______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-11377
CINERGY CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1385023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
139 East Fourth Street
Cincinnati, Ohio 45202
(Address of principal executive offices)
Registrant's telephone number: (513) 381-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (x)
As of February 28, 1995, the aggregate market value of Common Stock held by
non-affiliates was $3.8 billion.
As of February 28, 1995, 155,835,207 shares of Common Stock, par value $.01
per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of CINergy Corp. dated March 17, 1995, is incorporated by
reference into Part III of this report.
______________________________________________________________________________
CINERGY CORP.
TABLE OF CONTENTS
Item Page
Number Number
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . . 3
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Energy . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investments. . . . . . . . . . . . . . . . . . . . . . . 4
CINergy Services . . . . . . . . . . . . . . . . . . . . 5
Customer, Sales, and Revenue Data. . . . . . . . . . . . 6
Financial Information by Business Segment. . . . . . . . 6
Regulation . . . . . . . . . . . . . . . . . . . . . . . 6
Rate Matters . . . . . . . . . . . . . . . . . . . . . . 7
Power Supply . . . . . . . . . . . . . . . . . . . . . . 7
Fuel Supply. . . . . . . . . . . . . . . . . . . . . . . 8
Gas Supply . . . . . . . . . . . . . . . . . . . . . . . 8
Competition. . . . . . . . . . . . . . . . . . . . . . . 9
Capital Requirements . . . . . . . . . . . . . . . . . . 9
Environmental Matters. . . . . . . . . . . . . . . . . . 9
Employees. . . . . . . . . . . . . . . . . . . . . . . . 9
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . 10
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Energy . . . . . . . . . . . . . . . . . . . . . . . . . 11
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Subsidiaries . . . . . . . . . . . . . . . . . . . 12
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 12
Merger Litigation. . . . . . . . . . . . . . . . . . . . 12
Shareholder Litigation . . . . . . . . . . . . . . . . . 12
Fuel Litigation. . . . . . . . . . . . . . . . . . . . . 13
4 Submission of Matters to a Vote of Security Holders. . . . 13
Executive Officers of the Registrant . . . . . . . . . . . 14
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . 17
6 Selected Financial Data. . . . . . . . . . . . . . . . . . 18
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 19
Index to Financial Statements and Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . 44
8 Financial Statements and Supplementary Data. . . . . . . . 45
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 86
PART III
10 Directors and Executive Officers of the Registrant . . . . 86
11 Executive Compensation . . . . . . . . . . . . . . . . . . 86
12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 86
13 Certain Relationships and Related Transactions . . . . . . 86
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Financial Statements and Schedules . . . . . . . . . . 87
Reports on Form 8-K. . . . . . . . . . . . . . . . . . 87
Exhibits . . . . . . . . . . . . . . . . . . . . . . . 87
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 94
PART I
ITEM 1. BUSINESS
Organization
CINergy Corp. (CINergy), a Delaware corporation, was created for the October
1994 merger of The Cincinnati Gas & Electric Company (CG&E) and PSI Resources,
Inc. (Resources) and is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). The business combination was accounted
for as a pooling of interests. Following the merger, CINergy became the
parent holding company for CG&E, PSI Energy, Inc. (Energy), previously
Resources' utility subsidiary, CINergy Investments, Inc. (Investments), and
CINergy Services, Inc. (CINergy Services).
CINergy's two utility subsidiaries, CG&E and Energy, account for 99.7% of each
of CINergy's total operating revenues and CINergy's total assets.
CG&E
CG&E, an Ohio corporation, is an electric and gas public utility company with
four wholly-owned utility subsidiaries including The Union Light, Heat and
Power Company (ULH&P), Miami Power Corporation (Miami), The West Harrison Gas
and Electric Company (West Harrison), and Lawrenceburg Gas Company
(Lawrenceburg). In addition, CG&E has two non-utility subsidiaries, KO
Transmission Company (KO Transmission) and Tri-State Improvement Company (Tri-
State), both of which are wholly-owned.
CG&E and its utility subsidiaries are primarily engaged in the production,
transmission, distribution, and sale of electric energy and the sale and
transportation of natural gas in the southwestern portion of Ohio and adjacent
areas in Kentucky and Indiana. The area served with electricity, gas, or both
covers approximately 3,000 square miles, has an estimated population of 1.8
million people, and includes the cities of Cincinnati and Middletown in Ohio,
Covington and Newport in Kentucky, and Lawrenceburg in Indiana.
KO Transmission was incorporated in Kentucky in 1994 and will be used to
acquire an interest in an interstate natural gas pipeline to which CG&E is
entitled as a result of a settlement with the Columbia Gas Transmission Corp.
It will have an office in Cincinnati and will be engaged in the transportation
of natural gas in interstate commerce between Kentucky and Ohio. KO
Transmission's portion of the pipeline will extend from central Kentucky to
the Ohio River.
Tri-State, an Ohio corporation, is devoted to acquiring and holding property
in Ohio, Kentucky, and Indiana for substations, electric and gas rights of
way, office space, and other uses in CG&E's and its subsidiaries' utility
operations.
Energy
Energy, an Indiana corporation, is engaged in the production, transmission,
distribution, and sale of electric energy in north central, central, and
southern Indiana. It serves an estimated population of 1.9 million people
located in 69 of the state's 92 counties including the cities of Bloomington,
Columbus, Kokomo, Lafayette, New Albany, and Terre Haute.
PSI Energy Argentina, Inc. (PSI Energy Argentina), a wholly-owned subsidiary
of Energy and an Indiana corporation, was formed to invest in foreign utility
companies. PSI Energy Argentina is a member of a multinational consortium
which has controlling ownership of Edesur, S.A. (Edesur). Edesur is an
electricity-distribution network serving the southern half of Buenos Aires,
Argentina. Edesur provides distribution services to 1.8 million customers.
PSI Energy Argentina owns a small equity interest in this project and provides
operating and consulting services.
South Construction Company, Inc. (South), another wholly-owned subsidiary of
Energy and an Indiana corporation, has been used solely to hold legal title to
real estate and interests in real estate which are either not used and useful
in the conduct of Energy's business (such as undeveloped real estate of Energy
abutting an Energy office building) or which has some defect in title which is
unacceptable to Energy. Most of the real estate to which South acquires title
relates to Energy's utility business.
Investments
Investments, a non-utility subholding company organized in the state of
Delaware in 1994, was formed to operate CINergy's non-utility businesses.
Investments holds the following active non-utility subsidiaries and interests,
which are more fully described below: Power International, Inc. (Power
International), previously named Enertech Associates International, Inc., its
direct subsidiary Beheer- En Belegginsmaatschappij Bruwabel B.V. (Bruwabel)
and its indirect subsidiary Power International s.r.o.; CG&E Resource
Marketing, Inc. (Resource Marketing) and its interest in U.S. Energy Partners;
CGE ECK, Inc. (CGE ECK) and its interest in ECK s.r.o.; PSI Recycling, Inc.;
Power Equipment Supply Co. (PESCO); Wholesale Power Services, Inc. (Wholesale
Power); and PSI Argentina, Inc. (PSI Argentina) and its subsidiary Costanera
Power Corp. (Costanera).
Power International was incorporated in Ohio as a vehicle for CG&E to offer
utility management consulting services and to pursue investment opportunities
in energy-related areas, including demand-side management (DSM) services,
consulting, energy and fuel brokering, engineering services, and construction
and/or operation of generation, co-generation, and independent power
production facilities, and project development. Power International has
established a regional and international consulting services practice and has
had activities in Ohio, Kentucky, Indiana, and a number of foreign countries,
including Kazakhstan. In addition, Power International renders consulting
services in the Czech Republic. To comply with Czech law and to facilitate
its operations in the Czech Republic and the tax-efficient treatment of
earnings from those operations, certain Power International operations are
conducted through wholly-owned direct and indirect subsidiaries -- Bruwabel,
which was organized under Dutch law and is a direct subsidiary of Power
International, and Power International s.r.o., which was organized under Czech
law and is a subsidiary of Bruwabel. Bruwabel's business is conducted in the
Netherlands, while Power International s.r.o. conducts business in the Czech
Republic.
Resource Marketing was incorporated in Delaware in 1994 and has an office in
Cincinnati. It was formed to hold CG&E's interest in U.S. Energy Partners, a
gas marketing partnership that was formed under Delaware law in 1994. U.S.
Energy Partners will compete with traditional regulated local distribution
companies by offering "merchant service" (i.e., acquiring natural gas and
selling it to customers) and will broker gas to industrial and large
commercial customers, with the initial aim, among other things, of recapturing
former customers of CG&E's gas utility business.
CGE ECK was incorporated in Delaware in 1994 and was formed as the vehicle for
an investment in ECK s.r.o., a Czech limited liability company which owns and
operates a generating facility in the Czech Republic. At present, CGE ECK
holds an approximate 3% interest in ECK s.r.o. and intends to dispose of that
interest.
PSI Recycling, Inc. is an Indiana corporation which recycles metal from CG&E
and paper, metal, and other materials from Energy, its largest single
supplier, and other sources.
PESCO was incorporated in Indiana to sell equipment and parts from an Energy
generating plant which was cancelled, the Marble Hill nuclear project. PESCO
also buys equipment for resale, brokers equipment, and sells equipment on
consignment for others.
Wholesale Power, an Indiana corporation, was formed to engage in the business
of brokering power, emission allowances, electricity futures, and related
products and services and to provide consulting services in the wholesale
power-related markets. In addition, Wholesale Power was formed to create,
market, and maintain the services of an "electronic bulletin board" for the
bulk power market.
PSI Argentina was formed as an Indiana corporation to own foreign generating
facilities. PSI Argentina has a wholly-owned subsidiary, Costanera, also
formed to own foreign generating facilities. Costanera is a member of a
multinational consortium which has controlling ownership of the 1,260-megawatt
(mw) Costanera power plant serving Buenos Aires, Argentina. Costanera owns a
small equity interest in this project, and PSI Argentina provides consulting
services to the project.
CINergy Services
CINergy Services was incorporated in the state of Delaware in 1994 to serve as
the service company for the CINergy system. CINergy Services provides CG&E,
Energy, and the other companies of the CINergy system with a variety of
administrative, management, and support services.
Customer, Sales, and Revenue Data
Approximately 83% and 15% of CINergy's operating revenues are derived from the
sale of electricity and the sale and transportation of natural gas,
respectively. The service territory of CG&E and its subsidiaries is heavily
populated and characterized by a stable residential customer base and a
diverse mix of industrial customers. Similarly, the area served by Energy is
a residential, agricultural, and widely diversified industrial territory. As
of December 31, 1994, CG&E, its subsidiaries, and Energy supplied electric
service to over 1.3 million customers, and CG&E and its subsidiaries provided
gas service to more than 429,000 customers. CINergy's utilities' service
territory spans 86 counties in Ohio, Indiana, and Kentucky and includes
approximately 840 cities, towns, unincorporated communities, and adjacent
rural areas, including municipal utilities and rural electric cooperatives.
No one customer accounts for more than 5% of electric or gas operating
revenues of CG&E and its subsidiaries or the electric operating revenues of
Energy. Sales of electricity and gas sales and transportation are affected by
seasonal weather patterns, and, therefore, operating revenues and associated
operating expenses are not distributed evenly during the year.
Financial Information by Business Segment
For financial information by business segment, see Note 19 of the "Notes to
Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data". For a discussion of the potential divestiture of CG&E's
gas operations, see Note 16(e) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
Regulation
CINergy, its utility subsidiaries, and certain of its non-utility subsidiaries
are subject to regulation by the Securities and Exchange Commission (SEC)
under the PUHCA with respect to, among other things, issuances and sales of
securities, acquisitions and sales of certain utility properties, acquisitions
and retentions of interests in non-utility businesses, intrasystem sales of
certain goods and services, the method of keeping accounts, and access to
books and records. In addition, the PUHCA generally limits registered holding
companies to a single "integrated" public utility system, which the SEC
traditionally has interpreted to prohibit a registered holding company, with
limited exceptions, from owning both gas and electric properties. (Refer to
the information appearing under the caption "Potential Divestiture of Gas
Operations" in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".)
CG&E, ULH&P, Miami, and Energy are each subject to regulation by the Federal
Energy Regulatory Commission (FERC) under the Federal Power Act with respect
to the classification of accounts, rates for wholesale sales of electricity,
interconnection agreements, and acquisitions and sales of certain utility
properties. In addition, services by KO Transmission will be rendered in
accordance with terms and conditions and at rates contained in a gas tariff
filed with the FERC. Transportation of gas between CG&E and ULH&P is subject
to regulation by the FERC under the Natural Gas Act.
CG&E, as a public utility under the laws of Ohio, is also subject to
regulation by the Public Utilities Commission of Ohio (PUCO) as to retail
electric and gas rates, services, accounts, depreciation, issuance of
securities, acquisitions and sales of certain utility properties, and in other
respects as provided by Ohio law. Rates within municipalities in Ohio are
subject to original regulation by the municipalities. The Ohio Power Siting
Board, a division of the PUCO, has jurisdiction in Ohio over the location,
construction, and initial operation of new electric generating facilities and
certain electric and gas transmission lines presently utilized by CG&E. As to
retail rates and other matters, ULH&P is regulated by the Kentucky Public
Service Commission (KPSC), and West Harrison and Lawrenceburg are regulated by
the Indiana Utility Regulatory Commission (IURC).
Energy, as a public utility under the laws of Indiana, is also regulated by
the IURC as to its retail rates, services, accounts, depreciation, issuance of
securities, acquisitions and sales of certain utility properties, and in other
respects as provided by Indiana law. Prior to the construction, purchase, or
lease of a facility used for the generation of electricity, a public utility
in Indiana must obtain from the IURC a certificate of public convenience and
necessity.
Rate Matters
Refer to the information appearing under the caption "Regulatory Matters" in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Power Supply
CG&E, Energy, and 27 other electric utilities in an eight-state area are
participating in the East Central Area Reliability Coordination Agreement for
the purpose of coordinating the planning and operation of generating and
transmission facilities to provide for maximum reliability of regional bulk
power supply.
In addition to the intercompany tie between CG&E's and Energy's electric
systems, CINergy's electric system, which is operated by CINergy Services, is
interconnected with the electric systems of Central Illinois Public Service
Company, East Kentucky Power Cooperative, Inc. (East Kentucky), Hoosier Energy
R.E.C., Inc., Indiana Michigan Power Company, Indianapolis Power and Light
Company, Kentucky Utilities Company, Louisville Gas and Electric Company,
Northern Indiana Public Service Company, Southern Indiana Gas and Electric
Company, Columbus Southern Power Company, The Dayton Power and Light Company,
Ohio Valley Electric Corporation, Ohio Power Company, and Tennessee Valley
Authority.
CG&E and East Kentucky have an agreement for the interchange of electric
power, subject to availability, during certain times of the year through March
2000. Under the agreement, CG&E, a summer peaking company, has the right to
obtain up to 150 mw of electricity through March 31, 1997, and up to 50 mw
from April 1, 1997, through March 31, 2000, from East Kentucky during the
months of June, July, and August. East Kentucky, a winter peaking company,
has the right to receive up to 150 mw through March 31, 1997, and up to 50 mw
from April 1, 1997, through March 31, 2000, from CG&E in December, January,
and February. In addition, Energy has a power supply relationship with Wabash
Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency
(IMPA) through power coordination agreements. WVPA and IMPA are also parties
with Energy to a joint transmission and local facilities agreement.
Fuel Supply
A major portion of the coal required by CG&E and Energy is obtained through
both long- and short-term coal supply agreements, with the remaining
requirements purchased on the spot market. The prices to be paid under most
of these contracts are subject to adjustment to reflect suppliers' costs and
certain other factors. In addition, some of these agreements include
extension options and termination provisions pertaining to coal quality. The
coal delivered under these contracts is primarily from mines located in
Illinois, Indiana, Ohio, Kentucky, West Virginia, and Pennsylvania.
CG&E and Energy monitor alternative sources to assure a continuing
availability of economical fuel supplies. The companies intend to continue
purchasing a portion of their coal requirements on the spot market and, at the
present time, are investigating the use of low-sulfur coal in connection with
their plans to comply with the Clean Air Act Amendments of 1990 (see the
information appearing under the caption "Environmental Issues" in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations").
The companies believe they will be able to obtain sufficient coal to meet
future generating requirements. However, both CG&E and Energy are unable to
predict the extent to which coal availability and price may ultimately be
affected by future environmental requirements. Presently, CG&E and Energy
expect the cost of coal to rise in the long run as the supply of more
accessible and higher-grade coal diminishes and as mining, transportation, and
other related costs continue an upward trend.
Gas Supply
The FERC's Order 636 restructured the operations of gas pipelines and the
supply portfolios of gas distribution companies. As gas pipelines unbundled
their historic service of supply aggregating, direct term contracting by gas
distribution companies with producers and marketers diminished the once
prominent spot market (see the information appearing under the caption "Order
636" in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations").
CG&E and its subsidiaries now obtain the majority of their natural gas supply
(89%) from firm supply agreements, with remaining volumes purchased in the
spot market. These firm contracts feature dual levels of gas supply: base
load for continuous supply for CG&E's and its subsidiaries' core requirements,
and "swing" load, which is gas available on a daily basis for changes in
demand. While a premium is paid for the swing load, the use of industry
indices to price firm gas volumes on a monthly basis ensures that the price
CG&E and its subsidiaries pay remains economically competitive.
Gas is transported on interstate pipelines either directly to CG&E's and its
subsidiaries' distribution systems, or it is injected into pipeline storage
facilities for withdrawal and delivery in the future. Most of CG&E's and its
subsidiaries' gas supplies are sourced from the Gulf of Mexico coastal area.
CG&E and its subsidiaries have also obtained limited supply sourced from the
Appalachian region and the mid-continent (Arkansas - Oklahoma) basin, and from
methane gas recovered from an Ohio landfill. Over the long-term, natural gas
is expected to retain its competitiveness with alternative fuels; however, the
costs of discovery and development of new sources of supply will influence
prices.
Competition
Refer to the information appearing under the caption "Competitive Pressures"
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Capital Requirements
Refer to the information appearing under the caption "Capital Requirements" in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Environmental Matters
CINergy's utilities' 1995 construction expenditures for environmental
compliance are forecasted to be $16 million. In addition, refer to the
information appearing in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Employees
The number of employees of CINergy and its subsidiaries at December 31, 1994,
was 8,868, of whom 5,019 belonged to bargaining units. These bargaining unit
employees were represented by labor agreements between CG&E and its utility
subsidiaries or Energy and the applicable union organization. Approximately
3,318 employees were represented by the International Brotherhood of
Electrical Workers (IBEW), 475 were represented by the United Steelworkers of
America (USWA), and 1,226 were represented by the Independent Utilities Union
(IUU).
The current contract between CG&E and the IUU will expire in March 1998. CG&E
also has a three-year agreement with the USWA, expiring May 15, 1997. The
agreements between CG&E and the IBEW local 1347 and between Energy and the
IBEW local 1393 expire April 1, 1997, and April 30, 1996, respectively.
ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
In addition to the information further discussed herein, refer to the
information appearing under the caption "New Generation" in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 17 of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
CG&E
CG&E wholly owns and operates seven steam electric generating units at two
different stations and 20 rapid-start internal combustion generating units at
four different stations. In addition, CG&E operates five commonly owned steam
electric generating units at four different stations, in all of which CG&E has
an undivided interest. CG&E also has an undivided interest in six commonly
owned steam electric generating units at three separate stations which are not
operated by CG&E. All of these properties are located in Ohio, with the
exception of one of the jointly owned stations operated by CG&E which is
located in Kentucky. CG&E-owned system generating capability as of December
31, 1994, was 5,374 mw.
CG&E's 1994 summer peak load, which occurred on July 20, was 4,326 mw, and its
1994 winter peak load, which occurred on January 18, was 4,077 mw, exclusive
of off-system transactions. For the period 1995 through 2004, summer and
winter peak load and kilowatt-hour (kwh) sales are each forecasted to have
annual growth rates of 2%. These forecasts reflect CG&E's assessment of DSM,
load growth, alternative fuel choices, population growth, and housing starts.
These forecasts exclude non-firm power transactions and any potential off-
system, long-term firm power sales.
As of December 31, 1994, CG&E's transmission system consisted of 388 circuit
miles of 345,000 volt line, 604 circuit miles of 138,000 volt line, 475
circuit miles of 69,000 volt line, and 117 circuit miles of lesser volt line,
all within the states of Ohio and Kentucky. In addition, as of December 31,
1994, CG&E's distribution system consisted of 14,388 circuit miles, all within
the state of Ohio. As of the same date, CG&E's transmission substations had a
combined capacity of 14,845,106 kilovolt-amperes, and the distribution
substations had a combined capacity of 5,860,802 kilovolt-amperes. A portion
of CG&E's total transmission system is jointly owned, primarily in connection
with the previously mentioned jointly owned electric generating units.
During 1994, almost all of the electricity generated by units owned by CG&E or
in which it has an ownership interest was produced by coal-fired generating
units. Those units generate most of the electric requirements of CG&E and its
subsidiaries.
CG&E owns two underground caverns, one with a seven million gallon capacity
and one with an eight million gallon capacity, for the storage of liquid
propane and related vaporization and mixing plants. Both of the storage
caverns are located in Ohio and used primarily to augment CG&E's supply of
natural gas during periods of peak demand and emergencies. CG&E also owns
natural gas distribution systems consisting of 5,341 miles of mains and
service lines in southwestern Ohio.
Energy
Energy operates six steam electric generating stations, one hydroelectric
generating station, and 16 rapid-start internal combustion generating units,
all within the state of Indiana. Energy owns all of the above, except for
49.95% of Gibson Generating Station Unit 5 which is jointly owned by WVPA
(25%) and IMPA (24.95%). Energy-owned system generating capability as of
December 31, 1994, was 5,800 mw.
Energy's 1994 summer peak load, which occurred on June 20, was 4,869 mw, and
its 1994 winter peak load, which occurred on January 18, was 4,644 mw,
exclusive of off-system transactions. For the period 1995 through 2004,
summer and winter peak load and kwh sales are each forecasted to have annual
growth rates of 2%. These forecasts reflect Energy's assessment of DSM, load
growth, alternative fuel choices, population growth, and housing starts.
These forecasts exclude non-firm power transactions and any potential off-
system, long-term firm power sales.
As of December 31, 1994, Energy's transmission system consisted of 719 circuit
miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,594
circuit miles of 138,000 volt line, and 2,426 circuit miles of 69,000 volt
line, all within the state of Indiana. In addition, as of December 31, 1994,
Energy's distribution system consisted of 19,012 circuit miles, all within the
state of Indiana. As of the same date, Energy's transmission substations had
a combined capacity of 21,450,755 kilovolt-amperes, and the distribution
substations had a combined capacity of 6,051,420 kilovolt-amperes.
For the year ended December 31, 1994, 99% and 1% of Energy's kwh production
were obtained from coal-fired generation and hydroelectric generation,
respectively.
ULH&P
As of December 31, 1994, ULH&P owned 104 circuit miles of 69,000 volt electric
transmission line, an electric distribution system consisting of 2,468 circuit
miles, and a gas distribution system consisting of 1,190 miles of mains and
service lines in northern Kentucky. ULH&P also owns a seven million gallon
capacity underground cavern for the storage of liquid propane and a related
vaporization and mixing plant and feeder lines, located in northern Kentucky
and adjacent to one of the gas lines that transports natural gas to CG&E. The
cavern and vaporization and mixing plant are used primarily to augment CG&E's
and ULH&P's supply of natural gas during periods of peak demand and
emergencies.
Other Subsidiaries
As of December 31, 1994, Lawrenceburg owned a gas distribution system
consisting of 166 miles of mains and service lines in Indiana adjacent to the
western part of CG&E's service area. Lawrenceburg is connected with and sells
gas at wholesale to the city of Aurora, Indiana, and is also connected within
Indiana with the lines of Texas Gas Transmission Corporation and Texas Eastern
Transmission Corporation.
As of December 31, 1994, West Harrison owned a small electric distribution
system consisting of 10 circuit miles in Indiana adjacent to CG&E's service
area. As of the same date, Miami owned 40 miles of 138,000 volt transmission
line connecting the lines of Louisville Gas and Electric Company with those of
CG&E.
ITEM 3. LEGAL PROCEEDINGS
Merger Litigation
The original merger agreement between CG&E and Resources was amended in
response to a June 1993 ruling by the IURC, which dismissed a petition by
Energy for approval of the transfer of its license or property to CINergy
Corp., an Ohio corporation. The IURC held that such transfer could not be
made to a corporation incorporated outside of Indiana. The original structure
provided that Resources, Energy, and CG&E would be merged into CINergy Corp.
Under this structure, Energy and CG&E would have become operating divisions of
CINergy Corp., ceasing to exist as separate corporations, and CINergy Corp.
would not have been required to register as a public utility holding company
under the PUHCA. Energy appealed the IURC's decision, and in October 1994,
the Indiana Court of Appeals reversed the IURC's decision. This decision by
the Indiana Court of Appeals did not alter the consummation of the merger
establishing CINergy as a registered holding company.
Shareholder Litigation
In March 1993, in conjunction with a proposed tender offer for Resources,
IPALCO Enterprises, Inc. filed suit in the United States District Court for
the Southern District of Indiana, Indianapolis Division (District Court),
against Resources, CINergy, James E. Rogers, Energy, and CG&E (IPALCO Action).
The IPALCO Action was subsequently dismissed in November 1993. In March 1993
and in the weeks following, six suits with claims similar to the IPALCO Action
were filed by purported shareholders of Resources (Shareholder Litigation).
Four of the suits were filed in the District Court, and two were filed in
state courts, although one of those two was subsequently consolidated with the
four in the District Court.
In January 1994, the parties to the Shareholder Litigation executed a
Stipulation and Agreement of Dismissal (Stipulation) settling and dismissing
with prejudice all of the parties' claims except for plaintiffs' petitions for
fees and expenses and defendants' right to object thereto. An agreement in
principle has been reached in the Shareholder Litigation which contemplates
that counsel for all plaintiffs will receive from Energy a portion of the fees
and expenses claimed. The parties have agreed to provide notice to affected
shareholders of a hearing during which the order on the fees and expenses will
be considered by the District Court. Pending such order, the agreed upon fees
and expenses will be deposited into an interest-bearing escrow account.
Fuel Litigation
(a) Amax Coal Company Energy has initiated several arbitration proceedings
to resolve disputes, including disputes related to price and coal quality,
which have arisen under long-term coal supply agreements between Amax Coal
Company (Amax) and Energy. In October 1994, Energy and Amax entered into an
interim agreement, effective through 1996, which provides, in part, that the
price pursuant to the 3.6 million ton per year Wabash Mine long-term contract
will remain fixed through 1995. During 1996, the price may be reduced as a
result of arbitration, but it may not be increased. In addition, the parties
agreed to waive all rights to recover damages or other amounts based upon the
parties' claims against each other for past periods. Accordingly, the interim
agreement eliminated any liability on the part of Energy to Amax's claims
through 1995. The interim agreement also provides that the parties will
arbitrate any remaining disputes during 1995. Such arbitration decisions will
serve to establish various rights and obligations of the parties, and the
price beginning in 1996.
(b) Exxon Corporation Energy was involved in litigation with Exxon Coal USA,
Inc. and Exxon Corporation (Exxon) regarding the price for coal delivered
under a coal supply contract. In June 1994, the United States Supreme Court
denied Energy's request for review of a ruling by the United States Court of
Appeals for the Seventh Circuit, which established the contract price at $30
per ton and reversed the trial court's decision holding that the price should
be $23.266 per ton. The IURC has authorized Energy to recover the additional
cost through the fuel adjustment clause process. In addition, in August 1994,
Energy announced that it had resolved the two remaining lawsuits with Exxon
related to coal quality, price and price components, and Exxon's claims
against Energy for Energy's failure to take coal after Energy terminated its
contract pursuant to a December 1992 court decision. This August 1994
settlement concluded all outstanding litigation between Energy and Exxon with
no significant effect on Energy's financial condition.
In addition to the above litigation, see Notes 2 and 16(b), 16(c), 16(d), and
16(e) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT (at February 28, 1995)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
Jackson H. Randolph 64 Chairman and Chief Executive Officer
of CINergy, CG&E, and Energy - 1994
Chairman, President and Chief Executive
Officer of CG&E - 1993
President and Chief Executive Officer
of CG&E - 1986
James E. Rogers 47 Vice Chairman, President and Chief
Operating Officer of CINergy - 1994
Vice Chairman and Chief Operating
Officer of CG&E and Energy - 1994
Chairman and Chief Executive Officer
of Resources - 1993
Chairman, President and Chief Executive
Officer of Energy - 1990
Chairman, President and Chief Executive
Officer of Resources - 1988
Chairman and Chief Executive Officer of
Energy - 1988
Terry E. Bruck 49 Group Vice President, Wholesale Power and
Transmission Operations of CG&E - 1995
Group Vice President, Wholesale Power
and Transmission Operations of
CINergy - 1994
Vice President, Electric Operations of
CG&E - 1988
Cheryl M. Foley 47 Vice President, General Counsel and
Corporate Secretary of CG&E - 1995
Vice President, General Counsel and
Corporate Secretary of CINergy - 1994
Vice President, General Counsel and
Secretary of Resources and Energy - 1991
Vice President and General Counsel of
Resources - 1990
Vice President and General Counsel of
Energy - 1989
William J. Grealis 1/ 49 Vice President of CINergy - 1995
President, Gas Business Unit of CG&E - 1995
President of Investments - 1995
Partner - Akin, Gump, Strauss, Hauer
& Feld - 1978 2/
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
J. Wayne Leonard 44 Group Vice President and Chief
Financial Officer of CG&E - 1995
Group Vice President and Chief Financial
Officer of CINergy - 1994
Senior Vice President and Chief Financial
Officer of Resources and Energy - 1992
Vice President and Chief Financial
Officer of Resources and Energy - 1989
John M. Mutz 3/ 59 Vice President of CINergy - 1995 4/
President of Energy - 1994
President of Resources - 1993
President - Lilly Endowment, Inc. 2/ - 1989
Stephen G. Salay 57 Group Vice President, Power Operations
of CG&E - 1995
Group Vice President, Power Operations of
CINergy - 1994
Vice President, Electric Production and
Fuel Supply of CG&E - 1988
William L. Sheafer 51 Treasurer of CINergy and Energy - 1994
Treasurer of CG&E - 1987
George H. Stinson 49 Vice President of CINergy - 1995 4/
President of CG&E - 1994
Vice President, Gas Operations of
CG&E - 1991
Manager, Gas Operations of CG&E - 1990
Manager, CG&E's Miami Fort Station - 1980
Larry E. Thomas 49 Group Vice President, Reengineering and
Operations Services of CG&E - 1995
Group Vice President, Reengineering
and Operations Services of CINergy - 1994
Senior Vice President and Chief Operations
Officer of Energy - 1992
Senior Vice President and Chief Operating
Officer, Customer Operations of Energy -
1990
Senior Vice President, Customer Operations
of Energy - 1986
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
Charles J. Winger 49 Comptroller of CG&E - 1995
Comptroller of CINergy - 1994
Comptroller of Resources - 1988
Comptroller of Energy - 1984
Under the Amended and Restated Agreement and Plan of Reorganization (the
Merger Agreement) by and among CG&E, Resources, Energy, and CINergy, a
Delaware corporation, dated as of December 11, 1992, as amended on July 2,
1993, and as of September 10, 1993, Jackson H. Randolph will be entitled to
serve as Chairman and Chief Executive Officer (CEO) of CINergy until November
30, 1995, and Chairman of CINergy until November 30, 2000. James E. Rogers
will be entitled to serve as Vice Chairman, President and Chief Operating
Officer of CINergy until November 30, 1995, at which time he will be entitled
to serve as Vice Chairman, President and CEO.
None of the officers are related in any manner. Executive officers of CINergy
are elected to the offices set opposite their respective names until the next
annual meeting of the Board of Directors and until their successors shall have
been duly elected and shall have been qualified.
1/ Prior to becoming President of Investments, Mr. Grealis was a partner
in the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld.
In addition, prior to the merger, Mr. Grealis was President of PSI
Investments, Inc. on an interim basis beginning in 1992.
2/ Non-affiliates of CINergy.
3/ Prior to becoming President of Resources, Mr. Mutz was president of
Lilly Endowment, Inc., a private philanthropic foundation located in
Indianapolis, Indiana, and also served two terms as lieutenant
governor of Indiana.
4/ Mr. Mutz and Mr. Stinson were elected Vice Presidents of CINergy effective
March 3, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
CINergy's common stock is listed on the New York Stock Exchange and has
unlisted trading privileges on the Boston, Chicago, Cincinnati, Pacific, and
Philadelphia exchanges. As of February 6, 1995, CINergy's most recent
dividend record date, there were 85,305 common shareholders of record.
Trading of CG&E's and Resources' common stock ended at the close of the market
October 24, 1994. Trading of CINergy's common stock began upon the opening of
the market October 25, 1994. The following table shows the high and low sales
prices of CG&E's, Resources', and CINergy's common stock and the dividends
declared per share by each company for the past two years:
High Low Dividend (a)
1994 1993 1994 1993 1994 1993
CG&E
4th Quarter $23 3/8 $29 5/8 $21 7/8 $26 1/8 $.3272 $.43
3rd Quarter 23 1/4 29 20 7/8 27 1/8 .43 .415
2nd Quarter 23 7/8 27 3/4 21 24 1/4 .43 .415
1st Quarter 27 3/4 27 23 5/8 23 7/8 .43 .415
Resources
4th Quarter 23 1/2 27 22 24 1/2 .1805 .31
3rd Quarter 23 1/8 26 1/4 20 3/4 23 1/2 .31 .28
2nd Quarter 23 1/8 24 1/4 19 5/8 21 5/8 .31 .28
1st Quarter 26 5/8 24 1/2 22 3/4 19 1/2 .31 .28
CINergy
4th Quarter 24 - 20 3/4 - .1028 -
(a) The prorated fourth quarter dividends for CG&E and Resources were
determined by multiplying that portion of each company's regular dividend
by a fraction equal to the number of days from their last respective
common dividend payment dates (August 15, 1994, for CG&E, September 1,
1994, for Resources) to and including the closing date of the merger,
divided by the number of days in the quarterly period for each respective
company (92 for CG&E, 91 for Resources). These respective prorated
dividends were in addition to, but paid separately from, the partial
CINergy common stock dividend, which was determined by prorating CINergy's
43 cents per share quarterly dividend for the remainder of the quarter
ending November 15, 1994.
Future increases in CINergy's common dividend will continue to be influenced
by the financial conditions of CG&E and Energy.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues (1) $2 924 $2 840 $2 634 $2 640 $2 547
Net income (1) 191 63 271 202 332
Common stock
Earnings per share (1) 1.30 .43 1.91 1.46 2.50
Dividends declared per share 1.50 1.46 1.39 1.33 1.26
Total assets 8 150 7 804 7 133 6 681 6 195
Cumulative preferred stock of
subsidiaries subject to mandatory
redemption (2) 210 210 210 192 118
Long-term debt 2 715 2 645 2 547 2 376 2 300
Long-term debt due within one year 60 - 46 115 -
Notes payable 229 178 191 25 26
(1) See Note 2 of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
(2) Includes $39.5 million in 1991 and $3 million in 1990 to be redeemed
within one year.
</TABLE>
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 2 and 16 of the "Notes to Consolidated
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for discussions of material uncertainties.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER CONSUMMATION
CINergy Corp. (CINergy or Company) was created for the October 1994 merger of
The Cincinnati Gas & Electric Company (CG&E) and PSI Resources, Inc.
(Resources) and is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). The business combination was accounted
for as a pooling of interests. Each outstanding share of common stock of
Resources and CG&E was exchanged for 1.023 shares and one share, respectively,
of CINergy common stock. Following the merger, CINergy became the parent
holding company of CG&E and PSI Energy, Inc. (Energy), previously Resources'
utility subsidiary. The outstanding preferred stock and debt securities of
Energy, CG&E, and CG&E's utility subsidiaries were not affected by the merger.
FINANCIAL CONDITION
Competitive Pressures
Electric Utility Industry
Introduction The primary factor influencing the future profitability of
CINergy is the changing competitive environment for energy services and the
related commoditization of electric power markets. Changes in the industry
include more competition in wholesale power markets and the imminent
likelihood of "customer choice" by large industrial customers and, ultimately,
by all retail customers. For an electric utility to be successful in this
competitive environment, it is critical that regulatory reform keep pace with
the competitive realities facing electric utilities and their customers.
Strict adherence to traditional, cost-based rate of return regulation will
significantly disadvantage a utility's ability to successfully compete to
supply customer needs. For example, performance-based regulation (e.g., price
caps) would likely add substantial flexibility for the franchise utility in
the transition to a fully competitive environment.
Pressures for "Customer Choice" The granting of choice to end-user customers,
commonly referred to as retail wheeling, would allow a customer within a
particular utility's service territory to buy power directly from another
source using the power lines of the local utility for delivery. The
regulatory and legislative reform to facilitate this result is primarily
driven by large industrial energy users' needs for low-cost power to remain
competitive in the global marketplace. These industrial customers are
intensifying their efforts to change the regulatory process that currently
denies them access to lower-cost power. The current restrictions on access to
low-cost power are exacerbated by cost-of-service regulation which has
produced average industrial rates to customers that vary substantially across
the United States (from approximately 3 cents per kilowatt-hour [kwh] to 10
cents per kwh).
Federal Law, the New Competitors, and the Commoditization of Electric Power
Markets The Energy Policy Act of 1992 (Energy Act), the most comprehensive
energy legislation enacted since the late 1970s, has essentially provided for
open competition at the wholesale level. The Energy Act created a new class
of wholesale power providers, exempt wholesale generators (EWGs), that are not
subject to the restrictive requirements of the PUHCA nor the ownership
restrictions of the Public Utility Regulatory Policies Act of 1978. However,
due to excess capacity in the industry, EWGs have not yet significantly
affected competition in the wholesale power market. To date, the primary
impetus for increased wholesale competition has been the provision of the
Energy Act that granted the Federal Energy Regulatory Commission (FERC) the
authority to order wholesale transmission access. This provision, combined
with the excess capacity in the bulk-power markets, has resulted in the
emergence of power marketers and brokers.
Brokers are intermediaries between buyers and sellers (i.e., they do not take
title to the power). Power marketers are entities licensed by the FERC to
conduct bulk power trades at market-based prices. They manage portfolios of
power contracts (which they have title to) and owned generation and package
energy products for customers of bulk power, including price risk management
contracts such as options on fixed price energy or guaranteed fixed price
contracts.
As regulatory issues such as transmission pricing are resolved, power
marketers and brokers will become more significant factors in wholesale power
markets and, ultimately, the retail markets. With respect to transmission
pricing, the FERC recently issued a policy statement indicating its intent to
allow flexibility in pricing, permitting parties to submit either traditional,
cost-based plans or pricing schemes based on non-traditional designs. The
transmission pricing policy enumerates five principles that the FERC will
consider in approving future proposals, including cost-based rates, adherence
to the FERC's comparability standard, economic efficiency, fairness, and
practicality.
States' Role in Customer Choice (Retail Wheeling) As discussed above, the
Energy Act allows real competition in the wholesale power market; however, it
prohibits the FERC from ordering utilities to provide transmission access to
retail customers (retail wheeling) and is silent with respect to the states'
role and authority in this issue.
Several states are currently reviewing retail wheeling proposals. In
particular, the California Public Utilities Commission proposed a plan in 1994
that would allow all customers to choose their electric supplier by the year
2002. However, it is currently anticipated that implementation of this
proposal could be substantially delayed due to the complex issues involved
(e.g., exclusive use of a power pool run by an impartial third party vs.
bilateral contract arrangements). In addition to California, Michigan
regulators have proposed a limited retail wheeling experiment, and Wisconsin
regulators are reviewing numerous proposals for restructuring that state's
electric supply and related services. Connecticut regulators, on the other
hand, recently decided to delay consideration of retail wheeling until new
capacity is needed in the state (approximately the year 2007).
A significant issue for states and utilities to resolve with respect to retail
wheeling is the regulatory treatment of any stranded investments, or costs
without a customer. California's proposal and a recent proposal by the FERC
contain mechanisms for recovery by the franchise utility of certain sunk costs
or investments "stranded" by the loss of the monopoly franchise; however,
there are numerous arguments being advanced against the collection of stranded
costs. For example, there are concerns that an efficient competitive market
cannot exist if regulators allow recovery in the future of all uncollected
past costs. Given that the most severe electric competition is expected to be
in the commodity sector, stranded costs are usually considered uneconomical
generating property. In addition, stranded costs could include assets created
by the actions of regulators (i.e., regulatory assets) under the provisions of
Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation (Statement 71), or operating costs such as fuel
supply contracts. The substantial accounting implications from the loss of
franchise territory and related regulatory protections are discussed further
herein.
CINergy's Response to the Changing Competitive Environment CINergy supports
increased competition in the electric utility industry. In fact, the
foresight that competition was about to substantially increase and that retail
wheeling was inevitable was a catalyst for the merger (which was announced in
1992). CINergy possesses certain competitive advantages (e.g., low-cost
generation) that could be substantially eroded by restrictive regulations that
lag the development of a competitive market and limit the Company's ability to
preempt the competition in responding to customer needs. As such, CINergy has
chosen to initiate the retail wheeling debate and be a leader in establishing
the "ground rules" in its franchise area.
Energy recently announced its plans to offer its larger industrial customers
some form of retail wheeling in Indiana. Energy plans to submit a proposal
that would permit certain customers to choose their electric supplier. In
return, Energy would require some form of reciprocal arrangement (i.e., the
opportunity to similarly compete for customers of the selected supplier).
Under this proposal, Energy would be free to negotiate specific contracts with
customers who choose to give up the protection of the franchise obligation to
serve. Energy intends for these contractual relationships to satisfy customer
needs, while at the same time provide an appropriate risk-return relationship
for investors. In addition to the above proposal, Energy, along with other
Indiana utilities, proposed legislation in 1995 that would allow the Indiana
Utility Regulatory Commission (IURC) to adopt alternative regulatory schemes
such as performance-based regulation and the use of more flexible pricing
mechanisms. Energy is also participating in a series of informal conferences
sponsored by the IURC to discuss the consequences of competition and
appropriate responses thereto.
With respect to Ohio, a retail wheeling bill was introduced in early 1994 that
would have given customers the ability to purchase power from their provider
of choice and would have required utilities to provide access to their
transmission lines for delivery of the electric service. No action was taken
on the bill in 1994; however, similar legislation may be introduced in 1995.
CG&E is also participating in roundtable discussions being held by the Public
Utilities Commission of Ohio (PUCO) to more fully consider the emerging
competitive environment.
CINergy will continue to aggressively pursue any legislative or regulatory
reforms necessary to provide the opportunity for its success in a competitive
environment.
CINergy's Competitive Position As stand-alone companies, CG&E and Energy were
well positioned to succeed in a more competitive environment -- as a combined
organization, CINergy believes it is even better positioned to compete in such
an environment. The merger (1) combines two low-cost providers, resulting in
savings in nominal dollars of approximately $1.5 billion over the first 10
years; (2) enhances the companies' transmission capabilities; (3) diversifies
the customer base; and (4) creates a financially stronger company -- all of
which improve an already competitively strong position. CINergy's strategy
will be to aggressively build on its cost advantage by continually focusing on
flexible strategies that are directed toward reducing the cost structure and
shifting the cost mix from fixed to variable. CG&E and Energy have industrial
rates that are below the national average (based on 1993 data) and own
generating plants that are consistently ranked among the most efficient in the
country.
CINergy believes its low-cost position and strategic initiatives will allow it
to maintain, and perhaps expand, its wholesale market share and its current
base of industrial customers. Recent successes in these markets include
Energy's 10-year agreement to serve the power needs of Blue Ridge Power
Agency, a group of municipal utilities organized in Virginia, and CG&E's 14-
year agreement to provide power to a municipal utility serving a portion of
Cleveland, Ohio. Also, CG&E's and Energy's low industrial rates have produced
regional leadership over the last five years (1989 through 1993) with respect
to growth in industrial kwh sales.
In addition, CINergy intends to aggressively pursue the substantial
opportunities that exist in the electricity markets for power marketing and
brokering. These opportunities are being created by the increasing
commoditization of electricity. CINergy believes that the ability to identify
and manage various business risks and innovative packaging of power supply
services and products based upon superior acquisition and analysis of
information will be key factors that will ensure successful participation in
these markets. CINergy's strategy for success in this business is to leverage
the Company's understanding of customer needs and the intricacies of operating
in power markets with new skills and expertise of operating in commodity
markets that are being developed and selectively acquired from outside the
industry.
