executive Officer and other executive officers (including all Named
Officers) was based on these considerations. The compensation value of stock
options and/or restricted stock awards depends on actual stock price
appreciation. In addition, restricted stock awards are subject to performance
vesting criteria. The criteria for 1997 awards involve meeting specific
performance objectives.
Section 162(m) of the Internal Revenue Code provides that compensation in
excess of $1,000,000 per year paid to the chief executive officer or any of
the four other most highly compensated executive officers employed at year-
end, other than compensation meeting the definition of "performance based
compensation," will not be deductible by a corporation for federal income tax
purposes. The Compensation Committee believes that the Company's incentive
bonus and long-term stock-based compensation constitutes performance based
compensation for purposes of the Internal Revenue Code. In light of its
emphasis on such performance based compensation, the Compensation Committee
does not anticipate that the limits of Section 162(m) will affect the
deductibility of any compensation paid by the Company. However, the
Compensation Committee will continue to review the deductibility of
compensation under Section 162(m) and related regulations.
11
<PAGE>
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
January 30, 1998
12
<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 1992 through 1997,
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, 1992 and the reinvestment of dividends.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG NIPSCO INDUSTRIES, S&P 500 INDEX AND DJ UTILITIES
<TABLE>
<CAPTION>
Measurement Period NIPSCO S&P 500
(Fiscal Year Covered) INDUSTRIES INDEX DJ UTILITIES
- ------------------- ---------- --------- ------------
<S> <C> <C> <C>
Measurement Pt-
12/31/92 $100.00 $100.00 $100.00
FYE 12/31/93 $129.44 $110.06 $109.65
FYE 12/31/94 $122.84 $111.50 $ 92.93
FYE 12/31/95 $165.57 $153.35 $122.96
FYE 12/31/96 $179.38 $188.54 $134.26
FYE 12/31/97 $233.79 $251.42 $165.13
</TABLE>
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS--
Summary. The following table summarizes all annual and long-term
compensation for services to the Company and its subsidiaries, including
Northern Indiana, for the years 1997, 1996 and 1995 awarded to, earned by or
paid to each of the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(/1/) LONG-TERM COMPENSATION
------------------------------ -----------------------------
AWARDS PAYOUTS
------ -------
OTHER SECURITIES LONG-TERM ALL
ANNUAL UNDER- INCENTIVE OTHER
COMPEN- LYING PLAN COMPEN-
SALARY BONUS SATION OPTIONS/ PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(/2/) ($)(/3/) SARS (#) ($)(/4/) ($)(/5/)
--------------------------- ---- ------ -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Neale, 1997 520,000 390,000 6,711 50,000 -- 42,993
Chairman, President and Chief 1996 460,000 236,624 5,161 50,000 567,188 40,129
Executive Officer 1995 460,000 286,120 2,746 40,000 527,812 36,077
Stephen P. Adik, 1997 250,000 171,250 2,575 20,000 -- 5,673
Executive Vice President, Chief 1996 205,000 84,952 9,103 20,000 283,594 5,919
Financial Officer and Treasurer 1995 205,000 107,101 2,400 20,000 263,906 5,998
Patrick J. Mulchay, 1997 210,000 150,675 851 20,000 -- 7,506
Executive Vice President and Chief 1996 175,000 72,520 1,614 20,000 283,594 7,717
Operating Officer-Northern Indiana 1995 175,000 91,350 756 20,000 87,968 8,368
Public Service Company
Jeffrey W. Yundt, 1997 210,000 143,850 8,905 20,000 -- 3,693
Executive Vice President and Chief 1996 175,000 72,520 1,671 20,000 283,594 3,824
Operating Officer--Energy Services 1995 175,000 91,350 1,217 20,000 263,906 3,947
Joseph L. Turner, 1997 180,000 113,675(/6/) 1,175 8,000 -- 7,599
Senior Vice President 1996 160,000 182,958 5,144 10,000 283,594 8,100
1995 160,000 66,816 1,302 10,000 263,906 8,567
</TABLE>
- --------
(/1/) Compensation deferred at the election of the Named Officer is reported in
the category and year in which such compensation was earned.