Outsiders' View of CINergy's Competitive Position Major credit rating
agencies have issued reports recognizing the increased risk in the electric
utility industry due to competition. Specifically, in conjunction with
fundamentally changing the way it evaluates the credit quality of electric
utilities, Standard & Poor's has categorized each electric utility's business
position in one of seven categories ranging from "Above Average" to "Below
Average". As a result, Standard & Poor's placed Energy in the second highest
category, "Somewhat Above Average", and CG&E in the third highest category,
"High Average". In addition, Moody's recently issued a credit report stating
its belief that Energy is well positioned to compete in a more competitive
environment. At the same time, certain sell-side equity analysts have placed
CINergy near the top of their lists of those best equipped to handle
increasing competitive pressures. CINergy believes these actions support its
position that its competitive strategy will be successful.
With respect to accessing financial markets for capital needs, U.S. utilities
must compete for capital in world markets where some forecasts indicate that
as much as $250 billion will be needed by the year 2000 for state-owned
electricity privatization. These forecasts enforce CINergy's belief that
regulatory reform establishing a market structure for utilities similar to
that already existing in other countries is critical in order to successfully
compete for not only customers, but also capital.
Despite the numerous published reports discussing the increased business risk
that investors face from deregulation of the electric utility industry, the
1994 decline in electric utility stocks, taken as a whole, can be
substantially attributed to historical relationships of common stock prices to
changes in interest rates. Therefore, electric utility stocks could see
additional pressures to reflect the increased fundamental business risk as
markets become more workably competitive, particularly, without regulatory
recognition through higher allowed returns and increased flexibility (e.g.,
price caps) in order to compete. On the other hand, there is an increasingly
large disparity between the fundamental valuation measures (e.g., yield,
market-to-book ratio) of low-cost producers, like CINergy, and high-cost
producers. For example, it should be noted that the merger of Resources and
CG&E combined two utilities whose common stocks have outperformed the industry
average for the five-year period 1990 through 1994.
Gas Utility Industry
Customer Choice Energy's retail wheeling proposal discussed above is
consistent with a recent step taken by CG&E to extend a program to its natural
gas customers that is the equivalent of electric retail wheeling. For several
years, large-volume commercial and industrial customers in Ohio and Kentucky
have been able to purchase natural gas directly from suppliers and have it
transported by CG&E or The Union Light, Heat and Power Company (ULH&P). In
September 1994, CG&E implemented a new firm transportation service which
allows all non-residential customers of CG&E to purchase gas directly from
suppliers, up to approximately 5% of CG&E's peak load. The suppliers assume
the risk and obligation associated with supplying the contractual volumes,
while CG&E retains responsibility for delivering the gas through its
distribution system. This new service affords commercial and industrial
customers greater choice in competitively contracting for their energy
requirements.
Order 636 In April 1992, the FERC issued Order 636, which restructured
operations between interstate gas pipelines and their customers for gas sales
and transportation services. Order 636 mandated changes to the way CG&E and
ULH&P purchase gas supplies and contract for transportation and storage
services, resulting in increased risks in meeting the gas demands of their
customers.
CG&E and ULH&P are responding to the supply risks and opportunities of Order
636 by introducing innovations to their supply strategy including contracting
with major southwest producers for firm gas supply agreements with flexible,
extremely market sensitive pricing, marketing short-term unused pipeline
capacity and storage gas to other companies throughout the country through use
of electronic bulletin boards, and restructuring their allotment of interstate
pipeline capacity among delivering pipelines.
Order 636 also allowed pipelines to recover transition costs they incurred in
complying with the order from customers, including CG&E and ULH&P. In July
1994, the PUCO issued an order approving a stipulation between CG&E and its
domestic and industrial customer groups providing for recovery of these
pipeline transition costs. CG&E is presently recovering its Order 636
transition costs pursuant to a PUCO approved tariff. ULH&P recovers such
costs through its gas cost recovery mechanism.
Substantial Accounting Implications
A potential outcome of the changing competitive environment could be the
inability of regulated utilities to continue application of Statement 71, the
linchpin of regulated industry accounting, which allows the deferral of costs
(i.e., regulatory assets) to future periods based on assurances of a regulator
as to the recoverability of the costs in rates charged to customers. In
connection with assessing the financial exposure related to stranded costs,
regulatory assets would have to be evaluated to determine the portion for
which deferral could be continued based on the existence of the necessary
regulatory assurances.
Although CINergy's current regulatory orders and regulatory environment fully
support the recognition of its regulatory assets, the ultimate outcome of the
changing competitive environment could result in CINergy discontinuing
application of Statement 71 for all or part of its business. Such an event
would require the write-off of the portion of any regulatory asset for which
no regulatory assurance of recovery continues to exist. No evidence currently
exists that would support a write-off of any portion of CINergy's regulatory
assets. CINergy intends to pursue competitive strategies that would mitigate
the impact of this issue on the financial condition of the Company (see Note
1(c) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" for a summary of regulatory
assets as of December 31, 1994).
Securities Ratings
As a result of the merger, the ratings of CG&E's, Energy's, and ULH&P's senior
securities continue to be on review for possible upgrade. CG&E, Energy, and
ULH&P have been placed on Standard & Poor's ratings watch, while CG&E and
Energy have been placed on Duff & Phelps' ratings watch. In addition, Fitch
Investors Service, Inc. (Fitch) raised CG&E's and Energy's first mortgage
bonds ratings to A- from BBB+ and preferred stock ratings to BBB+ from BBB, in
May 1994 and February 1995, respectively. The Fitch ratings reflect the low-
cost generation and competitive retail rates of both companies combined with
CG&E's limited reliance on wholesale markets and the resolution of rate
proceedings and litigation associated with cost disallowance at the Wm. H.
Zimmer Generating Station (Zimmer). Additionally, the Fitch ratings reflect
Energy's decreases in projected capital expenditures and deferral of plant
construction. The Fitch ratings also incorporate the IURC's acceptance in
February 1995 of a settlement agreement between Energy and certain intervenors
concerning Energy's petition for a retail rate increase, as further discussed
herein. CINergy's goal is to achieve at least an "A" credit rating on its
subsidiaries' senior securities.
The current ratings are provided in the following table:
Duff & Standard
Phelps Fitch Moody's & Poor's
CG&E
First Mortgage Bonds BBB+ A- Baa1 BBB+
Preferred Stock BBB BBB+ baa2 BBB
ENERGY
First Mortgage Bonds and
Secured Medium-term Notes BBB+ A- Baa1 BBB+
Preferred Stock BBB BBB+ baa2 BBB
ULH&P
First Mortgage Bonds Not rated Not rated Baa1 BBB+
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
Significant Achievements
Highlights of 1994 include the following key accomplishments:
. Following receipt of support from all state regulatory commissions and
approval by the FERC and the Securities and Exchange Commission (SEC),
CG&E and Resources consummated the merger in October 1994;
. In April 1994, the PUCO approved a settlement agreement which permits CG&E
to retain all electric non-fuel operation and maintenance expense savings
from the merger (Non-fuel Merger Savings) until 1999 in exchange for a
moratorium on increases in base electric rates until January 1, 1999;
. In February 1995, the IURC approved a December 1994 settlement agreement
entered into by Energy and certain intervenors concerning Energy's
petition for a retail rate increase that includes provisions to
satisfactorily address the effects of significant future regulatory lag
(i.e., earnings attrition) and the allocation of its portion of merger
savings between Energy's customers and CINergy's shareholders;
. In December 1994, CINergy raised approximately $160 million in
connection with the public issuance of nearly 7.1 million shares of
common stock at a substantial premium to the market price at the
beginning of the offering period;
. In July 1994, Energy filed with the IURC for an additional retail rate
increase to recover, among other things, the costs of two capital projects
previously approved by the IURC, and Energy anticipates an order in this
proceeding in the second quarter of 1996;
. Fitch raised CG&E's and Energy's first mortgage bonds ratings to A- from
BBB+ and preferred stock ratings to BBB+ from BBB in May 1994 and February
1995, respectively;
. During the first quarter of 1994, CG&E refinanced $305 million of long-
term debt to save approximately $8 million in annualized interest costs;
. CG&E renegotiated a contract for the transportation of coal to CG&E's
generating stations which extends service through the year 2000 and will
save CG&E's and ULH&P's electric customers approximately $6 million per
year; and
. Both Energy's and CG&E's 1994 delivered fuel costs per million Btu were
the lowest these costs have been in the past 10 years.
Regulatory Matters
Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of
CG&E's gas operations may be required. In its order approving the merger, the
SEC reserved judgement over CINergy's ownership of the gas operations for a
period of three years. In November 1994, the SEC requested comments on the
modernization of the PUHCA given the industry's movement toward a more
competitive environment, including whether or not a utility registered under
the PUHCA may own a combination system (i.e., electric and gas). CINergy
believes it has a justifiable basis for retention of its gas operations and
will continue its pursuit of SEC approval to retain the gas portion of the
business. If divestiture is ultimately required, the SEC has historically
allowed companies sufficient time to accomplish divestitures in a manner that
protects shareholder value. Further, CINergy believes that divestiture of the
gas operations, if required, would not have a material effect on merger
savings.
IURC Order - Energy's Retail Rate Proceeding and Merger Savings Allocation
Plan On February 17, 1995, the IURC issued an order (February 1995 Order)
approving a settlement agreement entered into by Energy, the Office of the
Utility Consumer Counselor, Citizens Action Coalition of Indiana, Inc., and
the PSI-Industrial Group concerning Energy's petition for a $93 million retail
rate increase ($103 million including carrying costs attributable to certain
environmental expenditures not included in Energy's base retail electric
rates) and Energy's previously filed plan for the allocation of its portion of
merger savings between Energy's customers and CINergy's shareholders.
The February 1995 Order authorizes Energy to increase annual retail rates
$33.6 million, effective February 1995. The increase excludes reductions for
customer credits for Non-fuel Merger Savings and increases for carrying costs
attributable to certain environmental expenditures not included in Energy's
base retail electric rates, both of which are further discussed herein. The
increase includes the recovery of the costs of postretirement benefits other
than pensions on an accrual basis, the recovery of demand-side management
(DSM) expenditures, the recovery of a portion of amounts deferred for
allowance for funds used during construction (AFUDC) continuation and
depreciation expense, and the adoption of lower depreciation rates, which will
reduce annual depreciation expense by approximately $30 million. This rate
increase reflects an 11.9% return on common equity with an 8.25% overall rate
of return on net original cost rate base.
Additionally, the February 1995 Order provides a mechanism to allocate
Energy's share of net Non-fuel Merger Savings through December 31, 1997,
between Energy's customers and CINergy's shareholders. CINergy currently
anticipates that the estimated nominal merger savings of $1.5 billion will be
apportioned approximately equally between CG&E and Energy. In essence, the
mechanism guarantees Energy's customers 50% of Energy's portion of the
projected net Non-fuel Merger Savings. Energy's customers will receive these
merger savings via credits to base rates of $4.4 million in 1995, an
additional $2.2 million in 1996, and an additional $2.4 million in 1997.
After 1997, the accumulated credits will continue until the effective date of
an order in an Energy general retail rate proceeding. Energy will have to
achieve these levels of merger savings in order to realize the 11.9% return on
equity. This arrangement for sharing of merger savings allows Energy to
recover its portion of transaction costs (currently estimated at $27 million)
and costs to achieve merger savings (currently estimated at $21 million) over
a 10-year period.
The February 1995 Order also provides Energy with a financial incentive to
achieve, or exceed, merger savings projections and enhance operating
efficiencies by allowing Energy to earn up to a 13.25% return on common equity
until the effective date of an order in connection with Energy's July 1994
retail rate petition, which is currently pending before the IURC. Energy
expects an order in this proceeding in the second quarter of 1996. Upon the
effective date of an order relating to the July 1994 retail rate petition, the
February 1995 Order provides Energy an opportunity to earn an additional 100
basis points above the common equity return to be granted by the IURC in such
rate proceeding until December 31, 1997. In order to be eligible for such
additional earnings, Energy must meet certain service-related conditions. Any
mechanism for sharing of merger savings after December 31, 1997, will be
determined in subsequent regulatory proceedings.
Finally, the February 1995 Order includes ratemaking and accounting mechanisms
to address regulatory lag. The February 1995 Order approves Energy's proposal
for current recovery of carrying costs associated with environmental
compliance projects and the applicable portion of the Wabash River Clean Coal
Project (Clean Coal Project) not included in Energy's base retail electric
rates. The Clean Coal Project, which is located at the Wabash River
Generating Station, is a 262-megawatt clean coal power generating facility
planned to be placed in service during the third quarter of 1995. This
ratemaking treatment, including the IURC's March 8, 1995, order approving
Energy's request to earn a cash return on additional construction work in
progress amounts, resulted in cumulative rate increases of approximately 3%.
The February 1995 Order also includes provisions for the deferral of certain
operating costs associated with the Clean Coal Project, together with the debt
component of carrying costs thereon, and continued accrual of the debt
component of carrying costs (to the extent not reflected in rates currently)
and deferral of depreciation expense on the Clean Coal Project and a scrubber
at Gibson Generating Station (Gibson) until the projects' costs are fully
reflected in retail electric rates.
The February 1995 Order approving the settlement agreement resolved a major
uncertainty as to the ultimate level and timing of the rate increase.
Additionally, the order substantially mitigated Energy's risk of not being
able to achieve its allowed return on common equity due to the earnings
attrition resulting from the completion of two major construction projects
within a nine-month period. Finally, the February 1995 Order provides Energy
a realistic opportunity to retain a portion of merger savings for
shareholders.
Energy's July 1994 Retail Rate Petition In addition to the rate petition
addressed in the February 1995 Order, Energy filed a petition in July 1994
with the IURC for a retail rate increase to recover, among other things, the
costs of the Clean Coal Project and the scrubber at Gibson which was placed in
service in September 1994. These two projects were previously approved by the
IURC. Energy initially estimated a rate increase of 8%. Energy is currently
evaluating how the rate settlement and the ability to earn a cash return
during construction on certain projects, as previously discussed, will affect
the estimated rate increase. Energy intends to file testimony supporting its
rate increase request in May 1995 and, as previously discussed, anticipates an
order in the second quarter of 1996. Assuming this petition is satisfactorily
addressed by the IURC, CINergy's objective is to manage costs in order to
eliminate the need for additional rate relief by Energy until the next
century. Energy cannot predict what action the IURC may take with respect to
the proposed rate increase.
CG&E Rate Matters and Merger Savings During the last three years, CG&E has
received a number of electric and gas rate increases. The primary reasons for
the electric rate increases were recovery of CG&E's investments in Zimmer and
the Woodsdale Generating Station (Woodsdale). The gas rate increases reflect
investments in new and replacement gas mains and facilities.
In a May 1992 order (May 1992 Order), the PUCO authorized CG&E to begin
recovering the cost of Zimmer through an increase in electric revenues of
$116.4 million to be phased in over a three-year period through annual
increases beginning each May of $37.8 million in 1992, $38.8 million in 1993,
and $39.8 million in 1994. In this same order, the PUCO also disallowed from
rates approximately $230 million, representing costs related to Zimmer for
nuclear fuel, nuclear wind-down activities during the conversion to a
coal-fired facility, and a portion of the AFUDC accrued on Zimmer.
Pursuant to an appeal by CG&E of the May 1992 Order, the Supreme Court of Ohio
(Court) ruled in November 1993 (November 1993 Ruling) that the PUCO did not
have the authority to order a phase-in of amounts granted in a rate proceeding
and remanded the case to the PUCO to set rates that provide the gross annual
revenues determined in accordance with Ohio statutes. However, the Court
upheld the PUCO's disallowance of Zimmer costs, and, as a result, CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in the fourth
quarter of 1993.
In April 1994, the PUCO issued an order approving a settlement agreement
between CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other
intervenors which addressed the issues raised in the November 1993 Ruling. As
part of the settlement, CG&E did not seek early implementation of the third
phase of the authorized rate increase and will not seek accelerated recovery
of deferrals related to the phase-in plan. These deferrals will be recovered
over the remaining seven-year period as contemplated in the May 1992 Order.
In addition, CG&E agreed to a moratorium on increases in base electric rates
until January 1, 1999 (except under certain circumstances), and, in return, is
allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings
until 1999.
In an August 1993 order (August 1993 Order), the PUCO approved a stipulation
providing for annual increases of approximately $41 million (5%) in electric
revenues and $19 million (6%) in gas revenues that were effective immediately.
The August 1993 Order precludes CG&E from increasing gas base rates prior to
June 1, 1995, except for rate filings made under certain circumstances.
In 1994, CG&E expensed $32 million of merger transaction costs and costs to
achieve merger savings applicable to its PUCO electric jurisdiction. The
remaining merger-related costs allocable to PUCO electric jurisdictional
customers will be expensed as incurred. CG&E and its utility subsidiaries
intend to continue deferring the non-PUCO electric jurisdictional portion of
merger transaction costs and costs to achieve merger savings (current estimate
of $14 million) for future recovery in customer rates.
ULH&P Rate Matters In mid-1993, the Kentucky Public Service Commission (KPSC)
issued orders authorizing ULH&P to increase annual gas revenues by $4.2
million.
In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted
the KPSC's request for an electric rate moratorium commencing after ULH&P's
next retail rate case and extending to January 1, 2000. The KPSC also
required CG&E and ULH&P to agree that, for 12 months from consummation of the
merger, no filings will be made to adjust CG&E's base purchase power rate
charged to ULH&P or ULH&P's base electric rates.
Environmental Issues
Clean Air Act Amendments of 1990 (CAAA) The acid rain provisions of the CAAA
require reductions in both sulfur dioxide and nitrogen oxide emissions from
utility sources. Reductions of these emissions are to be accomplished in two
phases. Compliance under Phase I was required by January 1, 1995, and Phase
II compliance is required by January 1, 2000. To achieve the sulfur dioxide
reduction objectives of the CAAA, emission allowances have been allocated by
the United States Environmental Protection Agency (EPA) to affected sources
(e.g., CINergy's electric generating units). Each allowance permits one ton
of sulfur dioxide emissions. The CAAA allows compliance to be achieved on a
national level, which provides companies the option to achieve this compliance
by reducing emissions and/or purchasing emission allowances.
CINergy's operating strategy for Phase I is based upon the compliance plans
developed by Energy and CG&E and approved by the state utility commissions of
Indiana and Ohio. CINergy's compliance with Phase I sulfur dioxide reduction
requirements includes increasing the sulfur dioxide removal rate of CG&E's
East Bend Generating Station Unit 2 scrubber, the addition of one scrubber on
Energy's Gibson Unit 4, installation of flue-gas conditioning equipment on
certain units, upgrading certain precipitators, implementation of DSM
programs, burning lower-sulfur coal at some of its major coal-fired generating
stations, and inclusion of the value of emission allowances in the economic
dispatch process. All required modifications to CINergy's generating units to
implement the compliance plans have been completed and tested and are
operational. To meet nitrogen oxide reductions required by Phase I, CINergy
installed low-nitrogen oxide burners at certain stations. In addition, the
successful operation of Energy's Clean Coal Project will further reduce sulfur
dioxide and nitrogen oxide emissions.
To comply with Phase II sulfur dioxide requirements, CINergy's current
compliance strategy includes a combination of switching to lower-sulfur coal
blends and utilizing its emission allowance banking strategy. This cost
effective strategy will allow CINergy to meet Phase II sulfur dioxide
reduction requirements while maintaining optimal flexibility to meet
potentially significant future environmental demands or changes in output due
to increased customer choice. CINergy intends to utilize its emission
allowance banking strategy to the extent a viable emission allowance market is
available. However, the availability and economic value of emission
allowances over the long-term is still uncertain. In the event the market
price for emission allowances or lower-sulfur coal increases substantially
from current estimates, CINergy could be forced to consider high-cost capital
intensive options (e.g., installing additional scrubbers).
To meet nitrogen oxide reductions required by Phase II, CINergy may install
low-nitrogen oxide burners on certain affected units. In addition, CINergy is
investigating the use of a nitrogen oxide emission averaging strategy for
meeting the Phase II requirements. However, this strategy may be impacted by
the delayed release of final nitrogen oxide compliance rules.
CINergy is forecasting CAAA compliance capital expenditures of $130 million
during the 1995 through 1999 period. In addition, operating costs may also
increase due to higher fuel costs (e.g., higher-quality, lower-sulfur coal,
increased use of natural gas) and maintenance expenses.
Manufactured Gas Plants - Energy Coal tar residues and other substances
associated with manufactured gas plant (MGP) sites have been found at former
MGP sites in Indiana, including, but not limited to, sites previously owned by
Energy. Energy has identified at least 21 MGP sites which it previously
owned, including 19 it sold in 1945 to Indiana Gas and Water Company, Inc.
(now Indiana Gas Company [IGC]).
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other Potentially Responsible Parties (PRP),
including previous owners, pursuant to its rights of contribution under the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA). IGC has informed Energy of the basis for IGC's position that
Energy, as a PRP under CERCLA, should contribute to IGC's response costs
related to investigating and remediating contamination at MGP sites which
Energy sold to IGC. The IURC has not ruled on IGC's petition. In its July
1994 retail rate petition, Energy is seeking approval to defer, and
subsequently recover through rates, any costs it incurs for investigation and
remediation of previously owned MGP sites.
With the exception of one site, Shelbyville, it is premature for Energy to
predict the nature, extent, and costs of, or Energy's responsibility for, any
environmental investigations and remediations which may be required at other
MGP sites owned, or previously owned, by Energy. With respect to the
Shelbyville site, for which Energy and IGC are sharing the costs and based
upon environmental investigations and remediation completed to date, Energy
believes that any further required investigation and remediation will not have
a material adverse effect on its financial condition or results of operations.
Manufactured Gas Plants - CG&E and its Utility Subsidiaries Lawrenceburg Gas
Company (Lawrenceburg), a wholly-owned subsidiary of CG&E, also has an MGP
site which is under investigation to determine a remediation strategy. Total
cleanup cost is currently estimated to be approximately $750,000.
Lawrenceburg has applied to have the site included in the Indiana Department
of Environmental Management's voluntary cleanup program. CG&E and its utility
subsidiaries are aware of other potential sites where MGP activities may have
occurred at some time in the past. None of these sites are known to present a
risk to the environment. Except for the Lawrenceburg site, neither CG&E nor
its utility subsidiaries have undertaken responsibility for investigating
other potential MGP sites.
United Scrap Lead Site The EPA alleges that CG&E is a PRP under the CERCLA
liable for cleanup of the United Scrap Lead site in Troy, Ohio. CG&E was one
of approximately 200 companies so named. CG&E believes it is not a PRP and
should not be responsible for cleanup of the site. Under the CERCLA, CG&E
could be jointly and severally liable for costs incurred in cleaning up the
site, estimated by the EPA to be $27 million of which CG&E estimates its
portion to be immaterial to its financial condition or results of operations.
Global Climate Change Concern has been expressed by environmentalists,
scientists, and policymakers as to the potential climate change from
increasing amounts of "greenhouse" gases released as by-products of burning
fossil fuel and other industrial processes. In response to this concern, in
October 1993, the Clinton Administration announced its plan to reduce
greenhouse gases to 1990 levels by the year 2000. The plan calls for the
reduction of 109 million metric tons of carbon equivalents of all greenhouse
gases. Initially, the plan relies largely on voluntary participation of many
industries, with a substantial emissions reduction contribution expected from
the utility industry. Numerous utilities, including Energy and CG&E, have
agreed to study and implement voluntary, cost-effective greenhouse gas
emission control programs. CINergy signed a voluntary reduction agreement
with the United States Department of Energy (DOE) in February 1995. CINergy's
voluntary participation will include a least-cost, market-oriented program
composed of residential, commercial, and industrial DSM programs, energy
efficiency improvements, research and development projects, and arrangements
with other sources through on- and off-system pollution prevention measures.
The DOE and the Clinton Administration have stated they will monitor the
progress of industry to determine whether targeted reductions are being
achieved. If the Clinton Administration or Congress should conclude that
further reductions are needed, legislation requiring utilities to achieve
additional reductions is possible.
Air Toxics The air toxics provisions of the CAAA exempt fossil-fueled steam
utility plants from mandatory reduction of 189 listed air toxics until the EPA
completes a study, expected in November 1995, on the risk of these emissions
on public health. If additional air toxics regulations are established, the
cost of compliance could be significant. CINergy cannot predict the outcome
or the effects of this EPA study.
CAPITAL REQUIREMENTS
Construction
General For 1995, construction expenditures for the CINergy system are
forecasted to be $300 million, and over the next five years (1995 through
1999), are forecasted to be approximately $2.1 billion. (All forecasted
amounts are in nominal dollars and reflect assumptions as to the economy,
capital markets, construction programs, legislative and regulatory actions,
frequency and timing of rate increase requests, and other related factors
which may change significantly.)
New Generation In 1992, the DOE approved for partial funding a joint proposal
by Energy and Destec Energy, Inc. (Destec) for a 262-megawatt clean coal power
generating facility to be located at Energy's Wabash River Generating Station.
In 1993, the IURC issued "certificates of need" for the project. The total
project cost, including construction, Destec's operating costs for a three-
year demonstration period, and Energy's operating costs for a one-year
demonstration period, was originally estimated to be $550 million. The DOE
originally awarded the project up to $198 million. During 1994, the total
project cost was revised to $592 million with the DOE award increasing to $219
million. Of this revised amount, Energy will receive approximately $58
million from the DOE to be used to offset project costs. The remainder of the
project costs will be funded by Energy and Destec, with Energy's portion being
approximately $84 million in construction costs and approximately $9 million
in operating costs, including fuel, during the one-year demonstration period.
During 1994, the IURC approved the increased estimate in costs. The project
is currently under construction, and the demonstration period is expected to
commence in the third quarter of 1995. Once the facility is operational,
Energy's 25-year contractual agreement with Destec requires Energy to pay
Destec a fixed monthly fee plus certain monthly operating expenses. Over the
next five years (1995 through 1999), the fixed fee will total $56 million, and
the variable fee is estimated at $95 million. As previously discussed, Energy
received authorization in the February 1995 Order to defer these costs for
subsequent recovery in an IURC order associated with Energy's July 1994 retail
rate petition.
In November 1994, CG&E began construction of a 100-megawatt combustion turbine
generating unit to be located at Woodsdale. The unit is scheduled to be in
service to meet peak demand by the summer of 1998.
Other
Mandatory redemptions of long-term debt and cumulative preferred stock total
$491 million during the 1995 through 1999 period. Additionally, funds are
required to make a payment of $80 million in accordance with the settlement of
Energy's Wabash Valley Power Association, Inc. (WVPA) litigation. This
payment is not currently expected to occur before 1996 (see Note 16(c) of the
"Notes to Consolidated Financial Statements" in "Item 8. Financial Statements
and Supplementary Data").
The first mortgage bond indentures of both CG&E and ULH&P provide that so long
as any series of bonds issued prior to 1976 and 1978, respectively, are
outstanding, CG&E and ULH&P will pay to the trustee as a Maintenance and
Replacement Fund (M&R Fund), on or before April 30 of each year, in cash,
unfunded property additions, or principal amount of first mortgage bonds of
any series issued under the mortgages, a formularized amount related to the
net revenues of CG&E and ULH&P. For 1994, the M&R Fund requirements (payable
on or before April 30, 1995) for CG&E and ULH&P are approximately $114 million
and $5 million, respectively.
Most of CG&E's and ULH&P's first mortgage bonds are redeemable at par value,
plus accrued interest, through cash deposited to satisfy the annual M&R Fund
requirement. On March 24, 1995, CG&E announced its intention to redeem,
beginning May 1, 1995, $114 million principal amount of its 10.125% and 9.70%
first mortgage bonds at par with cash deposited in the M&R Fund. ULH&P also
announced its intention to redeem $5 million principal amount of its 10.25%
first mortgage bonds (due June 1, 2020) at par with cash deposited in the M&R
Fund, and to redeem the remaining amount of such bonds at the redemption price
of 107.34% on June 1, 1995.
CG&E and ULH&P will continue to evaluate the use of this provision of their
mortgage indentures for the possible redemption of first mortgage bonds in
future years.
CINergy currently forecasts approximately $290 million for DSM expenditures,
primarily related to Energy, during the 1995 through 1999 period. The
February 1995 Order authorized Energy to amortize and recover DSM expenditures
deferred through July 1993 ($35 million), together with carrying costs, over a
five-year period commencing in February 1995. Deferred DSM expenditures as of
February 1995, which are not included for recovery in the February 1995 Order
will continue to be deferred, with carrying costs, for recovery in subsequent
rate proceedings. In addition, base retail electric rates will include
recovery of $23 million of DSM expenditures on an annual basis. Future
deferral of DSM expenditures will be the amount by which actual annual
expenditures exceed the base level of $23 million. If DSM expenditures in any
calendar year are less than the $23 million in base rates, the unamortized
balance of deferred DSM expenditures would be reduced by such difference. In
the PUCO's August 1993 Order, CG&E was authorized to recover approximately $5
million of costs associated with DSM programs for domestic customers. The
PUCO has also permitted CG&E to defer future expenditures of approved DSM
programs, with carrying costs, for future recovery. In addition, CG&E has
applications pending for approval by the PUCO for deferral of the costs of
additional DSM programs.
CAPITAL RESOURCES
CINergy currently projects that internal generation of funds will be adequate
to finance substantially all of its capital needs during the 1995 through 1999
period. CINergy projects that its need, if any, for external funds during
this period will primarily be for the refinancing of long-term debt and
preferred stock, as previously discussed. (All forecasted amounts are in
nominal dollars and reflect assumptions as to the economy, capital markets,
construction programs, legislative and regulatory actions, frequency and
timing of rate increase requests, and other related factors which may change
significantly.)
Common Stock In December 1994, CINergy publicly issued approximately 7.1
million shares of common stock under a shelf registration statement for the
sale of up to eight million shares. The net proceeds of approximately $160
million were contributed to the equity capital of Energy for general corporate
purposes, including repayment of short-term indebtedness incurred for
construction financing.
Long-term Debt and Preferred Stock CINergy's utility subsidiaries currently
have existing shelf registration statements which permit the sale of up to
$605 million of long-term debt and state regulatory authority to issue up to
$298 million of this long-term debt. CINergy's utility subsidiaries have
applications pending before the PUCO and the KPSC for authority to issue up to
an additional $555 million of long-term debt. Additionally, these
subsidiaries had effective shelf registration statements and regulatory
authority to issue up to $40 million of preferred stock. These subsidiaries
will request regulatory approval to issue additional amounts of debt
securities and preferred stock as needed.
Short-term Debt The operating subsidiary companies of CINergy have authority
to borrow up to $575 million as of December 31, 1994. In connection with this
authority, CINergy's subsidiaries have established unsecured lines of credit
(Committed Lines) which currently permit borrowings of up to $343 million, of
which $208 million remained unused. CG&E and Energy also issue commercial
paper from time to time. All outstanding commercial paper is supported by
Committed Lines of the respective companies. Additionally, this authority
allows the subsidiary companies of CINergy to arrange for additional short-
term borrowings with various banks on an "as offered" basis (Uncommitted
Lines). All Uncommitted Lines provide for maturities of up to 365 days with
various interest rate options.
Additionally, CINergy has a $100 million credit facility which expires on
September 27, 1997, of which $25 million remained unused at December 31, 1994.
The facility may be increased to a maximum of $300 million, and the Company
has an annual option of extending the term of the facility by one year. This
credit facility will be used for general corporate purposes and funding
non-utility business ventures.
INFLATION
Over the past several years, the rate of inflation has been relatively low.
CINergy believes that the recent inflation rates do not materially affect its
results of operations or financial condition. However, under existing
regulatory practice, only the historical cost of plant is recoverable from
customers. As a result, cash flows designed to provide recovery of historical
plant costs may not be adequate to replace plant in future years.
DIVIDEND RESTRICTIONS
See Notes 5 and 7 of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data" for a discussion of the
restrictions on common dividends.
RESULTS OF OPERATIONS
Nonrecurring Charges
In 1994, CINergy recognized charges to earnings of approximately $79 million
($56 million, net of taxes) or 38 cents per share primarily for certain merger
costs and other costs which the Company does not expect to recover from
customers due to rate settlements related to securing support for the merger.
The charges include the PUCO electric jurisdictional portion of merger
transaction costs and costs to achieve merger savings incurred through
December 31, 1994, previously capitalized information systems development
costs, and severance benefits to former officers of CG&E and Energy. Of the
total $79 million charge, $62 million is reflected in "OPERATING EXPENSES -
Other operation" and $17 million is reflected in "OTHER INCOME AND EXPENSES -
NET" (see Note 18 of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data").
In 1993, CINergy recognized charges to earnings of approximately $260 million
($239 million, net of taxes) or $1.66 per share for the write-off of a portion
of Zimmer and costs in connection with IPALCO Enterprises, Inc.'s hostile
takeover attempt of Resources prior to the merger. These charges are
reflected in "OTHER INCOME AND EXPENSES - NET".
Kwh Sales
CINergy's total kwh sales in 1994, as compared to 1993, increased 2.9% due in
large part to non-firm power sales for resale reflecting third party short-
term power sales to other utilities through Energy's system and direct power
sales by Energy to other utilities. This increase was partially offset by
CG&E's reduced power sales to other utilities in 1994. Also significantly
contributing to the total kwh sales levels were increased retail sales to
industrial customers. This increase reflects growth in the primary metals and
transportation equipment sectors. Commercial sales increased due, in part, to
new customers. A decrease in domestic sales resulted from the milder weather
experienced during the third and fourth quarters of 1994.
A return to more normal weather contributed to the 4.4% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the primary metals
and transportation equipment sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in Energy's sales
associated with third party short-term power sales to other utilities through
Energy's system.
The reduction of firm power sales for resale in 1992 was responsible, in part,
for a 2.5% decrease in total kwh sales, as compared to 1991. Reflected in
this decrease was the reduction of Energy's firm power sales to WVPA and the
Indiana Municipal Power Agency (IMPA) as they served more of their customers'
requirements from their portion of the jointly owned Gibson Unit 5.
Additionally, beginning in August 1992, WVPA substantially reduced its
purchases associated with an interim scheduled power agreement between Energy
and WVPA. The decrease in domestic and commercial sales due to the milder
weather experienced during the 1992 cooling season was significantly offset
by continued growth in industrial sales.
Year-to-year changes in kwh sales for each class of customers are shown below:
Increase (Decrease) from Prior Year
1994 1993 1992
Retail
Domestic. . . . . . . . . . . . . . . (1.7)% 10.3% (6.6)%
Commercial. . . . . . . . . . . . . . 1.9 6.3 (1.5)
Industrial. . . . . . . . . . . . . . 4.6 4.2 5.7
Total retail. . . . . . . . . . . . . . 1.6 6.9 (.8)
Sales for resale
Firm power obligations. . . . . . . . 2.5 2.6 (26.3)
Non-firm power transactions . . . . . 13.3 (10.9) (1.6)
Total sales for resale. . . . . . . . . 10.0 (7.2) (9.9)
Total sales . . . . . . . . . . . . . . 2.9 4.4 (2.5)
CINergy currently forecasts a 2% annual compound growth rate in kwh sales over
the 1995 through 2004 period. This forecast reflects the effects of DSM and
excludes non-firm power transactions and any potential off-system, long-term
firm power sales.
Mcf Sales and Transportation
The milder weather experienced in 1994 contributed to a decrease in domestic
and commercial gas sales volumes and led to the decrease in total Mcf sales
and transportation of 1.2%. The leading reason for an increase in gas
transportation services was additional demand for gas transportation services
by industrial customers, mainly in the primary metals sector.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher domestic and commercial sales volumes as a
result of the return to more normal weather during the 1993 heating season and
the addition of a number of customers to CG&E's gas system during the year.
Gas transportation volumes for 1993 increased largely as a result of
additional industrial demand for gas transportation services in the primary
metals sector. The increase in Mcf transported more than offset the decrease
in Mcf sold to industrial customers.
In 1992, total gas sales and transportation volumes increased 7.3%, as
compared to 1991. Contributing to the increase in total retail Mcf sales were
the less mild weather during the 1992 heating season and an increase in the
average number of gas customers, both of which resulted in greater domestic
and commercial gas sales. These increases in domestic and commercial sales
were partially offset by decreased industrial sales volumes. The increase in
transportation volumes mainly reflected increased industrial demand in the
primary metals sector for gas transportation services.
Year-to-year changes in Mcf sales and transportation for each class of
customers are shown below:
Increase (Decrease) from Prior Year
1994 1993 1992
Retail
Domestic. . . . . . . . . . . . . . . (10.2)% 9.5% 4.5%
Commercial. . . . . . . . . . . . . . (1.5) 1.1 4.0
Industrial. . . . . . . . . . . . . . (9.9) (.8) (5.4)
Total retail. . . . . . . . . . . . . . (6.7) 5.4 3.0
Gas transported . . . . . . . . . . . . 13.9 12.7 22.3
Total gas sold and transported. . . . . (1.2) 7.2 7.3
Revenues
Electric Operating Revenues
CG&E's electric rate increases which became effective in May 1993, August
1993, and May 1994, Energy's increased kwh sales, and the effects of Energy's
$31 million refund accrued in June 1993 as a result of the settlement of the
IURC's April 1990 rate order (April 1990 Order) (see Note 2(a)(i) of the
"Notes to Consolidated Financial Statements" in "Item 8. Financial Statements
and Supplementary Data") resulted in increased electric operating revenues of
$111 million (4.7%) in 1994, as compared to 1993.
Electric operating revenues increased $130 million (5.8%) in 1993 primarily as
a result of greater kwh sales and electric rate increases granted to CG&E in
1993 and 1992. These increases were partially offset by Energy's $31 million
refund resulting from the settlement of the IURC's April 1990 Order and a
decrease in Energy's cost of fuel used in electric production.
In 1992, electric operating revenues decreased $29 million (1.3%) primarily as
a result of lower kwh sales and a decrease in Energy's cost of fuel used in
electric production. These decreases were partially offset by electric rate
increases granted to CG&E.
An analysis of electric operating revenues for the past three years is shown
below:
<TABLE>
<CAPTION>
1994 1993 1992
(in millions)
<S> <C> <C> <C>
Previous year's electric
operating revenues . . . . . . . . . . . . $2 371 $2 241 $2 270
Increase (Decrease) due to change in:
Price per kwh
Retail . . . . . . . . . . . . . . . . . 59 (9) 17
Sales for resale
Firm power obligations . . . . . . . . 1 (1) 4
Non-firm power transactions. . . . . . 3 12 (17)
Total change in price per kwh. . . . . . . 63 2 4
Kwh sales
Retail . . . . . . . . . . . . . . . . . 33 138 (15)
Sales for resale
Firm power obligations . . . . . . . . 2 2 (28)
Non-firm power transactions. . . . . . 14 (11) (2)
Total change in kwh sales. . . . . . . . . 49 129 (45)
Other. . . . . . . . . . . . . . . . . . . (1) (1) 12
Current year's electric
operating revenues . . . . . . . . . . . . $2 482 $2 371 $2 241
</TABLE>
Gas Operating Revenues
In 1994, gas operating revenues decreased $27 million (5.7%) when compared to
1993 due to the operation of fuel adjustment clauses, which reflected a lower
average cost of gas purchased during the latter part of 1994 and a reduction
in total volumes sold and transported.
Gas operating revenues increased $75 million (19.1%) in 1993, as compared to
1992, primarily as a result of gas rate increases in 1993, higher total
volumes of gas sold and transported, and the operation of fuel adjustment
clauses reflecting an increase in the average cost of gas purchased.
In 1992, gas operating revenues increased $23 million (6.3%). The increased
revenues were primarily a result of higher total volumes sold and transported
and the operation of fuel adjustment clauses reflecting an increase in the
average cost of gas purchased.
Operating Expenses
Fuel
(a) Fuel Used in Electric Production Electric fuel costs, CINergy's largest
operating expense, remained relatively unchanged in 1994, showing less than a
1% increase. An analysis of these fuel costs for the past three years is
shown below:
1994 1993 1992
(in millions)
Previous year's fuel expense . . . . . . . . $719 $713 $733
Increase (Decrease) due to change in:
Price of fuel. . . . . . . . . . . . . . . (11) (23) (18)
Kwh generation . . . . . . . . . . . . . . 18 29 (2)
Current year's fuel expense. . . . . . . . . $726 $719 $713
(b) Gas Purchased A reduction in the average cost per Mcf of gas purchased
(5.1%) and lower volumes purchased (6.8%) contributed to the decline in gas
purchased expense of $33 million (11.6%) in 1994, as compared to 1993.
Gas purchased expense in 1993, as compared to 1992, increased $53 million
(23.0%) as a result of an increase in the average cost per Mcf of gas
purchased of 17.5% and an increase in volumes purchased of 4.7%.
In 1992, gas purchased expense increased $16 million (7.7%) as a result of an
increase in volumes purchased of 1.7% and an increase in the average cost per
Mcf of gas purchased of 5.9%.
Purchased and Exchanged Power
Purchased and exchanged power increased $16 million (33.4%) in 1994, as
compared to 1993, reflecting an increase in third party short-term power sales
to other utilities through Energy's system and increased purchases of other
non-firm power by Energy primarily to serve its own load.
In 1993, Energy increased its purchases of non-firm power primarily to serve
its own load, which resulted in an increase in purchased and exchanged power
costs of $11 million (30.4%) as compared to 1992.
Purchased and exchanged power costs decreased $31 million (46.4%) in 1992,
reflecting a reduction in Energy's third party short-term power sales to other
utilities through Energy's system and the scheduled reduction in Energy's
purchase obligations from WVPA and IMPA under the Gibson Unit 5 joint
ownership arrangement.
Other Operation
Other operation expenses increased $107 million (23.4%) in 1994, as compared
to 1993, due to a number of factors including charges of approximately $62
million for merger-related costs and other expenditures which the Company does
not expect to recover from customers due to rate settlements related to
securing support for the merger. Additionally, fuel litigation expenses of $8
million incurred by Energy and increased electric production and distribution
expenses contributed to the increase.
Maintenance
Increased maintenance on a number of Energy's generating stations and the
initial costs of Energy's new distribution line clearing program resulted in
increased maintenance expenses of $8 million (4.2%) in 1994.
Maintenance expenses decreased $17 million (8.2%) in 1992 primarily due to
decreased maintenance expenses on CG&E's electric generating units and gas and
electric distribution facilities.
Depreciation
Depreciation expense increased $16 million (5.6%) in 1994, as compared to
1993, primarily as a result of additions to electric utility plant.
Depreciation expense increased $21 million (8.1%) in 1993 primarily due to a
full year's effect of the first five units of Woodsdale which were placed in
commercial operation in 1992, the sixth unit which was placed in commercial
operation in 1993, and other additions to electric utility plant.
Depreciation expense in 1992 increased $16 million (6.6%) primarily due to a
full year's effect of Zimmer which was placed in commercial operation in March
1991, the first five units of Woodsdale which were placed in commercial
operation in 1992, and other additions to electric utility plant.
Post-in-service Deferred Operating Expenses - Net
Post-in-service deferred operating expenses of $12 million and $28 million in
1993 and 1992, respectively, reflect deferral of depreciation, operation and
maintenance expenses (exclusive of fuel costs), and property taxes related to
the first five units of Woodsdale between the time the units began commercial
operation and the effective date of new rates authorized by the PUCO in August
1993 which reflect these costs. In accordance with the August 1993 Order,
CG&E began amortizing the deferred Woodsdale expenses over a 10-year period.
Additionally, in January 1993, Energy received authority from the IURC to
defer depreciation expense on the combustion turbine generating unit
constructed at its Cayuga Generating Station and major environmental
compliance projects from the date the projects were placed in service until
the effective date of an order in a general retail rate proceeding. The
post-in-service deferred operating expenses for 1992 also reflect deferral of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes related to Zimmer from January 1992 through May 1992, the
effective date of new rates which reflected Zimmer costs. In accordance with
the May 1992 Order, CG&E began amortizing the deferred expenses associated
with Zimmer over a 10-year period. (See Note 1(h) of the "Notes to
Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".)
Phase-in Deferred Depreciation
Phase-in deferred depreciation reflects the PUCO ordered phase-in plan for
Zimmer (see Note 1(g) of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data").