(/2/) All bonuses are paid pursuant to the Bonus Plan, except for a portion of
the bonus paid to Joseph L. Turner, which is described in Note 6. The
Bonus Plan is designed to supplement a conservative base salary with
incentive bonus payments if targeted financial performance is attained.
The 1997 target aggregate payout for the Bonus Plan for the Named Officers
was $886,800 which was less than the actual aggregate payout for the Named
Officers. See "Nominating and Compensation Committee Report on Executive
Compensation."
14
<PAGE>
(/3/) In accordance with applicable Securities and Exchange Commission rules,
the amounts shown for each of the Named Officers do not include
perquisites and other personal benefits, as the aggregate amount of such
benefits is less than the lesser of $50,000 and 10% of the total salary
and bonus of such Named Officer.
(/4/) The payouts shown are based on the value, at date of vesting, of
restricted shares awarded under the Long-Term Incentive Plan which vested
during the years shown. Vesting was based on meeting certain performance
requirements. Total restricted shares held (assuming 100% vesting) and
aggregate market value at December 31, 1997 (based on the average of the
high and low sale prices of the Common Shares on that date as reported in
The Wall Street Journal) for the Named Officers were as follows: Mr.
Neale, 124,000 shares valued at $3,072,875; Mr. Adik, 48,000 shares valued
at $1,189,500; Messrs. Mulchay and Yundt, 40,000 shares each valued at
$991,250; and Mr. Turner, 28,056 shares (includes 4,056 shares purchased
pursuant to the PE Plan described in footnote 6) valued at $695,263.
Dividends on the restricted shares are paid to the Named Officers.
(/5/) The Chairman, President and Chief Executive Officer, the Executive Vice
Presidents and certain Vice Presidents of the Company and Northern Indiana
have available to them a supplemental life insurance plan which provides
split-dollar coverage of up to 3.5 times base compensation as of
commencement of the plan in 1991 and could provide life insurance coverage
after retirement if there is adequate cash value in the respective policy.
"All other compensation" represents Company contributions to the 401(k)
Plan and the dollar value of the benefit to the Named Officers of the
remainder of the premiums paid by the Company during 1997 on behalf of the
Named Officers under the supplemental life insurance plan, as follows: Mr.
Neale--$1,055 401(k) Plan, $40,116 premium value and $1,822 term insurance
cost; Mr. Adik--$1,055 401(k) Plan, $4,035 premium value and $583 term
insurance cost; Mr. Mulchay, $344 401(k) Plan, $6,628 premium value and
$534 term insurance cost; Mr. Yundt, $3,287 premium value and $406 term
insurance cost and Mr. Turner--$6,654 premium value and $945 term
insurance cost. The value of the life insurance premiums paid by the
Company in excess of term insurance cost on behalf of the Named Officers
under the supplemental life insurance plan has been restated for all
periods in accordance with the present value interest-free loan method.
(/6/) Joseph L. Turner is also President of Primary Energy, Inc., and
participates in the Primary Energy Incentive Plan ("PE Plan"). The PE Plan
provides for a bonus based on meeting certain financial performance
criteria of Primary Energy. Under the PE Plan, $41,043 of Mr. Turner's
bonus for 1997 was used to purchase Common Shares of the Company on or
about February 27, 1998, the date of payment of the bonus. The PE Plan
requires that the Common Shares are restricted for a period of five years,
subject to continued employment, except that they vest earlier in the
event of the employee's retirement, death or disability.
15
<PAGE>
Option Grants in 1997. The following table sets forth grants of options to
purchase Common Shares made during 1997 to the Named Officers. No stock
appreciation rights were awarded during 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL GRANT
UNDERLYING OPTIONS/SARS DATE
OPTIONS/SARS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES IN BASE EXPIRATION VALUE
NAME (#)(/1/) FISCAL YEAR(/2/) PRICE ($/SH)(/3/) DATE ($)(/4/)
- ---- ------------ ---------------- ----------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........... 50,000 9.4% 20.64 08/27/07 $133,000
Stephen P. Adik......... 20,000 3.7% 20.64 08/27/07 53,200
Patrick J. Mulchay...... 20,000 3.7% 20.64 08/27/07 53,200
Jeffrey W. Yundt........ 20,000 3.7% 20.64 08/27/07 53,200
Joseph L. Turner........ 8,000 1.5% 20.64 08/27/07 21,280
</TABLE>
- --------
(/1/) All options granted in 1997 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/) Based on an aggregate of 533,600 options granted to all employees in 1997.