Taxes
Taxes other than income taxes increased $15 million (6.5%) in 1994, $13
million (5.8%) in 1993, and $25 million (12.8%) in 1992 primarily due to
increased property taxes resulting from a greater investment in taxable
property (including Zimmer and Woodsdale) and higher property tax rates.
Other Income and Expenses - Net
Post-in-service Carrying Costs
In 1994, post-in-service carrying costs decreased $8 million (46.0%) as a
result of discontinuing the accrual of carrying costs on the first five units
of Woodsdale after the August 1993 effective date of new rates for CG&E which
reflected Woodsdale. Additional environmental compliance projects completed
by Energy which qualified, under IURC authority, for continued accrual of the
debt component of AFUDC (post-in-service carrying costs) partially offset this
decrease.
Post-in-service carrying costs decreased $19 million (50.6%) in 1993 as a
result of discontinuing the accrual of carrying costs on Zimmer when it was
reflected in rates in May 1992. Partially offsetting this decrease was
Energy's implementation of the January 1993 IURC order authorizing the accrual
of post-in-service carrying costs, as previously discussed (see Note 1(h) of
the "Notes to Consolidated Financial Statements" in "Item 8. Financial
Statements and Supplementary Data").
Post-in-service carrying costs decreased $13 million (26.8%) in 1992 also as a
result of discontinuing the accrual of carrying costs on Zimmer when it was
reflected in rates in May 1992. Post-in-service carrying costs for 1992 also
reflect the accrual of carrying costs on the first five units of Woodsdale
(see Note 1(h) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data").
Phase-in Deferred Return
Phase-in deferred return reflects the PUCO ordered phase-in plan for Zimmer
(see Note 1(g) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data").
Reduction of Loss Related to the IURC's June 1987 Order
Energy had previously recognized a loss of $139 million for the IURC's June
1987 tax order (June 1987 Order) which related to the effect on Energy of the
1987 reduction in the Federal income tax rate. An IURC order in December
1993, approving a settlement agreement, provided for Energy to refund $119
million applicable to the June 1987 Order to Energy's retail customers (see
Note 2(a)(i) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data").
Write-off of a Portion of Zimmer Station
In November 1993, CG&E wrote off Zimmer costs disallowed from rates by the
PUCO in the May 1992 Order.
Interest and Other Charges
Interest and other charges increased $22 million (9.4%) in 1992. This
increase was partially attributable to a decrease in the allowance for
borrowed funds used during construction. This decrease was related to
decreases in construction work in progress associated with the first five
units of Woodsdale being placed in service in 1992.
Index to Financial Statements and Financial Statement Schedules
Page Number
Financial Statements
Report of Independent Public Accountants. . . . . . . . . 45-46
Consolidated Statements of Income for the
three years ended December 31, 1994 . . . . . . . . . . 47
Consolidated Balance Sheets at
December 31, 1994 and 1993. . . . . . . . . . . . . . . 48-49
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1994 . . . . . . . . . . . . . . . . 50
Consolidated Statements of Cash Flows
for the three years ended December 31, 1994 . . . . . . 51
Schedule of Cumulative Preferred Stock
of Subsidiaries . . . . . . . . . . . . . . . . . . . . 52
Schedule of Long-term Debt. . . . . . . . . . . . . . . . 53-54
Notes to Consolidated Financial Statements. . . . . . . . 55-85
Page Number
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts . . . . . 97-99
The information required to be submitted in schedules other than those
indicated above has been included in the consolidated balance sheets, the
consolidated statements of income, related schedules, the notes thereto, or
omitted as not required by the Rules of Regulation S-X.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CINergy Corp.:
We have audited the consolidated balance sheets and schedules of cumulative
preferred stock of subsidiaries and long-term debt of CINERGY CORP. (a
Delaware Corporation) and its subsidiary companies as of December 31, 1994 and
1993, and the related consolidated statements of income, changes in common
stock equity and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CINergy Corp. and subsidiary
companies as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As explained in Notes 11 and 15 to the consolidated financial statements, the
Company changed its methods of accounting for postretirement health care
benefits and income taxes effective January 1, 1993.
As more fully discussed in Note 16 to the consolidated financial statements,
Wabash Valley Power Association, Inc. (WVPA) filed suit in 1984 against PSI
Energy, Inc. (Energy), a subsidiary of CINergy Corp., for $478 million plus
interest and other damages to recover its share of Marble Hill Nuclear Project
costs. Energy and its officers reached a settlement with WVPA in 1989 that is
subject to approval of judicial and regulatory authorities and has recorded an
estimated loss related to the litigation. The eventual outcome of this
litigation cannot presently be determined.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
Item 14 are presented for purposes of complying with the Securities and
Exchange Commission's Rules and Regulations under the Securities Exchange Act
of 1934 and are not a required part of the basic financial statements. The
supplemental schedules have been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Cincinnati, Ohio,
January 23, 1995
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
1994 1993 1992
(in thousands, except per share amounts)
<S> <C> <C>
OPERATING REVENUES (Note 2)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $2 481 779 $2 370 812 $2 240 506
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 398 469 296 393 970
2 924 177 2 840 108 2 634 476
OPERATING EXPENSES
Fuel used in electric production . . . . . . . . . . . . . . . 725 985 719 206 713 362
Gas purchased. . . . . . . . . . . . . . . . . . . . . . . . . 248 293 280 836 228 272
Purchased and exchanged power. . . . . . . . . . . . . . . . . 62 332 46 732 35 845
Other operation. . . . . . . . . . . . . . . . . . . . . . . . 563 650 456 590 442 250
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 200 959 192 877 190 826
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 294 395 278 882 258 088
Post-in-service deferred operating
expenses - net . . . . . . . . . . . . . . . . . . . . . . . (5 998) (11 540) (27 799)
Phase-in deferred depreciation . . . . . . . . . . . . . . . . (2 161) (8 524) (8 468)
Income taxes (Note 15) . . . . . . . . . . . . . . . . . . . . 152 181 172 637 160 399
Taxes other than income taxes. . . . . . . . . . . . . . . . . 244 051 229 148 216 600
2 483 687 2 356 844 2 209 375
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 440 490 483 264 425 101
OTHER INCOME AND EXPENSES - NET
Allowance for equity funds used
during construction. . . . . . . . . . . . . . . . . . . . . 6 201 14 327 14 799
Post-in-service carrying costs . . . . . . . . . . . . . . . . 9 780 18 105 36 655
Phase-in deferred return . . . . . . . . . . . . . . . . . . . 15 351 35 334 26 609
Reduction of loss related to the IURC's
June 1987 Order (Note 2) . . . . . . . . . . . . . . . . . . - 20 134 -
Write-off of a portion of
Zimmer Station (Note 2). . . . . . . . . . . . . . . . . . . - (234 844) -
Income taxes (Note 15)
Related to the IURC's June 1987 Order. . . . . . . . . . . . - (7 444) -
Related to the write-off of a portion of
Zimmer Station . . . . . . . . . . . . . . . . . . . . . . - 12 085 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 609 21 043 30 174
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . (28 444) (40 299) (2 466)
13 497 (161 559) 105 771
INCOME BEFORE INTEREST AND OTHER CHARGES . . . . . . . . . . . . 453 987 321 705 530 872
INTEREST AND OTHER CHARGES
Interest on long-term debt . . . . . . . . . . . . . . . . . . 219 248 225 990 225 708
Other interest . . . . . . . . . . . . . . . . . . . . . . . . 20 370 7 923 12 752
Allowance for borrowed funds used
during construction. . . . . . . . . . . . . . . . . . . . . (12 332) (12 740) (13 289)
Preferred dividend requirements of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 35 559 37 985 34 896
262 845 259 158 260 067
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191 142 $ 62 547 $ 270 805
AVERAGE COMMON SHARES OUTSTANDING. . . . . . . . . . . . . . . . 147 426 144 226 141 884
EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . $1.30 $.43 $1.91
DIVIDENDS DECLARED PER COMMON SHARE. . . . . . . . . . . . . . . $1.50 $1.46 $1.39
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1994 1993
(dollars in thousands)
<S> <C> <C>
UTILITY PLANT - ORIGINAL COST
In service
Electric . . . . . . . . . . . . . . . . . . . . . $8 292 625 $7 842 925
Gas . . . . . . . . . . . . . . . . . . . . . . . . 645 602 611 579
Common . . . . . . . . . . . . . . . . . . . . . . 185 718 183 225
9 123 945 8 637 729
Accumulated depreciation. . . . . . . . . . . . . . . 3 163 802 2 928 184
5 960 143 5 709 545
Construction work in progress . . . . . . . . . . . . 238 750 313 153
Total utility plant . . . . . . . . . . . . . . . 6 198 893 6 022 698
CURRENT ASSETS
Cash and temporary cash investments . . . . . . . . . 71 880 11 121
Restricted deposits . . . . . . . . . . . . . . . . . 11 288 49 231
Accounts receivable less accumulated provision
of $9,716,000 in 1994 and $15,561,000 in 1993
for doubtful accounts (Note 9). . . . . . . . . . . 299 509 340 059
Materials, supplies, and fuel - at average cost
Fuel for use in electric production . . . . . . . . 156 028 99 673
Gas stored for current use. . . . . . . . . . . . . 31 284 36 048
Other materials and supplies. . . . . . . . . . . . 92 880 98 522
Property taxes applicable to subsequent year. . . . . 112 420 107 410
Prepayments and other . . . . . . . . . . . . . . . . 36 416 60 906
811 705 802 970
OTHER ASSETS
Regulatory assets
Post-in-service carrying costs and deferred
operating expenses. . . . . . . . . . . . . . . . 185 280 173 038
Phase-in deferred return and depreciation . . . . . 100 943 83 431
Deferred demand-side management costs . . . . . . . 104 127 56 859
Amounts due from customers - income taxes . . . . . 408 514 405 516
Deferred merger costs . . . . . . . . . . . . . . . 49 658 28 397
Unamortized costs of reacquiring debt . . . . . . . 70 424 66 924
Other . . . . . . . . . . . . . . . . . . . . . . . 86 017 70 228
Other . . . . . . . . . . . . . . . . . . . . . . . . 134 281 93 838
1 139 244 978 231
$8 149 842 $7 803 899
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
December 31
1994 1993
(dollars in thousands)
<S> <C> <C>
COMMON STOCK EQUITY (Notes 3, 4, and 5)
Common stock - $.01 par value;
authorized shares - 600,000,000;
outstanding shares - 155,198,038 in 1994
and 146,404,785 in 1993 . . . . . . . . . . . . . . $ 1 552 $ 1 453
Paid-in capital . . . . . . . . . . . . . . . . . . . 1 535 658 1 312 426
Retained earnings . . . . . . . . . . . . . . . . . . 877 061 907 802
Total common stock equity . . . . . . . . . . . . 2 414 271 2 221 681
CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES
(Page 52, Notes 6 and 7)
Not subject to mandatory redemption . . . . . . . . . 267 929 307 989
Subject to mandatory redemption . . . . . . . . . . . 210 000 210 000
LONG-TERM DEBT (Pages 53 and 54, Note 8). . . . . . . . 2 715 269 2 645 213
Total capitalization. . . . . . . . . . . . . . . 5 607 469 5 384 883
CURRENT LIABILITIES
Long-term debt due within one year. . . . . . . . . . 60 400 160
Notes payable (Note 13) . . . . . . . . . . . . . . . 228 900 177 714
Accounts payable . . . . . . . . . . . . . . . . . . 266 467 274 658
Refund due to customers (Note 2(a)(i)). . . . . . . . 15 482 81 832
Litigation settlement (Note 16(c)). . . . . . . . . . 80 000 80 000
Advance under accounts receivable
purchase agreement (Note 9) . . . . . . . . . . . . - 49 940
Accrued taxes . . . . . . . . . . . . . . . . . . . . 258 041 259 502
Accrued interest. . . . . . . . . . . . . . . . . . . 58 504 51 290
Other . . . . . . . . . . . . . . . . . . . . . . . . 36 610 33 160
1 004 404 1 008 256
OTHER LIABILITIES
Deferred income taxes (Note 15) . . . . . . . . . . . 1 071 104 1 018 891
Unamortized investment tax credits . . . . . . . . . 195 878 206 241
Accrued pension and other postretirement
benefit costs (Notes 10 and 11) . . . . . . . . . . 133 578 85 953
Other . . . . . . . . . . . . . . . . . . . . . . . . 137 409 99 675
1 537 969 1 410 760
COMMITMENTS AND CONTINGENCIES (Note 16)
$8 149 842 $7 803 899
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Retained Total Common
Stock Capital Earnings Stock Equity
(dollars in thousands)
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991. . . . . . . . . . . . . . $1 407 $1 210 239 $ 985 704 $2 197 350
Net income . . . . . . . . . . . . . . . . . . . . 270 805 270 805
Issuance of 2,290,738 shares of
common stock . . . . . . . . . . . . . . . . . . 23 51 190 51 213
Common stock issuance
expenses . . . . . . . . . . . . . . . . . . . . (407) (407)
Costs of issuing and
retiring preferred
stock of subsidiaries. . . . . . . . . . . . . . (548) (3 660) (4 208)
Dividends on common stock
(see page 47 for per
share amounts) . . . . . . . . . . . . . . . . . (197 770) (197 770)
Other. . . . . . . . . . . . . . . . . . . . . . . (39) (39)
BALANCE DECEMBER 31, 1992. . . . . . . . . . . . . . 1 430 1 260 474 1 055 040 2 316 944
Net income . . . . . . . . . . . . . . . . . . . . 62 547 62 547
Issuance of 3,443,918 shares of
common stock . . . . . . . . . . . . . . . . . . 23 57 159 57 182
Common stock issuance
expenses . . . . . . . . . . . . . . . . . . . . (145) (145)
Costs of issuing and
retiring preferred
stock of subsidiaries. . . . . . . . . . . . . . (5 062) (5 062)
Dividends on common stock
(see page 47 for per
share amounts) . . . . . . . . . . . . . . . . . (209 861) (209 861)
Other. . . . . . . . . . . . . . . . . . . . . . . 76 76
BALANCE DECEMBER 31, 1993. . . . . . . . . . . . . . 1 453 1 312 426 907 802 2 221 681
Net income . . . . . . . . . . . . . . . . . . . . 191 142 191 142
Issuance of 9,830,042 shares of
common stock . . . . . . . . . . . . . . . . . . 99 227 882 227 981
Common stock issuance
expenses . . . . . . . . . . . . . . . . . . . . (5 225) (5 225)
Dividends on common stock
(see page 47 for per
share amounts) . . . . . . . . . . . . . . . . . (221 362) (221 362)
Other. . . . . . . . . . . . . . . . . . . . . . . 575 (521) 54
BALANCE DECEMBER 31, 1994. . . . . . . . . . . . . . $1 552 $1 535 658 $ 877 061 $2 414 271
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1994 1993 1992
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191 142 $ 62 547 $ 270 805
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . 294 395 278 882 258 088
Deferred income taxes and investment
tax credits - net. . . . . . . . . . . . . . . . . . . . . . . . 30 926 96 470 55 374
Allowance for equity funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . (6 201) (14 327) (14 799)
Deferred gas and electric fuel costs - net. . . . . . . . . . . . (10 271) 3 914 (1 394)
Regulatory assets
Post-in-service and phase-in cost
deferrals. . . . . . . . . . . . . . . . . . . . . . . . . . . (33 290) (73 503) (99 531)
Deferred merger costs . . . . . . . . . . . . . . . . . . . . . (21 261) (22 481) (5 916)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 520) (3 444) (35 836)
Write-off of a portion of Zimmer Station. . . . . . . . . . . . . - 234 844 -
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . . . . . . . . . 10 046 40 (9 572)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 40 550 (24 152) (11 638)
Materials, supplies, and fuel . . . . . . . . . . . . . . . . (45 949) 61 969 (34 135)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . (8 191) 62 508 (26 728)
Refund due to customers . . . . . . . . . . . . . . . . . . . (66 350) (57 302) 4 134
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . . . . . . . . . (49 940) 49 940 -
Accrued taxes and interest. . . . . . . . . . . . . . . . . . 5 753 7 257 41 309
Other items - net . . . . . . . . . . . . . . . . . . . . . . . . 112 569 (16 336) 31 920
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . . . 440 408 646 826 422 081
FINANCING ACTIVITIES
Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . 222 756 57 037 50 806
Issuance of preferred stock of subsidiaries . . . . . . . . . . . . - 156 325 79 300
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . 420 935 538 704 553 337
Funds on deposit from issuance of long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 897 (31 342) 45 562
Retirement of preferred stock of subsidiaries . . . . . . . . . . . (40 426) (60 107) (145 307)
Redemption of long-term debt . . . . . . . . . . . . . . . . . . . (313 682) (502 335) (506 301)
Change in short-term debt . . . . . . . . . . . . . . . . . . . . . 51 186 (13 033) 165 734
Dividends on common stock . . . . . . . . . . . . . . . . . . . . . (221 362) (209 861) (197 770)
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . . . . . . . 147 304 (64 612) 45 361
INVESTING ACTIVITIES
Construction expenditures (less allowance for
equity funds used during construction) . . . . . . . . . . . . . . (479 685) (549 143) (504 796)
Deferred demand-side management costs . . . . . . . . . . . . . . . (47 268) (33 763) (17 249)
Equity investments in Argentine utilities . . . . . . . . . . . . . - (206) (20 285)
Net cash provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . . . (526 953) (583 112) (542 330)
Net increase (decrease) in cash and temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . 60 759 (898) (74 888)
Cash and temporary cash investments at
beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 11 121 12 019 86 907
Cash and temporary cash investments at end
of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71 880 $ 11 121 $ 12 019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . $ 211 163 $ 213 774 $ 201 609
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 680 81 327 75 613
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE OF CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES
December 31
1994 1993
(dollars in thousands)
<S> <C> <C>
The Cincinnati Gas & Electric Company
Authorized 6,000,000 shares -
Not subject to mandatory redemption (Note 6)
Par value $100 per share - outstanding
4% Series 270,000 shares in 1994 and 1993 . . . . . . . . . . . . . . . $ 27 000 $ 27 000
4 3/4% Series 130,000 shares in 1994 and 1993 . . . . . . . . . . . . . . . 13 000 13 000
7.44% Series 400,000 shares in 1994 and 1993 . . . . . . . . . . . . . . . 40 000 40 000
9.28% Series 400,000 shares in 1993. . . . . . . . . . . . . . . . . . . . - 40 000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 000 120 000
Subject to mandatory redemption (Notes 6 and 7)
Par value $100 per share - outstanding
9.15% Series 500,000 shares in 1994 and 1993
(redeemable, upon call, prior to July 1, 1995
at $106.71; reduced amounts thereafter). . . . . . . . . . . . . . . 50 000 50 000
7 7/8% Series 800,000 shares in 1994 and 1993
(subject to mandatory redemption on January 1, 2004
at $100; not redeemable prior to that date). . . . . . . . . . . . . 80 000 80 000
7 3/8% Series 800,000 shares in 1994 and 1993
(redeemable, upon call, after August 1, 2002 at $100). . . . . . . . 80 000 80 000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 000 210 000
PSI Energy, Inc.
Not subject to mandatory redemption (Note 6)
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,162 shares in 1994 and 1993 . . . . . . . . . . . . . . 4 229 4 229
4.16% Series 148,763 shares in 1994 and 1993 . . . . . . . . . . . . . . 3 719 3 719
7.44% Series 4,000,000 shares in 1994 and 1993 . . . . . . . . . . . . . . 100 000 100 000
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 41,172 shares in 1994 and 41,770 shares in 1993. . . . . . 4 117 4 177
6 7/8% Series 600,000 shares in 1994 and 1993 . . . . . . . . . . . . . . 60 000 60 000
7.15% Series 158,640 shares in 1994 and 1993 . . . . . . . . . . . . . . 15 864 15 864
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 929 187 989
Total - CINergy Corp.
Total not subject to mandatory redemption . . . . . . . . . . . . . . . . . $267 929 $307 989
Total subject to mandatory redemption . . . . . . . . . . . . . . . . . . . $210 000 $210 000
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE OF LONG-TERM DEBT
December 31
1994 1993
The Cincinnati Gas & Electric Company and Subsidiaries (dollars in thousands)
<S> <C> <C>
The Cincinnati Gas & Electric Company
First Mortgage Bonds
5 7/8 % Series due July 1, 1997. . . . . . . . . . . . . . . . . . . . . . . $ 30 000 $ 30 000
6 1/4 % Series due September 1, 1997 . . . . . . . . . . . . . . . . . . . . 100 000 100 000
5.80 % Series due February 15, 1999 . . . . . . . . . . . . . . . . . . . . 110 000 -
7 3/8 % Series due May 1, 1999 . . . . . . . . . . . . . . . . . . . . . . . 50 000 50 000
8 5/8 % Series due December 1, 2000. . . . . . . . . . . . . . . . . . . . . - 60 000
7 3/8 % Series due November 1, 2001. . . . . . . . . . . . . . . . . . . . . 60 000 60 000
7 1/4 % Series due September 1, 2002 . . . . . . . . . . . . . . . . . . . . 100 000 100 000
8 1/8 % Series due August 1, 2003. . . . . . . . . . . . . . . . . . . . . . 60 000 60 000
6.45 % Series due February 15, 2004 . . . . . . . . . . . . . . . . . . . . 110 000 -
8.55 % Series due October 15, 2006. . . . . . . . . . . . . . . . . . . . . - 75 000
9 1/8 % Series due April 15, 2008. . . . . . . . . . . . . . . . . . . . . . - 75 000
9 5/8 % Series A and B due May 1, 2013 (Pollution Control) . . . . . . . . . - 31 700
10 1/8% Series due December 1, 2015 (Pollution Control). . . . . . . . . . . 84 000 84 000
9.70 % Series due June 15, 2019 . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
10 1/8% Series due May 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
10.20 % Series due December 1, 2020. . . . . . . . . . . . . . . . . . . . . 150 000 150 000
8.95 % Series due December 15, 2021 . . . . . . . . . . . . . . . . . . . . 100 000 100 000
8 1/2 % Series due September 1, 2022 . . . . . . . . . . . . . . . . . . . . 100 000 100 000
7.20 % Series due October 1, 2023 . . . . . . . . . . . . . . . . . . . . 300 000 300 000
5.45 % Series A and B due January 1, 2024 (Pollution Control) . . . . . . . 46 700 -
5 1/2 % Series due January 1, 2024 (Pollution Control) . . . . . . . . . . . 48 000 -
Total first mortgage bonds. . . . . . . . . . . . . . . . . . . . . . . . 1 648 700 1 575 700
Pollution Control Notes
6.70% to 8.50% due June 1, 1997 to October 1, 2009 . . . . . . . . . . . . . - 63 000
Variable rate due August 1, 2013 and December 1, 2015. . . . . . . . . . . . 100 000 100 000
6.50% due November 15, 2022. . . . . . . . . . . . . . . . . . . . . . . . . 12 721 12 721
Total pollution control notes . . . . . . . . . . . . . . . . . . . . . . 112 721 175 721
Total - The Cincinnati Gas & Electric Company . . . . . . . . . . . . . . 1 761 421 1 751 421
The Union Light, Heat and Power Company
First Mortgage Bonds
6 1/2 % Series due August 1, 1999. . . . . . . . . . . . . . . . . . . . . . 20 000 20 000
8 % Series due October 1, 2003 . . . . . . . . . . . . . . . . . . . . . 10 000 10 000
9 1/2 % Series due December 1, 2008. . . . . . . . . . . . . . . . . . . . . 10 000 10 000
9.70 % Series due July 1, 2019. . . . . . . . . . . . . . . . . . . . . . . 20 000 20 000
10 1/4% Series due June 1, 2020 and November 15, 2020. . . . . . . . . . . . 30 000 30 000
Total first mortgage bonds. . . . . . . . . . . . . . . . . . . . . . . . 90 000 90 000
Lawrenceburg Gas Company
First Mortgage Bonds
9 3/4 % Series due October 1, 2001 . . . . . . . . . . . . . . . . . . . . . 1 200 1 200
Other Subsidiary Company Debt. . . . . . . . . . . . . . . . . . . . . . . . . - 275
Unamortized Premium and Discount - Net . . . . . . . . . . . . . . . . . . . . (14 864) (13 835)
Total - The Cincinnati Gas & Electric Company and Subsidiaries. . . . . . $1 837 757 $1 829 061
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE OF LONG-TERM DEBT (Cont'd)
December 31
1994 1993
(dollars in thousands)
<S> <C> <C>
PSI Energy, Inc.
First Mortgage Bonds
Series S, 7%, due January 1, 2002. . . . . . . . . . . . . . . . . . . $ 26 429 $ 26 429
Series Y, 7 5/8%, due January 1, 2007. . . . . . . . . . . . . . . . . . . 24 140 24 140
Series BB, 6 5/8%, due March 1, 2004
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 000 5 000
Series NN, 7.60%, due March 15, 2012
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 000 35 000
Series QQ, 8 1/4%, due June 15, 2013
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 000 23 000
Series RR, 9 3/4%, due August 1, 1996 . . . . . . . . . . . . . . . . . . . 50 000 50 000
Series TT, 7 3/8%, due March 15, 2012
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 000 10 000
Series UU, 7 1/2%, due March 15, 2015
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 250 14 250
Series YY, 5.60%, due February 15, 2023
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 000 30 000
Series ZZ, 5 3/4%, due February 15, 2028
(Pollution Control). . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 000 50 000
Series AAA, 7 1/8%, due February 1, 2024 . . . . . . . . . . . . . . . . . . 50 000 -
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . 317 819 267 819
Secured Medium-term Notes (excluding amounts due within one year)
Series A, 6.65% to 8.88%,
due January 3, 1997 to June 1, 2022. . . . . . . . . . . . . . . . . . . . 300 000 300 000
Series B, 5.22% to 8.26%,
due September 17, 1998 to August 22, 2022. . . . . . . . . . . . . . . . . 230 000 230 000
(Series A and B, 7.64% weighted average
interest rate and 17 year weighted
average remaining life)
Total secured medium-term notes. . . . . . . . . . . . . . . . . . . . . 530 000 530 000
Pollution Control Notes (excluding amounts due within one year)
5 3/4%, due December 15, 1995 to December 15, 2003 . . . . . . . . . . . . . 19 600 20 000
Series 1994A Promissory Note, non-interest bearing,
due January 3, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 825 -
Unamortized Premium and Discount - Net . . . . . . . . . . . . . . . . . . . . (9 732) (1 667)
Total - PSI Energy, Inc. . . . . . . . . . . . . . . . . . . . . . . . . $ 877 512 $ 816 152
Total - CINergy Corp.
First Mortgage Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2 057 719 $1 934 719
Secured Medium-term Notes
(excluding amounts due within one year). . . . . . . . . . . . . . . . . . 530 000 530 000
Pollution Control Notes (excluding amounts due within one year). . . . . . . 132 321 195 721
Other Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 825 275
Unamortized Premium and Discount - Net . . . . . . . . . . . . . . . . . . . (24 596) (15 502)
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . $2 715 269 $2 645 213
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Merger On October 24, 1994, PSI Resources, Inc. (Resources) was merged
with and into CINergy Corp. (CINergy or Company), and a subsidiary of CINergy
was merged with and into The Cincinnati Gas & Electric Company (CG&E). Each
outstanding share of common stock of Resources and CG&E was exchanged for
1.023 shares and one share, respectively, of CINergy common stock, resulting
in the issuance of approximately 148 million shares of CINergy common stock,
par value $.01 per share. The outstanding preferred stock and debt securities
of CG&E, its utility subsidiaries, and PSI Energy, Inc. (Energy), previously
Resources' utility subsidiary, were not affected by the merger. Following the
merger, CINergy became the parent holding company of CG&E and Energy. The
merger was accounted for as a pooling of interests, and the Consolidated
Financial Statements, along with the related notes, are presented as if the
merger was consummated as of the beginning of the earliest period presented.
Due to immateriality, no adjustments were made to conform the accounting
policies of the two companies.
Resources' and CG&E's consolidated operating revenues and net income for the
nine months ended September 30, 1994, and each of the two years ended December
31, 1993, and 1992, were as follows:
<TABLE>
<CAPTION>
Resources CG&E CINergy
(in millions)
<S> <C> <C> <C>
Nine months ended September 30, 1994
(unaudited)
Operating revenues. . . . . . . . . $ 868 $1 363 $2 231
Net income. . . . . . . . . . . . . 60 146 206
Year ended December 31, 1993
Operating revenues. . . . . . . . . 1 088 1 752 2 840
Net income (loss) . . . . . . . . . 97 (34) (i) 63
Year ended December 31, 1992
Operating revenues. . . . . . . . . 1 081 1 553 2 634
Net income. . . . . . . . . . . . . 96 175 271
</TABLE>
(i) See Note 2(b) for information on the write-off of a portion of Wm. H.
Zimmer Generating Station (Zimmer).
(b) Consolidation Policy The accompanying Consolidated Financial Statements
include the accounts of CINergy and its subsidiaries after elimination of
significant intercompany transactions and balances.
(c) Regulation CINergy, its utility subsidiaries (CG&E, together with its
subsidiaries, and Energy), and certain of its non-utility subsidiaries are
subject to regulation by the Securities and Exchange Commission (SEC) under
the Public Utility Holding Company Act of 1935 (PUHCA). CINergy's utility
subsidiaries are also subject to regulation by the Federal Energy Regulatory
Commission (FERC) and the state utility commissions of Indiana, Ohio, and
Kentucky. The accounting policies of CINergy's utility subsidiaries conform
to the accounting requirements and ratemaking practices of these regulatory
authorities and to generally accepted accounting principles, including the
provisions of Statement of Financial Accounting Standards No. 71, Accounting
for the Effects of Certain Types of Regulation (Statement 71).
Regulatory assets represent probable future revenue to CINergy's utility
subsidiaries associated with deferred costs to be recovered from customers
through the ratemaking process. The following regulatory assets of Energy and
CG&E and its utility subsidiaries are reflected in the Consolidated Balance
Sheets as of December 31:
<TABLE>
<CAPTION>
1994 1993
Energy CG&E CINergy Energy CG&E CINergy
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Post-in-service carrying
costs and deferred
operating expenses . . . . . . . . . . . $ 30 $155 $ 185 $ 11 $162 $173
Phase-in deferred return
and depreciation . . . . . . . . . . . . - 101 101 - 83 83
Deferred demand-side
management (DSM) costs . . . . . . . . . 94 10 104 53 4 57
Amounts due from customers -
income taxes . . . . . . . . . . . . . . 27 382 409 18 388 406
Deferred merger costs. . . . . . . . . . . 38 12 50 15 13 28
Costs of reacquiring debt. . . . . . . . . 37 33 70 40 27 67
Postretirement benefit
costs. . . . . . . . . . . . . . . . . . 21 4 25 10 5 15
1992 workforce reduction
costs. . . . . . . . . . . . . . . . . . - 17 17 - 27 27
Other. . . . . . . . . . . . . . . . . . . 9 35 44 11 17 28
Total. . . . . . . . . . . . . . . . . . $256 $749 $1 005 $158 $726 $884
</TABLE>
In February 1995, the Indiana Utility Regulatory Commission (IURC) issued an
order (February 1995 Order) which approved a rate settlement agreement among
Energy and certain intervenors (see Note 2(a)(ii)). This order, together with
previous regulatory orders, provides for recovery of $153 million of Energy's
regulatory assets as of December 31, 1994. In addition, testimony to be filed
in 1995 in connection with Energy's July 1994 retail rate petition will
include a request for additional recovery of regulatory assets, including
approximately $100 million of the balance at December 31, 1994.
CG&E currently has regulatory orders in effect which provide for the recovery
of $704 million of its regulatory assets as of December 31, 1994, and will
request recovery of the remaining amounts in its next rate proceedings in each
applicable jurisdiction.
See Note 1(g), (h), (i), (j), and (l) for additional information regarding
phase-in deferred return and depreciation, post-in-service carrying costs and
deferred operating expenses, deferred DSM costs, amounts due from customers -
income taxes, and costs of reacquiring debt, respectively. For additional
information regarding deferred merger costs, postretirement benefit costs, and
1992 workforce reduction costs, see Notes 2(a)(ii), 2(b), 11, and 12.
Although CINergy's current regulatory orders and regulatory environment fully
support the recognition of these regulatory assets, the ultimate outcome of
the changing competitive environment discussed in the "Competitive Pressures"
section of "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" could result in CINergy discontinuing
application of Statement 71 for all or part of its business. Such an event
would require the write-off of the portion of any regulatory asset for which
no regulatory assurance of recovery continues to exist. No evidence currently
exists that would support a write-off of any portion of CINergy's regulatory
assets. CINergy intends to pursue competitive strategies that would mitigate
the impact of this issue on the financial condition of the Company.
(d) Utility Plant Utility plant is stated at the original cost of
construction, which includes an allowance for funds used during construction
(AFUDC) and a proportionate share of overhead costs. Construction overhead
costs include salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
(e) AFUDC CINergy's utility subsidiaries capitalize AFUDC, a non-cash income
item, which is defined in the regulatory system of accounts prescribed by the
FERC as including "the net cost for the period of construction of borrowed
funds used for construction purposes and a reasonable rate on other funds when
so used". For CINergy's utility subsidiaries, AFUDC accrual rates averaged
6.9% in 1994, 9.2% in 1993, and 9.5% in 1992, and are compounded semi-
annually.
(f) Depreciation and Maintenance Provisions for depreciation are determined
by using the straight-line method applied to the cost of depreciable plant in
service. The rates are based on periodic studies of the estimated service
lives and net cost of removal of the properties. The depreciation rates for
utility plant during each of the following three years were:
1994 1993 1992
Electric - Energy . . . . . . . 3.8% 3.8% 3.8%
Electric - CG&E and its
utility subsidiaries. . . . . 2.9 2.9 2.9
Gas - CG&E and its
utility subsidiaries. . . . . 2.8 2.7 2.6
Common - CG&E and its
utility subsidiaries. . . . . 3.4 3.3 3.1
In May 1992, the Public Utilities Commission of Ohio (PUCO) issued an order
(May 1992 Order) which authorized changes in depreciation accrual rates on
CG&E's electric and common plant. The changes resulted in an annual decrease
in depreciation expense of about $9 million. In accordance with the IURC's
February 1995 Order discussed further herein, Energy's annual depreciation
expense will decrease by approximately $30 million.
For CINergy's operating subsidiaries, maintenance and repairs of property
units and replacements of minor items of property are charged to maintenance
expense. The costs of replacements of property units are capitalized. The
original cost of the property retired and the related costs of removal, less
salvage recovered, are charged to accumulated depreciation.
(g) Phase-in Deferred Return and Depreciation In the May 1992 Order, the
PUCO authorized CG&E to begin recovering the cost of Zimmer through an
increase in electric revenues of $116.4 million to be phased in over a
three-year period under a plan that met the requirements of Statement of
Financial Accounting Standards No. 92, Regulated Enterprises - Accounting for
Phase-in Plans. The phase-in plan was designed so that the three rate
increases would provide revenues sufficient to recover all operating expenses
and provide a fair rate of return on plant investment. In the first three
years of the phase-in plan, rates charged to customers did not fully recover
depreciation expense and return on shareholders' investment. This deficiency
has been deferred on the Consolidated Balance Sheets and will be recovered
over a seven-year period beginning in May 1995, at which point the revenue
levels authorized pursuant to the phase-in plan are designed to be sufficient
to recover annual operating expenses, a fair return on the unrecovered
investment, and annual amortization of the deferred depreciation and deferred
return recorded during the first three years of the plan.
(h) Post-in-service Carrying Costs and Deferred Operating Expenses In
accordance with a March 1991 order by the PUCO, CG&E capitalized carrying
costs for Zimmer from the time it was placed in service in March 1991 until
the effective date of new rates authorized by the PUCO's May 1992 Order which
reflected Zimmer. CG&E began recovering these carrying costs over the useful
life of Zimmer in accordance with a stipulation approved by the PUCO in August
1993 (August 1993 Order) (see Note 2(b)).
Effective in January 1992, the PUCO authorized CG&E to defer Zimmer
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes which were not being recovered in rates charged to
customers. The PUCO also authorized CG&E to accrue carrying costs on the
deferred expenses. In its May 1992 Order, the PUCO authorized CG&E to begin
recovering these deferred expenses and associated carrying costs over a
10-year period.
In May 1992, the first three units at CG&E's Woodsdale Generating Station
(Woodsdale) began commercial operation, and, in July 1992, two additional
units were declared operational. In accordance with an October 1992 order
issued by the PUCO, CG&E deferred carrying costs on the first five units at
Woodsdale and deferred depreciation, operation and maintenance expenses
(exclusive of fuel costs), and property taxes from the time these units were
placed in service until the effective date of new rates approved in the August
1993 Order which reflected the Woodsdale units. CG&E began recovering the
carrying costs over the useful life of Woodsdale and the deferred expenses
over a 10-year period in accordance with the August 1993 Order (see Note
2(b)).
In January 1993, Energy received authority from the IURC to continue accrual
of the debt component of AFUDC and to defer depreciation expense on the
combustion turbine generating unit constructed at its Cayuga Generating
Station and major environmental compliance projects from the date the projects
are placed in service until the effective date of an order in a general retail
rate proceeding. The February 1995 Order authorizes Energy to begin
recovering amounts deferred as of May 31, 1994 ($9 million), for AFUDC
continuation and July 31, 1993 ($1 million), for depreciation expense over the
remaining lives of the related utility plant. Additionally, the February 1995
Order authorizes Energy to continue deferral of the applicable AFUDC and
depreciation recorded after the above cut-off dates through February 1995, for
subsequent recovery in an IURC order associated with Energy's July 1994 retail
rate petition which is currently pending before the IURC. The February 1995
Order also authorizes Energy to continue the accrual of the debt component of
AFUDC and to defer depreciation expenses on two major environmental projects
from the date the projects are placed in service until the projects' costs are
reflected in retail electric rates.
(i) DSM Costs Energy is authorized by the February 1995 Order to amortize
and recover DSM expenditures deferred through July 1993 ($35 million),
together with carrying costs, over a five-year period. Deferred DSM
expenditures as of February 1995, which are not included for recovery in the
February 1995 Order, will continue to be deferred, with carrying costs, for
recovery in subsequent rate proceedings. In addition, base rates will include
recovery of $23 million of DSM expenditures on an annual basis. Future
deferral of DSM expenditures will be the amount by which actual annual
expenditures exceed the base level of $23 million. If DSM expenditures in any
calendar year are less than the $23 million in base rates, the unamortized
balance of deferred DSM expenditures would be reduced by such difference.
In the August 1993 Order, CG&E was authorized to recover approximately $5
million of costs associated with DSM programs for domestic customers. The
PUCO has also permitted CG&E to defer future expenditures of approved DSM
programs with carrying costs for future recovery. In addition, CG&E has
applications pending for approval by the PUCO for deferral of the costs of
additional DSM programs.
(j) Federal and State Income Taxes Deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing differences
between the financial reporting and tax reporting bases of assets and
liabilities. Investment tax credits utilized to reduce Federal income taxes
payable have been deferred for financial reporting purposes and are being
amortized over the useful lives of the property which gave rise to such
credits.
Income tax provisions reflected in customer rates are regulated by the various
regulatory commissions overseeing the regulated business operations of Energy,
CG&E, and CG&E's utility subsidiaries. To the extent deferred income taxes
are not reflected in rates charged to customers, income taxes payable in
future years are recoverable from customers as paid. These amounts are
reflected in the accompanying Consolidated Financial Statements as a
regulatory asset on the basis of their probable recovery in future periods.
(k) Operating Revenues and Fuel Costs
(i) Energy Energy recognizes revenues for electric service rendered
during the month, which includes revenues for sales unbilled at the end of
each month. Revenues reflect fuel cost charges based on the actual costs of
fuel. Fuel cost charges applicable to all of Energy's metered kilowatt-hour
sales are included in customer billings based on the estimated costs of fuel.
Customer bills are adjusted in subsequent months to reflect the difference
between actual and estimated costs of fuel. Indiana law subjects the recovery
of fuel costs to a determination that such recovery will not result in earning
a return in excess of that allowed by the IURC in its last general rate order.
(ii) CG&E CG&E and its utility subsidiaries recognize revenues for
electric and gas service rendered during the month, which includes revenues
for sales unbilled at the end of each month. CG&E and its Kentucky
subsidiary, The Union Light, Heat and Power Company (ULH&P), expense the costs
of electricity and gas purchased and the cost of fuel used in electric
production as recovered through revenues and defer the portion of these costs
recoverable or refundable in future periods.
(l) Debt Discount, Premium, and Issuance Expense and Costs of Reacquiring
Debt Debt discount, premium, and issuance expense on Energy's, CG&E's, and
CG&E's utility subsidiaries' outstanding long-term debt are amortized over the
lives of the respective issues.
In accordance with established ratemaking practices, CINergy's utility
subsidiaries are deferring costs (principally call premiums) from the
reacquisition of long-term debt and are amortizing such amounts over periods
ranging from one year to 18 years.
(m) Order 636 In April 1992, the FERC issued Order 636, which restructured
operations between interstate gas pipelines and their customers for gas sales
and transportation services. Order 636 also allowed pipelines to recover
transition costs they incurred in complying with the order from customers,
including CG&E and ULH&P. In July 1994, the PUCO issued an order approving a
stipulation between CG&E and its domestic and industrial customer groups
providing for recovery of these pipeline transition costs. CG&E presently is
recovering its Order 636 transition costs pursuant to a PUCO approved tariff.
ULH&P recovers such costs through its gas cost recovery mechanism. These
costs are deferred as incurred by CG&E and ULH&P and amortized as recovered
from customers.
(n) Consolidated Statements of Cash Flows All temporary cash investments
with maturities of three months or less, when acquired, are reported as cash
equivalents. CINergy and its subsidiaries had no material non-cash investing
or financing transactions during the years 1992 through 1994.
2. Rates
(a) Energy
(i) Settlement Agreement - IURC's June 1987 and April 1990 Orders In
December 1993, the IURC issued an order (December 1993 Order) approving a
settlement agreement entered into by Energy, the appellants, and certain other
intervenors which resolved the outstanding issues related to the appeals of
the IURC's April 1990 retail rate order (April 1990 Order) and the IURC's June
1987 tax order (June 1987 Order). The December 1993 Order provided for Energy
to refund $150 million to its retail customers ($119 million applicable to the
June 1987 Order and $31 million applicable to the April 1990 Order). The
December 1993 Order further provided for Energy to reduce its retail rates by
1.5% (approximately $13.5 million on an annual basis) to reflect a return on
common equity of 14.25%. The refunds and rate reduction commenced in December
1993.
Energy had previously recognized a loss of $139 million for the June 1987
Order. The difference between the $139 million and the $119 million portion
of the refund applicable to the June 1987 Order is reflected in the
Consolidated Statement of Income for the year ended December 31, 1993, as a
reduction of the loss. The $31 million portion of the refund applicable to
the April 1990 Order is reflected in the Consolidated Statement of Income for
the same period as a reduction in operating revenues.
(ii) February 1995 Order - Retail Rate Proceeding and Merger Savings
Allocation Plan The IURC issued the February 1995 Order approving a
settlement agreement entered into by Energy, the Office of the Utility
Consumer Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI-
Industrial Group concerning Energy's petition for a $93 million retail rate
increase ($103 million including carrying costs attributable to certain
environmental expenditures not included in Energy's base retail electric
rates) and Energy's previously filed plan for the allocation of its portion of
merger savings between Energy's customers and CINergy's shareholders.
The February 1995 Order authorizes Energy to increase annual retail rates
$33.6 million, effective February 1995. The increase excludes reductions for
customer credits for non-fuel operation and maintenance expense merger savings
(Non-fuel Merger Savings) and increases for carrying costs attributable to
certain environmental expenditures not included in Energy's base retail
electric rates, both of which are further discussed herein. The increase
includes the recovery of the costs of postretirement benefits other than
pensions on an accrual basis, the recovery of DSM expenditures, the recovery
of a portion of amounts deferred for AFUDC continuation and depreciation
expense, and the adoption of lower depreciation rates, which will reduce
annual depreciation expense by approximately $30 million. This rate increase
reflects an 11.9% return on common equity with an 8.25% overall rate of return
on net original cost rate base.
Additionally, the February 1995 Order provides a mechanism to allocate
Energy's share of net Non-fuel Merger Savings through December 31, 1997,
between Energy's customers and CINergy's shareholders. CINergy currently
anticipates that the estimated nominal merger savings of $1.5 billion will be
apportioned approximately equally between CG&E and Energy. In essence, the
mechanism guarantees Energy's customers 50% of Energy's portion of the
projected net Non-fuel Merger Savings. Energy's customers will receive these
merger savings via credits to base rates of $4.4 million in 1995, an
additional $2.2 million in 1996, and an additional $2.4 million in 1997.