(/3/) All options were granted at the average of high and low sale prices of the
Common Shares as reported in The Wall Street Journal on the date of grant.
(/4/) 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--12.2% (calculated using daily Common
Share prices for the twelve-month period preceding the date of grant);
risk-free rate of return--6.64% (the rate for a ten-year U.S. treasury);
dividend yield--$0.90; option term--ten years; vesting--100% one year
after date of grant; and an expected option term of 5.25 years. No
assumptions relating to non-transferability or risk of forfeiture were
made. Actual gains, if any, on option exercises and Common Shares are
dependent on the future performance of the Common Shares and overall
market condition. There can be no assurance that the amounts reflected in
this table will be achieved.
16
<PAGE>
Option Exercises in 1997. The following table sets forth certain information
concerning the exercise of options or stock appreciation rights ("SARs")
during 1997 by each of the Named Officers and the number and value of
unexercised options and SARs at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ACQUIRED OPTIONS/SARS AT FISCAL AT FISCAL YEAR-END
ON VALUE YEAR-END (#)(/1/) ($)(/2/)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Neale........... 0 $ 0 290,000 50,000 $3,010,312 $207,030
Stephen P. Adik......... 0 0 143,200 20,000 1,669,175 82,812
Patrick J. Mulchay...... 0 0 114,400 20,000 1,166,450 82,812
Jeffrey W. Yundt........ 0 0 132,000 20,000 1,452,875 82,812
Joseph L. Turner........ 10,000 87,813 69,000 8,000 658,156 33,124
</TABLE>
- --------
(/1/) Includes some SARs granted in tandem with options.
(/2/) Represents the difference between the option exercise price and $24.78,
the average of high and low sale prices of the Common Shares on December
31, 1997, as reported in The Wall Street Journal.
Long-Term Incentive Plan Awards in 1997. The following table sets forth
restricted shares awarded pursuant to the Long-Term Incentive Plan during 1997
to each of the Named Officers.
LONG-TERM STOCK INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
PERIOD ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION ------------------------------------
NAME RIGHTS (#) OR PAYOUT THRESHOLD (#) TARGET (#) MAXIMUM (#)
- ---- ----------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gary L. Neale........... 18,000 2 years 0 18,000 18,000
Stephen P. Adik......... 0 0 0 0 0
Patrick J. Mulchay...... 0 0 0 0 0
Jeffrey W. Yundt........ 0 0 0 0 0
Joseph L. Turner........ 0 0 0 0 0
</TABLE>
17
<PAGE>
The restrictions on shares awarded during 1997 lapse two years from the date
of grant. The vesting of the restricted shares is variable from 0% to 100% of
the number awarded, based upon meeting certain specific non-financial
performance objectives. There is a two-year holding period for the shares
after the restrictions lapse.
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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
- ------------ ---------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 350,000.............................. 144,750 193,000 201,750 210,500 210,500
400,000.............................. 167,250 223,000 233,000 243,000 243,000
450,000.............................. 189,750 253,000 264,250 275,500 275,500
500,000.............................. 212,250 283,000 295,500 308,000 308,000
550,000.............................. 234,750 313,000 326,750 340,500 340,500
600,000.............................. 257,250 343,000 358,000 373,000 373,000
650,000.............................. 279,750 373,000 389,250 405,500 405,500
700,000.............................. 302,250 403,000 420,500 438,000 438,000
750,000.............................. 324,750 433,000 451,750 470,500 470,500
800,000.............................. 347,250 463,000 483,000 503,000 503,000
850,000.............................. 369,750 493,000 514,250 535,500 535,500
900,000.............................. 392,250 523,000 545,500 568,000 568,000
950,000.............................. 414,750 553,000 576,750 600,500 600,500
1,000,000.............................. 437,250 583,000 608,000 633,000 633,000
1,050,000.............................. 459,750 613,000 639,250 665,500 665,500
1,100,000.............................. 482,250 643,000 670,500 698,000 698,000
</TABLE>
The credited years of service for each of the Named Officers, pursuant to
the Supplemental Plan, are as follows: Gary L. Neale--23 years; Stephen P.
Adik--19 years; Patrick J. Mulchay--35 years; Jeffrey W. Yundt--18 years; and
Joseph L. Turner--26 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
18
<PAGE>
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 Company, 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 Internal Revenue Code
of 1986 (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. The benefits listed in the Pension
Plan table are not subject to any deduction for Social Security or other
offset amounts.
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 five-year average
pay less Primary Social Security Benefits (prorated for less than 20 years of
service) and an additional 0.5% of 5-year average pay less Primary Social
Security Benefits per year for participants with between 20 and 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--
The Board of Directors of the Company has authorized Change in Control and
Termination Agreements (the "Agreements") with Mr. Neale and the Vice
Presidents of the Company (including each of the Named Officers) (each such
person being an "executive"). The Company believes that these Agreements and
related shareholder rights protections are in the best
19
<PAGE>
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 target
incentive bonus compensation and the continuation of certain employee benefits
for a period of 36 months (the "Severance Period"), if the executive's
employment is terminated within 24 months of certain changes in control of the
Company.
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 amounts under the contracts, the Company would increase the payment to the
extent necessary to compensate the executive 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).
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 NO. 2--AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES
The Board of Directors of the Company has unanimously adopted, and
recommends that the shareholders approve, an amendment to Article V, Section A
of the Articles of Incorporation of the Company (the "Articles"), to increase
the number of authorized Common Shares from 200,000,000 to 400,000,000. If the
proposed amendment is approved, Article V, Section A would be amended to read
as follows:
The total number of shares which the Corporation shall have the authority
to issue shall be 420,000,000 shares, of which 400,000,000 shares shall be
Common Shares without par value and 20,000,000 shares shall be Preferred
Shares without par value.
20
<PAGE>
The Company currently is authorized to issue 200,000,000 Common Shares, of
which Common Shares were issued and outstanding as of February 26,
1998. Common Shares outstanding include the Common Shares issued on
February 20, 1998 in connection with the two for one stock split authorized by
the Board of Directors on December 16, 1997. In addition, as of February 26,
1998, the Company had Common Shares held in its treasury, leaving
authorized Common Shares available for issuance. Adoption of the
proposed amendment would increase the Common Shares available for issuance to.
The additional Common Shares for which authorization is sought would be part
of the existing class of Common Shares and, if and when issued, would have the
same rights and privileges as Common Shares presently outstanding. Holders of
Common Shares do not have preemptive rights to subscribe for and purchase any
new or additional Common Shares or securities convertible into Common Shares.
The Board of Directors believes that the increase in the number of
authorized Common Shares is in the best interests of the Company and its
shareholders. The purpose of increasing the number of authorized Common Shares
is to have shares available for issuance for such corporate purposes as the
Board of Directors may determine in its discretion, including, without
limitation, future acquisitions, investment opportunities, stock splits, stock
dividends or other distributions, conversion of convertible securities, future
financings and other corporate purposes. Except for the agreement to acquire
Bay State Gas Company, which is expected to be consummated in the third
quarter of 1998 and which calls for at least 50% of the purchase price to be
payable in Common Shares, the Company has no agreements or understandings
regarding the issuance of additional Common Shares.
Under the provisions of the Indiana Business Corporation Law, a board of
directors generally may issue authorized but unissued common shares without
shareholder approval. A substantial number of authorized but unissued Common
Shares not reserved for specific purposes will allow the Company to take
prompt action with respect to corporate opportunities that develop without the
delay and expense of convening a special meeting of shareholders. The issuance
of additional Common Shares may, depending upon the circumstances under which
such shares are issued, reduce shareholders' equity per share and may reduce
the percentage of ownership of Common Shares of existing shareholders. It is
not the present intention of the Board of Directors to seek shareholder
approval prior to any issuance of additional Common Shares unless required by
law or the rules of the New York Stock Exchange, or any other stock exchange
on which the Common Shares may be listed. The New York Stock Exchange
currently requires shareholder approval as a prerequisite to listing shares in
several
21
<PAGE>
instances, including acquisition transactions where the present or potential
issuance of shares could result in an increase in the number of Common Shares
outstanding by 20% or more.