After 1997, the accumulated credits will continue until the effective date of
an order in an Energy general retail rate proceeding. Energy will have to
achieve these levels of merger savings in order to realize the 11.9% return on
equity. This arrangement for sharing of merger savings allows Energy to
recover its portion of transaction costs (currently estimated at $27 million)
and costs to achieve merger savings (currently estimated at $21 million) over
a 10-year period.
The February 1995 Order also provides Energy with a financial incentive to
achieve, or exceed, merger savings projections and enhance operating
efficiencies by allowing Energy to earn up to a 13.25% return on common equity
until the effective date of an order in connection with Energy's July 1994
retail rate petition, which is currently pending before the IURC. Energy
expects an order in this proceeding in the second quarter of 1996. Upon the
effective date of an order relating to the July 1994 retail rate petition, the
February 1995 Order provides Energy an opportunity to earn an additional 100
basis points above the common equity return to be granted by the IURC in such
rate proceeding until December 31, 1997. In order to be eligible for such
additional earnings, Energy must meet certain service-related conditions. Any
mechanism for sharing of merger savings after December 31, 1997, will be
determined in subsequent regulatory proceedings.
Finally, the February 1995 Order includes ratemaking and accounting mechanisms
to address regulatory lag. The February 1995 Order approves Energy's proposal
for current recovery of carrying costs associated with environmental
compliance projects and the applicable portion of the Wabash River Clean Coal
Project (Clean Coal Project) not included in Energy's base retail electric
rates. The Clean Coal Project, which is located at the Wabash River
Generating Station, is a 262-megawatt clean coal power generating facility
planned to be placed in service during the third quarter of 1995. The
February 1995 Order also includes provisions for the deferral of certain
operating costs associated with the Clean Coal Project, together with the debt
component of carrying costs thereon, and continued accrual of the debt
component of carrying costs (to the extent not reflected in rates currently)
and deferral of depreciation expense on the Clean Coal Project and a scrubber
at Gibson Generating Station (Gibson) until the projects' costs are fully
reflected in retail electric rates.
<PAGE>
(iii) July 1994 Retail Rate Petition In addition to the rate petition
addressed in the February 1995 Order, Energy filed a petition in July 1994
with the IURC for a retail rate increase to recover, among other things, the
costs of the Clean Coal Project and the scrubber at Gibson which was placed in
service in September 1994. These two projects were previously approved by the
IURC. Energy initially estimated a rate increase of 8%. Energy is currently
evaluating how the rate settlement and the ability to earn a cash return
during construction on certain projects, as previously discussed, will affect
the estimated rate increase. Energy intends to file testimony supporting its
rate increase request in May 1995 and, as previously discussed, anticipates an
order in this proceeding in the second quarter of 1996. Energy cannot predict
what action the IURC may take with respect to this proposed rate increase.
(b) CG&E
In its May 1992 Order authorizing the phase-in of Zimmer costs into customer
rates, the PUCO disallowed from rates approximately $230 million, representing
costs related to Zimmer for nuclear fuel, nuclear wind-down activities during
the conversion to a coal-fired facility, and a portion of the AFUDC accrued on
Zimmer.
Pursuant to an appeal by CG&E of the May 1992 Order, the Supreme Court of Ohio
(Court) ruled in November 1993 (November 1993 Ruling) that the PUCO does not
have the authority to order a phase-in of amounts granted in a rate proceeding
and remanded the case to the PUCO to set rates that provide the gross annual
revenues determined in accordance with Ohio statutes. However, the Court
upheld the PUCO's disallowance of Zimmer costs, and, as a result, CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in the fourth
quarter of 1993.
In April 1994, the PUCO issued an order approving a settlement agreement
between CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other
intervenors which addressed the issues raised in the November 1993 Ruling. As
part of the settlement, CG&E did not seek early implementation of the third
phase of the authorized rate increase and will not seek accelerated recovery
of deferrals related to the phase-in plan. These deferrals will be recovered
over the remaining seven-year period as contemplated in the May 1992 Order.
In addition, CG&E agreed to a moratorium on increases in base electric rates
until January 1, 1999 (except under certain circumstances), and, in return, is
allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings
until 1999.
In the August 1993 Order, the PUCO authorized annual increases of
approximately $41 million (5%) in electric revenues and $19 million (6%) in
gas revenues that were effective immediately. The August 1993 Order precludes
CG&E from increasing gas base rates prior to June 1, 1995, except for rate
filings made under certain circumstances.
In 1994, CG&E expensed $32 million of merger transaction costs and costs to
achieve merger savings applicable to its PUCO electric jurisdiction. The
remaining merger-related costs allocable to PUCO electric jurisdictional
customers will be expensed as incurred. CG&E and its utility subsidiaries
intend to continue deferring the non-PUCO electric jurisdictional portion of
merger transaction costs and costs to achieve merger savings (current estimate
of $14 million) for future recovery in customer rates.
(c) ULH&P
In mid-1993, the Kentucky Public Service Commission (KPSC) issued orders
authorizing ULH&P to increase annual gas revenues by $4.2 million.
In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted
the KPSC's request for an electric rate moratorium commencing after ULH&P's
next retail rate case and extending to January 1, 2000. The KPSC also
required CG&E and ULH&P to agree that, for 12 months from consummation of the
merger, no filings will be made to adjust CG&E's base purchase power rate
charged to ULH&P or ULH&P's base electric rates.
3. Common Stock
The following table reflects the shares of CINergy common stock reserved for
issuance at December 31, 1994, and issued in 1994, 1993, and 1992, for the
stock-based plans, including previous plans of Resources and CG&E. Shares
issued prior to merger consummation have been adjusted for Resources' merger
conversion ratio of 1.023.
Shares
Reserved at Shares Issued
Dec. 31, 1994 1994 1993 1992
401(k) Savings Plans. . . . . . 7 691 752 1 458 631 1 152 096 1 193 926
Dividend Reinvestment and
Stock Purchase Plan . . . . . 2 734 197 1 127 881 944 168 941 128
Directors' Deferred
Compensation Plan . . . . . . 200 000 77 61 266 -
Performance Shares Plan* . . . 800 000 27 116 28 447 26 156
Employee Stock Purchase
and Savings Plan. . . . . . . 1 933 394 140 039 244 129 528
Stock Option Plan . . . . . . . 5 000 000 25 575 139 026 -
*A long-term incentive compensation plan for certain participants designated
by the Compensation Committee of CINergy's Board of Directors.
In addition to the issuances of common stock previously discussed, Resources
issued 1,118,671 shares of common stock in 1993 to the trustee of its two
Master Trust Agreements as required as a result of the announcement of the
merger. Prior to consummation of the merger in October 1994, Resources issued
an additional 16,518 shares to the trustee and distributed 98,400 shares
(reflected in the above table as shares issued in 1994) to participants of
certain benefit plans. As a result of the merger consummation, in December
1994, CINergy retired the remaining 1,036,789 shares held by the trustee.
In December 1994, CINergy publicly issued 7,089,000 shares of common stock
under a shelf registration statement for the sale of up to eight million
shares. In addition, upon consummation of the merger, CINergy awarded five
shares of common stock to all non-officer employees for an additional issuance
of 43,605 shares under this shelf registration statement.
4. Stock Option Plan
Resources' 1989 Stock Option Plan was merged into and made a part of CINergy's
Stock Option Plan at merger consummation. Under CINergy's Stock Option Plan,
incentive and non-qualified stock options and stock appreciation rights may be
granted to key employees, officers, and outside directors. Common stock
granted under the Stock Option Plan may not exceed five million shares.
Options are granted at the fair market value of the shares on the date of
grant, except that non-qualified stock options were granted to two executive
officers under Resources' 1989 Stock Option Plan at an option price equal to
91% of the fair market value of the shares at the date of grant. Options vest
over five years and have a purchase term of up to 10 years. All options
granted prior to November 1993, but not previously vested, became vested upon
approval of the merger by Resources' shareholders. No incentive stock options
may be granted under the plan after October 24, 2004.
The Stock Option Plan activity for 1992, 1993, and 1994, adjusted for
Resources' merger conversion ratio of 1.023, is summarized as follows:
Range of
Shares Subject Option Prices
to Option Per Share
Balance at December 31, 1991. . . . . . . . 1 212 129 $12.26 to 16.92
Options Granted . . . . . . . . . . . . . . 25 575 17.35
Options Cancelled . . . . . . . . . . . . . (51 150) 16.56
Balance at December 31, 1992. . . . . . . . 1 186 554 $12.26 to 17.35
Options Exercised . . . . . . . . . . . . . (139 026) 12.26 to 16.56
Balance at December 31, 1993. . . . . . . . 1 047 528 $12.50 to 17.35
Options Granted . . . . . . . . . . . . . . 1 387 500 22.88
Options Exercised . . . . . . . . . . . . . (25 575) 13.14 to 16.56
Balance at December 31, 1994. . . . . . . . 2 409 453 $12.50 to 22.88
Shares Reserved for Future Grants
At December 31, 1992. . . . . . . . . . 1 368 263
At December 31, 1993. . . . . . . . . . 1 368 263
At December 31, 1994. . . . . . . . . . 2 590 547
In addition, 1,395,000 options were granted to various employees on January
24, 1995, at an option price of $24.31 per share. An additional 25,000
options were granted on February 6, 1995, at an option price of $24.625 per
share.
No stock appreciation rights have been granted under this plan. The total
options exercisable at December 31, 1994, 1993, and 1992, were 1,021,953,
1,047,528, and 731,343, respectively.
5. Common Stock of Subsidiaries
CINergy owns all of the common stock of CG&E and Energy. No common dividends
can be paid by CG&E or Energy if dividends are in arrears on their
preferred stock. The ability of CINergy to pay dividends to holders of
CINergy common stock will depend on the ability of CG&E and Energy to pay
common dividends to CINergy.
<PAGE>
6. Preferred Stock of Subsidiaries
Changes in preferred stock outstanding during 1994, 1993, and 1992, were as
follows:
Shares
Issued Par
(Retired) Value
(dollars in thousands)
1994
Cumulative preferred stock
Not subject to mandatory redemption
Par value $100 per share
Energy
3 1/2% Series. . . . . . . . . . . . . . (598) $ (60)
CG&E
9.28 % Series. . . . . . . . . . . . . . (400 000) (40 000)
1993
Cumulative preferred stock
Not subject to mandatory redemption
Par value $25 per share
Energy
7.44 % Series. . . . . . . . . . . . . . 4 000 000 100 000
Par value $100 per share
Energy
3 1/2% Series. . . . . . . . . . . . . . (237) (24)
8.52 % Series. . . . . . . . . . . . . . (211 190) (21 119)
8.38 % Series. . . . . . . . . . . . . . (162 520) (16 252)
8.96 % Series. . . . . . . . . . . . . . (216 900) (21 690)
6 7/8% Series. . . . . . . . . . . . . . 600 000 60 000
1992
Cumulative preferred stock
Not subject to mandatory redemption
Par value $100 per share
Energy
3 1/2% Series. . . . . . . . . . . . . . (10) (1)
CG&E
9.52 % Series. . . . . . . . . . . . . . (450 000) (45 000)
9.30 % Series. . . . . . . . . . . . . . (350 000) (35 000)
Subject to mandatory redemption
Par value $100 per share
Energy
13.25% Series. . . . . . . . . . . . . . (255 000) (25 500)
CG&E
7 3/8% Series. . . . . . . . . . . . . . 800 000 80 000
10.20% Series. . . . . . . . . . . . . . (365 000) (36 500)
Currently, Energy can sell up to an additional $40 million of preferred stock
under an effective shelf registration statement and IURC authority.
7. Preferred Stock of Subsidiary with Mandatory Redemption
CG&E's preferred stock redemption requirements for the next five years are
$2.5 million in each of 1996 and 1997 and $6.5 million in each of 1998 and
1999.
CG&E's Cumulative Preferred Stock, 9.15% Series is subject to mandatory
redemption each July 1, beginning in 1996, in an amount sufficient to retire
25,000 shares, and CG&E's 7 3/8% Series is subject to mandatory redemption
each August 1, beginning in 1998, in an amount sufficient to retire 40,000
shares, each at $100 per share, plus accrued dividends. For both series, CG&E
has the noncumulative option to redeem up to a like amount of additional
shares in each year. CG&E has the option to satisfy the mandatory redemption
requirements in whole or in part by crediting shares acquired by CG&E. To the
extent CG&E does not satisfy its mandatory sinking fund obligation in any
year, such obligation must be satisfied in the succeeding year or years. If
CG&E is in arrears in the redemption pursuant to the mandatory sinking fund
requirement, CG&E shall not purchase or otherwise acquire for value, or pay
dividends on, common stock.
8. Long-term Debt
CINergy's long-term debt maturities, excluding sinking fund requirements, for
the next five years are $60 million in 1995, $50 million in 1996, $140 million
in 1997, $35 million in 1998, and $186 million in 1999.
The first mortgage bond indentures of both CG&E and ULH&P provide that so long
as any series of bonds issued prior to 1976 and 1978, respectively, are
outstanding, CG&E and ULH&P will pay to the trustee as a Maintenance and
Replacement Fund (M&R Fund), on or before April 30 of each year, in cash,
unfunded property additions, or principal amount of first mortgage bonds of
any series issued under the mortgages, a formularized amount related to the
net revenues of CG&E and ULH&P. For 1994, the M&R Fund requirements (payable
on or before April 30, 1995) for CG&E and ULH&P are approximately $114 million
and $5 million, respectively.
Most of CG&E's and ULH&P's first mortgage bonds are redeemable at par value,
plus accrued interest, through cash deposited to satisfy the annual M&R Fund
requirement. On March 24, 1995, CG&E announced its intention to redeem,
beginning May 1, 1995, $114 million principal amount of its 10.125% and 9.70%
first mortgage bonds at par with cash deposited in the M&R Fund. ULH&P also
announced its intention to redeem $5 million principal amount of its 10.25%
first mortgage bonds (due June 1, 2020) at par with cash deposited in the M&R
Fund, and to redeem the remaining amount of such bonds at the redemption price
of 107.34% on June 1, 1995.
9. Sale of Accounts Receivable and Interest Rate Swap
Energy has an agreement through January 1996 to sell, with limited recourse,
an undivided percentage interest in certain of its accounts receivable from
customers up to a maximum of $90 million. As of December 31, 1994, Energy's
obligation under the limited recourse provision is $20 million. The refund
provided for by the December 1993 Order, as previously discussed (see Note
2(a)(i)), reduced accounts receivable available for sale at December 31, 1993,
to $40 million. Accounts receivable on the Consolidated Balance Sheets are
net of the $87 million and $40 million interest sold at December 31, 1994, and
December 31, 1993, respectively. The excess of $90 million over the accounts
receivable available for sale at December 31, 1993, is reflected in the
Consolidated Balance Sheet as "Advance under accounts receivable purchase
agreement".
As a hedge against floating rate conditions, effective February 1, 1991,
Energy entered into an interest rate swap agreement which effectively changed
Energy's variable interest rate exposure on its $90 million (the notional
principal amount) sale of accounts receivable to a fixed rate of 8.19%. Costs
associated with the interest rate swap agreement are included in "Other - net"
in the Consolidated Statements of Income. The interest rate swap agreement
matures January 31, 1996. In the event of nonperformance by the other parties
to the interest rate swap agreement, Energy would be exposed to floating rate
conditions.
10. Pension Plans
The defined benefit pension plans of CINergy's subsidiaries cover
substantially all employees meeting certain minimum age and service
requirements. Plan benefits are determined under a final average pay formula
with consideration of years of participation, age at retirement, and the
applicable average Social Security wage base or benefit amount.
The funding policies of the operating subsidiaries are to contribute annually
to the plans an amount which is not less than the minimum amount required by
the Employee Retirement Income Security Act of 1974 and not more than the
maximum amount deductible for income tax purposes. Contributions for the
1994, 1993, and 1992 plan years were $3.5 million, $11.3 million, and $7.4
million, respectively. The plans' assets consist of investments in equity and
fixed income securities.
CINergy's pension cost for 1994, 1993, and 1992 included the following
components:
1994 1993 1992
(in millions)
Benefits earned during the period . . . . . . . $ 19.4 $ 16.9 $ 15.9
Interest accrued on projected
benefit obligations . . . . . . . . . . . . . 54.9 53.9 48.7
Actual (return) loss on plans' assets . . . . . 8.0 (69.9) (51.1)
Net amortization and deferral . . . . . . . . . (66.3) 15.4 (.1)
Net periodic pension cost . . . . . . . . . . . $ 16.0 $ 16.3 $ 13.4
Additionally, during 1992 and 1994, CG&E recognized $28.4 million and $15.6
million, respectively, of accrued pension cost in accordance with Statement of
Financial Accounting Standards No. 88, Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits. These amounts represented the costs associated with additional
benefits extended in connection with voluntary early retirement programs and
workforce reductions in those years (see Note 12).
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Actuarial Assumptions:
For determination of projected benefit
obligations
Discount rate . . . . . . . . . . . . . . 8.50% 7.50% 8.25-8.50%
Rate of increase in future compensation . 5.50 4.50-5.00 5.50-5.75
For determination of pension cost
Rate of return on plans' assets . . . . . . 9.00-9.50 9.00-9.50 9.00-9.50
</TABLE>
The following table reconciles the plans' funded status with amounts recorded
in the Consolidated Financial Statements. Under the provisions of Statement
of Financial Accounting Standards No. 87, Employers' Accounting for Pensions
(Statement 87), certain assets and obligations of the plans are deferred and
recognized in the Consolidated Financial Statements in subsequent periods.
1994 1993
Plans' Plan's Plans'
Assets Exceed Accumulated Assets Exceed
Accumulated Benefits Accumulated
Benefits Exceed Assets Benefits
(in millions)
Actuarial present value of benefits
Vested benefits . . . . . . . . $(320.7) $(206.5) $(534.2)
Non-vested benefits . . . . . . (25.5) (11.0) (40.8)
Accumulated benefit
obligations . . . . . . . . (346.2) (217.5) (575.0)
Effect of future compensation
increases . . . . . . . . . . (120.3) (52.2) (165.7)
Projected benefit
obligations . . . . . . . . (466.5) (269.7) (740.7)
Plans' assets at fair value . . . 438.4 198.7 689.1
Projected benefit obligations in
excess of plans' assets . . . . (28.1) (71.0) (51.6)
Remaining balance of plans' net
assets existing at date of
initial application of
Statement 87 to be recognized
as a reduction of pension
cost in future periods. . . . . (8.6) (3.8) (13.8)
Unrecognized net gain
resulting from experience
different from that assumed
and effects of changes in
assumptions . . . . . . . . . . (7.9) (1.9) (16.9)
Prior service cost not yet
recognized in net periodic
pension cost. . . . . . . . . . 38.1 18.2 44.1
Accrued pension cost at
December 31 . . . . . . . . . . $ (6.5) $ (58.5) $ (38.2)
11. Other Postretirement Benefits
CINergy's subsidiaries provide certain health care and life insurance benefits
to retired employees and their eligible dependents. The health care benefits
include medical coverage and prescription drugs. Additionally, Energy
provides dental benefits. Prior to 1993, the cost of retiree health care was
charged to expense as claims were paid. The cost of life insurance benefits
provided by Energy was charged to expense at retirement. The accounting for
life insurance benefits provided by CG&E is further discussed herein. CG&E
does not currently pre-fund its obligations for these postretirement benefits.
Energy, in connection with the settlement which resulted in the February 1995
Order, agreed to begin funding its obligation for these postretirement
benefits.
Effective with the first quarter of 1993, CINergy's subsidiaries implemented
the provisions of Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions
(Statement 106). Under the provisions of Statement 106, the costs of health
care and life insurance benefits provided to retirees are recognized for
accounting purposes during periods of employee service (accrual basis). The
unrecognized and unfunded Accumulated Postretirement Benefit Obligations
(APBO) existing at the date of initial application of Statement 106 (i.e., the
transition obligations) of $159.3 million are being amortized over a 20-year
period.
Life insurance benefits are fully paid by CG&E for qualified employees.
Eligibility to receive postretirement coverage is limited to those employees
who participated in the plans and earned the right to postretirement benefits
prior to January 1, 1991. In 1988, CG&E and its subsidiaries recognized the
actuarially determined APBO for postretirement life insurance benefits earned
by retirees. The portion of the APBO applicable to active employees is being
amortized over 15 years, the employees' estimated remaining service lives.
The accounting for CG&E's postretirement life insurance benefits was not
affected by the adoption of Statement 106.
Postretirement benefit cost for 1994 and 1993 included the following
components:
Health Life
Care Insurance Total
(in millions)
1994
Benefits earned during the period. . . . . . $ 5.2 $ .2 $ 5.4
Interest accrued on APBO . . . . . . . . . . 13.8 2.2 16.0
Net amortization and deferral. . . . . . . . .1 - .1
Amortization of transition obligations . . . 8.1 .3 8.4
Net periodic postretirement benefit cost . . $27.2 $2.7 $29.9
1993
Benefits earned during the period. . . . . . $ 4.3 $ .2 $ 4.5
Interest accrued on APBO . . . . . . . . . . 13.4 2.1 15.5
Amortization of transition obligations . . . 8.1 .3 8.4
Net periodic postretirement benefit cost . . $25.8 $2.6 $28.4
The following table reconciles the APBO of the health care and life insurance
plans with amounts recorded in the Consolidated Financial Statements. Under
the provisions of Statement 106, certain obligations of the plans are deferred
and recognized in the Consolidated Financial Statements in subsequent periods.
Health Life
Care Insurance Total
(in millions)
1994
Actuarial present value of benefits
Fully eligible active plan participants. . $ (11.4) $ (.9) $ (12.3)
Other active plan participants . . . . . . (84.3) (2.3) (86.6)
Retirees and beneficiaries . . . . . . . . (92.0) (23.5) (115.5)
Projected APBO . . . . . . . . . . . . . (187.7) (26.7) (214.4)
Unamortized transition obligations . . . . . 145.2 1.0 146.2
Unrecognized net (gain) loss resulting from
experience different from that assumed
and effects of changes in assumptions. . . 2.2 (2.6) (.4)
Accrued postretirement benefit obligations
at December 31, 1994 . . . . . . . . . . . $ (40.3) $(28.3) $ (68.6)
1993
Actuarial present value of benefits
Fully eligible active plan participants. . $ (13.9) $ (1.7) $ (15.6)
Other active plan participants . . . . . . (90.6) (3.5) (94.1)
Retirees and beneficiaries . . . . . . . . (82.4) (24.1) (106.5)
Projected APBO . . . . . . . . . . . . . (186.9) (29.3) (216.2)
Unamortized transition obligations . . . . . 153.8 1.2 155.0
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions. . . 12.9 .6 13.5
Accrued postretirement benefit obligations
at December 31, 1993 . . . . . . . . . . . $ (20.2) $(27.5) $ (47.7)
The following assumptions were used to determine the APBO:
1994 1993 1992
Discount rate. . . . . . . . . . 8.50% 7.50% 8.25-8.50%
Health care cost trend rate,
gradually declining to 5%
CG&E . . . . . . . . . . . . . 9.00-12.00% 10.00-13.00% 12.00-15.00%
Energy . . . . . . . . . . . . 8.00-12.00 8.00-12.00 8.00-12.00
Year ultimate trend rates achieved
CG&E . . . . . . . . . . . . . 2002 2002 2003
Energy . . . . . . . . . . . . 2007 2007 2007
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $27 million and $29.5 million
for 1994 and 1993, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for 1994 and 1993 by
approximately $3.7 million and $3.4 million, respectively.
CG&E and its subsidiaries began amortizing the transition obligation for
health care costs over 20 years in accordance with Statement 106. The
majority of CG&E's and its subsidiaries' postretirement benefit costs are
subject to PUCO jurisdiction. The PUCO authorized CG&E to begin recovering
these costs in September 1993. The adoption of Statement 106 did not have a
material effect on the results of operations of CG&E and its subsidiaries.
In accordance with the February 1995 Order, Energy will recover the cost of
postretirement benefits other than pensions on an accrual basis commencing
February 1995. Prior to the recovery of these costs in customers' rates on an
accrual basis, the difference between postretirement benefit costs determined
in accordance with the provisions of Statement 106 and the costs determined in
accordance with Energy's previous accounting practice was deferred for future
recovery. Energy's deferrals totaled $21 million as of December 31, 1994.
Commencing February 1995, approximately $6 million of costs deferred for the
period January 1, 1993, through July 31, 1993, will be recovered over a five-
year period. Recovery over a five-year period of the remaining deferrals is
being requested in Energy's July 1994 retail rate petition.
12. Workforce Reductions
In 1992, CG&E and its subsidiaries eliminated 464 positions. The workforce
reduction was accomplished through a voluntary early retirement program and
involuntary separations. At December 31, 1992, the accrued liability
associated with the workforce reduction was $30.4 million (including $28.4
million of additional pension costs previously discussed in Note 10). In
accordance with the August 1993 Order, CG&E is recovering the majority of
these costs through rates over a period of three years.
Additionally, in an effort to begin to realize merger savings, CG&E and Energy
completed voluntary workforce reduction programs in 1994. Under the programs,
284 employees elected to terminate their employment with the companies,
resulting in a combined pre-tax cost of approximately $28.7 million ($17.4
million for CG&E, including $15.6 million of additional pension costs
previously discussed in Note 10, and $11.3 million for Energy). In the third
quarter of 1994, CG&E expensed $11 million representing the PUCO electric
jurisdictional portion of these costs. The remaining $6.4 million of costs
have been deferred as costs to achieve merger savings for future recovery
through rates. The cost of Energy's voluntary workforce reduction plan was
deferred as costs to achieve merger savings. In accordance with the February
1995 Order, Energy began amortization of costs to achieve merger savings
October 1, 1994.
13. Notes Payable
The operating subsidiary companies of CINergy had authority to borrow up to
$575 million as of December 31, 1994. In connection with this authority,
CINergy's subsidiaries have established unsecured lines of credit (Committed
Lines) which currently permit borrowings of up to $343 million, of which $208
million remained unused. CG&E and Energy also issue commercial paper from
time to time. All outstanding commercial paper is supported by Committed
Lines of the respective companies. Additionally, this authority allows the
subsidiary companies of CINergy to arrange for additional short-term
borrowings with various banks on an "as offered" basis (Uncommitted Lines).
All Uncommitted Lines provide for maturities of up to 365 days with various
interest rate options.
Amounts outstanding under the Committed Lines would become immediately due
upon an event of default which includes non-payment, default under other
agreements governing company indebtedness, bankruptcy, or insolvency. Certain
of the Uncommitted Lines have similar default provisions. The lines are
maintained by compensating balances or commitment fees. Commitment fees for
the Committed Lines were immaterial during the 1992 through 1994 period.
In addition, CINergy has a $100 million credit facility which expires on
September 27, 1997, of which $25 million remained unused at December 31, 1994.
The facility may be increased to a maximum of $300 million, and the Company
has an annual option of extending the term of the facility by one year.
For the years 1994, 1993, and 1992, CINergy's short-term borrowings
outstanding at various times were as follows:
Weighted
Weighted Maximum Average Average
Average Amount Amount Interest
Balance Interest Outstanding Outstanding Rate
at Rate at at Any During the During
Dec. 31 Dec. 31 Month-end Year the Year
(dollars in millions)
1994
Bank loans. . . . . . $228.9 6.11% $377.4 $284.7 4.79%
Commercial paper. . . - - 7.9 1.0 4.22
1993
Bank loans. . . . . . 177.7 3.45 194.3 115.1 3.52
Commercial paper. . . - - 44.8 14.1 3.37
1992
Bank loans. . . . . . 177.7 3.89 211.2 112.9 4.04
Commercial paper. . . 13.0 4.22 43.7 11.3 3.82
14. Fair Values of Financial Instruments
The estimated fair values of CINergy's and its subsidiaries' financial
instruments were as follows (this information does not purport to be a
valuation of CINergy as a whole):
December 31 December 31
1994 1993
Carrying Fair Carrying Fair
Financial Instrument Amount Value Amount Value
(in millions)
Long-term debt (includes amounts
due within one year)
First mortgage bonds. . . . . $2 041 $2 018 $1 919 $2 161
Other long-term debt. . . . . 735 700 726 773
Cumulative preferred stock of
subsidiary - subject to
mandatory redemption. . . . . . 210 221 210 230
The following methods and assumptions were used to estimate the fair values of
each major class of financial instrument:
Cash and temporary cash investments, restricted deposits, and notes payable
Due to the short period to maturity, the carrying amounts reflected on the
Consolidated Balance Sheets approximate fair values.
Long-term debt The fair values of long-term debt issues were estimated based
on the latest quoted market prices or, if not listed on the New York Stock
Exchange (NYSE), on the present value of future cash flows. The discount
rates used approximate the incremental borrowing costs for similar
instruments.
Cumulative preferred stock of subsidiary - subject to mandatory redemption
The aggregate fair value of preferred stock subject to mandatory redemption
was based on the latest closing prices quoted on the NYSE for each series.
15. Income Taxes
Effective with the first quarter of 1993, CINergy and its subsidiaries
implemented the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (Statement 109). Statement 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of existing differences between the financial reporting and tax
reporting bases of assets and liabilities. Net-of-tax accounting and
reporting is prohibited. CINergy and its subsidiaries adopted this new
accounting standard as the cumulative effect of a change in accounting
principle with no restatement of prior periods. The adoption of Statement 109
had no material effect on CINergy's consolidated earnings.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of
1993, which included a provision to increase the Federal corporate income tax
rate from 34% to 35%, retroactive to January 1, 1993. In accordance with the
provisions of Statement 109, the income tax rate increase resulted in an
increase in the net deferred income tax liability and recognition of a
regulatory asset to reflect expected future recovery of the increased
liability through rates charged to customers.
The significant components of CINergy's net deferred income tax liability at
December 31, 1994, and 1993, are as follows:
1994 1993
(in millions)
Deferred Income Tax Liabilities
Utility plant . . . . . . . . . . . . . . . . $ 947.8 $ 937.0
Unamortized costs of reacquiring debt . . . . 26.1 24.8
Deferred operating expenses,
phase-in deferred return,
and accrued carrying costs. . . . . . . . . 87.8 74.8
Amounts due from customers - income taxes . . 112.1 109.7
Deferred demand-side management costs . . . . 39.8 22.1
Other . . . . . . . . . . . . . . . . . . . . 47.2 37.2
Total deferred income tax liabilities . . . 1 260.8 1 205.6
Deferred Income Tax Assets
Unamortized investment tax credits. . . . . . 70.8 74.4
Litigation settlement . . . . . . . . . . . . 29.8 29.8
Deferred fuel costs . . . . . . . . . . . . . 13.1 15.3
Accrued pension and other benefit costs . . . 33.7 21.3
Other . . . . . . . . . . . . . . . . . . . . 42.3 45.9
Total deferred income tax assets. . . . . . 189.7 186.7
Net Deferred Income Tax Liability . . . . . . . $1 071.1 $1 018.9
A summary of Federal and state income taxes charged (credited) to income and the
allocation of such amounts is as follows:
1994 1993 1992
(in millions)
Current Income Taxes
Federal . . . . . . . . . . . . . . . . . . . $104.1 $ 49.1 $ 67.6
State . . . . . . . . . . . . . . . . . . . . 6.5 1.3 7.2
Total current income taxes. . . . . . . . 110.6 50.4 74.8
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items . . . . . . . . . . . . . . 62.2 58.4 52.3
Loss related to settlement of the IURC's
June 1987 and April 1990 Orders (Note 2). (5.2) 45.9 -
Property taxes. . . . . . . . . . . . . . . (13.3) (9.3) 6.4
Demand-side management costs. . . . . . . . 14.5 11.7 5.3
Write-off of a portion of Zimmer (Note 2) . - (11.0) -
Pension and other benefit costs . . . . . . (12.5) (4.2) (2.3)
Post-in-service deferred operating
expenses. . . . . . . . . . . . . . . . . (1.6) 4.7 4.0
Other items - net . . . . . . . . . . . . . (5.4) 3.2 (2.6)
Total deferred Federal income taxes . . . 38.7 99.4 63.1
State . . . . . . . . . . . . . . . . . . . . 2.7 7.5 2.5
Total deferred income taxes . . . . . . . 41.4 106.9 65.6
Investment Tax Credits - Net. . . . . . . . . . (10.4) (10.3) (10.2)
Total Income Taxes. . . . . . . . . . . . $141.6 $147.0 $130.2
Allocated to:
Operating income. . . . . . . . . . . . . . . $152.2 $172.6 $160.4
Other income and expenses - net . . . . . . . (10.6) (25.6) (30.2)
$141.6 $147.0 $130.2
Federal income taxes, computed by applying the statutory Federal income tax
rate to book income before Federal income tax, are reconciled to Federal
income tax expense reported in the Consolidated Statements of Income as
follows:
1994 1993 1992
(in millions)
Statutory Federal income tax provision. . . . . $121.0 $ 70.2 $133.1
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits. . . . (10.4) (10.0) (9.9)
Depreciation and other utility plant-
related differences . . . . . . . . . . . . 13.5 13.1 9.7
Preferred dividend requirements of
subsidiaries. . . . . . . . . . . . . . . . 12.4 13.3 11.9
AFUDC equity. . . . . . . . . . . . . . . . . (2.2) (5.0) (5.0)
Deferred operating expenses, phase-in
deferred return, and accrued
carrying costs. . . . . . . . . . . . . . . (6.5) (9.3) (21.5)
Write-off of a portion of Zimmer. . . . . . . - 69.4 -
Other - net . . . . . . . . . . . . . . . . . 4.6 (3.5) 2.2
Federal income tax expense. . . . . . . . . . . $132.4 $138.2 $120.5
16. Commitments and Contingencies
(a) Construction CINergy will have substantial commitments in connection
with its construction program. Aggregate expenditures for CINergy's
construction program for the 1995 through 1999 period are currently estimated
to be approximately $2.1 billion.
In connection with Energy's Clean Coal Project, Energy has a 25-year
contractual agreement with Destec Energy, Inc. (Destec) which requires Energy
to pay Destec a fixed monthly fee plus certain monthly operating expenses once
the facility is operational. Over the next five years (1995 through 1999),
the fixed fee will be $56 million, and the variable fee is estimated at $95
million. As previously discussed, Energy received authorization in the
February 1995 Order to defer these costs for subsequent recovery in an IURC
order associated with Energy's July 1994 retail rate petition.
(b) Manufactured Gas Plants
(i) Energy Coal tar residues and other substances associated with
manufactured gas plant (MGP) sites have been found at former MGP sites in
Indiana, including, but not limited to, sites in Shelbyville and Lafayette,
two sites previously owned by Energy. Energy has identified at least 21 MGP
sites which it previously owned, including 19 it sold in 1945 to Indiana Gas
and Water Company, Inc. (now Indiana Gas Company [IGC]), including the
Shelbyville and Lafayette sites.
The Shelbyville site has been the subject of an investigation and cleanup
enforcement action by the Indiana Department of Environmental Management
(IDEM) against IGC and Energy. Without admitting liability, Energy and IGC
have conducted an investigation and remedial activities at the Shelbyville
site. Energy and IGC are sharing equally in the costs of investigation and
cleanup of this site.
In 1992, the IDEM issued an order to IGC, naming IGC as a potentially
responsible party (PRP) as defined by the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), which requires
investigation and remediation of the Lafayette MGP site. IGC entered into an
agreed order with the IDEM for the removal of MGP contamination at the site.
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other PRPs, including previous owners. IGC has
informed Energy of the basis for IGC's position that Energy, as a PRP under
CERCLA, should contribute to IGC's response costs related to investigating and
remediating contamination at MGP sites which Energy sold to IGC. The IURC has
not ruled on IGC's petition. In its July 1994 retail rate petition, Energy is
seeking approval to defer, and subsequently recover through rates, any costs
it incurs for investigation and remediation of previously owned MGP sites.
Except for the Shelbyville site, Energy has not assumed any responsibility to
reimburse IGC for its costs for investigating and cleaning up MGP sites. With
respect to the Shelbyville site, based upon environmental investigations
completed to date, Energy believes that any further required investigation and
remediation will not have a material adverse effect on its financial condition
or results of operations. At this time, it is premature for Energy to predict
the nature, extent, and costs of, or Energy's responsibility for, any
environmental investigations and remediations which may be required at other
MGP sites owned, or previously owned, by Energy.
(ii) CG&E and its Utility Subsidiaries Lawrenceburg Gas Company
(Lawrenceburg), a wholly-owned subsidiary of CG&E, also has an MGP site which
is under investigation to determine a remediation strategy. Total cleanup
cost is currently estimated to be approximately $750,000. Lawrenceburg has
applied to have the site included in the IDEM's voluntary cleanup program.
CG&E and its utility subsidiaries are aware of other potential sites where MGP
activities may have occurred at some time in the past. None of these sites
are known to present a risk to the environment. Except for the Lawrenceburg
site, neither CG&E nor its utility subsidiaries have undertaken responsibility
for investigating other potential MGP sites.
(c) Wabash Valley Power Association, Inc. (WVPA) Litigation In February
1984, WVPA discontinued payments to Energy for its 17% share of Marble Hill, a
nuclear project jointly owned by Energy and WVPA which was cancelled by Energy
in 1984, and filed suit against Energy in the United States District Court for
the Southern District of Indiana (Indiana District Court), seeking $478
million plus interest and other damages to recover its Marble Hill costs. The
suit was amended to include as defendants several officers of Energy along
with certain contractors and their officers involved in the Marble Hill
project, and to allege claims against all defendants under the Racketeer
Influenced and Corrupt Organizations Act (RICO). Claims proven and damages
allowed under RICO may be trebled and attorneys' fees assessed against the
defendants. The suit was further amended to add claims of common law fraud,
constructive fraud and deceit, and negligent misrepresentation against Energy
and the other defendants.
In 1985, Energy and WVPA entered into an agreement under which Energy agreed
to place in escrow 17% of all salvage proceeds received from the sales of
Marble Hill equipment, materials, and nuclear fuel after May 23, 1985, as a
result of WVPA's filing for protection under Chapter 11 of the Federal
Bankruptcy Code.
In 1989, Energy and its officers reached a settlement with WVPA which, if
approved by judicial and regulatory authorities, will settle the suit filed by
WVPA. The settlement is also contingent on the resolution of the WVPA
bankruptcy proceeding.
The principal terms of the settlement are:
. Energy, on behalf of itself and its officers, will pay $80 million on
behalf of WVPA to Rural Utility Services (RUS), previously called the Rural
Electrification Administration, and the National Rural Utilities
Cooperative Finance Corporation (CFC). The $80 million obligation, net of
insurance proceeds, other credits, and applicable income tax effects, was
charged to income in 1988 and 1989.
. WVPA will transfer its 17% ownership interest in the site to Energy, and
Energy will assume responsibility for all future costs associated with the
site, excluding WVPA's 17% share of future salvage program expenses.
Additionally, RUS and CFC will receive the balance in the salvage escrow
account and 17% of future salvage proceeds, net of related salvage program
expenses.
. Energy will enter into a 35-year take-or-pay power supply agreement for the
sale of 70 megawatts of firm power to WVPA. This power will be supplied
from Gibson Unit 1 and will be priced at Energy's firm power rates for
service to WVPA. The difference between the revenues received from WVPA
and the costs of operating Gibson Unit 1 (the Margin) will be remitted
annually by Energy, on behalf of itself and its officers, to RUS and CFC to
discharge a $90 million obligation, plus accrued interest. If, at the end
of the term of the power supply agreement, the $90 million obligation plus
accrued interest has not been fully discharged, Energy must do so within 60
days. The settlement provides that in the event Energy is party to a
merger or acquisition, Energy and WVPA will use their best efforts to
obtain regulatory approval to price the power sale exclusive of the effects
of the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and
potentially by the IURC and the Michigan Public Service Commission. At such
time as the necessary approvals from these regulatory authorities are
received, Energy will record a $90 million regulatory asset. Concurrently, a
$90 million obligation to RUS and CFC will be recorded as a long-term
commitment. Recognition of the asset is based, in part, on projections which
indicate that the Margin will be sufficient to discharge the $90 million
obligation to RUS and CFC, plus accrued interest, within the 35-year term of
the power supply agreement. If, in some future period, projections indicate
the Margin would not be sufficient to discharge the obligation plus accrued
interest within the 35-year term, the deficiency would be recognized as a
loss.
RUS has proposed a plan of reorganization which, similar to WVPA's plan,
incorporates the settlement agreement. However, RUS's plan provides for full
recovery of principal and interest on WVPA's debt to RUS, which is
substantially in excess of the amount to be recovered under WVPA's proposed
plan. In 1991, the United States Bankruptcy Court for the Southern District
of Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and
denied confirmation of RUS's opposing plan. The Bankruptcy Court's approval
of WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to change its rates. RUS appealed the Bankruptcy Court's decision to
the Indiana District Court. In June 1994, the Indiana District Court ruled in
favor of WVPA's plan. RUS subsequently appealed this decision. Energy cannot
predict the outcome of this appeal, nor is it known whether WVPA can obtain
regulatory approval to change its rates. If reasonable progress is not made
in satisfying conditions to the settlement by February 1, 1996, either party
may terminate the settlement agreement.
(d) United Scrap Lead Site The United States Environmental Protection Agency
(EPA) alleges that CG&E is a PRP under the CERCLA liable for cleanup of the
United Scrap Lead site in Troy, Ohio. CG&E was one of approximately 200
companies so named. CG&E believes it is not a PRP and should not be
responsible for cleanup of the site. Under the CERCLA, CG&E could be jointly
and severally liable for costs incurred in cleaning up the site, estimated by
the EPA to be $27 million, of which CG&E estimates its portion to be
immaterial to its financial condition or results of operations.
(e) Potential Divestiture of Gas Operations Under the PUHCA, the divestiture
of CG&E's gas operations may be required. In its order approving the merger,
the SEC reserved judgement over CINergy's ownership of the gas operations for
a period of three years. In November 1994, the SEC requested comments on the
modernization of the PUHCA given the industry's movement toward a more
competitive environment, including whether or not a utility registered under
the PUHCA may own a combination system (i.e., electric and gas). CINergy
believes it has a justifiable basis for retention of its gas operations and
will continue its pursuit of SEC approval to retain the gas portion of the
business. If divestiture is ultimately required, the SEC has historically
allowed companies sufficient time to accomplish divestitures in a manner that
protects shareholder value. Further, CINergy believes that divestiture of the
gas operations, if required, would not have a material effect on merger
savings. See Note 19 for financial information by business segments.
17. Jointly Owned Plant
Energy is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal
Power Agency (IMPA). Additionally, Energy is a co-owner with WVPA and IMPA of
certain transmission property and local facilities. These facilities
constitute part of the integrated transmission and distribution systems which
are operated and maintained by Energy. CG&E, Columbus Southern Power Company,
and The Dayton Power and Light Company have constructed electric generating
units and related transmission facilities on varying common ownership bases.
The Consolidated Statements of Income reflect Energy's and CG&E's portions of
all operating costs associated with the commonly owned facilities.
Energy's and CG&E's investments in jointly owned plant are as follows:
<TABLE>
<CAPTION>
1994
Utility Plant Accumulated Construction
Share in Service Depreciation Work in Progress
(dollars in millions)
<S> <C> <C> <C> <C>
Energy
Production
Gibson (Unit 5) . . . . . . . 50.05% $ 207 $ 92 $ 3
Transmission property
and local facilities. . . . . 93.68 1 630 565 53
CG&E
Production
Miami Fort Station
(Units 7 and 8) . . . . . . 64 202 100 1
W.C. Beckjord Station
(Unit 6). . . . . . . . . . 37.5 41 22 -
J.M. Stuart Station . . . . . 39 262 107 5
Conesville Station
(Unit 4). . . . . . . . . . 40 70 31 3
Zimmer. . . . . . . . . . . . 46.5 1 211 133 3
East Bend Station . . . . . . 69 329 140 1
Killen Station. . . . . . . . 33 186 71 -
Transmission. . . . . . . . . . various 62 28 -
</TABLE>
18. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Net Earnings
Operating Operating Income (Loss)
Quarter Ended Revenues Income (Loss) Per Share
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
1994
March 31 . . . . . . . . . . . $ 866 $155 $ 99 $ .68
June 30. . . . . . . . . . . . 673 106 49 .33
September 30 . . . . . . . . . 692 118(a) 58 (a) .39 (a)
December 31. . . . . . . . . . 693 61(a) (15)(a) (.10)(a)
Total . . . . . . . . . . . $2 924 $440 $ 191 $ 1.30
1993
March 31 . . . . . . . . . . . $ 783 $140 $ 95 $ .65
June 30. . . . . . . . . . . . 590 80 45 .30
September 30 . . . . . . . . . 703 134 77 .53
December 31. . . . . . . . . . 764 129 (154)(b) (1.05)(b)
Total . . . . . . . . . . . $2 840 $483 $ 63 $ .43
(a) In 1994, CINergy recognized charges to earnings of approximately $79
million ($56 million, net of taxes) or 38 cents per share primarily for
certain merger costs and other costs which the Company does not expect to
recover from customers due to rate settlements related to securing support for
the merger. Of these charges, approximately $46 million, net of taxes (31
cents per share), was recognized in the fourth quarter and approximately $8
million, net of taxes (5 cents per share), was recognized in the third
quarter. The charges include the PUCO electric jurisdictional portion of
merger transaction costs and costs to achieve merger savings incurred through
December 31, 1994, previously capitalized information systems development
costs, and severance benefits to former officers of CG&E and Energy. Of the
total $79 million charge, $62 million is reflected in "OPERATING EXPENSES -
Other operation" and $17 million is reflected in "OTHER INCOME AND EXPENSES -
NET".