Although the Company currently has no reason to believe that a takeover
attempt is likely to occur, increasing the number of authorized Common Shares
may provide the Company with the means of discouraging any such attempt. Such
additional Common Shares could be used in the future, through private sales to
purchasers allied with management or otherwise, to dilute the stock ownership
of persons seeking to obtain control of the Company, thus making less likely a
change of control of the Company, whether or not favored by a majority of
unaffiliated shareholders, with the possible effect of deterring an offer for
the Company at a substantial premium over the current market price of the
Common Shares. The Company has no present intention to issue securities for
any such purpose.
The Company's Articles also contain a provision authorizing the issuance,
without further shareholder approval, of up to 20,000,000 preferred shares
with such rights, preferences and limitations as determined by the Board. Such
preferred shares could be issued by the Board in one or more transactions with
terms which might make the acquisition of a controlling interest in the
Company more difficult and costly. The Company has reserved 2,000,000
preferred shares for issuance in connection with the Company's Share Purchase
Rights Plan, described below.
In February 1990, the Company adopted a Share Purchase Rights Plan ("Rights
Plan") and issued, as a dividend, one Preferred Share Purchase Right (a
"Right") for each outstanding Common Share. Each Common Share issued since the
date of that dividend also includes one Right. Each Right entitles the holder
to buy one two-hundredth of a Series A Junior Participating Preferred Share at
a price of $30, subject to adjustment. The Rights will be exercisable only if
a person or group acquires 20% or more of the voting power of the Company or
announces a tender or exchange offer following which it would hold 25% or more
of the Company's voting power. If, following an acquisition by a person or
group of 25% or more of the Company's voting power, the Company were acquired
in a merger or other business combination, each Right would be exercisable for
that number of the acquiring company's shares of common stock having a market
value of two times the exercise price of the Right. The Company may redeem the
Rights at the price of $.01 per Right prior to the occurrence of an event that
causes the Rights to be exercisable for Common Shares. The Rights will expire
on March 12, 2000. The Rights Plan is intended as a means to protect the value
of the shareholders' investment in the Company, while preserving the
possibility of a fair acquisition bid.
The Company's Articles and By-Laws contain certain provisions which may be
viewed as having an antitakeover effect. Under the Articles, certain business
combinations proposed by (i)
22
<PAGE>
a person who is the beneficial owner of 10% or more of the voting power of the
outstanding voting shares of the Company or (ii) an affiliate or associate of
the Company who at any time within the five year period immediately preceding
the date of the business combination was the beneficial owner of 10% or more
of the voting power of the then outstanding shares of the Company (an
"Interested Shareholder"), must be approved by 80% of the outstanding voting
shares that are not beneficially owned by the Interested Shareholder, unless
certain fair price and procedural requirements are met, the business
combination is approved by the Company's Board before the Interested
Shareholder becomes an Interested Shareholder, or the business combination is
approved by the affirmative vote of the holders of the majority of the
outstanding voting shares that are not beneficially owned by the Interested
Shareholder no earlier than five years after such person becomes an Interested
Shareholder.
The Articles also classify the Board into three classes; provide that
vacancies on the Board are to be filled by a majority vote of directors, and
that directors so chosen shall hold office until the end of the full term of
the class in which the vacancy occurred; and provide that directors may only
be removed for cause by a two-thirds vote of the remaining directors or by a
two-thirds vote of shareholders at an annual meeting. A vote of the holders of
75% of the Company's outstanding voting stock is required to amend these
provisions. Under the Company's By-laws, a shareholder who wishes to submit a
nominee to the Board of Directors or propose business to be considered at the
annual meeting must give notice to the Company prior to the date set forth in
the Company's proxy statement for the preceeding annual meeting. Special
meetings of shareholders may only be called by the Chairman, President or
Board of Directors, or upon written request of the holders of at least 25% of
the outstanding voting shares. Each of these provisions tends to make a change
in control of the Board more difficult or time consuming.
The proposed amendment to the Articles is not being recommended for the
purpose of deterring a possible change in control of the Company or in
response to any specific effort of which the Company is aware to obtain
control of the Company, nor does the Board of Directors currently intend to
propose to shareholders any amendments which may have the effect of
discouraging takeover attempts.
The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve the amendment to the Articles to increase the number of
authorized Common Shares of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE TO APPROVE THE
AMENDMENT TO THE ARTICLES TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
FROM 200,000,000 TO 400,000,000.
23
<PAGE>
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 1999 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 9, 1998. 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of the Forms 3, 4 and 5 furnished to the
Company pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company believes that all of its directors, officers and beneficial owners of
more than 10% of its Common Shares filed all such reports on a timely basis
during 1997.
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, 1997. A copy of the Annual
Report has been sent, or is concurrently being sent, to all shareholders of
record as of February 26, 1998.
AVAILABILITY OF FORM 10-K
A copy of the Company's annual report for 1997 to the Securities and
Exchange Commission on Form 10-K, including the financial statements and the
financial statement schedules, but 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 46320-1775.
24
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been selected by the Board of Directors to serve as
the Company's independent public accountants for the year 1998, 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 9, 1998
25
<PAGE>
NIPSCO INDUSTRIES, INC.
----------------------------------------------------------------------------
NOTICE OF ANNUAL
OFFICERS MEETING AND
Gary L. Neale PROXY STATEMENT
Chairman,
President and 1998
Chief Executive
Officer
Stephen P. Adik
Executive Vice
President and
Chief Financial
Officer, and
Treasurer
Patrick J. Mulchay
Executive Vice
President and
Chief Operating
Officer, Northern
Indiana Public
Service Company
Jeffrey W. Yundt
Executive Vice
President and
Chief Operating
Officer, Energy
Services
Joseph L. Turner
Senior Vice
President, Major
Accounts
David A. Kelly
Vice President
Dennis E. Senchak
Assistant
Treasurer
Mark D. Wyckoff
Assistant
Treasurer
Nina M. Rausch
Secretary
NIPSCO INDUSTRIES, INC.
801 E. 86th Avenue
Merrillville, Indiana 46410 [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 8, 1998
The undersigned hereby appoints Gary L. Neale and Stephen P. Adik, or either 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 Westin Hotel, 50 South Capitol Avenue, Indianapolis, Indiana,
on Wednesday, April 8, 1998, at 10 a.m., EST, and at any adjournment or
adjournments thereof.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES LISTED IN
PROPOSAL 1, AND "FOR" PROPOSAL 2.
The undersigned shareholder hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement relating to the Annual Meeting and
hereby revokes any proxy or proxies heretofore given. The undersigned
shareholder may revoke this proxy at any time before it is voted by filing with
the Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by attending the Annual Meeting and voting in
person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
NIPSCO INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER
USING DARK INK ONLY.
0
I
0
- -
- -
For
0
Withheld
0
For All Except
0
1. To elect four directors to serve on the Board of Directors, each for a
three-year term and until their respective successors are elected and
qualified.
Nominees: Steven C. Beering, James T. Morris, Denis E. Ribordy and Carolyn Y.
Woo
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.
- --------------------------------------------------------------------------------
For
0
Against
0
Abstain
0
2. To amend Article V, Section A of the Company's Articles of Incorporation to
increase the number of authorized Common Shares, no par value per share, from
200,000,000 to 400,000,000.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE INDICATE THE NUMBER
OF SHAREHOLDER(S) ATTENDING IN THE FOLLOWING BOX:
Dated: _____________________________________________________________ , 1998
Signature(s) ___________________________________________________________________
- --------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHERE APPLICABLE, INDICATE YOUR OFFICIAL POSITION OR REPRESENTATIVE CAPACITY.