(b) In the fourth quarter of 1993, CINergy recognized a charge to earnings of
approximately $235 million ($223 million, net of taxes) or $1.55 per share for
the write-off of a portion of Zimmer. Additionally, approximately $25 million
($16 million, net of taxes) or 11 cents per share of costs incurred in
connection with IPALCO Enterprises, Inc.'s hostile takeover attempt of
Resources prior to the merger was charged to expense during the last three
quarters of 1993. These charges are reflected in "OTHER INCOME AND EXPENSES -
NET".
</TABLE>
19. Financial Information by Business Segments
<TABLE>
<CAPTION>
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
<S> <C> <C> <C> <C> <C>
1994
Electric......... $2 482 $412 $144 $274 $432
Gas.............. 442 28 8 20 42
Total.......... $2 924 $440 $152 $294 $474
1993
Electric......... $2 371 $450 $166 $261 $517
Gas.............. 469 33 7 18 45
Total.......... $2 840 $483 $173 $279 $562
1992
Electric......... $2 240 $402 $157 $242 $474
Gas.............. 394 23 3 16 42
Total.......... $2 634 $425 $160 $258 $516
</TABLE>
<TABLE>
<CAPTION>
December 31
1994 1993 1992
(in millions)
<S> <C> <C> <C>
Property, Plant, and Equipment - net
Electric.......................... $5 680 $5 519 $5 461
Gas............................... 519 504 476
6 199 6 023 5 937
Other Corporate Assets.............. 1 951 1 781 1 196
Total Assets.................... $8 150 $7 804 $7 133
</TABLE>
For a discussion of the potential divestiture of CG&E's gas operations, see
Note 16(e).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Reference is made to CINergy Corp.'s (CINergy) 1995 Proxy Statement with
respect to identification of directors and their current principal
occupations.
Executive Officers
The information included in Part I of this report on pages 14 through 16 under
the caption "Executive Officers of the Registrant" is referenced in reliance
upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to CINergy's 1995 Proxy Statement with respect to executive
compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Reference is made to CINergy's 1995 Proxy Statement with respect to security
ownership of certain beneficial owners, security ownership of management, and
changes in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", page 44 of this report, for an index of the financial
statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the last quarter of 1994:
Date of Report Items Filed
October 24, 1994 Item 2. Acquisition or Disposition of Assets
Item 5. Other Events
Item 7. Financial Statements and Exhibits
November 23, 1994 Item 7. Financial Statements and Exhibits
December 29, 1994 Item 7. Financial Statements and Exhibits
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Securities and Exchange Commission and are
incorporated herein by reference and made a part hereof. Exhibits not so
identified are filed herewith.
Exhibit
Designation Nature of Exhibit
3-a *Certificate of Incorporation of CINergy
Corp. (CINergy). (Exhibit to CINergy's
Annual Report on Form 10-K for the year
ended December 31, 1993.)
3-b By-laws of CINergy as adopted October 24,
1994.
4-a *Original Indenture (First Mortgage Bonds)
dated September 1, 1939, between PSI Energy,
Inc. (Energy) and The First National Bank of
Chicago, as Trustee (Exhibit A-Part 3 in
File No. 70-258), and LaSalle National Bank
as Successor Trustee (Supplemental Indenture
dated March 30, 1984).
Exhibit
Designation Nature of Exhibit
4-b *Nineteenth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated January 1, 1972. (Exhibit to
File No. 2-42545.)
4-c *Twenty-third Supplemental Indenture between
Energy and The First National Bank of
Chicago dated January 1, 1977. (Exhibit to
File No. 2-57828.)
4-d *Twenty-fifth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated September 1, 1978. (Exhibit
to File No. 2-62543.)
4-e *Twenty-seventh Supplemental Indenture
between Energy and The First National Bank
of Chicago dated March 1, 1979. (Exhibit to
File No. 2-63753.)
4-f *Thirty-fifth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated March 30, 1984. (Exhibit to
Energy's 1984 Form 10-K in File No. 1-3543.)
4-g *Thirty-ninth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated March 15, 1987. (Exhibit to
Energy's 1987 Form 10-K in File No. 1-3543.)
4-h *Forty-first Supplemental Indenture between
Energy and The First National Bank of
Chicago dated June 15, 1988. (Exhibit to
Energy's 1988 Form 10-K in File No. 1-3543.)
4-i *Forty-second Supplemental Indenture between
Energy and The First National Bank of
Chicago dated August 1, 1988. (Exhibit to
Energy's 1988 Form 10-K in File No. 1-3543.)
4-j *Forty-fourth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated March 15, 1990. (Exhibit to
Energy's 1990 Form 10-K in File No. 1-3543.)
4-k *Forty-fifth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated March 15, 1990. (Exhibit to
Energy's 1990 Form 10-K in File No. 1-3543.)
Exhibit
Designation Nature of Exhibit
4-l *Forty-sixth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated June 1, 1990. (Exhibit to
Energy's 1991 Form 10-K in File No. 1-3543.)
4-m *Forty-seventh Supplemental Indenture
between Energy and The First National Bank
of Chicago dated July 15, 1991. (Exhibit to
Energy's 1991 Form 10-K in File No. 1-3543.)
4-n *Forty-eighth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated July 15, 1992. (Exhibit to
Energy's 1992 Form 10-K in File No. 1-3543.)
4-o *Forty-ninth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated February 15, 1993. (Exhibit
to Energy's 1992 Form 10-K in File No. 1-
3543.)
4-p *Fiftieth Supplemental Indenture between
Energy and The First National Bank of
Chicago dated February 15, 1993. (Exhibit
to Energy's 1992 Form 10-K in File No. 1-
3543.)
4-q *Fifty-first Supplemental Indenture between
Energy and The First National Bank of
Chicago dated February 1, 1994. (Exhibit to
Energy's 1993 Form 10-K in File No. 1-3543.)
4-r *Indenture (Secured Medium-term Notes,
Series A), dated July 15, 1991, between
Energy and The First National Bank of
Chicago, as Trustee. (Exhibit to Energy's
Form 10-K/A in File No. 1-3543, Amendment
No. 2, dated July 15, 1993.)
4-s *Indenture (Secured Medium-term Notes,
Series B), dated July 15, 1992, between
Energy and The First National Bank of
Chicago, as Trustee. (Exhibit to Energy's
Form 10-K/A in File No. 1-3543, Amendment
No. 2, dated July 15, 1993.)
Exhibit
Designation Nature of Exhibit
4-t *Original Indenture (First Mortgage Bonds)
between The Cincinnati Gas & Electric
Company (CG&E) and The Bank of New York (as
Trustee) dated as of August 1, 1936.
(Exhibit to CG&E's Registration Statement
No. 2-2374.)
4-u *Tenth Supplemental Indenture between CG&E
and The Bank of New York dated as of July 1,
1967. (Exhibit to CG&E's Registration
Statement No. 2-26549.)
4-v *Eleventh Supplemental Indenture between
CG&E and The Bank of New York dated as of
May 1, 1969. (Exhibit to CG&E's
Registration Statement No. 2-32063.)
4-w *Thirteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
November 1, 1971. (Exhibit to CG&E's
Registration Statement No. 2-41974.)
4-x *Fourteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
November 2, 1972. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-y *Fifteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
August 1, 1973. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-z *Twenty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of
December 1, 1985. (Exhibit to CG&E's 1985
Form 10-K in File No. 1-1232.)
4-aa *Twenty-ninth Supplemental Indenture between
CG&E and The Bank of New York dated as of
June 15, 1989. (Exhibit to CG&E's June 30,
1989, Form 10-Q in File No. 1-1232.)
4-bb *Thirtieth Supplemental Indenture between
CG&E and The Bank of New York dated as of
May 1, 1990. (Exhibit to CG&E's June 30,
1990, Form 10-Q in File No. 1-1232.)
Exhibit
Designation Nature of Exhibit
4-cc *Thirty-first Supplemental Indenture between
CG&E and The Bank of New York dated as of
December 1, 1990. (Exhibit to CG&E's 1990
Form 10-K in File No. 1-1232.)
4-dd *Thirty-second Supplemental Indenture
between CG&E and The Bank of New York dated
as of December 15, 1991. (Exhibit to CG&E's
Registration Statement No. 33-45115.)
4-ee *Thirty-third Supplemental Indenture between
CG&E and The Bank of New York dated as of
September 1, 1992. (Exhibit to CG&E's
Registration Statement No. 33-53578.)
4-ff *Thirty-fourth Supplemental Indenture
between CG&E and The Bank of New York dated
as of October 1, 1993. (Exhibit to CG&E's
September 30, 1993, Form 10-Q in File No. 1-
1232.)
4-gg *Thirty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of
January 1, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-hh *Thirty-sixth Supplemental Indenture between
CG&E and The Bank of New York dated as of
February 15, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-ii *Loan Agreement between CG&E and County of
Boone, Kentucky dated as of February 1,
1985. (Exhibit to CG&E's 1984 Form 10-K in
File No. 1-1232.)
4-jj *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-kk *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-ll *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
Exhibit
Designation Nature of Exhibit
4-mm *Repayment Agreement between CG&E and The
Dayton Power and Light Company dated as of
December 23, 1992. (Exhibit to CG&E's 1992
Form 10-K in File No. 1-1232.)
4-nn *Loan Agreement between CG&E and State of
Ohio Water Development Authority dated as of
January 1, 1994. (Exhibit to CG&E's 1993
Form 10-K in File No. 1-1232.)
4-oo *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of January 1, 1994. (Exhibit to CG&E's
1993 Form 10-K in File No. 1-1232.)
4-pp *Loan Agreement between CG&E and County of
Boone, Kentucky dated as of January 1, 1994.
(Exhibit to CG&E's 1993 Form 10-K in File
No. 1-1232.)
4-qq *Original Indenture (First Mortgage Bonds)
between The Union Light, Heat and Power
Company (ULH&P) and The Bank of New York
dated as of February 1, 1949. (Exhibit to
ULH&P's Registration Statement No. 2-7793.)
4-rr *Fifth Supplemental Indenture between ULH&P
and The Bank of New York dated as of January
1, 1967. (Exhibit to CG&E's Registration
Statement No. 2-60961.)
4-ss *Seventh Supplemental Indenture between
ULH&P and The Bank of New York dated as of
October 1, 1973. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-tt *Eighth Supplemental Indenture between ULH&P
and The Bank of New York dated as of
December 1, 1978. (Exhibit to CG&E's
Registration Statement No. 2-63591.)
4-uu *Tenth Supplemental Indenture between ULH&P
and The Bank of New York dated as of July 1,
1989. (Exhibit to CG&E's June 30, 1989,
Form 10-Q in File No. 1-1232.)
4-vv *Eleventh Supplemental Indenture between
ULH&P and The Bank of New York dated as of
June 1, 1990. (Exhibit to CG&E's June 30,
1990, Form 10-Q in File No. 1-1232.)
Exhibit
Designation Nature of Exhibit
4-ww *Twelfth Supplemental Indenture between
ULH&P and The Bank of New York dated as of
November 15, 1990. (Exhibit to ULH&P's 1990
Form 10-K in File No. 2-7793.)
4-xx *Thirteenth Supplemental Indenture between
ULH&P and The Bank of New York dated as of
August 1, 1992. (Exhibit to ULH&P's 1992
Form 10-K in File No. 2-7793.)
10-a *Energy Union Employees' 401(k) Savings
Plan, amended and restated October 24, 1994,
effective January 1, 1992. (Exhibit to
CINergy's Form S-8, filed October 18, 1994.)
10-b *Energy Employees' 401(k) Savings Plan,
amended and restated October 24, 1994,
effective January 1, 1992. (Exhibit to
CINergy's Form S-8, filed October 18, 1994.)
10-c *CG&E Deferred Compensation and Investment
Plan, as amended, effective January 1, 1989.
(Exhibit to CINergy's Form S-8, filed August
30, 1994.)
10-d *CG&E Savings Incentive Plan, as amended,
effective January 1, 1989. (Exhibit to
CINergy's Form S-8, filed August 30, 1994.)
10-e +Amended and Restated Employment Agreement
dated October 24, 1994, among CG&E, CINergy
Corp. (an Ohio corporation), CINergy (a
Delaware corporation), PSI Resources, Inc.,
Energy, and Jackson H. Randolph.
10-f *+Amended and Restated Employment Agreement
dated July 2, 1993, among PSI Resources,
Inc., Energy, CG&E, CINergy, CINergy Sub,
Inc., and James E. Rogers, Jr. (Exhibit to
CINergy's Amendment No. 3 to Form S-4, filed
October 8, 1993.)
10-g *+Employment Agreement dated October 4,
1993, among CINergy, Energy, and John M.
Mutz. (Exhibit to PSI Resources, Inc.'s
September 30, 1993, Form 10-Q, File No.
1-9941.)
Exhibit
Designation Nature of Exhibit
10-h +Employment Agreement dated January 1, 1995,
among CINergy, CG&E, CINergy Services, Inc.,
CINergy Investments, Inc., Energy, and
William J. Grealis.
10-i *+CINergy Stock Option Plan, adopted October
18, 1994, effective October 24, 1994.
(Exhibit to CINergy's Form S-8, filed
October 19, 1994.)
10-j *+CINergy Performance Shares Plan, adopted
October 18, 1994, effective October 24,
1994. (Exhibit to CINergy's Form S-8, filed
October 19, 1994.)
10-k +CINergy Annual Incentive Plan, adopted
October 18, 1994, effective October 24,
1994.
10-l *CINergy Employee Stock Purchase and Savings
Plan, adopted October 18, 1994, effective
October 24, 1994. (Exhibit to CINergy's
Form S-8, filed October 19, 1994.)
10-m Amendment to CINergy Employee Stock Purchase
and Savings Plan, adopted January 25, 1995,
retroactively effective January 1, 1995.
10-n *+CINergy Directors' Deferred Compensation
Plan, adopted October 18, 1994, effective
October 24, 1994. (Exhibit to CINergy's
Form S-8, filed October 19, 1994.)
10-o +CINergy Retirement Plan for Directors,
adopted October 18, 1994, effective October
24, 1994.
10-p +CINergy Executive Supplemental Life
Insurance Program adopted October 18, 1994,
effective October 24, 1994, consisting of
Defined Benefit Deferred Compensation
Agreement, Executive Supplemental Life
Insurance Program Split Dollar Agreement I,
and Executive Supplemental Life Insurance
Program Split Dollar Agreement II.
Exhibit
Designation Nature of Exhibit
10-q *Text of Settlement Agreement dated October
27, 1993, by and among PSI Resources, Inc.,
Energy, CG&E, CINergy, IPALCO Enterprises,
Inc., Indianapolis Power & Light Company,
James E. Rogers, John R. Hodowal, and Ramon
L. Humke (together with the exhibits and
schedules thereto). (Exhibit to PSI
Resources, Inc.'s Form 8-K dated October 27,
1993.)
10-r *+Deferred Compensation Agreement between
Jackson H. Randolph and CINergy dated
January 1, 1992. (Exhibit to CG&E's 1992
Form 10-K in File No. 1-1232.)
10-s +Split Dollar Insurance Agreement, effective
as of May 1, 1993, between CINergy and
Jackson H. Randolph.
10-t *+Deferred Compensation Agreement, effective
as of January 1, 1992, between CINergy and
James E. Rogers, Jr. (Exhibit to Energy's
Form 10-K/A in File No. 1-3543, Amendment
No. 1, dated April 29, 1993.)
10-u *+Split Dollar Life Insurance Agreement,
effective as of January 1, 1992, between
CINergy and James E. Rogers, Jr. (Exhibit
to Energy's Form 10-K/A in File No. 1-3543,
Amendment No. 1, dated April 29, 1993.)
10-v *+First Amendment to Split Dollar Life
Insurance Agreement between CINergy and
James E. Rogers, Jr. dated December 11,
1992. (Exhibit to Energy's Form 10-K/A in
File No. 1-3543, Amendment No. 1, dated
April 29, 1993.)
10-w *+Energy Supplemental Retirement Plan
amended and restated December 16, 1992,
retroactively effective January 1, 1989.
(Exhibit to Energy's 1992 Form 10-K in File
No. 1-3543.)
10-x *+Energy Excess Benefit Plan, formerly named
the Supplemental Pension Plan, amended and
restated December 16, 1992, retroactively
effective January 1, 1989. (Exhibit to
Energy's 1992 Form 10-K in File No. 1-3543.)
Exhibit
Designation Nature of Exhibit
10-y *+Supplemental Executive Retirement Income
Plan between CG&E and certain executive
officers. (Exhibit to CG&E's 1988 Form 10-K
in File No. 1-1232.)
10-z *+Amendment to Supplemental Executive
Retirement Income Plan between CG&E and
certain executive officers. (Exhibit to
CG&E's 1992 Form 10-K in File No 1-1232.)
10-aa *+Executive Severance Agreement between CG&E
and certain executive officers. (Exhibit to
CG&E's 1989 Form 10-K in File No. 1-1232.)
10-bb *+Amendment to Executive Severance Agreement
between CG&E and certain executive officers.
(Exhibit to CG&E's 1992 Form 10-K in File
No. 1-1232.)
21 *Subsidiaries of CINergy. (Exhibit to
CINergy's Form U5B, filed January 23, 1995.)
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedule (included in
electronic submission only).
99-a 1994 Form 11-K Annual Report of CINergy
Directors' Deferred Compensation Plan. (To
be filed by amendment.)
99-b 1994 Form 11-K Annual Report of CINergy
Employee Stock Purchase and Savings Plan.
(To be filed by amendment.)
_________________________
+ Management contract, compensation plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 93 735 $ 31 145 $15 010 $49 343 $ - $ 90 547 1/
Miscellaneous Materials & Supplies
Provisions 6 852 405 - 638 926 5 693
Accumulated Depreciation 2 928 184 307 386 4 793 76 698 2/ (137) 3 163 802
Other Accumulated Provisions
Deferred Income Taxes 3/ $1 018 891 $ 78 028 $ 8 985 $34 800 $ - $1 071 104
Accrued Pension and Other
Postretirement Benefit Costs 85 953 37 180 22 806 11 912 449 133 578
Environmental Liability 8 000 - 750 - - 8 750
Injuries & Damages 3 578 9 836 - 9 104 - 4 310
Other 30 275 10 628 3 973 2 162 444 42 270
$1 146 697 $ 135 672 $36 514 $57 978 $ 893 $1 260 012
_1/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 16(c) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
_2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_3/ See Notes 1(j) and 15 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 88 651 $ 24 260 $ 1 032 $20 208 $ - $ 93 735 1/
Miscellaneous Materials & Supplies
Provisions 8 844 554 - 2 356 190 6 852
Accumulated Depreciation 2 742 910 277 342 4 827 80 089 2/ 16 806 2 928 184
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 494 910 $155 738 $417 125 $48 882 $ - $1 018 891
Accrued Pension and Other
Postretirement Benefit Costs 59 393 20 905 21 719 15 970 94 85 953
Environmental Liability 5 000 3 000 - - - 8 000
Injuries & Damages 5 212 7 563 - 9 197 - 3 578
Other 20 818 11 380 1 313 3 218 18 30 275
$ 585 333 $198 586 $440 157 $77 267 $ 112 $1 146 697
_1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 16(c) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
_2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_3/ See Notes 1(j) and 15 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
</TABLE>
<TABLE>
<CAPTION>
CINERGY CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 85 997 $ 22 787 $ 989 $21 122 $ - $ 88 651 1/
Miscellaneous Materials & Supplies
Provisions 8 474 948 140 718 - 8 844
Accumulated Depreciation 2 543 837 257 621 4 844 63 606 2/ (214) 2 742 910
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 420 492 $118 721 $ 586 $44 866 $ 23 $ 494 910
Accrued Pension and Other
Postretirement Benefit Costs 25 024 12 684 30 452 8 767 - 59 393
Environmental Liability - 5 000 - - - 5 000
Injuries & Damages 4 815 14 187 - 13 790 - 5 212
Other 20 163 2 841 289 1 740 735 20 818
$ 470 494 $153 433 $31 327 $69 163 $ 758 $ 585 333
_1/ Includes $75,838 for the WVPA Marble Hill receivable. See Note 16(c) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
_2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_3/ See Notes 1(j) and 15 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CINERGY CORP.
Registrant
Dated: March 28, 1995
By Jackson H. Randolph
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
Neil A. Armstrong Director
James K. Baker Director
Hugh A. Barker Director
Michael G. Browning Director
Clement L. Buenger Director
Phillip R. Cox Director
Kenneth M. Duberstein Director
John A. Hillenbrand, II Director
George C. Juilfs Director
Melvin Perelman, Ph.D. Director
Thomas E. Petry Director
John J. Schiff, Jr. Director
Van P. Smith Director
Dudley S. Taft Director
Oliver W. Waddell Director
James E. Rogers Vice Chairman, President, March 28, 1995
Attorney-in-fact for all Chief Operating Officer
the foregoing persons and Director
J. Wayne Leonard Group Vice President March 28, 1995
and Chief Financial Officer
(Principal Financial Officer)
Jackson H. Randolph Chairman, Chief Executive March 28, 1995
Officer and Director
(Principal Executive Officer)
Charles J. Winger Comptroller March 28, 1995
(Principal Accounting Officer)
BY-LAWS
OF
CINERGY CORP.
Adopted: October 24, 1994<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Offices and Headquarters
Section 1.1 Offices. . . . . . . . . . . . . . . . . . . 1
Section 1.2 Headquarters . . . . . . . . . . . . . . . . 1
ARTICLE II
Stockholders
Section 2.1 Annual Meeting . . . . . . . . . . . . . . . 2
Section 2.2 Special Meetings . . . . . . . . . . . . . . 4
Section 2.3 Notice of Meetings . . . . . . . . . . . . . 4
Section 2.4 Quorum . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Voting . . . . . . . . . . . . . . . . . . . 6
Section 2.6 Presiding Officer and Secretary. . . . . . . 6
Section 2.7 Proxies. . . . . . . . . . . . . . . . . . . 7
Section 2.8 List of Stockholders . . . . . . . . . . . . 7
ARTICLE III
Directors
Section 3.1 Number of Directors. . . . . . . . . . . . . 8
Section 3.2 Election and Term of Directors . . . . . . . 9
Section 3.3 Vacancies and Newly Created Directorships. . 12
Section 3.4 Resignation. . . . . . . . . . . . . . . . . 12
Section 3.5 Meetings . . . . . . . . . . . . . . . . . . 13
Section 3.6 Quorum and Voting. . . . . . . . . . . . . . 14
Section 3.7 Written Consent of Directors in Lieu of a
Meeting. . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.8 Compensation . . . . . . . . . . . . . . . . 15
Section 3.9 Contracts and Transactions Involving
Directors. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
Committees of the Board of Directors
Section 4.1 Appointment and Powers . . . . . . . . . . . 16
ARTICLE V
Officers, Agents and Employees
Section 5.1 Appointment and Term of Office . . . . . . . 18
Section 5.2 The Chairman of the Board. . . . . . . . . . 19
Section 5.3 Vice-Chairman. . . . . . . . . . . . . . . . 20
Section 5.4 Chief Executive Officer. . . . . . . . . . . 20
Section 5.5 The President. . . . . . . . . . . . . . . . 21
Section 5.6 The Vice-Presidents. . . . . . . . . . . . . 21
Section 5.7 The Secretary. . . . . . . . . . . . . . . . 22
Section 5.8 The Treasurer. . . . . . . . . . . . . . . . 23
Section 5.9 The Comptroller. . . . . . . . . . . . . . . 24
Section 5.10 Compensation and Bond . . . . . . . . . . . 25
ARTICLE VI
Indemnification
Section 6.1 Indemnification of Directors, Officers,
Employees and Agents . . . . . . . . . . . . . . . . 25
Section 6.2 Advances for Litigation Expenses . . . . . . 28
Section 6.3 Indemnification Nonexclusive . . . . . . . . 29
Section 6.4 Indemnity Insurance. . . . . . . . . . . . . 29
Section 6.5 Definitions. . . . . . . . . . . . . . . . . 30
ARTICLE VII
Common Stock
Section 7.1 Certificates . . . . . . . . . . . . . . . . 31
Section 7.2 Transfers of Stock . . . . . . . . . . . . . 32
Section 7.3 Lost, Stolen or Destroyed Certificates . . . 32
Section 7.4 Stockholder Record Date. . . . . . . . . . . 33
Section 7.5 Beneficial Owners. . . . . . . . . . . . . . 34
ARTICLE VIII
Seal
Section 8.1 Seal . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX
Waiver of Notice
Section 9.1 Waiver of Notice . . . . . . . . . . . . . . 35
ARTICLE X
Fiscal Year
Section 10.1 Fiscal Year.. . . . . . . . . . . . . . . . 36
ARTICLE XI
Contracts, Checks, Notices, Etc.
Section 11.1 Contracts, Checks, Notices, Etc.. . . . . . 36
ARTICLE XII
Amendments
Section 12.1 Amendments. . . . . . . . . . . . . . . . . 37
ARTICLE XIII
Dividends
Section 13. Dividends. . . . . . . . . . . . . . . . . . 38
<PAGE>
BY-LAWS
OF
CINERGY CORP. (THE "CORPORATION")
ARTICLE I
Offices and Headquarters
Section 1.1 Offices. The location of the
Corporation's principal office shall be in the City of
Cincinnati, County of Hamilton, State of Ohio. The Corporation
may, in addition to the aforesaid principal office, establish and
maintain an office or offices elsewhere in Delaware, Ohio or
Indiana or in such other states and places as the Board of
Directors may from time to time find necessary or desirable, at
which office or offices the books, documents, and papers of the
Corporation may be kept.
Section 1.2 Headquarters. Subject to the sentence
next following, the Corporation's headquarters and executive
offices, shall be located in the City of Cincinnati, County of
Hamilton, State of Ohio. The location of the Corporation's
headquarters and executive offices may be changed from the City
of Cincinnati, County of Hamilton, State of Ohio only by the
affirmative vote of 80% of the full Board of Directors of the
Corporation and not by the vote of any committee of the Board of
Directors. As used in these By-Laws, the term "the full Board of
Directors" shall mean all directors then in office together with
any vacancies, however created. For the avoidance of doubt and
as an example only, if the Board of Directors consists of 17
members and two vacancies exist, the affirmative vote of 14 of
the 15 members of the Corporation's Board of Directors then in
office would be required to authorize a change in location of the
Corporation's headquarters and executive offices. The
headquarters and executive offices of the Corporation's
subsidiary, PSI Energy, Inc., shall be located in the City of
Plainfield, Indiana and the headquarters and executive offices of
the Corporation's subsidiary, The Cincinnati Gas & Electric
Company, shall be located in the City of Cincinnati, Ohio.
ARTICLE II
Stockholders
Section 2.1 Annual Meeting. An annual meeting of
stockholders of the Corporation for the election of directors and
for the transaction of any other proper business shall be held at
such time and date in each year as the Board of Directors may
from time to time determine. The annual meeting in each year
shall be held at such hour on said day and at such place within
or without the State of Delaware as may be fixed by the Board of
Directors, or if not so fixed, at the principal business office
of the Corporation in the City of Cincinnati, County of Hamilton,
State of Ohio. In addition to all other applicable requirements
for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation,
not less than 60 days nor more than 90 days prior to the annual
meeting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the
stockholders to be timely must be so received not later than the
close of business on the fifteenth day following the date on
which such notice of the date of annual meeting was mailed or
such public disclosure was made whichever first occurs. A
stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting; (ii) the name and record
address of the stockholder proposing such business; (iii) the
class and number of shares of the Corporation which are
beneficially owned by the stockholder; and (v) any material
interest of the stockholder in the business.
Notwithstanding anything to the contrary in the By-
Laws, no business shall be conducted at the annual meeting except
in accordance with the procedures set forth in this Section 2.1;
provided, however, that nothing in this Section 2.1 shall be
deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting.
Section 2.2 Special Meetings. A special meeting of
the stockholders of the Corporation entitled to vote on any
business to be considered at any such meeting may be called by
the Chairman of the Board or the President or by a majority of
the members of the Board of Directors then in office, acting with
or without a meeting, or by the persons who hold 50% of all
shares outstanding and entitled to vote thereat upon notice in
writing, stating the time, place and purpose of the special
meeting. The business transacted at the special meeting shall
be confined to the purposes and objects stated in the call.
Section 2.3 Notice of Meetings. Whenever stockholders
are required or permitted to take any action at a meeting, unless
notice is waived in writing by all stockholders entitled to vote
at the meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for
which the meeting is called.
Unless otherwise provided by law, and except as to any
stockholder duly waiving notice, the written notice of any
meeting shall be given personally or by mail, not less than 10
days nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed given when deposited in the mail, postage
prepaid, directed to the stockholder at his or her address as it
appears on the records of the Corporation.
When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation
may transact any business which might have been transacted at the
original meeting. If, however, the adjournment is for more than
30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at
the meeting.
Section 2.4 Quorum. Except as otherwise provided by
law or by the Certificate of Incorporation or by these By-Laws in
respect of the vote required for a specified action, at any
meeting of stockholders the holders of a majority of the
outstanding stock entitled to vote thereat, either present, in
person or represented by proxy, shall constitute a quorum for the
transaction of any business, but the stockholders present,
although less than a quorum, may adjourn the meeting to another
time or place and, except as provided in the last paragraph of
Section 2.3 of these By-Laws, notice need not be given of the
adjourned meeting.
Section 2.5 Voting. Whenever directors are to be
elected at a meeting, they shall be elected by a plurality of the
votes cast at the meeting by the holders of stock entitled to
vote. Whenever any corporate action, other than the election of
directors, is to be taken by vote of stockholders at a meeting,
it shall, except as otherwise required by law or by the
Certificate of Incorporation or by these By-Laws, be authorized
by a majority of the votes cast at the meeting by the holders of
stock entitled to vote thereon.
Except as otherwise provided by law, or by the
Certificate of Incorporation, each holder of record of stock of
the Corporation entitled to vote on any matter at any meeting of
stockholders shall be entitled to one (1) vote for each share of
such stock standing in the name of such holder on the stock
ledger of the Corporation on the record date for the
determination of the stockholders entitled to vote at the
meeting.
Upon the demand of any stockholder entitled to vote,
the vote for directors or the vote on any other matter at a
meeting shall be by written ballot, but otherwise the method of
voting and the manner in which votes are counted shall be
discretionary with the presiding officer at the meeting.
Section 2.6 Presiding Officer and Secretary. At every
meeting of stockholders the Chairman of the Board, or, in his or
her absence, the President, or, in his or her absence, the
appointee of the meeting, shall preside. The Secretary, or, in
his or her absence an Assistant Secretary, or if none be present,
the appointee of the presiding officer of the meeting, shall act
as secretary of the meeting.
Section 2.7 Proxies. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or
dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer
period. Every proxy shall be signed by the stockholder or by his
duly authorized attorney. A stockholder may authorize another
person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or other
means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such
transmission if such transmission is submitted with information
from which it may be determined that the transmission was
authorized by the stockholder.
Section 2.8 List of Stockholders. The officer who has
charge of the stock ledger of the Corporation shall prepare and
make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who
is present.
The stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the stock ledger, the
list required by this Section or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
Directors
Section 3.1 Number of Directors. The Board of
Directors shall consist of 17 directors. This number may be
changed to an odd number not less than 15 and not more than 23
by a vote of not less than 75% of the full Board of Directors
("Supermajority Vote"). Any such determination made by the Board
of Directors shall continue in effect unless and until changed by
the Board of Directors by Supermajority Vote, but no such change
shall affect the term of any director then in office.
Section 3.2 Election and Term of Directors. Only
persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Except
as may be required by applicable law, no person who is, at the
time of nomination, 70 years of age or older shall be eligible
for election as a director. Nominations of persons as candidates
for election as directors of the Corporation may be made at a
meeting of stockholders (i) by or at the direction of the Board
of Directors acting by Supermajority Vote (or by a unanimous vote
of the remaining directors if a Supermajority Vote is not
obtainable because the number of vacancies on the Board of
Directors); or (ii) by any stockholder of the Corporation
entitled to vote for the election of directors at such meeting
who complies with the notice procedures set forth herein. Any
nomination other than those governed by clause (i) of the
preceding sentence shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received
at the principal office of the Corporation in the State of Ohio
not less than 50 days prior to the meeting; provided, however,
that if less than 60 days' notice or prior public disclosure of
the date of the meeting is given to stockholders or made public,
to be timely notice by a stockholder must be so received not
later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice to
the Secretary shall set forth: (a) as to each person whom the
stockholder proposes to nominate for election as director: (i)
the name, age, business address, and residence address of such
person; (ii) the principal occupation or employment of such
person; (iii) the class and number of any shares of capital stock
of the Corporation that are beneficially owned by such person;
and (iv) any other information relating to such person that is
required to be disclosed in solicitations for proxies for the
election of directors pursuant to any then existing rules or
regulations promulgated under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving notice:
(i) the name and record address of such stockholder; (ii) the
class and number of shares of capital stock of the Corporation
that are beneficially owned by such stockholder, and (iii) the
period of time such stockholder has held such shares. The
Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee
to serve as a director. No person otherwise eligible for
election as a director shall be eligible for election as a
director unless nominated as set forth herein.
Commencing on October 24, 1994 (the "Classification
Date") of the Board of Directors of the Corporation, the terms of
office of the Board of Directors shall be divided into three (3)
classes, Class I, Class II and Class III, as determined by the
Board of Directors. All classes shall be as nearly equal in
number as possible.
The terms of office of directors classified shall be as
follows: (1) that of Class I shall expire at the annual meeting
of stockholders that occurs within the first year after the
Classification Date, (2) that of Class II shall expire at the
annual meeting of stockholders that occurs within the second year
after the Classification Date, and (3) that of Class III shall
expire at the annual meeting of stockholders that occurs within
the third year after the Classification Date. At each annual
meeting of stockholders after the Classification Date, the
successors to directors whose terms shall expire shall be elected
to serve from the time of election and qualification until the
third annual meeting following election and until a successor
shall have been elected and qualified or until his earlier
resignation, removal from office or death. As being under 70
years of age constitutes a continuing qualification for service
on the Board of Directors, any director who reaches the age of 70
years while in office shall, except as limited by applicable law,
promptly resign from the Corporation's Board of Directors.
Section 3.3 Vacancies and Newly Created Directorships.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by
election at a meeting of stockholders. Except as otherwise
provided by law, and notwithstanding the provision of Section
3.6, the remaining directors, whether or not constituting a
majority of the whole authorized number of directors, may, by not
less than a Supermajority Vote (or by a unanimous vote of the
remaining directors if a Supermajority Vote is not obtainable
because of the number of vacancies on the Board of Directors)
fill any vacancy in the Board, however arising, for the unexpired
term thereof. Any person elected to fill a vacancy in the Board
shall hold office until the expiration of the term of office for
the class to which he or she is elected and until a successor is
elected and qualified or until his or her earlier resignation,
removal from office or death.
Section 3.4 Resignation. Any director may resign at
any time upon written notice to the Corporation. Any such
resignation shall take effect at the time specified therein or,
if the time be not specified, upon receipt thereof, and the
acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation
effective.
Section 3.5 Meetings. Meetings of the Board of
Directors, regular or special, may be held at any place within or
without the State of Delaware. Members of the Board of
Directors, or of any committee designated by the Board, may
participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting by such means shall
constitute presence in person at such meeting. An annual meeting
of the Board of Directors shall be held after each annual
election of directors. If such election occurs at an annual
meeting of stockholders, the annual meeting of the Board of
Directors shall be held at the same place and immediately
following such meeting of stockholders, and no notice thereof
need be given. The Board of Directors may fix times and places
for regular meetings of the Board and no notice of such meetings
need be given. A special meeting of the Board of Directors shall
be held whenever called by the Chairman of the Board, the
President or by the written request of at least two (2) members
of the Board of Directors, at such time and place as shall be
specified in the notice or waiver thereof. Notice of each
special meeting shall be given by the Secretary or by a person
calling the meeting to each director in writing, through the
mail, not later than the second day before the meeting, or
personally served or by telephone, telecopy, telegram, cablegram
or radiogram, in each such cases, not later than the day before
the meeting, and such notice shall be deemed to be given at the
time when the same shall be transmitted.
Section 3.6 Quorum and Voting. A majority of the full
Board of Directors shall constitute a quorum for the transaction
of business, but, if there be less than a quorum at any meeting
of the Board of Directors, a majority of the directors present
may adjourn the meeting from time to time, and no further notice
thereof need be given other than announcement at the meeting
which shall be so adjourned. Except as otherwise provided by
law, by the Certificate of Incorporation, or by these By-Laws
(including, without limitation, where any Supermajority Vote or
any other vote in excess of a majority is required), the vote of
a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 3.7 Written Consent of Directors in Lieu of a
Meeting. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 3.8 Compensation. Each director of the
Corporation (other than directors who are salaried officers of
the Corporation or any of its subsidiaries) shall be entitled to
receive as compensation for services such reasonable
compensation, which may include pension, disability and death
benefits, as may be determined from time to time by the Board of
Directors. Reasonable compensation may also be paid to any
person other than a director officially called to attend any such
meeting.
Section 3.9 Contracts and Transactions Involving
Directors. No contract or transaction between the Corporation
and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in
the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his,
her or their votes are counted for such purpose, if: (1) the
material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum; or
(2) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known
to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
Committees of the Board of Directors
Section 4.1 Appointment and Powers. The Board of
Directors shall, by resolution adopted by a majority of the
Board, designate annually (subject to Article V hereof) six of
their number to constitute an Executive Committee, and may
delegate to such committee power to authorize the seal of the
Corporation to be affixed to all papers which may require it and
to exercise in the intervals between the meetings of the Board of
Directors the powers of the Board in the management of the
business and affairs of the Corporation; provided, however, that
the Executive Committee shall not have the power or authority to
take any action for which a Supermajority Vote or other vote in
excess of a majority of the Board of Directors is required. Each
member of the Executive Committee shall continue to be a member
thereof only during the pleasure of a majority of the full Board
of Directors.
The Executive Committee may act by a majority of its
members at a meeting or by a writing signed by all of its
members.
All action by the Executive Committee shall be reported
to the Board of Directors at its meeting next succeeding such
action.
Non-employee members of such Executive Committee shall
be entitled to receive such fees and compensation as the Board of
Directors may determine.
The Board of Directors may also appoint a Finance
Committee, a Committee on Directors, an Audit Committee, a Public
Policy Committee and a Compensation Committee and may also
appoint such other standing or temporary committees from time to
time as they may see fit, delegating to such committees all or
any part of their own powers (subject to the provisions of these
By-Laws); provided, however, that any compensation or benefits to
be paid to an executive officer who is also a director must be
approved by the Board of Directors. The members of such
committees shall be entitled to receive such fees as the Board
may determine.
The Board of Directors shall not amend, modify, vary or
waive any of the terms of the Amended and Restated Agreement and
Plan of Reorganization by and among The Cincinnati Gas & Electric
Company, PSI Resources, Inc., PSI Energy, Inc., the Corporation,
CINergy Corp., an Ohio corporation, and CINergy Sub, Inc. dated
as of December 11, 1992, as amended and restated as of July 2,
1993 and as of September 10, 1993 and as further amended as of
June 20, 1994, as of July 26, 1994 and as of September 30, 1994
(the "Merger Agreement") other than by a Supermajority Vote of
the Board of Directors.
ARTICLE V
Officers, Agents and Employees
Section 5.1 Appointment and Term of Office. The
executive officers of the Corporation, shall consist of a
Chairman of the Board, a Vice-Chairman, a Chief Executive
Officer, a President, one or more Vice-Presidents, a Secretary, a
Treasurer and a Comptroller, all of whom shall be elected by the
Board of Directors by a Supermajority Vote, and shall hold office
for one (1) year and until their successors are chosen and
qualified. Any number of such offices may be held by the same
person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Any vacancy occurring in
the office of the Chairman, Chief Executive Officer or President
shall be filed by Supermajority Vote of the Board of Directors.
The Chairman, Chief Executive Officer or President shall be
subject to removal without cause only by Supermajority Vote of
the Board of Directors at a special meeting of the Board of
Directors called for that purpose.
The Board of Directors may appoint, and may delegate
power to appoint, such other non-executive officers, agents and
employees as it may deem necessary or proper, who shall hold
their offices or positions for such terms, have such authority
and perform such duties as may from time to time be determined by
or pursuant to authorization of the Board of Directors.
Section 5.2 The Chairman of the Board. The Chairman
of the Board shall be a director and shall preside at all
meetings of the Board of Directors and, in the absence or
inability to act of the Chief Executive Officer, meetings of
stockholders and shall, subject to the Board's direction and
control, be the Board's representative and medium of
communication, and shall perform such other duties as may from
time-to-time be assigned to the Chairman of the Board by
Supermajority Vote of the Board of Directors. The Chairman of
the Board shall direct the long-term strategic planning process
of the Corporation and shall also lend his or her expertise to
the President, as may be requested from time-to-time by the
President. The Chairman shall be a member of the Executive
Committee.
Section 5.3 Vice-Chairman. The Vice-Chairman of the
Board shall be a director and shall preside at meetings of the
Board of Directors in the absence or inability to act of the
Chairman of the Board or meetings of stockholders in the absence
or inability to act of the Chief Executive Officer and the
Chairman of the Board. The Vice-Chairman shall perform such
other duties as may from time-to-time be assigned to him or her
by Supermajority Vote of the Board of Directors. The Vice-
Chairman shall be a member of the Executive Committee and the
Nominating Committee.
Section 5.4 Chief Executive Officer. The Chief
Executive Officer shall be a director and shall preside at all
meetings of the stockholders, and, in the absence or inability to
act of the Chairman of the Board and the Vice-Chairman, meetings
of the Board of Directors, and shall submit a report of the
operations of the Corporation for the fiscal year to the
stockholders at their annual meeting and from time-to-time shall
report to the Board of Directors all matters within his or her
knowledge which the interests of the Corporation may require be
brought to their notice. The Chief Executive Officer shall be
the chairman of the Executive Committee and an ex officio member
of all standing committees. The President and the Internal
Auditing Department will report directly to the Chief Executive
Officer.
Section 5.5 The President. The President shall be a
director and shall be the Chief Operating Officer of the
Corporation. The President shall have general and active
management and direction of the affairs of the Corporation, shall
have supervision of all departments and of all officers of the
Corporation, shall see that the orders and resolutions of the
Board of Directors and of the Executive Committee are carried
into effect, and shall have the general powers and duties of
supervision and management usually vested in the office of
President of a corporation. All corporate officers and functions
except those reporting to the Chief Executive Officer shall
report directly to the President.
Section 5.6 The Vice-Presidents. The Vice-Presidents
shall perform such duties as the Board of Directors shall, from
time to time, require. In the absence or incapacity of the
President, the Vice President designated by the President or
Board of Directors or Executive Committee shall exercise the
powers and duties of the President.
Section 5.7 The Secretary. The Secretary shall attend
all meetings of the Board of Directors, of the Executive
Committee and any other committee of the Board of Directors and
of the stockholders and act as clerk thereof and record all votes
and the minutes of all proceedings in a book to be kept for that
purpose, and shall perform like duties for the standing
committees when required.
The Secretary shall keep in safe custody the seal of
the corporation and, whenever authorized by the Board of
Directors or the Executive Committee, affix the seal to any
instrument requiring the same.
The Secretary shall see that proper notice is given of
all the meetings of the stockholders of the Corporation and of
the Board of Directors and shall perform such other duties as may
be prescribed from time to time by the Board of Directors or by
the President.
Assistant Secretaries. At the request of the
Secretary, or his or her absence or inability to act, the
Assistant Secretary or, if there by more than one, the Assistant
Secretary designated by the Secretary, shall perform the duties
of the Secretary and when so acting shall have all the powers of
and be subject to all the restrictions of the Secretary. The
Assistant Secretaries shall perform such other duties as may from
time to time be assigned to them by the President, the Secretary,
or the Board of Directors.
Section 5.8 The Treasurer. The Treasurer shall be the
financial officer of the Corporation, shall keep full and
accurate accounts of all collections, receipts and disbursements
in books belonging to the corporation, shall deposit all moneys
and other valuables in the name and to the credit of the
Corporation, in such depositories as may be directed by the Board
of Directors, shall disburse the funds of the Corporation as may
be ordered by the Board of Directors or by the President, taking
proper vouchers therefor, and shall render to the President and
directors at all regular meetings of the Board, or whenever they
may require it, and to the annual meeting of the stockholders, an
account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
The Treasurer shall also perform such other duties as
the Board of Directors may from time to time require.
If required by the Board of Directors the Treasurer
shall give the Corporation a bond in a form and in a sum with
surety satisfactory to the Board of Directors for the faithful
performance of the duties of his or her office and the
restoration to the Corporation in the case of his or her death,
resignation or removal from office of all books, papers,
vouchers, money and other property of whatever kind in his or her
possession belonging to the Corporation.
Assistant Treasurers. At the request of the Treasurer,
or in his or her absence or inability to act, the Assistant
Treasurer or, if there be more than one, the Assistant Treasurer
designated by the Treasurer, shall perform the duties of the
Treasurer and when so acting shall have all the powers of and be
subject to all the restrictions of the Treasurer. The Assistant
Treasurers shall perform such other duties as may from time to
time be assigned to them by the President, the Treasurer, or the
Board of Directors.
Section 5.9 The Comptroller. The Comptroller shall
have control over all accounts and records of the Corporation
pertaining to moneys, properties, materials and supplies. He or
she shall have executive direction over the bookkeeping and
accounting departments and shall have general supervision over
the records in all other departments pertaining to moneys,
properties, materials and supplies. He or she shall have such
other powers and duties as are incident to the office of
Comptroller of a corporation and shall be subject at all times to
the direction and control of the Board of Directors, the
Chairman, the President and a Vice President. In case of the
absence, disability, death, resignation or removal from office of
the Comptroller, the powers and duties of the Comptroller shall
be delegated by the Board of Directors, the Chairman, the
President or a Vice President.
Section 5.10 Compensation and Bond. The compensation
of the officers of the Corporation shall be fixed by the Board of
Directors, but this power may be delegated to any officer in
respect of other officers under his or her control. The
Corporation may secure the fidelity of any or all of its
officers, agents or employees by bond or otherwise.
ARTICLE VI
Indemnification
Section 6.1 Indemnification of Directors, Officers,
Employees and Agents. (A) Any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than any action or suit by
or in the right of the Corporation) by reason of the fact that he
or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise (specifically including employee benefit plans), shall
be indemnified by the Corporation, if, as and to the extent
authorized by applicable law, against expenses (specifically
including attorney's fees), judgments, fines (specifically
including any excise taxes assessed on a person with respect to
an employee benefit plan) and amounts paid in settlement actually
and reasonably incurred by him or her in connection with the
defense or settlement of such action, suit or proceeding, if he
or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner he or she reasonably believed to be in and not opposed to
the best interests of the Corporation and, with respect to any
criminal action or proceeding, he or she had no reasonable cause
to believe his or her conduct was unlawful.
(B) The Corporation shall, to the extent not
prohibited by applicable law, indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a
party, to any threatened, pending, or completed action or suit by
or in the right of the Corporation to procure a judgement in its
favor by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or is or was
serving at the request of the Corporation as a director, trustee,
officer, employee, or agent of another corporation, domestic or
foreign, non-profit or for-profit, partnership, joint venture,
trust or other enterprise (specifically including employee
benefit plans), against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with
the defense or settlement of such action or suit if he or she
acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the Corporation; provided
that, no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(C) To the extent that a director, officer, employee,
or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred
to in the paragraphs (A) or (B) of this Section, or in defense of
any claim, issue, or matter therein, he or she shall be
indemnified against expenses, specifically including attorneys'
fees, actually and reasonably incurred by him or her in
connection therewith.
(D) Any indemnification under Paragraphs (A) and (B) of
this Section, unless ordered by a court, shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, trustee,
officer, employee, or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in such Paragraphs (A) and (B). Such determination shall
be made as follows: (1) the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to
such action, suit, or proceeding; (2) if the quorum described in
(D)(1) of this Section is not obtainable or, even if obtainable a
quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or (3) by the stockholders.
Section 6.2 Advances for Litigation Expenses.
Expenses (including attorneys' fees) incurred by a director,
officer, employee, or agent of the Corporation in defending any
civil, criminal, administrative or investigative action, suit or
proceeding, shall be paid by the Corporation as they are incurred
in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director, officer, employee, or agent: (1) to repay such amount
if it shall ultimately be determined that he is not entitled to
be indemnified by the Corporation as authorized in this
Article VI; and (2) to cooperate reasonably with the Corporation
concerning the action, suit or proceeding.
Section 6.3 Indemnification Nonexclusive. The
indemnification provided by this Article shall not be exclusive
of and shall be in addition to any other rights granted to those
seeking indemnification under the Certificate of Incorporation,
these By-Laws, any agreement, any vote of stockholders or
disinterested directors or otherwise, both as to action in his or
her official capacity and as to action in another capacity while
holding such office and shall continue as to a person who has
ceased to be a director, trustee, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 6.4 Indemnity Insurance. The Corporation may
purchase and maintain insurance or furnish similar protection,
including but not limited to trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, against any liability
asserted against him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify
him or her against such liability under this Article. Insurance
may be purchased from or maintained with a person in which the
Corporation has a financial interest.
Section 6.5 Definitions. For purposes of this
Article: (1) a person who acted in good faith and in a manner he
or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall
conclusively be deemed to have acted in a manner "not opposed to
the best interests of the Corporation"; (2) a person shall be
deemed to have acted in "good faith" and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or
books of account of the Corporation or another enterprise, or on
information supplied to him by the officers of the Corporation or
another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise
or on information or records given or reports made to the
Corporation or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected
with reasonable care by the Corporation or another enterprise;
(3) the term "another enterprise" as used in this Article VI
shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent; and (4)
references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger, which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, employees, and agents.
ARTICLE VII
Common Stock
Section 7.1 Certificates. Certificates for stock of
the Corporation shall be in such form as shall be approved by the
Board of Directors and shall be signed in the name of the
Corporation by the Chairman or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary. Such certificates may be sealed with
the seal of the Corporation or a facsimile thereof. Any of or
all the signatures on a certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 7.2 Transfers of Stock. Transfers of stock
shall be made only upon the books of the Corporation by the
holder, in person or by duly authorized attorney, and on the
surrender of the certificate or certificates for such stock
properly endorsed. The Board of Directors shall have the power
to make all such rules and regulations, not inconsistent with the
Certificate of Incorporation and these By-Laws and the law, as
the Board of Directors may deem appropriate concerning the issue,
transfer and registration of certificates for stock of the
Corporation. The Board of Directors or the Finance Committee
may appoint one (1) or more transfer agents or registrars of
transfers, or both, and may require all stock certificates to
bear the signature of either or both.
Section 7.3 Lost, Stolen or Destroyed Certificates.
The Corporation may issue a new stock certificate in the place of
any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the
owner of the lost, stolen or destroyed certificate or his or her
legal representative to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate. The
Board of Directors may require such owner to satisfy other
reasonable requirements.
Section 7.4 Stockholder Record Date. In order that
the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date
of such meeting, nor more than sixty days prior to any other
action. Only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to notice of, and
to vote at, such meeting and any adjournment thereof, or to give
such consent, or to receive payment of such dividend or other
distribution, or to exercise such rights in respect of any such
change, conversion or exchange of stock, or to participate in
such action, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation after any record date
so fixed.
If no record date is fixed by the Board of Directors,
(l) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the date on which
notice is given, or, if notice is waived by all stockholders
entitled to vote at the meeting, at the close of business on the
day next preceding the day on which the meeting is held and (2)
the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
Section 7.5 Beneficial Owners. The Corporation shall
be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by
law.
ARTICLE VIII
Seal
Section 8.1 Seal. The seal of the Corporation shall
be circular in form and shall bear, in addition to any other
emblem or device approved by the Board of Directors, the name of
the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
ARTICLE IX
Waiver of Notice
Section 9.1 Waiver of Notice. Whenever notice is
required to be given by statute, or under any provision of the
Certificate of Incorporation or these By-Laws, a written waiver
thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to
notice. In the case of a stockholder, such waiver of notice may
be signed by such stockholder's attorney or proxy duly appointed
in writing. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at
the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular
or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of
notice.
ARTICLE X
Fiscal Year
Section 10.1 Fiscal Year. The Fiscal Year of the
corporation shall begin on the first day of January and terminate
on the thirty-first day of December each year.
ARTICLE XI
Contracts, Checks, Notices, Etc.
Section 11.1 Contracts, Checks, Notices, Etc. The
Board of Directors or the Finance Committee may by resolution
adopted at any meeting designate officers of the Corporation who
may in the name of the Corporation execute contracts, checks,
drafts, and orders for the payment of money in its behalf and, in
the discretion of the Board of Directors or the Finance
Committee, such officers may be so authorized to sign such
contracts or checks singly without the necessity of counter-
signature.
ARTICLE XII
Amendments
Section 12.1 Amendments. Except as set forth below,
these By-Laws may be amended or repealed by the Board of
Directors or by the affirmative vote of the holders of a majority
of the issued and outstanding common stock of the Corporation, or
by the unanimous written consent of the holders of the issued and
outstanding common stock of the Corporation.
Notwithstanding the foregoing paragraph, the
affirmative vote of the holders of at least 80% of the issued and
outstanding shares of common stock of the Corporation shall be
required to amend, alter or repeal, or adopt any provision
inconsistent with, the requirements of Section 2.2, Section 3.1,
Section 3.2, Section 3.3 or this paragraph of Section 12.1 of
these By-Laws, in addition to any requirements of law and any
provisions of the Certificate of Incorporation, any By-law, or
any resolution of the Board of Directors adopted pursuant to the
Certificate of Incorporation (and notwithstanding that a lesser
percentage may be specified by law, the Certificate of
Incorporation, these By-Laws, such resolution, or otherwise).
Notwithstanding any of the foregoing, the affirmative
vote of a majority of the holders of the issued and outstanding
common stock of the Corporation shall be required to amend, alter
or repeal, or adopt any provision inconsistent with (i) any
provision of these By-Laws requiring a Supermajority Vote of the
Board of Directors (including this provision of Section 12.1) or
(ii) the responsibilities of the Chief Executive Officer or
President as set forth in Section 5.4 or Section 5.5, and the
Board of Directors shall not recommend any such amendment to such
provisions to the stockholders unless the proposed amendment is
approved by the Board of Directors acting by Supermajority Vote.
ARTICLE XIII
Dividends
Section 13. Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions of the
Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums
as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any
such reserve.
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement")
made and entered into as of the 24th day of October, 1994, by and
among The Cincinnati Gas & Electric Company ("CG&E"), an Ohio
corporation, CINergy Corp. ("Old CINergy"), an Ohio corporation,
and CINergy Corp. ("CINergy"), a Delaware corporation, all having
their principal place of business located at 139 East Fourth
Street, Cincinnati, Ohio; PSI Resources, Inc. ("PSI Resources"),
an Indiana corporation and PSI Energy, Inc. ("PSI Energy"), an
Indiana corporation, both having their principal place of
business located at 1000 East Main Street, Plainfield, Indiana;
and Jackson H. Randolph (the "Executive") (Capitalized terms used
but not defined herein shall have the meanings ascribed to them
in the Amended and Restated Agreement and Plan of Reorganization
dated as of December 11, 1992, as further amended and restated to
date (the "Merger Agreement") by and among CG&E, PSI Resources,
PSI Energy, CINergy and CINergy Sub, Inc. ("CINergy Sub"), an
Ohio corporation);
WHEREAS, the Executive is currently serving as Chairman of
the Board, President and Chief Executive Officer of CG&E;
WHEREAS, CG&E, PSI Resources, PSI Energy and Old CINergy
entered into an employment agreement with the Executive dated
December 11, 1992 (the "1992 Employment Agreement") pursuant to
which Executive would have been employed by Old CINergy effective
upon the merger of each of CG&E, PSI Resources and PSI Energy
into Old CINergy pursuant to the Agreement and Plan of
Reorganization dated as of December 11, 1992 (the "Original
Merger Agreement");
WHEREAS, the Merger Agreement provides that, instead of
CG&E, PSI Resources and PSI Energy being merged into Old CINergy
as contemplated by the Original Merger Agreement, PSI will be
merged into CINergy and CINergy Sub will be merged into CG&E, so
that CINergy will become a holding company for CG&E and PSI
Energy; and
WHEREAS, the parties hereto desire to amend and restate the
1992 Employment Agreement to provide for Executive's employment
by CINergy as of the Effective Date, as hereinafter defined:
NOW, THEREFORE, IN CONSIDERATION of the mutual premises,
covenants and agreements set forth below, it is hereby agreed as
follows:
1. Employment and Term.
(a) CINergy agrees to employ the Executive, and the
Executive agrees to be employed by CINergy in accordance with the
terms and provisions of this Agreement for the period set forth
below (the "Employment Period").
(b) The Employment Period shall commence as of the
consummation date (the "Effective Date") of the mergers (the
"Mergers") pursuant to the terms of the Merger Agreement and
shall continue until the close of business on November 30, 2000.
2. Duties and Powers of Executive.
(a) Position; Location. From the Effective Date until
November 30, 1995, the Executive shall serve as the Chief
Executive Officer of CINergy. During the Employment Period, the
Executive shall have such authority, duties and responsibilities
as are set forth in Annex A hereto. Such titles, authority,
duties and responsibilities may be changed from time to time only
by mutual written agreement of the parties. During the
Employment Period, the Executive shall, without compensation
other than that herein provided, also serve and continue to
serve, if and when elected and reelected, as the Chairman of the
Board of Directors of CINergy (the "Board"). The Executive's
services shall be performed at the location where the Executive
is currently employed.
(b) Commencing on the Effective Date until November 30,
2000, CINergy shall annually in connection with the annual
meeting of stockholders of CINergy cause the Executive to be
nominated as Chairman of the Board.
3. Compensation.
The Executive shall receive the following compensation for
his services hereunder;
(a) Salary. The Executive's annual base salary ("Annual
Base Salary"), payable not less often than biweekly, shall be at
the annual rate of not less than the greater of $425,000 and the
amount in effect as of the day before the Effective Date. The
Board may from time to time direct such upward adjustments in
Annual Base Salary as the Board deems to be necessary or
desirable including without limitation adjustments in order to
reflect increases in the cost of living. Annual Base Salary
shall not be reduced after any increase thereof. Any increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation of CINergy under this Agreement.
(b) Annual Incentive Plan Benefit. The Executive shall be
paid by CINergy an annual benefit of up to 55% of the Executive's
Annual Base Salary which benefit shall be determined and paid
pursuant to the terms of the Annual Incentive Plan of PSI
Resources in effect as of the day and year first written above.
(c) Stock Option. CINergy shall establish a stock option
plan (the "Stock Option Plan") which shall take effect when the
Mergers are consummated. As of the Effective Date, the Executive
shall be granted options pursuant to the terms of the Stock
Option Plan and agreement.
(d) Retirement, Incentive and Welfare Benefit Plans.
During the Employment Period and so long as the Executive is
employed by CINergy, he shall be eligible to participate in all
incentive, stock option, restricted stock, performance unit,
savings, retirement and welfare plans, practices, policies and
programs applicable generally to employees and/or other senior
executives of CINergy, including the Annual Incentive Plan, the
Performance Share Plan and the Executive Supplemental Life
Insurance Program or any successors thereto, except with respect
to any benefits under any plan, practice, policy or program to
which the Executive has waived his rights in writing; provided,
however, that benefits paid pursuant to the terms of the Annual
Incentive Plan shall be determined in accordance with (but not in
addition to the benefit described in) Section 3(b) of this
Agreement. In addition, CINergy shall assume and continue the
Deferred Compensation Agreement, effective as of January 1, 1992,
between the Executive and CG&E (the "Deferred Compensation
Agreement").
(e) Expenses. CINergy agrees to reimburse the Executive
for all expenses, including those for travel and entertainment,
properly incurred by him in the performance of his duties
hereunder in accordance with policies established from time to
time by the Board.
(f) Fringe Benefits. During the Employment Period and so
long as the Executive is employed by CINergy, he shall be
entitled to the following fringe benefits: (A) CINergy shall pay
the annual dues, assessments and other membership charges of the
Executive with respect to the Executive's membership in the clubs
and associations of the Executive's choice that are used for
business purposes, (B) CINergy shall furnish to the Executive
financial planning and tax preparation services, (C) CINergy
shall furnish an automobile to the Executive and pay all of the
related expenses for gasoline, insurance, maintenance and
repairs, and (D) CINergy shall provide paid vacation for five (5)
weeks per year (or longer if permitted by CINergy policy), in
each case of paragraphs (A) through (D) on a basis substantially
equivalent to such fringe benefits provided to the Executive in
the past. In addition, the Executive shall be entitled to
receive fringe benefits in accordance with the plans, practices,
programs and policies of CINergy from time to time in effect,
commensurate with his position and at least comparable to those
received by other senior executives of CINergy.
4. Termination of Employment.
(a) Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period.
(b) By CINergy for Cause. CINergy may terminate the
Executive's employment during the Employment Period for Cause.
For purposes of this Agreement, "Cause" shall mean the conviction
of the Executive for the commission of a felony which, at the
time of such commission, has a materially adverse effect on
CINergy.
(c) By the Executive Good Reason. The Executive may
terminate his employment during the Employment Period for Good
Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the reduction in the Executive's Annual Base
Salary as specified in Section 3(a) of this Agreement,
the Executive's Annual Incentive Plan benefit as
specified in Section 3(b) of this Agreement, or any
other benefit or payment described in Section 3 of this
Agreement;
(ii) the change without his consent of the
Executive's title, authority, duties or
responsibilities as specified in Section 2(a) of this
Agreement;
(iii) CINergy requiring the Executive without his
consent to be based at any office or location other
than the location where the Executive is currently
employed; or
(iv) any breach by CINergy of any other material
provision of this Agreement.
(d) Notice of Termination. Any termination by CINergy for
Cause, or by the Executive for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated, and (iii) if the Date of
Termination (as defined in Section 4(e)) is other than the date
of receipt of such notice, specifies the termination date (which
date shall be not more than 30 days after the giving of such
notice). The failure by the Executive or CINergy to set forth in
the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive
any right of the Executive or CINergy hereunder or preclude the
Executive or CINergy from asserting such fact or circumstance in
enforcing the Executive's or CINergy's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by CINergy for
Cause, or by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein,
as the case may be, (ii) if the Executive's employment is
terminated by CINergy other than for Cause, the Date of
Termination shall be the date on which CINergy notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death, the Date of
Termination shall be the date of death.
5. Obligations of CINergy Upon Termination.
(a) Termination Other Than For Cause. During the
Employment Period, if CINergy shall terminate the Executive's
employment (other than in the case of a termination for Cause),
the Executive shall terminate his employment for Good Reason or
the Executive's employment shall terminate by reason of death
(termination in any such case referred to as "Termination"):
(i) CINergy shall pay to the Executive a lump sum
amount in cash equal to the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (2) an amount equal to
the Annual Incentive Plan benefit described in Section
3(b) of this Agreement for the fiscal year that
includes the Date of Termination multiplied by a
fraction the numerator of which shall be the number of
days from the beginning of such fiscal year to and
including the Date of Termination and the denominator
of which shall be 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not
theretofore paid. (The amounts specified in clauses
(1), (2) and (3) shall be hereinafter referred to as
the "Accrued Obligations"). The amounts specified in
this Section 5(a)(i) shall be paid within 30 days after
the Date of Termination; and
(ii) in the event of Termination other than by
reason of the Executive's death, then (a) CINergy shall
pay to the Executive a lump sum amount, in cash, equal
to the present value of the Annual Base Salary and the
Annual Incentive Plan benefit described in Section 3(b)
of this Agreement payable through the end of the
Employment Period each, at the rate, and using the same
goals and factors in effect at the time Notice of
Termination is given, paid within thirty (30) days of
such Date of Termination; (b) CINergy shall pay to the
Executive the value of all benefits to which the
Executive would have been entitled had he remained in
employment with CINergy until the end of the Employment
Period, under CINergy's Performance Shares Plan and
Executive Supplemental Life Insurance Program;
(c) CINergy shall pay the value of all deferred
compensation amounts and all executive life insurance
benefits whether or not then vested or payable; and
(d) CINergy shall continue medical and welfare benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided if the
Executive's employment had not been terminated
(excluding benefits to which the Executive has waived
his rights in writing), such benefits to be in
accordance with the most favorable medical and welfare
benefit plans, practices, programs or policies (the
"M&W Plans") of CINergy as in effect and applicable
generally to other senior executives of CINergy and
their families during the 90-day period immediately
preceding the Date of Termination or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other senior executives of
CINergy (but not on a prospective basis only unless and
then only to the extent, such more favorable M&W Plans
are by their terms retroactive), provided, however,
that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan,
the benefits under the M&W Plans shall be secondary to
those provided under such other plan during such
applicable period of eligibility.
(b) Termination by CINergy for Cause or by the Executive
Other than for Good Reason. Subject to the provisions of Section
6 of this Agreement, if the Executive's employment shall be
terminated for Cause during the Employment Period, or if the
Executive terminates employment during the Employment Period
other than a termination for Good Reason, CINergy shall have no
further obligations to the Executive under this Agreement other
than the obligation to pay to the Executive Annual Base Salary
through the Date of Termination plus the amount of any
compensation previously deferred by the Executive, in each case
to the extent theretofore unpaid.
(c) Deferred Compensation Agreement. Notwithstanding
anything in this Agreement to the contrary, upon the termination
of the Executive's employment for any reason, he shall be
entitled to receive all benefits provided for him or his
beneficiaries under the terms of the Deferred Compensation
Agreement.
6. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any benefit,
plan, program, policy or practice provided by CINergy and for
which the Executive may qualify (except with respect to any
benefit to which the Executive has waived his rights in writing),
nor shall anything herein limit or otherwise affect such rights
as the Executive may have under any other contract or agreement
entered into after the Effective Date with CINergy. Amounts
which are vested benefits or which the Executive is otherwise
entitled to receive under any benefit, plan, policy, practice or
program of, or any contract or agreement entered into after the
date hereof with, CINergy at or subsequent to the Date of
Termination, shall be payable in accordance with such benefit,
plan, policy, practice or program or contract or agreement except
as explicitly modified by this Agreement.
7. Full Settlement; Mitigation.
CINergy's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which CINergy may have
against the Executive or others. In no event shall the Executive
be obligated to seek other employment or take any other action by
way of mitigation of the amounts (including amounts for damages
for breach) payable to the Executive under any of the provisions
of this Agreement and, except as provided in Section 5(a)(2)(d)
of this Agreement, such amounts shall not be reduced whether or
not the Executive obtains other employment. If the Executive
finally prevails with respect to any dispute between CINergy, the
Executive or others as to the interpretation, terms, validity or
enforceability of (including any dispute about the amount of any
payment pursuant to this Agreement), CINergy agrees to pay all
legal fees and expenses which the Executive may reasonably incur
as a result of any such dispute.
8. Confidential Information.
The Executive shall hold in a fiduciary capacity for the
benefit of CINergy all secret, confidential information,
knowledge or data relating to CINergy or any of its affiliated
companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by
CG&E and CINergy or any of their affiliated companies and that
shall not have been or now or hereafter have become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). During the
Employment Period, the Executive shall not, without the prior
written consent of CINergy or as may otherwise be required by law
or legal process, communicate or divulge any such information,
knowledge or data to anyone other than CINergy and those
designated by it.
9. Successors.
(a) This Agreement is personal to the Executive and,
without the prior written consent of CINergy, shall not be
assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon CINergy and its respective successors and assigns.
(c) CINergy shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of CINergy to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that CINergy would be required to
perform it if no such succession had taken place. As used in
this Agreement, "CINergy" shall mean CINergy as hereinbefore
defined and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference
to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended, modified,
repealed, waived, extended or discharged except by an agreement
in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge
is sought. No person, other than pursuant to a resolution of the
Board or a committee thereof, shall have authority on behalf of
CINergy to agree to amend, modify, repeal, waive, extend or
discharge any provision of this Agreement or anything in
reference thereto.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return-receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Jackson H. Randolph
If to CINergy:
CINergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45202
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) CINergy may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or CINergy's failure to insist upon
strict compliance with any provision hereof or any other
provision of this Agreement or the failure to assert any right
the Executive or CINergy may have hereunder, including, without
limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Section 4(c) of this Agreement, or
the right of CINergy to terminate the Executive's employment for
Cause pursuant to Section 4(b) of this Agreement shall not be
deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) This instrument contains the entire agreement of the
Executive and CINergy with respect to the subject matter hereof,
and, subject to (i) the provisions of Section 1(b) hereof and
(ii) any agreements evidencing the stock option grant described
in Section 3(c) hereof, all promises, representations,
understandings, arrangements and prior agreements are merged
herein and superseded hereby.
IN WITNESS WHEREOF, the Executive and, pursuant to due
authorization from their respective Board of Directors, CG&E, PSI
Resources, PSI Energy, Old CINergy and CINergy have caused this
Agreement to be executed as of the day and year first above
written.
PSI RESOURCES, INC.
_____________________________
Name: James E. Rogers
Title: Chairman and Chief
Executive Officer
PSI ENERGY, INC.
_____________________________
Name: James E. Rogers
Title: Chairman, President and
Chief Executive Officer
THE CINCINNATI GAS & ELECTRIC
COMPANY
______________________________
Name: Oliver W. Birckhead
Title: Chairman of the
Compensation Committee
of the Board of
Directors
CINERGY CORP. (OHIO)
______________________________
Name: James E. Rogers
Title: President and Chief
Operating Officer
CINERGY CORP. (DELAWARE)
______________________________
Name: James E. Rogers
Title: President and Chief
Operating Officer
EXECUTIVE
_____________________________
Jackson H. Randolph
Annex A
to Employment Agreement
DUTIES OF EXECUTIVE
Chairman of the Board
The Chairman of the Board shall be a director and shall
preside at all meetings of the Board of Directors and shall,
subject to their direction and control, be their representative
and medium of communication, and shall perform such duties as may
from time-to-time be assigned to him by the Board of Directors.
The Chairman shall direct the long-term strategic planning
process of the corporation and shall also lend his expertise and
experience to the President, as may be requested from
time-to-time by the President. The Chairman shall be a member of
the Executive Committee.
Chief Executive Officer
The Chief Executive Officer shall be a director and shall
preside at all meetings of the stockholders, shall submit a
report of the operations of the corporation for the fiscal year
to the stockholders at their annual meeting and from time-to-time
shall report to the Board of Directors all matters within his
knowledge which the interests of the corporation may require be
brought to their notice. The Chief Executive Officer shall be
the chairman of the Executive Committee and an ex officio member
of all standing committees. The President and the Internal
Auditing Department will report directly to the Chief Executive
Officer.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 1st day of January
1995, by and among CINergy Corp., a Delaware corporation ("CINergy"), The
Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), CINergy
Services, Inc., a Delaware corporation ("CINergy Services"), CINergy
Investments, Inc., a Delaware corporation ("CINergy Investments"), PSI Energy,
Inc., an Indiana corporation ("PSI"), and William J. Grealis (the
"Executive"). CINergy, CG&E, CINergy Services, CINergy Investments and PSI
will sometimes be referred to hereinafter collectively as the "Corporation."
WHEREAS, the Corporation desires that the Executive become an employee
in accordance herewith;
WHEREAS, the Executive is willing to commit himself to the employ of the
Corporation and any successor thereto, on the terms and conditions herein set
forth and thus to forego opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Employment Agreement as
of the date first set forth above setting forth the terms and conditions for
the employment relationship of the Executive;
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
(a) The Corporation agrees to employ the Executive, and the
Executive agrees to be employed, in accordance with the terms and provisions
of this Employment Agreement for the period set forth below (the "Employment
Period").
(b) The Employment Period of the Executive as provided in Section
1(a) will commence on January 16, 1995 (the "Effective Date") and shall
continue until June 30, 2000; provided, however, on each anniversary date
(which for purposes of this Employment Agreement shall mean January 1 of each
year subsequent to the Effective Date) commencing with the fourth anniversary
date from the Effective Date, the Employment Period of this Employment
Agreement may automatically be extended for one (1) additional year if the
Corporation shall have given notice to the Executive of its intent to extend
this Employment Agreement prior to such anniversary date and the Executive
shall not have objected to such extension in writing within ten (10) business
days of receipt of such notice.
2. Duties and Powers of Executive.
(a) Position. The Executive shall serve the Corporation in such
responsible executive capacity or capacities as the Board of Directors of
CINergy or CINergy Services (the Board of Directors of CINergy or CINergy
Services, as the case may be, may be referred to sometimes hereinafter as the
"Board") or the Chief Executive Officer of CINergy may from time to time
determine and shall have such responsibilities, duties and authority as may be
assigned to him from time to time during the Employment Period by the Board or
the Chief Executive Officer of CINergy that are consistent with such
responsibilities, duties and authority. Upon the Effective Date of this
Employment Agreement, the Executive shall initially serve as President of
CINergy Investments and Vice President of Gas Operations for the Corporation,
but consistent with the foregoing provisions of this Section 2(a), may be
assigned to any other position or positions by either the Board or the Chief
Executive Officer of CINergy during the Employment Period.
(b) Place of Performance. In connection with the Executive's
employment, the Executive shall be based at the principal executive offices of
the Corporation, 139 East Fourth Street, Cincinnati, Ohio, and, except for
required business travel to an extent substantially consistent with the
present business travel obligations of executives of the Corporation who have
positions of authority comparable to that of the Executive, the Executive
shall not be required to relocate to a new principal place of business which
is more than thirty (30) miles from the current principal place of business of
the Corporation.
3. Compensation. The Executive shall receive the following
compensation for his services hereunder:
(a) Salary. The Executive's annual base salary (the "Annual Base
Salary"), payable not less often than semi-monthly, shall be at the annual
rate of not less than $288,000. The Board may, from time to time, direct such
upward adjustments in the Annual Base Salary as the Board deems to be
necessary or desirable, including without limitation adjustments in order to
reflect increases in the cost of living. Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation of the
Corporation under this Employment Agreement. The Annual Base Salary shall not
be reduced after any increase thereof except for across-the-board salary
reductions similarly affecting all management personnel of CINergy, CG&E,
CINergy Services and CINergy Investments.
(b) Profession Transition Allowance. In addition to the Annual
Base Salary, the Corporation shall pay to the Executive a profession
transition allowance (the "Profession Transition Allowance") in the amount of
$50,000, payable on January 16, 1995.
(c) Stock Options. The Executive shall be granted an option or
options under and pursuant to the terms of the CINergy Stock Option Plan (the
"Stock Option Plan"), together with any stock appreciation right(s) to which
he may be entitled with respect to the grant of such option or options
pursuant to the Stock Option Plan, to purchase one hundred thousand (100,000)
shares of CINergy Common Stock with a par value of $.01 per share (the "Common
Stock"). The option or options granted to the Executive hereunder and
pursuant to the Stock Option Plan (i) shall be granted to the Executive as
soon as administratively feasible after the Effective Date, but in any event
not later than April 1, 1995, (ii) shall vest at the rate of twenty percent
(20%) on each January 16 commencing on January 16, 1996, except that such
vesting schedule may be accelerated as provided with respect to the events
specified in the Stock Option Plan, (iii) shall have an exercise price equal
to one hundred percent (100%) of the "fair market value" (as such term is
defined in Section 9.1 of the Stock Option Plan) of the Common Stock and (iv)
shall expire ten (10) years from the date of the grant of such option(s). In
the event that the Stock Option Plan is amended to permit the grant of
dividend equivalency or similar rights with respect to any options which have
been or will be granted pursuant to the Stock Option Plan, then the Executive
shall be entitled to receive such dividend equivalency rights with respect to
all options which have been or may be granted to him pursuant to the Stock
Option Plan or otherwise.
(d) Retirement, Incentive, Welfare Benefit Plans and Other
Benefits. During the Employment Period and so long as the Executive is
employed by the Corporation, the Executive shall be eligible, and the
Corporation shall take such actions as may be necessary or required to cause
the Executive to become eligible, to participate in all short-term and long-
term incentive, stock option, restricted stock, performance unit, savings,
retirement and welfare plans, practices, policies and programs applicable
generally to employees and/or other senior executives of the Corporation,
including but not limited to CINergy's Annual Incentive Plan, CINergy's
Performance Shares Plan, CINergy's Executive Supplemental Life Insurance
Program, CINergy's Stock Option Plan, CG&E's Management Retirement Plan, PSI's
Pension Plan, as amended and restated effective January 1, 1989 (the "PSI
Pension Plan"), PSI's Supplemental Retirement Plan, as amended and restated
effective January 1, 1989 (the "PSI Supplemental Retirement Plan"), PSI's
Excess Benefit Plan, as amended and restated effective January 1, 1989 (the
"PSI Excess Benefit Plan"), or any successors thereto, except with respect to
any benefits under any plan, practice, policy or program to which the
Executive has waived his rights in writing. With respect to the PSI
Supplemental Retirement Plan, the Executive shall be designated on or before
February 1, 1995 in a resolution adopted by the Board of Directors of PSI as
an employee eligible to participate in said plan.
(e) Fringe Benefits and Perquisites. During the Employment Period
and so long as the Executive is employed by the Corporation, the Executive
shall be entitled to the following additional fringe benefits: (i) the
Corporation shall furnish to the Executive an automobile selected by the
Executive at the Effective Date and shall pay all of the related expenses for
gasoline, insurance, maintenance and repairs, (ii) the Corporation shall pay
the initiation fee and the annual dues, assessments and other membership
charges of the Executive for membership in a country club selected by the
Executive, (iii) the Corporation shall provide paid vacation for four (4)
weeks per year (or longer if permitted by the Corporation's policy) and (iv)
the Corporation shall furnish to the Executive annual financial planning and
tax preparation services. In addition, the Executive shall be entitled to
receive such other fringe benefits in accordance with the plans, practices,
programs and policies of the Corporation from time to time in effect,
commensurate with his position and at least comparable to those received by
other senior executives of the Corporation.
(f) Expenses. The Corporation agrees to reimburse the Executive
for all expenses, including those for travel and entertainment, properly
incurred by him in the performance of his duties hereunder in accordance with
the policies established from time to time by the Board.
(g) Relocation Benefits. The Executive shall be entitled to
reimbursement from the Corporation pursuant to the terms of the Corporation
Relocation Program in effect as of the day and year first written above, as
well as all actual expenses for temporary housing until such time as he has
moved into a new primary residence. The expenses described herein shall be
"grossed up" to provide for adverse tax consequences to the Executive.
(h) Reimbursement for Life Insurance Premiums. The Executive shall
be entitled to reimbursement from the Corporation on a monthly basis for the
cost of the payment of premiums by the Executive with respect to
a certain group universal life insurance policy with Connecticut Mutual Life
Insurance Co. for which the Executive is the insured.
4. Termination of Employment.
(a) Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
(b) By the Corporation for Cause. The Corporation may terminate
the Executive's employment during the Employment Period for Cause. For
purposes of this Employment Agreement, "Cause" shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Corporation (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 4(c)) after a written demand for
substantial performance is delivered to the Executive by the Board, which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties or (ii) the
conviction of the Executive for the commission of a felony, including the
entry of a guilty or nolo contendere plea, or any willful or grossly negligent
action or inaction by the Executive that has a materially adverse effect on
the Corporation. For purposes of this definition of "Cause," no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the best
interest of the Corporation. Notwithstanding the above definition of "Cause,"
the Corporation may terminate the Executive's employment during the Employment
Period for a reason other than Cause, but the obligations placed upon the
Corporation in Section 5 shall apply.
(c) By the Executive for Good Reason. The Executive may
terminate his employment during the Employment Period for Good Reason. For
purposes of this Employment Agreement, "Good Reason" shall mean:
(i) the reduction in the Executive's Annual Base Salary as
specified in Section 3(a) of this Employment Agreement, or any
other benefit or payment described in Section 3 of this Employment
Agreement, except for across-the-board salary reductions similarly
affecting all management personnel of CINergy, CG&E, CINergy
Services and CINergy Investments, and changes to the employee
benefits programs affecting all management personnel of those
corporations, provided that such changes (either individually or
in the aggregate) will not result in a material adverse change
with respect to the benefits which the Executive was entitled to
receive as of the Effective Date;
(ii) the material reduction without his consent of the
Executive's title, authority, duties or responsibilities from
those in effect immediately prior to the reduction;
(iii) any breach by the Corporation of any other material
provision (including but not limited to the place of performance
as specified in Section 2(b) hereof) of this Employment Agreement;
(iv) the Executive's disability due to physical or mental
illness or injury which precludes the Executive from performing
any job for which he is qualified and able to perform based upon
his education, training or experience; or
(v) any event which constitutes a "Change in Control."
(d) Notice of Termination. Any termination by the Corporation
for Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
Section 10(b) of this Employment Agreement. For purposes of this Employment
Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Employment Agreement
relied upon, (ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii) if the Date
of Termination (as defined in Section 4(e)) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty (30) days after the giving of such notice). The failure by the
Executive or the Corporation to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Corporation hereunder or
preclude the Executive or the Corporation from asserting such fact or
circumstance in enforcing the Executive's or the Corporation's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Corporation for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if
the Executive's employment is terminated by the Corporation other than for
Cause, the date on which the Corporation notifies the Executive of such
termination, and (iii) if the Executive's employment is terminated by reason
of death, the date of death.
(f) Change in Control. A "Change in Control" shall be deemed
to have occurred if any of the following events occur on or after the
Effective Date:
(i) any corporation, person, other entity or group
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of more than fifty percent (50%)
of the then outstanding voting stock of CINergy otherwise than
through a transaction arranged by, or consummated with, the prior
approval of the Board;
(ii) the shareholders of CINergy approve a definitive
agreement to merge or consolidate with or into another corporation
in a transaction in which neither CINergy nor any of its
subsidiaries or affiliates will be the surviving corporation, or
to sell or otherwise dispose of all or substantially all of
CINergy's assets to any person or group other than CINergy or any
of its subsidiaries or affiliates, other than a merger or a sale
which will result in the voting securities of CINergy outstanding
prior to the merger or sale continuing to represent at least fifty
percent (50%) of the combined voting power of the voting
securities of the corporation surviving the merger or purchasing
the assets; or
(iii) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board of Directors of CINergy (and any new director whose election
by the Board of Directors of CINergy or whose nomination for
election by CINergy's stockholders was approved by a vote of at
least two thirds (2/3) of the directors then still in office who
either were directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute a majority of CINergy's Board
of Directors.
(g) Person. "Person" shall have the meaning given in Section
3(a)(9) of the Securities Exchange Act of 1934, as modified and used in
Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the
Corporation or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of CINergy or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of CINergy in substantially the same
proportions as their ownership of stock of the Corporation.
5. Obligations of the Corporation upon Termination.
(a) Certain Terminations. During the Employment Period, if
the Corporation shall terminate the Executive's employment (other than in the
case of a termination for Cause), the Executive shall terminate his employment
for Good Reason or the Executive's employment shall terminate by reason of
death (termination in any such case referred to as "Termination"):
(i) The Corporation shall pay to the Executive a lump sum
amount, in cash, equal to the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) an amount equal to the CINergy Annual
Incentive Plan target percentage benefit for the fiscal year that
includes the Date of Termination multiplied by a fraction the
numerator of which shall be the number of days from the beginning
of such fiscal year to and including the Date of Termination and
the denominator of which shall be three hundred and sixty-five
(365), (3) an amount equal to his vested accrued benefit under the
CINergy Performance Shares Plan, and (4) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid. (The amounts
specified in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations.") The amounts specified
in this Section 5(a)(i) shall be paid within thirty (30) days
after the Date of Termination.
(ii) Prior to the occurrence of a Change in Control, and
in the event of Termination other than by reason of the
Executive's death, then (1) the Corporation shall pay to the
Executive a lump sum amount, in cash, equal to the present value
discounted using an interest rate equal to the prime rate
promulgated by CitiBank, N.A. and in effect as of the Date of
Termination (the "Prime Rate") of the Annual Base Salary, and the
CINergy Annual Incentive Plan target percentage payable through
the end of the Employment Period, each at the rate, and using the
same goals and factors, in effect at the time Notice of
Termination is given, and paid within thirty (30) days of such
Date of Termination; (2) the Corporation shall pay to the
Executive the present value (discounted at the Prime Rate) of all
benefits to which the Executive would have been entitled had he
remained in employment with the Corporation until the end of the
Employment Period, each, where applicable, at the rate of the
Annual Base Salary, and using the same goals and factors, in
effect at the time Notice of Termination is given, under the
CINergy Performance Shares Plan and the CINergy Executive
Supplemental Life Insurance Program minus the present value
(discounted at the Prime Rate) of the benefits to which he is
actually entitled under the above-mentioned plans and programs;
(3) the Corporation shall pay the value of all deferred
compensation amounts and all executive life insurance benefits
whether or not then vested or payable; and (4) the Corporation
shall continue, until the end of the Employment Period, medical
and welfare benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided if
the Executive's employment had not been terminated (excluding
benefits to which the Executive has waived his rights in writing),
such benefits to be in accordance with the most favorable medical
and welfare benefit plans, practices, programs or policies (the
"M&W Plans") of the Corporation as in effect and applicable
generally to other senior executives of the Corporation and their
families during the ninety (90) day period immediately preceding
the Date of Termination; provided, however, that if the Executive
becomes employed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided
plan, the benefits under the M&W Plans shall be secondary to those
provided under such other plan during such applicable period of
eligibility.
(iii) From and after the occurrence of a Change in
Control and in the event of Termination other than by reason of
the Executive's death, then in lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination
and in lieu of any other benefits payable pursuant to Section
5(a)(ii) hereof:
(1) The Corporation shall pay to the Executive a lump sum
severance payment, in cash, equal to the greater of:
(A) the present value of all amounts and benefits that
would have been due under Section 5(a)(ii) hereof, excluding Section
5(a)(ii)(4), and
(B) two (2) times the sum of (x) the higher of the
Executive's Annual Base Salary in effect immediately prior to the occurrence
of the event or circumstance upon which the Notice of Termination is based or
in effect immediately prior to the Change in Control, and (y) the higher of
the amount paid to the Executive pursuant to all incentive compensation or
bonus plans or programs maintained by the Corporation, in the year preceding
that in which the Date of Termination occurs or in the year preceding that in
which the Change in Control occurs; and
(2) For a twenty-four (24) month period after the Date of
Termination, the Corporation shall arrange to provide the Executive with life,
disability, accident and health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control which reduction constitutes Good Reason),
except for any benefits that were waived by the Executive in writing.
Benefits otherwise receivable by the Executive pursuant to this Section
5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually
received by or made available to the Executive without cost during the twenty-
four (24) month period following the Executive's termination of employment
(and any such benefits actually received by the Executive shall be reported to
the Corporation by the Executive).
The Executive's employment shall be deemed to have been terminated
following a Change in Control of CINergy without Cause or by the Executive for
Good Reason if, in addition to all other applicable Terminations, the
Executive's employment is terminated prior to a Change in Control without
Cause at the direction of a Person who has entered into an agreement with
CINergy or any of its subsidiaries or affiliates, the consummation of which
will constitute a Change in Control or if the Executive terminates his
employment for Good Reason prior to a Change in Control if the circumstance or
event which constitutes Good Reason occurs at the direction of such Person.
(b) Termination by the Corporation for Cause or by the
Executive Other than for Good Reason. Subject to the provisions of Section 7
of this Employment Agreement, if the Executive's employment shall be
terminated for Cause during the Employment Period, or if the Executive
terminates employment during the Employment Period other than a termination
for Good Reason, the Corporation shall have no further obligations to the
Executive under this Employment Agreement other than the obligation to pay to
the Executive the Accrued Obligations and the amounts determined under Section
5(c), plus any other earned but unpaid compensation, in each case to the
extent not theretofore paid.
(c) Retirement Benefits on Termination. The
Corporation acknowledges that, as a consequence of entering into this
Employment Agreement, the Executive will forfeit material and substantial
pension benefits from his current employer. Accordingly, in addition to all
other payments to be made under the terms of this Employment Agreement and
notwithstanding any other provisions to the contrary in this Employment
Agreement, the Executive shall be entitled to an additional amount payable in
five (5) annual installments (the first installment commencing no later than
thirty (30) days after the Event of Termination (as defined hereinafter) and
each subsequent annual installment on the anniversary of the Event of
Termination and the amount of each such installment shall be equal to one
fifth (1/5) of the applicable amount determined pursuant to clause (i), (ii)
or (iii) of this Section 5(c)) upon his termination of employment, including a
termination resulting from death, Good Reason or with or without Cause, a
voluntary termination of his employment on or after attaining the age of
fifty-five (55), or failure to renew or extend this Employment Agreement as
provided in Section 1(b) (hereinafter referred to as an "Event of Termination"
for purposes of this Section 5(c)), but not including a voluntary termination
of his employment prior to attaining the age of fifty-five (55), as follows:
(i) prior to the date on which the Executive
attains the age of fifty-five (55), an amount equal to the
difference between (1) the actuarial equivalent of a straight life
annuity in the amount of two hundred and eighty-three thousand
dollars ($283,000) per annum at age sixty-two (62) discounted at
seven and one half percent (7 1/2%) to age fifty-five (55), and
(2) the actual amount of the sum of the actuarial equivalent of a
straight life annuity per annum earned under the Corporation's
Pension, Supplemental Retirement and Excess Benefit Plans in
effect on the date of the Event of Termination;
(ii) from and after the date on which the
Executive attains the age of fifty-five (55), but prior to the
date on which the Executive attains the age of sixty-two (62), the
greater of:
(1) an amount equal to the difference between (A) the actuarial
equivalent of a straight life annuity in the amount of two hundred and eighty-
three thousand dollars ($283,000) per annum at age sixty-two (62) discounted
at seven and one half percent (7 1/2%) to the Executive's age on the date of
the Event of Termination and (B) the actual amount of the sum of the actuarial
equivalent of a straight life annuity per annum earned under the Corporation's
Pension, Supplemental Retirement and Excess Benefit Plans in effect on the
date of the Event of Termination;
(2) an amount equal to the difference between (A) the sum of the
actuarial equivalent of a straight life annuity per annum earned under the
Corporation's Pension, Supplemental Retirement and Excess Benefit Plans as if
the Executive had been credited with thirty (30) years of service under such
plans in effect on the date of the Event of Termination and (B) the actual
amount of the sum of the actuarial equivalent of a straight life annuity per
annum earned under the Corporation's Pension, Supplemental Retirement and
Excess Benefit Plans in effect on the date of the Event of Termination; or
(3) the actual amount of the sum of the actuarial equivalent of a
straight life annuity per annum earned under the Corporation's Pension,
Supplemental Retirement and Excess Benefit Plans in effect on the date of the
Event of Termination;
(iii) from and after the date on which the Executive
attains the age of sixty- two (62), the greater of:
(1) an amount equal to the difference between (A) the actuarial
equivalent of a straight life annuity in the amount of two hundred and eighty-
three thousand dollars ($283,000) per annum at age sixty-two (62) and (B) the
actual amount of the sum of the actuarial equivalent of a straight life
annuity per annum earned under the Corporation's Pension, Supplemental
Retirement and Excess Benefit Plans in effect on the date of the Event of
Termination;
(2) an amount equal to the difference between (A) the sum of the
actuarial equivalent of a straight life annuity per annum earned under the
Corporation's Pension, Supplemental Retirement and Excess Benefit Plans as if
the Executive had been credited with thirty (30) years of service under such
plans in effect on the date of the Event of Termination and (B) the actual
amount of the sum of the actuarial equivalent of a straight life annuity per
annum earned under the Corporation's Pension, Supplemental Retirement and
Excess Benefit Plans in effect on the date of the Event of Termination; or
(3) the actual amount of the sum of the actuarial equivalent of a
straight life annuity per annum earned under the Corporation's Pension,
Supplemental Retirement and Excess Benefit Plans.
For purposes of this Section 5(c), the actuarial equivalent shall mean the
actuarial equivalent as defined in the Corporation's Pension Plan in which an
Executive is a participant on the date of the Event of Termination.
Furthermore, in connection with the computation of the amount(s) to be paid by
the Corporation to the Executive pursuant to this Section 5(c), the
Corporation shall be entitled to a credit or offset in an amount equal to the
aggregate lump sum balance in which the Executive is vested as of the
Effective Date under the terms of the Akin, Gump, Strauss, Hauer & Feld Target
Benefit Plan (or any rollover thereof) and the Akin, Gump, Strauss, Hauer &
Feld Defined Contribution Plan (or any rollover thereof); provided, however,
that the amount which is credited or offset pursuant to the preceding clause
against payments to be made to the Executive pursuant to this Section 5(c)
shall be credited or offset on a pro-rata or proportionate basis over the
number of years during which such payments are to be made to the Executive.
(d) The provisions of Section 5(c) shall survive the
expiration or termination of this Employment Agreement for any reason.
(e) In the event that the Executive becomes entitled
to the payments and benefits described in this Section 5 (the "Severance
Benefits"), if any of the Severance Benefits will be subject to any excise tax
(the "Excise Tax") imposed under Section 4999 of the Code, the Corporation
shall pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any Excise
Tax on the Severance Benefits and any federal, state and local income and
employment tax and Excise Tax upon the payment provided for by this Section 5,
shall be equal to the Severance Benefits. For purposes of determining whether
any of the Severance Benefits will be subject to the Excise Tax and the amount
of such Excise Tax, (i) any other payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Employment Agreement or any other plan, arrangement or agreement with the
Corporation, any Person whose actions result in a change in control or any
Person affiliated with the Corporation or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)(1) of
the Code shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Corporation's independent auditors and
reasonably acceptable to the Executive such other payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services actually rendered,
within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base
Amount as defined in Section 280G(b)(3) of the Code allocable to such
reasonable compensation, or are otherwise not subject to the Excise Tax, (ii)
the amount of the Severance Benefits that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (a) the total amount of the
Severance Benefits or (b) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i), above),
and (iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Corporation's independent auditors in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes. In the event that
the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time of termination of the Executive's
employment, the Executive shall repay to the Corporation, at the time that the
amount of such reduction in Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and local
income and employment tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise
Tax and/or a federal, state or local income or employment tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination
of the Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Corporation shall make an additional Gross-Up Payment in respect
of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Corporation shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Severance Benefits.
(f) The Corporation also shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to the Severance Benefits (including
all such fees and expenses, if any, incurred in disputing any such termination
or in seeking in good faith to obtain or enforce any benefit or right provided
by this Employment Agreement). Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the
Corporation reasonably may require.
(6) Non-exclusivity of Rights. Nothing in this Employment
Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, plan, program, policy or practice provided by
the Corporation and for which the Executive may qualify (except with respect
to any benefit to which the Executive has waived his rights in writing), nor
shall anything herein limit or otherwise affect such rights as the Executive
may have under any other contract or agreement entered into after the date
hereof with the Corporation. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any benefit, plan, program,
policy or practice of, or any contract or agreement entered into after the
date hereof with, the Corporation at or subsequent to the Date of Termination,
shall be payable in accordance with such benefit, plan, program, policy or
practice, or contract or agreement, except as explicitly modified by this
Employment Agreement.
(7) Full Settlement; Mitigation. Except as provided in
Sections 5(a)(ii)(4) and 5(a)(iii)(2) hereof, the Corporation's obligation to
make the payments provided for in this Employment Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Corporation may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts (including amounts for damages for breach)
payable to the Executive under any of the provisions of this Employment
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. If the Executive finally prevails with respect to
any dispute between the Corporation, the Executive or others as to the
interpretation, terms, validity or enforceability of (including any dispute
about the amount of any payment pursuant to) this Employment Agreement, the
Corporation agrees to pay all legal fees and expenses which the Executive may
reasonably incur as a result of any such dispute.
8. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of CINergy, all of its subsidiary companies
and affiliates, as well as all successors and assigns thereof (the "CINergy
Companies"), all secret, confidential information, knowledge or data relating
to the CINergy Companies, and their respective businesses, that shall have
been obtained by the Executive during the Executive's employment by the
Corporation and that shall not have been or now or hereafter have become
public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Employment Agreement). During the
Employment Period and thereafter, the Executive shall not, without the prior
written consent of the Corporation or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Corporation and those designated by it. The
Executive understands that during the Employment Period, the CINergy Companies
may be required from time to time to make public disclosure of the terms or
existence of the Executive's employment relationship in order to comply with
various laws and legal requirements.
9. Successors.
(a) This Employment Agreement is personal to the
Executive and, without the prior written consent of the Corporation, shall not
be assignable by the Executive otherwise than by will or the laws of descent
and distribution. This Employment Agreement shall inure to the benefit of and
be enforceable by the Executive's legal representatives.
(b) This Employment Agreement shall inure to the
benefit of and be binding upon the Corporation, and its successors and
assigns.
(c) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Corporation
to assume expressly and agree to perform this Employment Agreement in the same
manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place.
10. Miscellaneous.
(a) This Employment Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, without reference
to principles of conflict of laws. The captions of this Employment Agreement
are not part of the provisions hereof and shall have no force or effect. This
Employment Agreement may not be amended, modified, repealed, waived, extended
or discharged except by an agreement in writing signed by the party against
whom enforcement of such amendment, modification, repeal, waiver, extension or
discharge is sought. No person, other than pursuant to a resolution of the
Board or a committee thereof, shall have authority on behalf of the
Corporation to agree to amend, modify, repeal, waive, extend or discharge any
provision of this Employment Agreement or anything in reference thereto.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
William J. Grealis, Esq.
CINergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45201
with a copy to:
John W. Griffin, Esq.
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
If to the Corporation:
CINergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45201
Attention: Vice President, General Counsel and Corporate
Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. All notices and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Employment Agreement shall not affect the validity or
enforceability of any other provision of this Employment Agreement.
(d) The Corporation may withhold from any amounts
payable under this Employment Agreement such federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Corporation's failure to
insist upon strict compliance with any provision of this Employment Agreement
or the failure to assert any right the Executive or the Corporation may have
hereunder, including without limitation the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c) of this
Employment Agreement, or the right of the Corporation to terminate the
Executive's employment for Cause pursuant to Section 4(b) of this Employment
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Employment Agreement.
(f) This instrument contains the entire agreement of
the Executive and the Corporation with respect to the subject matter hereof;
and all promises, representations, understandings, arrangements and prior
agreements are merged herein and superseded hereby.
(g) This Employment Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(h) The Corporation and the Executive agree that
CINergy shall be authorized to act for the Corporation with respect to all
aspects pertaining to the administration and interpretation of this Employment
Agreement.
IN WITNESS WHEREOF, the Executive and the Corporation have caused
this Employment Agreement to be executed as of the day and year first above
written.
CINERGY CORP.
By _____________________________
Name:
Title:
THE CINCINNATI GAS & ELECTRIC COMPANY
By _____________________________
Name:
Title:
CINERGY SERVICES, INC.
By _____________________________
Name:
Title:
CINERGY INVESTMENTS, INC.
By _____________________________
Name:
Title:
PSI ENERGY, INC.
By _____________________________
Name:
Title:
EXECUTIVE
_____________________________
William J. Grealis
Adopted by the Board of Directors
of CINergy Corp. on October 18, 1994
CINERGY CORP.
ANNUAL INCENTIVE PLAN
INTRODUCTION
On October 18, 1994, CINergy Corp. adopted a short-term incentive
compensation plan known as the "CINergy Corp. Annual Incentive Plan" (the
"Plan") for the exclusive benefit of eligible employees of CINergy Corp. and
its subsidiaries (the Employers"). Upon the "Effective Time of the Mergers"
as defined in this document, CINergy Corp. will be the holding company for PSI
Energy, Inc. and The Cincinnati Gas & Electric Company. The Plan allows the
Employers to implement annual incentive compensation programs in which certain
employees are granted awards payable in cash based upon the extent to which
certain predetermined goals are attained during the applicable calendar year.
The Plan, effective as of the Effective Time of the Mergers, is set
forth in its entirety.
ARTICLE 1
DEFINITIONS
Whenever used in this document, the following terms shall have the
respective meanings set forth below, unless a different meaning is plainly
required by the context:
1.1 "Actual Incentive" means, with respect to each Participant, the
Minimum Incentive which when adjusted in the manner set forth in
Article 6 (Annual Performance Award), constitutes the percentage
applied to a Participant's Earnings as of the applicable date as
determined by an Employer's Board of Directors (or with respect to
each Executive Officer, the AIP Committee (as defined in Article
20 (Executive Officers)) which is the actual amount of incentive
compensation opportunity available for a particular Performance
Period. However, a Participant's Actual Incentive may not exceed
his Maximum Incentive.
1.2 "Annual Performance Award" means, with respect to each
Participant, the short-term incentive compensation award to which
a Participant becomes entitled upon the attainment of certain
Corporate Target Goals and Individual Goals for a particular
Performance Period, and which is calculated in the manner set
forth in Article 7 (Annual Performance Award).
1.3 "Annual Program" means, with respect to each Employer, the annual
short term incentive compensation program adopted by that
Employer's Board of Directors to implement the Plan as set forth
in Article 4 (Employer's Election to Participate in Plan).
1.4 "Beneficiary" means, with respect to each Participant, the
recipient designated by the Participant who is, upon the
Participant's death, entitled in accordance with the Plan's terms
to receive the benefits to be paid with respect to the
Participant.
1.5 "Chief Executive Officer" means the Employee elected by an
Employer's Board of Directors to serve as the chief executive
officer of that Employer.
1.6 "CINergy" means CINergy Corp., a Delaware corporation, and any
corporation which shall succeed to its business as described in
Article 19 (Continuance by a Successor).
1.7 "CINergy's Board of Directors" means the duly constituted board of
directors of CINergy on the applicable date.
1.8 "CINergy's Committee" means the duly designated Compensation
Committee of CINergy's Board of Directors.
1.9 "Corporate Target Goal" means an objective performance criterion
pertaining to an Employer's performance, efficiency, or
profitability including, but without limitation, stock price,
market share, sales, earnings per share, costs, net operating
income, cash flow, fuel cost per million BTU, cost per
kilowatt-hour, retained earnings, or return on equity, used in
determining whether a Participant is entitled to receive an Annual
Performance Award at the end of a Performance Period. A Corporate
Target Goal is considered objective if a third party having
knowledge of the relevant facts could determine whether the goal
is met.
1.10 "Covered Employee" shall have the meaning set forth in Code
Paragraph 162(m)(3).
1.11 "Earnings" means (a) with respect to an Exempt Employee, the
amount of the Employee's total annual base salary (based on the
Employee's monthly base salary received as remuneration for
services performed for the Performance Period, exclusive of any
allowances, premiums, bonuses, overtime, or other forms or types
of compensation) for the Performance Period; provided, however,
that with respect to each Executive Officer, Earnings means the
Executive Officer's monthly base salary (exclusive of any
allowances, premiums, bonuses, overtime, or other forms or types
of compensation) determined as of the first day of the applicable
Performance Period multiplied by 12, and (b) with respect to
either a Non-Exempt Employee or a Union Employee, the amount of
the Employee's total annual base wage (based on the Employee's
hourly base rate of pay received for services performed for the
Performance Period, exclusive of any allowances, premiums,
bonuses, overtime, or other forms or types of compensation) for
the Performance Period.
1.12 "Effective Time of the Mergers" means "Effective Time" as defined
in the Amended and Restated Agreement and Plan of Reorganization
by and among The Cincinnati Gas & Electric Company, PSI Resources,
Inc., PSI Energy, Inc., CINergy, and CINergy Sub, Inc., dated as
of December 11, 1992, as subsequently amended and restated.
1.13 "Employee" means any person who, at any time on or after the
Effective Time of the Mergers, is (a) in the employ of an
Employer, (b) in the employ of an Employer, but whose time is
allocated 100 percent to another Employer, or (c) in the employ of
an Employer, but who is assigned full-time to another Employer.
1.14 "Employer" means CINergy and all of its directly or indirectly
held majority or greater-owned subsidiaries.
1.15 "Employer's Board of Directors" means the duly constituted board
of directors of an Employer on the applicable date.
1.16 "Executive Officer" means an officer of CINergy who, as of the
beginning of a Performance Period is an "executive officer" within
the meaning of Rule 3b-7 promulgated under the 1934 Act.
1.17 "Exempt Employee" means an Employee who is regularly employed by
his Employer for 30 or more hours per week, whose pay is
customarily computed on a monthly basis, and whose employment is
not subject to FLSA overtime and record keeping provisions.
1.18 "FLSA" means the Fair Labor Standards Act of 1938, as amended from
time to time, and interpretive rulings and regulations.
1.19 "Incentive Factor" means the numerical variable assigned by an
Employer's Board of Directors which corresponds to the extent to
which a Corporate Target Goal or an Individual Goal has been met
for a particular Performance Period.
1.20 "Individual Goal" means an objective or subjective performance
criterion pertaining to individual effort as to enhancement of
either individual performance or achievement or attainment of
Corporate Target Goals or other Individual Goals used in
determining whether a Participant is entitled to receive an Annual
Performance Award at the end of a Performance Period. An
Individual Goal is considered objective if a third party having
knowledge of the relevant facts could determine whether the goal
is met; otherwise an Individual Goal is considered subjective.
1.21 "Maximum Incentive" means, with respect to each Participant, the
percentage applied to a Participant's Earnings as of the
applicable date determined by an Employer's Board of Directors to
be the appropriate maximum incentive compensation opportunity for
a particular Performance Period.
1.22 "Minimum Incentive" means, with respect to each Participant, the
percentage applied to a Participant's Earnings as of the
applicable date determined by an Employer's Board of Directors to
be the appropriate minimum incentive compensation opportunity for
a particular Performance Period.
1.23 "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time, and interpretive rulings and regulations.
1.24 "Non-Exempt Employee" means an Employee who is regularly employed
by his Employer for 30 or more hours per week, whose pay is
customarily computed on an hourly, weekly, or bi-weekly basis,
whose employment is subject to FLSA overtime and record keeping
provisions, and who is not assigned to an employment position
covered by a collective bargaining agreement to which his Employer
is a party.
1.25 "Participant" means any Exempt Employee, Non-Exempt Employee, or
Union Employee selected by an Employer's Board of Directors to
participate in the Employer's Annual Program pursuant to Article 6
(Eligibility).
1.26 "Performance Period" means the period of time over which
performance with respect to a Corporate Target Goal or an
Individual Goal is measured. Each Performance Period shall
consist of a one year period beginning on January 1 of each
calendar year and ending on December 31 of the same calendar year.
The term "Performance Period" shall include any performance period
in effect under the "PSI Resources, Inc. Annual Incentive Plan,"
as amended from time to time, and the "PSI Energy, Inc. Annual
Incentive Plan," as amended from time to time, as of the Effective
Time of the Mergers.
1.27 "Plan" means the short-term incentive compensation plan known as
the "CINergy Corp. Annual Incentive Plan," as amended from time to
time. Effective as of the Effective Time of the Mergers, this
document sets forth the Plan.
1.28 "Total Disability" means, with respect to any Participant, a
mental or physical condition as result of an illness or injury
which, in the judgment of an Employer's Board of Directors, based
upon medical reports and other evidence satisfactory to the
Employer's Board of Directors prevents the Participant from
engaging in any gainful occupation for which the Participant is
reasonably qualified by reason of education, training, or
experience.
1.29 "Union Employee" means an Employee who is regularly employed by
his Employer for 30 or more hours per week, whose pay is
customarily computed on an hourly, weekly, or bi-weekly basis,
whose employment is subject to FLSA overtime and record keeping
provisions, and who is assigned to an employment position covered
by a collective bargaining agreement to which his Employer is a
party.
The uses of singular and masculine words are for practical purposes only
and shall be deemed to include the plural and feminine, respectively, unless
the context plainly indicates a distinction. Certain other definitions, as
required, appear in the following Articles of the Plan.
ARTICLE 2
EFFECTIVE DATE OF PLAN
The Plan's provisions, as set forth in this document, are effective as
of the Effective Time of the Mergers.
ARTICLE 3
PURPOSE OF PLAN
The Plan's purposes are to benefit Employers, shareholders, and
ratepayers by the accomplishment of specific challenging and demanding
corporate or personalized goals, enhancement of teamwork, motivation, high
achievement, and the attraction and retention of qualified Employees. Upon
the accomplishment of these corporate or personalized goals, the Plan provides
a reward for performance and maximum effort by Employees who contribute to an
Employer's success. The Plan is an annual incentive compensation plan in
which an Exempt Employee, a Non-Exempt Employee, or a Union Employee who is
selected to participate in an Employer's Annual Program under the Plan is
granted an award payable in cash, but only to the extent that certain
predetermined goals are attained during the applicable calendar year used to
measure performance.
ARTICLE 4
EMPLOYER'S ELECTION TO PARTICIPATE IN PLAN
Each Employer, by action of the Employer's Board of Directors, may elect
to participate in the Plan by adopting an Annual Program. Each Employer's
Annual Program shall consist of Corporate Target Goals, Individual Goals,
Actual Incentives, Incentive Factors, Maximum Incentives, and Minimum
Incentives which will further the Employer's business objectives consistent
with the Plan's purposes. An Employer's Annual Program may be based solely on
Corporate Target Goals, Individual Goals, or a combination of both Corporate
Target Goals and Individual Goals. The determinations made by an Employer's
Board of Directors under this Article shall be subject to approval by
CINergy's Committee before any Annual Performance Awards are made.
ARTICLE 5
EFFECT OF PLAN ON OTHER PLANS
At the Effective Time of the Mergers, the short-term incentive
compensation plans for PSI Energy, Inc. and PSI Resources, Inc. known
respectively as the "PSI Energy, Inc. Annual Incentive Plan" adopted effective
January 1, 1987, as amended from time to time, and the "PSI Resources, Inc.
Annual Incentive Plan" adopted effective as of January 1, 1991, shall be
merged into the Plan and entitlement to any awards shall be administered in
accordance with the Plan. In addition, employees of The Cincinnati Gas &
Electric Company as of the Effective Time of the Mergers shall be eligible to
participate on a prorated basis in the Performance Period in effect at the
Effective Time of the Mergers; provided, however, that any such employee
satisfies the eligibility requirements of Article 6 (Eligibility).
ARTICLE 6
ELIGIBILITY
(a) The group of Employees eligible to participate in the Plan shall
consist of Exempt Employees, Non-Exempt Employees, and Union Employees who
have the potential to contribute to an Employer's future success.
(b) From time to time, the Chief Executive Officer of an Employer may
recommend to the Employer's Board of Directors that any eligible Employee
(other than an Executive Officer) participate in an Annual Program under the
Plan. After reviewing the recommendations, and after considering the duties
of each recommended Employee, his present and potential contribution to the
Employer's success, his other compensation provided by his Employer, and any
other factors as it deems relevant, the Employer's Board of Directors shall
select those Employees who will participate in its Annual Program under the
Plan. Notwithstanding the foregoing, the AIP Committee (as defined in Article
20 (Executive Officers)), shall select those Executive Officers who will
participate in the Plan. When an eligible Employee becomes a Participant in
an Employer's Annual Program under the Plan at other than the beginning of a
Performance Period, the amount of any Annual Performance Award to which he may
become entitled shall be adjusted to reflect his actual time of service as a
Participant during the Performance Period.
(c) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by CINergy's Committee before any
Annual Performance Awards are made.
ARTICLE 7
ANNUAL PERFORMANCE AWARD
The Annual Performance Award, with respect to each Participant, for each
Performance Period shall be calculated as follows:
(a) The appropriate weight for achieving a particular Corporate Target
Goal shall be determined by multiplying the Incentive Factor attributable to
the extent to which the particular Corporate Target Goal has been met for the
Performance Period times the weight (expressed as a percentage) assigned to
that Corporate Target Goal. If there are two or more Corporate Target Goals
for a particular Performance Period, then the weight for achieving each
Corporate Target Goal shall be calculated in the manner set forth in the
immediately preceding sentence;
(b) The appropriate weight for achieving a particular Individual Goal
shall be determined by multiplying the Incentive Factor attributable to the
extent to which the particular Individual Goal has been met for the
Performance Period times the weight (expressed as a percentage) assigned to
that Individual Goal. If there are two or more Individual Goals for a
particular Performance Period, then the weight for achieving each Individual
Goal shall be calculated in the manner set forth in the immediately preceding
sentence;
(c) After the weight for achieving each Corporate Target Goal and
Individual Goal for the particular Performance Period has been calculated in
the manner set forth in Paragraphs (a) and (b), the resulting percentages
shall be added and the total sum shall be multiplied by the Participant's
Minimum Incentive in order to determine the Participant's Actual Incentive;
and
(d) The Participant's Actual Incentive shall then be multiplied by the
Participant's Earnings for the applicable Performance Period. The resulting
number, expressed in terms of the nearest whole dollar, is the Participant's
Annual Performance Award.
Notwithstanding anything in the Plan to the contrary, an Employer's
Board of Directors may enhance a Participant's Annual Performance Award above
the maximum level otherwise compensable in recognition of exemplary
performance or achievement as to subjective Individual Goals.
ARTICLE 8
CORPORATE TARGET GOALS AND INDIVIDUAL GOALS
(a) The Corporate Target Goal for each Employer's Performance Period,
which Corporate Target Goal shall be applicable to all Participants, shall be
determined by the Employer's Board of Directors. When there are more than one
Corporate Target Goal for a particular Performance Period, the Employer's
Board of Directors may, but is not required to, assign each goal equal weight
and the Employer's Board of Directors may, but is not required to, condition
the entitlement to an Annual Performance Award upon the attainment of one or
more Corporate Target Goals.
(b) The Employer's Board of Directors may, but is not required to,
establish one or more Individual Goals for a Participant for each Performance
Period. When there are more than one Individual Goal for a Participant for a
particular Performance Period, the Employer's Board of Directors may, but is
not required to, assign each goal equal weight.
(c) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by CINergy's Committee before any
Annual Performance Awards are made.
ARTICLE 9
DISTRIBUTION
After the determination and approval have been made under Article 7
(Annual Performance Award) as to the amount of Annual Performance Award to
which a Participant is entitled at the end of an Employer's Performance
Period, the resulting Annual Performance Award shall be paid to the
Participant in cash in one lump sum on the first business day of March
following the end of the Performance Period for which the Annual Performance
Award was made.
ARTICLE 10
CONDITIONS TO ANNUAL PERFORMANCE AWARDS
10.1 Government Regulations
The Plan shall be subject to all applicable laws, rules, and regulations
and to all approvals by any governmental agencies as may be required and is
designed to comply with Code Subsection 162(m).
10.2 Continued Employment
(a) A Participant whose employment with his Employer terminates by
reason of a quit, resignation, or discharge prior to the end of the particular
Performance Period shall be automatically divested of any interest in or to
any Annual Performance Award for that Performance Period. If a Participant
who has quit, resigned, or who has been discharged is re-employed by his
Employer prior to the end of the Performance Period in which the quit,
resignation, or discharge occurred, the Employee shall be reinstated as a
Participant for that Performance Period, but any Annual Performance Award
shall be adjusted to reflect the actual time of service of the re-employed
Participant during the Performance Period.
(b) A Participant whose employment with his Employer terminates by
reason of retirement or death prior to the end of the particular Performance
Period shall not necessarily be totally divested of his interest in or to any
Annual Performance Award for that Performance Period. Instead, a
determination shall be made by the Employer's Board of Directors with respect
to the retired or deceased Participant as to the amount of the Annual
Performance Award to which he would have been entitled had he been a
Participant on the last day of the applicable Performance Period as though the
retirement or death had not occurred. However, any determination shall be
adjusted to reflect the actual time of service of the retired or deceased
Participant during the Performance Period prior to the effective date of his
retirement or the date of his death.
(c) A Participant who during an applicable Performance Period has
incurred Total Disability shall not be totally divested of his interest in or
to any Annual Performance Award for that Performance Period. Instead, a
determination shall be made by the Employer's Board of Directors with respect
to the totally disabled Participant as to the amount of the Annual Performance
Award to which he would have been entitled had he not been totally disabled
during the applicable Performance Period. However, any determination shall be
adjusted to reflect the actual time of service of the totally disabled
Participant during the Performance Period.
(d) The determinations made by an Employer's Board of Directors under
this Article shall be subject to approval by CINergy's Committee before any
Annual Performance Award are made.
ARTICLE 11
BENEFICIARY
If a Participant dies prior to the date on which an Annual Performance
Award, or any installment thereof, is distributed, the Annual Performance
Award shall be paid to the highest priority person or persons surviving at the
time distribution is actually paid or commences. Distribution priorities are
as follows:
(a) The Participant's Beneficiary designated under the Participant's
last will and testament;
(b) The Participant's Beneficiary designated under his Employer's group
term life insurance plan;
(c) The Participant's surviving spouse;
(d) The Participant's surviving children, including adopted children;
(e) The Participant's surviving parents;
(f) The Participant's surviving brothers and sisters; or
(g) The Participant's estate.
Distribution of the Annual Performance Award to a Beneficiary shall be made on
the same date or dates as the Annual Performance Award would have been made to
the Participant as if then living.
ARTICLE 12
NON-ALIENATION OF BENEFITS
The Plan shall not in any manner be liable for, or subject to, the debts
or liabilities of any Participant or Beneficiary. No payee may assign any
payment due him under the Plan. No benefits at any time payable under the
Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, attachment, garnishment, levy, execution, or
other legal or equitable process, or encumbrance of any kind.
ARTICLE 13
FUNDING POLICY AND METHOD
The Plan shall be totally unfunded so that CINergy or any Employer is
under merely a contractual duty to make payments when due under the Plan. No
benefit or promise to pay shall be secured in any way.
ARTICLE 14
CHANGE IN CONTROL
Notwithstanding anything in the Plan to the contrary, if a Change in
Control of CINergy occurs, each Corporate Target Goal and Individual Goal of
each Employer's Annual Program shall be deemed to have been fully satisfied at
the Maximum Incentive level and each Participant shall be entitled to receive
an Incentive Award in the same manner as though the Maximum Incentive level
had been obtained for the full Performance Period.
A Change in Control of CINergy shall occur if (a) any "person" or
"group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the
1934 Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act) of more than 50 percent of the then outstanding voting stock of
CINergy, otherwise than through a transaction arranged by, or consummated with
the prior approval of, CINergy's Board of Directors; (b) CINergy's
shareholders approve a definitive agreement to merge or consolidate CINergy
with or into another corporation in a transaction in which neither CINergy nor
any of its subsidiaries or affiliates will be the surviving corporation, or to
sell or otherwise dispose of all or substantially all of CINergy's assets to
any person or group other than CINergy or any of its subsidiaries or
affiliates, other than a merger or a sale which will result in the voting
securities of CINergy outstanding prior to the merger or sale continuing to
represent at least 50 percent of the combined voting power of the voting
securities of the corporation surviving the merger or purchasing the assets;
or (c) during any period of two consecutive years, individuals who at the
beginning of that period constitute CINergy's Board of Directors (and any new
director whose election by the Board of Directors or whose nomination for
election by CINergy's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of that period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
CINergy's Board of Directors.
Notwithstanding the provisions of Article 18 (Amendment and
Termination), the provisions of this Article may not be amended by an
amendment to the Plan effected within three years following a Change in
Control.
ARTICLE 15
ADMINISTRATION
(a) The Plan shall be administered by CINergy's Committee which shall
consist of members of CINergy's Board of Directors who are disinterested
persons under Rule 16b-3 promulgated under the 1934 Act and successor rules
and, with respect to Covered Employees, outside directors under Code
Subsection 162(m). CINergy's Committee is authorized to establish all rules
and regulations and to appoint any agents as it deems appropriate for the
Plan's proper administration and to make any determinations under and to take
any steps in connection with the Plan for the benefits provided under the Plan
as it deems necessary or advisable. CINergy's Committee may require an
Employer to enter into agreements with each Participant as it deems
appropriate to reflect each Participant's interests under the Plan.
(b) CINergy's Committee shall have exclusive discretionary authority
and right to approve eligibility for participation in the Plan and to
interpret, construe, and regulate the Plan. The decision of CINergy's
Committee with respect to any questions arising as to the Employees selected
to participate in the Plan, the amount, and time of payment of benefits under
the Plan or any other matters concerning the Plan, including its
interpretation, construction, or regulation, shall be final, conclusive and
binding on the Employers, the Employers' Boards of Directors, Employees,
Participants, and Beneficiaries.
ARTICLE 16
MISCELLANEOUS
16.1 No Enlargement of Employee Benefits
This Plan is strictly a voluntary undertaking on the part of the
Employers and shall not be deemed to constitute a contract between the
Employers and any Employee or to be consideration for, or an inducement to, or
a condition of, the employment of any Employee. Nothing contained in the Plan
shall be deemed to give any Employee the right to be retained in the service
of any Employer or to interfere with the right of any Employer to discharge
any Employee at any time. No Employee shall have any right to benefits except
to the extent provided in the Plan. Nothing contained in the Plan shall be
deemed to give any Employee a continued entitlement to receive an Annual
Performance Award for any Performance Period. Any award under this Plan shall
not be deemed compensation for purposes of computing benefits or contributions
under any retirement plan of an Employer unless otherwise provided by that
plan, and shall not affect any benefits under any other Employer benefit plan
of any kind currently or subsequently in effect under which the availability
or amount of benefits is related to the level of compensation.
16.2 Notice of Address
Each Participant and Beneficiary entitled to benefits under the Plan
must file with CINergy's Committee, in writing, his post office address and
each change of post office address. Any communication, statement, or notice
addressed to a person at his latest post office address as filed with
CINergy's Committee will, upon deposit in the United States mail with postage
prepaid, be binding upon that person for all purposes of the Plan.
16.3 No Individual Liability
It is the Plan's express purpose and intention that, except as otherwise
required by law, no individual liability whatever shall attach to, or be
incurred by, any Employer, its shareholders, officers, employees, or members
of the board of directors of any Employer, under or by reason of any of the
Plan's terms or conditions. Each Participant shall be legally bound by the
Plan's provisions.
16.4 Delegation of Administrative Duties
Administrative duties imposed by this Plan may be delegated by CINergy's
Committee to an Employee of any Employer charged with those duties to the
extent not inconsistent with the provisions of Code Subsection 162(m).
16.5 Governing Laws
The Plan shall be construed and administered according to the laws of
the State of Delaware to the extent that those laws are not preempted by the
laws of the United States of America.
16.6 Risk of Participation
Nothing contained in the Plan shall be construed as an agreement by the
Plan or any Employer, its shareholders, officers, employees, or members of the
board of directors of any Employer, to indemnify anyone for any losses,
damages, costs and/or expenses resulting from participation in the Plan.
16.7 Headings
The headings of articles, sections, subsections, paragraphs or other
parts of the Plan are for convenience of reference only and do not define,
limit, construe or otherwise affect the contents of the Plan.
ARTICLE 17
CONTRIBUTIONS
No contributions to the Plan by Participants shall be required or
permitted under the Plan.
ARTICLE 18
AMENDMENT AND TERMINATION
CINergy, by resolution duly adopted by CINergy's Board of Directors,
shall have the right, authority, and power to alter, amend, modify, revoke, or
terminate the Plan at any time, and CINergy, by resolution of CINergy's Board
of Directors, shall also have the right, authority, and power to discontinue
or suspend the payment of benefits under the Plan.
ARTICLE 19
CONTINUANCE BY A SUCCESSOR
If CINergy is reorganized by way of merger, consolidation, transfer of
assets or otherwise, so that another corporation, partnership or person shall
succeed to all or substantially all of CINergy's business, the successor may
be substituted for CINergy under the Plan by adopting the Plan.
ARTICLE 20
EXECUTIVE OFFICERS
Notwithstanding any provision of the Plan to the contrary, this Article
will govern the terms of the Annual Performance Awards granted to Executive
Officers. This Article is designed to comply with Code Subsection 162(m) to
the extent applicable. All provisions in this Article, and any other
applicable provision of the Plan shall be construed in a manner to so comply.
(a) With respect to Executive Officers, the Plan shall be administered
by a committee (the "AIP Committee") consisting of two or more persons each of
whom is an "outside director" for purposes of Code Subsection 162(m). The AIP
Committee and CINergy's Committee may be the same committee provided that the
membership of CINergy's Committee satisfies the conditions set forth in the
preceding sentence.
(b) With respect to Participants who are Executive Officers as of the
beginning of a Performance Period, the AIP Committee shall establish the
Corporate Target Goals and Individual Goals for each Performance Period within
the time necessary to satisfy the requirements of Code Subsection 162(m).
Corporate Target Goals shall be based on objective performance criteria
pertaining to an Employer's performance, efficiency, or profitability
including, but without limitation, stock price, market share, sales, earnings
per share, costs, net operating incomes, cash flow, fuel cost per million BTU,
costs per kilowatt hour, retained earnings, or return on equity. Individual
Goals shall be based on objective or, with respect to separate awards under
the Plan, subjective performance criteria pertaining to an Executive Officer's
individual effort as to enhancement of either individual performance or
achievement or attainment of Corporate Target Goals or other Individual Goals.
Further, in the case of Participants who are Covered Employees as of the end
of the Performance Period, unless otherwise determined by the AIP Committee,
or unless otherwise designated as separate awards based on subjective
performance criteria, payments shall be made only after achievement of the
applicable performance goals has been certified by the AIP Committee. In no
event shall payment in respect of Annual Performance Awards based on Corporate
Target Goals and objective Individual Goals granted for a Performance Period
be made to a Participant who is a Covered Employee as of the end of a
Performance Period in an amount that exceeds 75 percent of the Participant's
Annual Base Salary.
IN WITNESS WHEREOF, CINergy Corp. has caused this master plan document
to be executed and approved by its duly authorized officers effective as of
the Effective Time of the Mergers.
CINERGY CORP.
BY: Jackson H. Randolph
(JACKSON H. RANDOLPH)
Chairman and
Chief Executive Officer
and
BY: James E. Rogers, Jr.
(JAMES E. ROGERS)
Vice Chairman, President and
Chief Operating Officer
APPROVED:
( )
<PAGE>
CINERGY CORP.
ANNUAL INCENTIVE PLAN
Adopted by CINergy Corp.
Board of Directors on January 25, 1995
AMENDMENT TO CINERGY CORP.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
(Effective January 1, 1995)
The CINergy Corp. Employee Stock Purchase and Savings Plan, as
adopted on October 18, 1994, is hereby amended, effective as of January 1,
1995, with respect to the modification of Article 6 and Section 9.7.
(1) Explanation of Amendment
Article 6 is amended by excluding from eligibility to
participate in an offering under the Plan any employee who receives a grant of
an option or stock appreciation right under the CINergy Corp. Stock Option
Plan or any successor plan. Article 9.7 is amended to provide that the
payroll deductions terminate for any participant who, during an offering
period, receives a grant of an option or stock appreciation right under the
CINergy Corp. Stock Option Plan or any successor plan.
(2) Article 6 As Amended
Article 6, as hereby amended, reads as follows:
"ARTICLE 6
ELIGIBILITY
All Employees of an Employer shall be eligible to participate in an
offering under the Plan except (a) any Employee who normally works less than
20 hours a week; (b) any Employee who normally works less than five months a
year; (c) any Employee who, on the first date of the Offering Period with
respect to an offering, has not been employed by his Employer for at least
nine months immediately prior thereto; (d) any full officer of CINergy,
CINergy Services, PSI, CG&E, or any other participating Employer who is a
highly compensated employee within the meaning of Code Subsection 414(q); and
(e) any Employee who receives a grant of an option or a stock appreciation
right under the CINergy Stock Option Plan, any successor plan, or any other
stock option plan sponsored by CINergy. Service with CG&E prior to the
Effective Time of the Mergers shall be applied in determining eligibility;
provided, however, that notwithstanding the preceding provisions of this
Article 6, unless otherwise determined by CINergy, no person who was employed
by CG&E or any of its subsidiaries immediately prior to the Effective Time of
the Mergers shall be eligible to participate in the Plan prior to the end of
the 90-day period immediately following the Effective Time of the Mergers. As
of the commencement of his participation in the Plan, an Employee who was
employed by CG&E or any of its subsidiaries as of the Effective Time of the
Mergers shall be eligible to participate in the remaining period of any
offering under the Plan in effect as of the Effective Time of the Mergers."
(3) Section 9.7 As Amended
Section 9.7, as hereby amended, reads as follows:
"9.7 Termination by Employee of his Participation
An Employee who participates in an offering under the Plan
may at any time on or before the Purchase Date for the offering terminate his
participation in its entirety by written notice of termination on a form
prescribed by the Committee and delivered to his Employer. As soon as
practicable after the end of the calendar month in which the termination
occurs, all funds, including interest, if any, then on deposit in his Purchase
Savings Account shall be paid to the Employee and his Purchase Savings Account
shall be closed. If during an Offering Period an Employee (i) who receives a
grant of an option or a stock appreciation right under the CINergy Stock
Option Plan, any successor plan, or any other stock option plan sponsored by
CINergy, or (ii) who is a highly compensated employee within the meaning of
Code Subsection 414(q) becomes a full officer of CINergy, CINergy Services,
PSI or CG&E, the Employee's payroll deductions will cease, but the Employee
will be allowed to otherwise continue to participate in the Plan."
This Amendment is executed and approved by the duly authorized
officers of CINergy Corp., effective as of January 1, 1995.
CINERGY CORP.
BY: James E. Rogers
(JAMES E. ROGERS)
Vice Chairman, President, and
Chief Operating Officer
APPROVED:
Cheryl M. Foley
(Cheryl M. Foley)
Vice President, General
Counsel and Corporate
Secretary
Adopted by the Board of Directors of CINergy Corp. on October
18, 1994.
CINERGY CORP.
RETIREMENT PLAN FOR DIRECTORS
INTRODUCTION
On October 18, 1994, CINergy Corp. adopted the CINergy Corp.
Retirement Plan for Directors (the "Plan"). Upon the "Effective Time of the
Mergers" as defined in this document, CINergy Corp. will be the holding
company for PSI Energy, Inc. and The Cincinnati Gas & Electric Company. The
Plan is a retirement plan for directors of CINergy Corp., CINergy Services,
Inc., PSI Energy, Inc., and The Cincinnati Gas & Electric Company.
The Plan, effective as of the Effective Time of the Mergers, is set
forth in its entirety.
ARTICLE 1
DEFINITIONS
Whenever used in this document, the following terms shall have the
respective meanings set forth below, unless a different meaning is plainly
required by the context:
1.1 "Beneficiary" means, with respect to each Participant, the person or
persons who are to receive benefits under the Plan after the
Participant's death.
1.2 "CG&E" means The Cincinnati Gas & Electric Company, an Ohio corporation,
and its successors.
1.3 "CG&E's Board of Directors" means the duly constituted board of
directors of CG&E on the applicable date.
1.4 "CINergy" means CINergy Corp., a Delaware corporation, or any other
corporation whose common stock is registered and traded on The New York
Stock Exchange and which, as of the Effective Time of the Mergers, owns
all of the issued and outstanding common stock of PSI and CG&E.
1.5 "CINergy Services" means CINergy Services, Inc., a Delaware corporation,
and its successors.
1.6 "CINergy Services' Board of Directors" means the duly constituted board
of directors of CINergy Services on the applicable date.
1.7 "CINergy's Board of Directors" means the duly constituted board of
directors of CINergy on the applicable date.
1.8 "CINergy's Secretary" means the person holding the position of Secretary
of CINergy on the applicable date.
1.9 "Director" means any person duly selected to serve as a member of
CINergy's Board of Directors, CINergy Services' Board of Directors,
PSI's Board of Directors, or CG&E's Board of Directors.
1.10 "Effective Time of the Mergers" means "Effective Time" as defined in the
Amended and Restated Agreement and Plan of Reorganization by and among
GG&E, PSI Resources, Inc., PSI, CINergy Sub, Inc., and CINergy dated as
of December 11, 1992, as subsequently amended and restated.
1.11 "Fees" means (a) the amount of the annual retainer compensation paid to
a Director and (b) the product of the amount of the compensation paid to
a Director upon attending a meeting of Resources' Board of Directors,
CINergy Services' Board of Directors, PSI's Board of Directors, or
CG&E's Board of Directors multiplied by five.
1.12 "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time, and interpretive rulings and regulations.
1.13 "Participant" means any Director or former Director who meets the
eligibility requirements for participation described in Article 4
(Eligibility).
1.14 "Plan" means the retirement plan for Directors known as the "CINergy
Corp. Retirement Plan for Directors," as amended from time to time.
Effective as of the Effective Time of the Mergers, this document sets
forth the Plan.
1.15 "PSI" means PSI Energy, Inc., an Indiana corporation, and its
successors.
1.16 "PSI Resources" means PSI Resources, Inc., an Indiana corporation, and
its successors.
1.17 "PSI's Board of Directors" means the duly constituted board of directors
of PSI on the applicable date.
The uses of singular and masculine words are for practical purposes
only and shall be deemed to include the plural and feminine, respectively,
unless the context plainly indicates a distinction. Certain other
definitions, as required, appear in the following Articles of the Plan.
ARTICLE 2
EFFECTIVE DATE OF PLAN
The Plan's provisions, set forth in this document, are effective as
of the Effective Time of the Mergers.
ARTICLE 3
EFFECT OF PLAN ON OTHER PLANS
At the Effective Time of the Mergers, the "PSI Resources, Inc.
Retirement Plan for Directors" adopted effective February 1, 1990, as amended
from time to time, and the "CG&E Retirement Plan for Directors" adopted
effective March 17, 1993, as amended from time to time, shall be merged into
the Plan and entitlement to any benefits thereunder shall be administered in
accordance with the Plan.
ARTICLE 4 ELIGIBILITY
With the exception of any Director who, as of February 1, 1990, was
a former employee of PSI Resources or PSI, each Director who is not also an
employee or former employee of CINergy, its subsidiaries, or affiliates with
vested rights under a pension plan sponsored by CINergy, its subsidiaries, or
affiliates is eligible to participate in the Plan.
An eligible Director shall become a Participant in the Plan
commencing with the sixth year of service as a Director of CINergy. Service
as a Director of CINergy, CINergy Services, PSI, CG&E, or Resources prior to
the Effective Time of the Mergers shall be applied in determining eligibility.
ARTICLE 5
VESTING
Each eligible Director shall be fully vested in benefits accrued
under the Plan immediately upon becoming a Participant.
ARTICLE 6
AMOUNT OF RETIREMENT BENEFITS
Each Participant shall be entitled to receive an annual benefit,
payable annually, equal to the Fees payable to a Participant in effect on the
day preceding the date of the Participant's retirement as a Director.
ARTICLE 7
COMMENCEMENT OF BENEFITS
7.1 Payment to the Participant if Living
The annual benefit shall be payable on the first business day of
February each year, beginning with the February following the later of (a)
the date the Participant ceases to be a Director, or (b) the Participant's
attainment of age 65.
7.2 Payment to the Participant's Beneficiary
If a Participant dies before the payment of benefits has commenced
under Section 7.1 (Payment to the Participant if Living), then the annual
benefit shall be payable on the first business day of February each year,
beginning with the February following the Participant's date of death.
ARTICLE 8
DURATION OF BENEFITS
The annual benefit shall be payable for a term certain equal to the
number of completed full years a Participant served as a Director as of the
date of the Participant's retirement as a Director.
ARTICLE 9
DESIGNATION OF BENEFICIARY
AND PAYMENT OF ANNUAL BENEFIT UPON DEATH
9.1 Designation of Beneficiary
A Participant may designate a Beneficiary or Beneficiaries (which
may be an entity other than a natural person) to receive any annual benefit
payments to be made under Articles 6 (Amount of Retirement Benefits) and 7
(Commencement of Benefits) upon the Participant's death. A Participant may
change or cancel his Beneficiary designation at any time without the consent
of the Beneficiary. Any Beneficiary designation, change, or cancellation must
be by written notice filed with CINergy's Secretary and shall not be effective
until received by CINergy's Secretary. If the Participant designates more
than one Beneficiary, any annual benefit payments under Articles 6 (Amount of
Retirement Benefits) and 7 (Commencement of Benefits) to a Beneficiary shall
be made in equal shares unless the Participant has designated otherwise, in
which case the annual benefit payments shall be made in shares designated by
the Participant. If no Beneficiary has been named by the Participant, the
payments shall be made to the Participant's estate.
9.2 Payments Upon Death of Participant
Upon the Participant's death, payment shall be made to the
Participant's designated Beneficiary for the balance of the number of
completed full years the Participant served as a Director for which the
Participant had not received payment at the date of his death. Upon the
Beneficiary's death, any remaining annual benefit payments shall be paid to
the Beneficiary's estate.
ARTICLE 10
NONALIENATION OF BENEFITS
The Plan shall not in any manner be liable for, or subject to, the
debts and liabilities of any Participant or Beneficiary. No payee may assign
the annual benefit payments due him under the Plan. No benefits at any time
payable under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, attachment, garnishment, levy,
execution, or other legal or equitable process or covenants of any kind.
ARTICLE 11
FUNDING POLICY
The Plan shall be totally unfunded so that CINergy is under merely
a contractual duty to make annual benefit payments when due under the Plan.
The promise to pay shall not be represented by notes and shall not be secured
in any way. No contributions to the Plan by Participants shall be required or
permitted under the Plan.
ARTICLE 12
AMENDMENT AND TERMINATION
CINergy, by resolution duly adopted by CINergy's Board of
Directors, shall have the right, authority, and power to alter, amend, modify,
revoke, or terminate the Plan at any time. However, no termination or
amendment shall deprive any Participant or Beneficiary of any benefits accrued
under the Plan prior to the termination or amendment.
ARTICLE 13
MISCELLANEOUS
13.1 Forfeitability
If a Director or former Director becomes a director, proprietor,
officer, partner, or employee of, or otherwise becomes affiliated with, any
utility in the States of Indiana, Ohio, or Kentucky that competes with
CINergy, its subsidiaries, or affiliates, or if a former Director shall refuse
a reasonable request from CINergy, its subsidiaries, or affiliates to perform
consulting services after he retires from CINergy's Board of Directors,
CINergy Services' Board of Directors, PSI's Board of Directors, or CG&E's
Board of Directors, any annual benefit payments remaining payable to the
Participant under the Plan shall be forfeited.
13.2 No Right to Continue as a Director
Nothing in this Plan shall be construed as conferring upon a
Participant any right to continue as a member of CINergy's Board of Directors,
CINergy Services' Board of Directors, PSI's Board of Directors, CINergy
Services' Board of Directors, or CG&E's Board of Directors.
13.3 No Right to Corporate Assets
Nothing in this Plan shall be construed as giving the Participant,
his Beneficiaries, or any other person any equity or interest of any kind in
the assets of CINergy, CINergy Services, PSI, or CG&E or creating a trust of
any kind or a fiduciary relationship of any kind between CINergy, CINergy
Services, PSI, or CG&E and any person. As to any claim for payments due under
the provisions of the Plan, a Participant, a Beneficiary, and any other
persons having claim for payments shall be unsecured creditors of CINergy,
CINergy Services, PSI, or CG&E.
13.4 No Limit on Further Corporate Action
Nothing contained in the Plan shall be construed to prevent
CINergy, CINergy Services, PSI, or CG&E from taking any corporate action which
is deemed by CINergy, CINergy Services, PSI, or CG&E to be appropriate or in
its best interest.
13.5 Governing Law
The Plan shall be construed and administered according to the laws
of the State of Delaware to the extent that those laws are not preempted by
the laws of the United States of America.
13.6 Headings
The headings of articles, sections, subsections, paragraphs, or
other parts of the Plan are for convenience of reference only and do not
define, limit, construe or otherwise affect the Plan's contents.
ARTICLE 14
ADMINISTRATION
CINergy's Board of Directors shall be responsible for the
administration of the Plan. CINergy's Board of Directors reserves the right
to interpret and regulate the Plan, by exercise of discretionary authority,
and its interpretation and regulation shall be effective and binding on all
parties concerned.
ARTICLE 15
PAYMENTS UPON CHANGE IN CONTROL
Notwithstanding anything contained in the Plan to the contrary,
following a Change in Control of CINergy, each Participant (or Beneficiary, if
appropriate) shall be entitled to receive a lump sum payment of the actuarial
equivalent of benefits accrued and remaining unpaid as of the date of the
Change in Control. The lump sum equivalent shall be calculated assuming the
interest rate used by the Pension Benefit Guaranty Corporation in determining
the value of immediate benefits as of the immediately preceding January 1.
A Change in Control of CINergy shall occur if (a) any "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the 1934 Act)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act)
of more than 50 percent of the then outstanding voting stock of CINergy,
otherwise than through a transaction arranged by, or consummated with the
prior approval of, CINergy's Board of Directors; (b) CINergy's shareholders
approve a definitive agreement to merge or consolidate CINergy with or into
another corporation in a transaction in which neither CINergy nor any of its
subsidiaries or affiliates will be the surviving corporation, or to sell or
otherwise dispose of all or substantially all of CINergy's assets to any
person or group other than CINergy or any of its subsidiaries or affiliates,
other than a merger or a sale which will result in the voting securities of
CINergy outstanding prior to the merger or sale continuing to represent at
least 50 percent of the combined voting power of the voting securities of the
corporation surviving the merger or purchasing the assets; or (c) during any
period of two consecutive years, individuals who at the beginning of that
period constitute CINergy's Board of Directors (and any new director whose
election by the Board of Directors or whose nomination for election by
CINergy's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
that period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of CINergy's Board of
Directors. Notwithstanding the provisions of Article 12 (Amendment and
Termination), the provisions of this Article may not be amended by an
amendment to the Plan effected within three years following a Change in
Control.
IN WITNESS WHEREOF, CINergy Corp. has caused this Plan document to
be executed and approved by its duly authorized officers effective as of the
Effective Time of the Mergers.
CINERGY CORP.
BY: Jackson H. Randolph
(JACKSON H. RANDOLPH)
Chairman and
Chief Executive Officer
and
BY: James E. Rogers, Jr.
(JAMES E. ROGERS, JR.)
Vice Chairman, President and
Chief Operating Officer
APPROVED:
( )
CINERGY CORP.
RETIREMENT PLAN FOR DIRECTORS
Final Draft
10/18/94
DEFINED BENEFIT DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, dated , is between
("Employer") and ("Employee").
A. Employee is a key executive of Employer.
B. Employer desires to assure itself of the continued benefit of
Employee's services until his retirement, by providing an incentive for
Employee to continue his employment with Employer.
C. This Agreement is intended by Employer to provide an
incentive to Employee to continue his employment with Employer until his
retirement.
The parties agree as follows:
SECTION 1
RETIREMENT BENEFITS
Upon the later of Employee's (1) attainment of age 62, (2)
retirement under Employer's qualified pension plan known as the "
" or under any successor qualified plan ("Employer's Pension Plan") on
or after Employee's attainment of age 62, or (3) retirement under Employer's
Pension Plan prior to Employee's attainment of age 62 provided that his
retirement is a bona fide retirement in that Employee has concluded his active
working life, as determined by Employer, and neither engages in nor pursues
any other trade, business, occupation, or employment, Employee shall receive
from Employer the Principal Sum, payable, at Employee's election submitted in
writing to in ten yearly installments beginning not
later than the first day of the month coinciding with or following the later
of his attainment of age 62 or his bona fide retirement from Employer. The
term "Principal Sum" means the sum determined in accordance with the following
schedule:
Employee's Last
Base Annual Salary Principal Sum
Less than $100,000 $ 50,000
$100,000 but less than $200,000 $100,000
$200,000 or more $150,000
The Employee's last base annual salary consists only of Employee's base
monthly salary multiplied by 12 and excludes bonuses or any other
extraordinary compensation.
If Employee dies before receipt of the final installment due under
this Agreement, the remaining monthly or yearly installments shall be paid to
the individual or individuals designated in writing by Employee to
or, in the absence of a designation, to Employee's estate at the
times that the installments would have been paid to Employee had he survived.
However, upon demonstration of hardship to Employer's satisfaction by the
individual or individuals so designated, the remaining balance may be paid in
one lump sum. If Employee's employment with Employer is terminated,
voluntarily or
involuntarily, before his attainment of age 62 for any reason other than a
bona fide retirement as described in the first sentence of this Section,
Employee shall not be entitled to any benefits under this Agreement.
SECTION 2
NAMED FIDUCIARY
For purposes of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), Employer is the named fiduciary of this Agreement.
Employer shall have the authority to control and manage the operation and
administration of this Agreement. However, Employer may allocate its
responsibilities for the operation and administration of this Agreement,
including the designation of persons who are not named fiduciaries to carry
out fiduciary responsibilities. A copy of this Agreement shall be retained by
Employer and made available for examination at Employer's Corporate Office
located in . Upon written request, a copy of this
Agreement and other information shall be provided to the parties.
SECTION 3
CLAIMS PROCEDURES
Benefits shall be payable in accordance with the terms of this
Agreement. If Employee or his designated beneficiary fails to receive
benefits to which Employee or the beneficiary believes he or she is entitled,
a claim may be filed. Any claim for a benefit under this Agreement shall be
filed in writing by Employee or the beneficiary ("Claimant") or by the
Claimant's authorized representative which is reasonably calculated to bring
the claim to Employer's attention.
If a claim for a benefit is wholly or partially denied by Employer,
a written notice of the decision shall be furnished to the Claimant by
Employer within a reasonable period of time not to exceed 90 days after
receipt of the claim by Employer unless special circumstances require an
extension of time for processing, in which case notification shall be rendered
as soon as possible, but not later than 180 days after the claim's receipt.
If an extension of time for processing is required, written notice of the
extension shall be furnished to the Claimant prior to termination of the
initial 90 day period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which Employer
expects to render final notification. The notice of denial shall be written
in a manner calculated to be understood by the Claimant and shall set forth
(1) the specific reason or reasons for the denial, (2) a specific reference to
the pertinent Agreement provisions upon which the denial is based, (3) a
description of any additional material or information necessary for the
Claimant to perfect the claim and an explanation of why the material or
information is necessary, and (4) an explanation of the Agreement's claim
review procedures. Within 60 days after the Claimant's receipt of written
notice of the claim's denial, the Claimant, or his duly authorized
representative, may file a written request with Employer requesting a full and
fair review of the denial of the Claimant's claim for benefits. In connection
with the Claimant's appeal of the denial of his claim for benefits, the
Claimant may review pertinent documents and may submit issues and comments in
writing. A decision on review of a denied claim shall be made not later than
60 days after Employer's receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. If an extension of time
for processing is required, written notice of the extension shall be furnished
to the Claimant prior to the termination of the initial 60-day period. The
extension notice shall indicate the special circumstances requiring an
extension of time and the date by which Employer expects to render the final
decision. The decision on review shall be written in a manner calculated to
be understood by the Claimant and shall include the specific reason or reasons
for the decision and the specific reference to the pertinent Agreement
provisions on which the decision is based.
SECTION 4
PAYMENT OF BENEFITS
The benefits under this Agreement shall be paid solely from
Employer's general assets. Employee and his beneficiary or beneficiaries,
shall not have any interest in any specific assets of Employer under the terms
of this Agreement. This Agreement shall not be considered to create an escrow
account, trust fund or other funding arrangement of any kind or a fiduciary
relationship between Employee and Employer.
SECTION 5
THIS AGREEMENT IS NOT A CONTRACT FOR EMPLOYMENT
This Agreement shall not constitute an employment contract for a
definite term or in any way act as a restriction on the right of Employer to
discharge Employee at any time or the right of Employee to terminate
employment at any time. This Agreement is strictly a voluntary undertaking on
Employer's part and this Agreement shall not be deemed to be consideration
for, or an inducement to, or a condition of, the employment of Employee.
SECTION 6
NONALIENATION OF BENEFITS
Neither Employee nor his beneficiary shall have any right to
anticipate, pledge, alienate, or assign any rights under this Agreement, and
any effort to do so shall be null and void. The benefits payable under this
Agreement shall be exempt from the claims of Employee's or his beneficiary's
creditors or other claimants and from all orders, decrees, levies and
executions, and any other legal process to the fullest extent that may be
permitted by law.
SECTION 7
TERMINATION OF THIS AGREEMENT
This Agreement may be terminated at any time by Employer's action.
However, the termination of this Agreement shall not become effective until
Employee is notified in writing as to the termination of this Agreement. Upon
the effective date of the termination of this Agreement, Employer's payment
obligations under this Agreement shall cease.
SECTION 8
AMENDMENT OF AGREEMENT
This Agreement may be altered, amended or modified at Employer's
discretion.
SECTION 9
INTERPRETATION OF AGREEMENT
This Agreement shall be construed and administered by the laws of
the State of Indiana to the extent those laws are not preempted by the laws of
the United States of America.
SECTION 10
BINDING AGREEMENT
This Agreement shall bind all parties, and their successors,
assigns, and any beneficiary.
SECTION 11
INTENT OF PARTIES
This Agreement is designed to meet applicable exemptions under
Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA and under
Department of Labor Regulations Section 2520.104-23.
EXECUTED by Employer and Employee effective as the date first above
written.
EMPLOYER
By:
EMPLOYEE
( )
Final Draft
10/18/94
Final Draft
10/18/94
EXECUTIVE SUPPLEMENTAL LIFEINSURANCE PROGRAM SPLIT DOLLAR AGREEMENT I
THIS AGREEMENT, dated _________________, is between
___________________ ("Employer") and ______________________________
("Employee"):
A. Employer currently has in effect an Executive Supplemental Life
Insurance Program (the "Program") for a select group of Employer's executive
employees designated by Employer's Board of Directors (the "Board of
Directors").
B. On ____________________________ Employee became eligible to
participate in the Program.
C. Employer and Employee are agreeable to entering into this
Agreement which governs Employee's participation in the Program.
The parties agree as follows:
SECTION 1
LIFE INSURANCE POLICY
In furtherance of the Agreement's purposes, Employer has applied for
a life insurance policy (the "Policy") on the life of Employee from General
American Life Insurance Company (the "Insurer"). The amount of life insurance
coverage provided for Employee under the Policy is based on Employee's base
annual salary (consisting only of Employee's base monthly salary multiplied by
12 and excluding bonuses or any other extraordinary compensation) in effect at
the date of determination (as defined in Section 6.a.), in accordance with the
following schedule:
Employee's Base Annual Salary Life Insurance Coverage
Less than $100,000 $ 50,000
$100,000 but less than $200,000 $100,000
$200,000 or more $150,000
provided, however, that the actual amount of life insurance coverage available
for Part One and Part Two under the Policy (as defined in Section 6) shall be
equal to the Policy's face amount on the date of determination.
Although the amount of life insurance coverage for Employee under
the Policy is intended to be adjusted based upon changes in Employee's base
annual salary in accordance with the above schedule, the number of the Policy
shall not change. The Policy number, initial amount of life insurance
coverage, and date the Policy was issued are as follows:
Initial Amount of Life Date Policy
Policy Number Insurance Coverage Issued
_____________ ________________ ___________
SECTION 2
OWNERSHIP RIGHTS AND DUTIES UNDER THE POLICY
a. Except as otherwise provided in Section 7, Employer shall be
the owner of, and possess all incidents of ownership in, the Policy.
b. Employer shall execute a beneficiary designation for the
Policy naming itself and the person or persons designated to Employer in
writing by Employee as the beneficiaries of the Policy. Employer shall not
terminate, alter or amend Employee's beneficiary designation without the
express written consent of Employee. Employee's beneficiary may be changed by
Employee by written notice to Employer. As soon as practicable after
receiving the written notice, Employer shall take any and all necessary action
to effect the change in Employee's beneficiary.
c. Employer shall be responsible for safeguarding the Policy.
d. Employer and Employee shall execute and forward promptly, and
without unreasonable delay, changes in beneficiary designation forms and
documents, including the Policy, as required by the Insurer to facilitate the
exercise of any rights of Employer and Employee. Except as otherwise
permitted by Section 13, the parties shall not execute any documents or take
any action that would impair their own interest under the Policy.
SECTION 3
POLICY LOANS
Employer shall have the right to obtain both loans secured by the
Policy and to effect withdrawals from the Policy. However, the aggregate
amount of any withdrawals or loans, together with the unpaid interest thereon
shall at no time exceed Employer's interest in the Policy as determined under
Section 6. If the aggregate amount of the loans and withdrawals effected by
Employer exceeds Employer's interest in the Policy as a result of an increase
in Employee's interest in the Policy due to an increase in compensation, no
further loans or withdrawals by Employer shall be permitted until such time
that Employer's interest in the Policy once again exceeds the aggregate amount
of loans and withdrawals. Employee shall not be permitted to effect any loans
or withdrawals from the Policy. The interest due on Policy loans shall be a
debt of Employer owed to the Insurer.
SECTION 4
POLICY PREMIUMS
All premiums under this Policy shall be paid by Employer. This
annual contribution shall not be less than the amount needed to carry the
Policy through the Policy year. Employee is not required or permitted to pay
any portion of the premium.
SECTION 5
USE OF DIVIDENDS
Annual dividends declared on any Policy anniversary shall be applied
as elected by Employer on the Policy application and as is permitted by the
Insurer at the time that the dividends are declared.
SECTION 6
DEFINITIONS REGARDING PART ONE AND
PART TWO OF THE POLICY
a. Part One is the portion of the Policy proceeds payable to
Employee's beneficiary and shall be determined in accordance with the salary
schedule contained in Section 1 based on Employee's base annual salary in
effect on the first day of April coincident with or immediately preceding the
date of Employee's death (or, if earlier, the date on which Employee retired
from Employer).
b. Part Two is the portion of the Policy proceeds payable to
Employer and shall be equal to the amount by which the balance of the Policy
insurance proceeds exceeds the amount described in Part One above.
SECTION 7
PAYMENT OF PROCEEDS
On Employee's death the person or persons designated by Employee in
writing shall be the beneficiary of Part One of the Policy, and Employer shall
receive Part Two of the Policy.
SECTION 8
TERMINATION OF AGREEMENT
This Agreement shall terminate upon the first to occur of any of the
following events:
a. the bankruptcy, insolvency or receivership of Employer;
b. the performance of the Policy terms following the Employee's
death;
c. termination of Employee's employment with Employer,
involuntarily or voluntarily, due to discharge or for any reason other than
(1) death, (2) retirement under Employer's qualified pension plan known as the
"_________________________ _________________________" or any successor
qualified plan thereto ("Employer's Pension Plan") on or after Employee's
attainment of age 62, or (3) retirement under Employer's Pension Plan prior to
Employee's attainment of age 62 provided that the retirement is a bona fide
retirement in that Employee has concluded his active working life, as
determined by Employer, and neither engages in nor pursues any other trade,
business, occupation, or employment;
d. the later of Employee's (1) attainment of age 62, (2)
Employee's retirement under Employer's Pension Plan on or after Employee's
attainment of age 62, or (3) retirement under Employer's Pension Plan prior to
Employee's attainment of age 62 provided that the retirement from Employer is
a bona fide retirement in that Employee has concluded his active working life,
as determined by Employer and neither engages in nor pursues any other trade,
business, occupation, or employment;
e. either party's submission of prior written notice of an
intention to terminate this Agreement to the other party; or
f. any action by one party that would defeat or impair the
interest of such other party other than death or termination of employment of
Employee for whatever reason, including, but not by way of limitation, failure
of Employer to make contributions as agreed upon, and the cancellation of the
Policy by any party.
Termination of this Agreement because of Employee's death, retirement or other
termination of employment or by termination by notice shall be effective
immediately. All other terminations of this Agreement shall be effective 30
days after any such action.
SECTION 9
PURCHASE OF POLICY UPON TERMINATION OF
THE AGREEMENT FOR REASONS OTHER THAN DEATH
Employee shall not have a right to purchase the Policy from Employer
upon termination of the Agreement for any reason, unless Employer, in its sole
discretion, decides to sell the Policy to Employee in accordance with terms
agreed to by Employer and Employee.
SECTION 10
NAMED FIDUCIARY
For purposes of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), Employer is the named fiduciary of this Agreement.
Employer shall have the authority to control and manage the operation and
administration of this Agreement. However, Employer may allocate its
responsibilities for the operation and administration of this Agreement,
including the designation of persons who are not named fiduciaries to carry
out fiduciary responsibilities. Employer shall be responsible for making
timely delivery of any required premiums to the Insurer. Copies of this
Agreement shall be retained by Employer and made available for examination at
Employer's Corporate Office located in ______________, _______________. Upon
written request, a copy of this Agreement and other information shall be
provided to the parties.
SECTION 11
CLAIMS PROCEDURES
Benefits shall be payable in accordance with the terms of this
Agreement. If Employee's beneficiary fails to receive benefits to which the
Employee's beneficiary believes he or she is entitled, a claim may be filed.
Any claim for a benefit under this Agreement shall be filed in writing by
Employee's beneficiary ("Claimant") or by the Claimant's authorized
representative in a manner which is reasonably calculated to bring the claim
to Employer's attention.
If a claim for a benefit is wholly or partially denied by Employer,
a written notice of the decision shall be furnished to the Claimant by
Employer or its designee within a reasonable period of time not to exceed 90
days after receipt of the claim by Employer, unless special circumstances
require an extension of time for processing, in which case notification shall
be rendered as soon as possible, but not later than 180 days after receipt of
the claim. If an extension of time shall be furnished to the Claimant prior
to termination of the initial 90-day period, the extension notice shall
indicate the special circumstances requiring an extension of time and the date
by which Employer or its designee expects to render final notification. The
notice of denial shall be written in a manner calculated to be understood by
the Claimant and shall set forth (1) the specific reason or reasons for the
denial, (2) a specific reference to the pertinent provisions of this Agreement
upon which the denial is based, (3) a description of any additional material
or information necessary for the Claimant to perfect the claim and an
explanation of why the material or information is necessary, and (4) an
explanation of the Agreement's claim review procedures. Within 60 days after
the Claimant's receipt of written notice of denial of the claim, the Claimant,
or his duly authorized representative, may file a written request with
Employer requesting a full and fair review of the denial of the Claimant's
claim for benefits. In connection with the Claimant's appeal of the denial of
his claim for benefits, the Claimant may review pertinent documents and may
submit issues and comments in writing. A decision on review of a denied claim
shall be made not later than 60 days after Employer's receipt of a request for
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within a reasonable
period of time, but not later than 120 days after receipt of a request for
review. If an extension of time for processing is required, written notice of
the extension shall be furnished to the Claimant prior to the termination of
the initial 60-day period. Any extension notice shall indicate the special
circumstances requiring an extension of time and the date by which Employer
expects to render the final decision. The decision on review shall be written
in a manner calculated to be understood by the Claimant and shall include the
specific reason or reasons for the decision and the specific reference to the
pertinent Agreement provisions on which the decision is based.
Notwithstanding anything in this Section to the contrary, any claim
for a death benefit under the Policy shall be filed with the Insurer by the
Claimant or his authorized representative on the form or forms prescribed for
that purpose by the Insurer. The Insurer shall have sole authority for
determining whether a death claim shall or shall not be paid, either in whole
or in part, in accordance with the terms of the insurance contract which may
have been purchased on the life of the Insured, including, but not limited to
the application of the incontestability or suicide exclusion provisions of the
life insurance contract. In the event the Insurer determines that under the
Policy all or a portion of a death claim shall not be made, Employer under no
circumstances shall be obligated to pay to the beneficiary the portion of the
death claim so denied.
SECTION 12
THIS AGREEMENT IS NOT A CONTRACT FOR EMPLOYMENT
This Agreement shall not constitute an employment contract for a
definite term or in any way act as a restriction on the right of Employer to
discharge Employee at any time, or the right of Employee to terminate
employment at any time. This Agreement is strictly a voluntary undertaking on
the part of Employer, and this Agreement shall not be deemed to be
consideration for, or an inducement to, or a condition of, the employment of
Employee.
SECTION 13
ASSIGNMENT
Employee shall have the right to assign his rights and interest
under this Agreement and the Policy to an assignee. This right shall be
exercised by the execution and delivery of the assignment to Employer on a
form approved by Employer. Upon Employer's written consent to the written
assignment, Employee shall have no rights or interests in this Agreement or in
the Policy and all rights and interest in this Agreement and the Policy
granted to Employee shall vest in Employee's assignee. Notwithstanding
anything contained in this Section to the contrary, the assignment of
Employee's interest in the Policy shall under no circumstances limit
Employer's right to terminate the Policy or this Agreement in accordance with
Section 8.
SECTION 14
LIABILITY OF INSURER
General American Life Insurance Company is not a party to this
Agreement. With respect to any Policy of insurance issued pursuant to this
Agreement, General American Life Insurance Company shall have no liability
except as set forth in the Policy. The Insurer shall not be bound to inquire
into or take notice of the covenants contained in this Agreement as to
Policies of life insurance, or as to the application of the proceeds of the
Policies. The Insurer shall be discharged from all liability in making
payments of the proceeds, and in permitting rights and privileges under a
policy to be exercised pursuant to the Policy's provisions.
SECTION 15
AMENDMENT OF AGREEMENT
This Agreement may be altered, amended, or modified, including the
addition of any extra provisions to the Policy, at the discretion of Employer.
It shall be the obligation of Employer to notify the Insured of any amendments
or changes to this Agreement.
SECTION 16
INTERPRETATION OF AGREEMENT
This Agreement shall be construed and administered by the laws of
the State of Indiana to the extent those laws are not preempted by the laws of
the United States of America.
SECTION 17
BINDING AGREEMENT
This Agreement shall bind all parties, their successors, assigns,
and any Policy beneficiary.
SECTION 18
NOTICES
Any and all notices permitted or required to be made under this
Agreement shall be in writing, signed by the person giving the notice and
delivered personally or sent by registered or certified mail to the addressee
at the address as the addressee may supply in writing. The date of personal
delivery or the date of mailing, as the case may be, shall be the date of the
notice.
EXECUTED by Employer and Employee effective as of the date first above
written.
EMPLOYER
By: ________________________________
( )
Title: _____________________________
EMPLOYEE
___________________________________
( )
Final Draft
10/18/94
EXECUTIVE SUPPLEMENTAL LIFE
INSURANCE PROGRAM SPLIT DOLLAR AGREEMENT II
THIS AGREEMENT, dated ________________________, is between
_______________________ ("Employer") and ____________________ ("Employee").
A. Employer currently has in effect an Executive Supplemental
Life Insurance Program (the "Program") for a select group of Employer's
executive employees designated by Employer's Board of Directors (the "Board of
Directors").
B. On _____________________, Employee became eligible to
participate in the Program.
C. Employer and Employee are agreeable to entering into this
Agreement which governs Employee's participation in the Program.
The parties agree as follows:
SECTION 1
LIFE INSURANCE POLICY
In furtherance of this Agreement's purposes, Employer has applied
for a life insurance policy (the "Policy") on the life of Employee from
General American Life Insurance Company (the "Insurer"). The amount of life
insurance coverage provided for Employee under the Policy is based on
Employee's base annual salary (consisting only of Employee's base monthly
salary multiplied by 12 and excluding bonuses or any other extraordinary
compensation) in effect at the date of determination (as defined in Section
6.a.), in accordance with the following schedule:
Employee's Base Annual Salary Life Insurance Coverage
Less than $100,000 $ 50,000
$100,000 but less than $200,000 $100,000
$200,000 or more $150,000
provided, however, that the actual amount of life insurance coverage available
for Part One and Part Two under the Policy (as defined in Section 6) shall be
equal to the Policy's face amount on the date of determination.
Although the amount of life insurance coverage for Employee under
the Policy is intended to be adjusted based upon changes in Employee's base
annual salary in accordance with the above schedule, the number of the Policy
shall not change. The Policy number, initial amount of life insurance
coverage, and date the Policy was issued are as follows:
Initial Amount of Life Date Policy
Policy Number Insurance Coverage Issued
__________ ________________ _________
SECTION 2
OWNERSHIP RIGHTS AND DUTIES UNDER THE POLICY
a. Except as otherwise provided in Section 7, Employer shall be
the owner of, and possess all incidents of ownership in, the Policy.
b. Employer shall execute a beneficiary designation for the
Policy naming itself and the person or persons designated to Employer in
writing by Employee as the beneficiaries of the Policy. Employer shall not
terminate, alter, or amend Employee's beneficiary designation without
Employee's express written consent. Employee's beneficiary may be changed by
Employee by written notice to Employer. As soon as practicable after
receiving the written notice, Employer shall take any and all necessary action
to effect the change in Employee's beneficiary.
c. Employer shall be responsible for safeguarding the Policy.
d. Employer and Employee shall execute and forward promptly, and
without unreasonable delay, changes in beneficiary designation forms and
documents, including the Policy, as required by the Insurer to facilitate the
exercise of any rights of Employer and Employee. Except as otherwise
permitted by Section 13, the parties shall not execute any documents or take
any action that would impair their own interest under the Policy.
SECTION 3
POLICY LOANS
Employer shall have the right to obtain both loans secured by the
Policy and to effect withdrawals from the Policy. However, the aggregate
amount of any withdrawals or loans, together with the unpaid interest thereon
shall at no time exceed Employer's interest in the Policy as determined under
Section 6. If the aggregate amount of the loans and withdrawals effected by
Employer exceeds Employer's interest in the Policy as a result of an increase
in Employee's interest in the Policy due to an increase in compensation, no
further loans or withdrawals by Employer shall be permitted until Employer's
interest in the Policy once again exceeds the aggregate amount of loans and
withdrawals. Employee shall not be permitted to effect any loans or
withdrawals from the Policy. The interest due on Policy loans shall be a debt
of Employer owed to the Insurer.
SECTION 4
POLICY PREMIUMS
All premiums under this Policy shall be paid by Employer. This
annual contribution shall not be less than the amount needed to carry the
Policy through the Policy year. Employee is not required or permitted to pay
any portion of the premium.
SECTION 5
USE OF DIVIDENDS
Annual dividends declared on any Policy anniversary shall be applied
as elected by Employer on the Policy application and as is permitted by the
Insurer at the time that the dividends are declared.
SECTION 6
DEFINITIONS REGARDING PART ONE AND PART TWO OF THE POLICY
a. Part One is the portion of the Policy proceeds payable to
Employee's beneficiary and shall be determined in accordance with the salary
schedule contained in Section 1 based on Employee's base annual salary in
effect on the first day of April coincident with or immediately preceding the
date of Employee's death (or, if earlier, the date on which Employee retired
from Employer).
b. Part Two is the portion of the Policy proceeds payable to
Employer and shall be equal to the amount by which the balance of the Policy
insurance proceeds exceeds the amount described in Part One above.
SECTION 7
PAYMENT OF PROCEEDS
On Employee's death the person or persons designated by Employee in
writing shall be the beneficiary of Part One of the Policy, and Employer shall
receive Part Two of the Policy.
SECTION 8
TERMINATION OF AGREEMENT
This Agreement shall terminate upon the first to occur of any of the
following events:
a. the bankruptcy, insolvency, or receivership of Employer;
b. the performance of the Policy terms following Employee's
death;
c. termination of Employee's employment with Employer,
involuntarily or voluntarily, due to discharge or for any reason other than
(1) death, (2) retirement under Employer's qualified pension plan known as the
__________________ or any successor qualified plan thereto ("Employer's
Pension Plan") on or after Employee's attainment of age 62, or (3) retirement
under Employer's Pension Plan prior to Employee's attainment of age 62
provided that the retirement is a bona fide retirement in that Employee has
concluded his active working life, as determined by Employer, and neither
engages in nor pursues any other trade, business, occupation, or employment;
d. the later of Employee's (1) attainment of age 62, (2)
Employee's retirement under Employer's Pension Plan on or after Employee's
attainment of age 62, or (3) retirement under Employer's Pension Plan prior to
Employee's attainment of age 62 provided that the retirement is a bona fide
retirement in that Employee has concluded his active working life, as
determined by Employer and neither engages in nor pursues any other trade,
business, occupation, or employment;
e. either party's submission of prior written notice of an
intention to terminate this Agreement to the other party; or
f. any action by one party that would defeat or impair the other
party's interest other than death or termination of employment of Employee for
whatever reason, including, but not by way of limitation, Employer's failure
to make contributions as agreed upon, and the cancellation of the Policy by
any party.
Termination of this Agreement because of Employee's death,
retirement, or other termination of employment or by termination by notice
shall be effective immediately. All other terminations of this Agreement
shall be effective 30 days after any action.
SECTION 9
PURCHASE OF POLICY UPON TERMINATION OF
THE AGREEMENT FOR REASONS OTHER THAN DEATH
Employee shall not have a right to purchase the Policy from Employer
upon termination of the Agreement for any reason, unless Employer, in its sole
discretion, decides to sell the Policy to Employee in accordance with terms
agreed to by Employer and Employee.
SECTION 10
NAMED FIDUCIARY
For purposes of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), Employer is the named fiduciary of this Agreement.
Employer shall have the authority to control and manage the operation and
administration of this Agreement. However, Employer may allocate its
responsibilities for the operation and administration of this Agreement,
including the designation of persons who are not named fiduciaries to carry
out fiduciary responsibilities. Employer shall be responsible for making
timely delivery of any required premiums to the Insurer. Copies of this
Agreement shall be retained by Employer and made available for examination at
Employer's Corporate Office located in __________________. Upon written
request, a copy of this Agreement and other information shall be provided to
the parties.
SECTION 11
CLAIMS PROCEDURES
Benefits shall be payable in accordance with the terms of this
Agreement. If Employee's beneficiary fails to receive benefits to which the
Employee's beneficiary believes he or she is entitled, a claim may be filed.
Any claim for a benefit under this Agreement shall be filed in writing by
Employee's beneficiary ("Claimant") or by the Claimant's authorized
representative in a manner which is reasonably calculated to bring the claim
to Employer's attention.
If a claim for a benefit is wholly or partially denied by Employer,
a written notice of the decision shall be furnished to the Claimant by
Employer within a reasonable period of time not to exceed 90 days after
receipt of the claim by Employer, unless special circumstances require an
extension of time for processing, in which case notification shall be rendered
as soon as possible, but not later than 180 days after the claim's receipt.
If an extension of time shall be furnished to the Claimant prior to
termination of the initial 90 day period, the extension notice shall indicate
the special circumstances requiring an extension of time and the date by which
Employer expects to render final notification. The notice of denial shall be
written in a manner calculated to be understood by the Claimant and shall set
forth (1) the specific reason or reasons for the denial, (2) a specific
reference to the pertinent provisions of this Agreement upon which the denial
is based, (3) a description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation of why the
material or information is necessary, and (4) an explanation of the
Agreement's claim review procedures. Within 60 days after the Claimant's
receipt of written notice of the claim's denial, the Claimant, or his duly
authorized representative, may file a written request with Employer requesting
a full and fair review of the denial of the Claimant's claim for benefits. In
connection with the Claimant's appeal of the denial of his claim for benefits,
the Claimant may review pertinent documents and may submit issues and comments
in writing. A decision on review of a denied claim shall be made not later
than 60 days after Employer's receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. If an extension of time
for processing is required, written notice of the extension shall be furnished
to the Claimant prior to the termination of the initial 60 day period. The
extension notice shall indicate the special circumstances requiring an
extension of time and the date by which Employer expects to render the final
decision. The decision on review shall be written in a manner calculated to
be understood by the Claimant and shall include the specific reason or reasons
for the decision and the specific reference to the pertinent Agreement
provisions on which the decision is based.
Notwithstanding anything in this Section to the contrary, any claim
for a death benefit under the Policy shall be filed with the Insurer by the
Claimant or his authorized representative on the form or forms prescribed for
that purpose by the Insurer. The Insurer shall have sole authority for
determining whether a death claim shall or shall not be paid, either in whole
or in part, in accordance with the terms of the insurance contract which may
have been purchased on the life of the Insured, including, but not limited to
the application of the incontestability or suicide exclusion provisions of the
life insurance contract. If the Insurer determines that under the Policy all
or a portion of a death claim shall not be made, Employer under no
circumstances shall be obligated to pay to the beneficiary the portion of the
death claim so denied.
SECTION 12
THIS AGREEMENT IS NOT A CONTRACT FOR EMPLOYMENT
This Agreement shall not constitute an employment contract for a
definite term or in any way act as a restriction on Employer's right to
discharge Employee at any time, or Employee's right to terminate employment at
any time. This Agreement is strictly a voluntary undertaking on Employer's
part, and this Agreement shall not be deemed to be consideration for, or an
inducement to, or a condition of, Employee's employment.
SECTION 13
ASSIGNMENT
Employee shall have the right to assign his rights and interest
under this Agreement and the Policy to an assignee. This right shall be
exercised by the execution and delivery of the assignment to Employer on a
form approved by Employer. Upon Employer's written consent to the written
assignment, Employee shall have no rights or interests in this Agreement or in
the Policy and all rights and interest in this Agreement and the Policy
granted to Employee shall vest in Employee's assignee. Notwithstanding
anything contained in this Section to the contrary, the assignment of
Employee's interest in the Policy shall under no circumstances limit
Employer's right to terminate the Policy or this Agreement in accordance with
Section 8.
SECTION 14
LIABILITY OF INSURER
General American Life Insurance Company is not a party to this
Agreement. With respect to any Policy of insurance issued pursuant to this
Agreement, General American Life Insurance Company shall have no liability
except as set forth in the Policy. The Insurer shall not be bound to inquire
into or take notice of the covenants contained in this Agreement as to
policies of life insurance, or as to the application of the proceeds of the
policies. The Insurer shall be discharged from all liability in making
payments of the proceeds, and in permitting rights and privileges under a
policy to be exercised pursuant to the Policy's provisions.
SECTION 15
AMENDMENT OF AGREEMENT
This Agreement may be altered, amended, or modified, including the
addition of any extra provisions to the Policy, at Employer's discretion. It
shall be Employer's obligation to notify the Insured of any amendments or
changes to this Agreement.
SECTION 16
INTERPRETATION OF AGREEMENT
This Agreement shall be construed and administered by the laws of
the State of Indiana to the extent those laws are not preempted by the laws of
the United States of America.
SECTION 17
BINDING AGREEMENT
This Agreement shall bind all parties, their successors, assigns,
and any Policy beneficiary.
SECTION 18
NOTICES
Any and all notices permitted or required to be made under this
Agreement shall be in writing, signed by the person giving the notice and
delivered personally or sent by registered or certified mail to the addressee
at the address as the addressee may supply in writing. The date of personal
delivery or the date of mailing, as the case may be, shall be the date of the
notice.
EXECUTED by Employer and Employee effective as of the date first
above written.
EMPLOYER
By: __________________________________
EMPLOYEE
_________________________________
( )
SPLIT DOLLAR INSURANCE AGREEMENT
for
JACKSON H. RANDOLPH
THIS AGREEMENT, effective as of May 1, 1993, is by and between THE CINCINNATI
GAS & ELECTRIC COMPANY ("CG&E"), and Jackson H. Randolph ("Randolph"), an
employee of the Employer.
W I T N E S S E T H:
WHEREAS, CG&E desires to assist Randolph in providing death benefits for his
beneficiaries; and
WHEREAS, CG&E and Randolph desire to enter into this Split Dollar Insurance
Agreement to set forth the terms and conditions under which Randolph will
acquire and the parties will maintain a life insurance policy on the life of
Randolph pursuant to CG&E's Executive Split Dollar Life Insurance Plan (the
"Plan");
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and intending to be legally bound hereby, CG&E and Randolph
agree as follows:
1. Application for Insurance; Ownership of the Policy.
Randolph shall apply to Northwestern Mutual Life Insurance Company (the
"Insurer") for issuance of a life insurance policy (the "Policy")
insuring Randolph's life in such amount as determined by CG&E. When the
Policy is issued, the Policy number and initial face amount shall be
recorded on Schedule A, which is attached to and incorporated in this
Agreement. Randolph shall be the sole owner of the Policy and, subject
to this Agreement and the Collateral Assignment, may exercise all
ownership rights which the Policy grants to the policy owner. Except as
otherwise provided in 2.c) of this Agreement, policy dividends shall be
applied to purchase paid-up additional insurance protection.
2. Payment of Premiums.
a) CG&E to Pay Premiums; Randolph to Reimburse for a Portion.
Subject to 2.c) below, CG&E and Randolph shall each pay a portion
of each premium due on the Policy as hereinafter set forth. Each
premium on the Policy shall be paid by CG&E as it becomes due.
Following each premium payment by CG&E, Randolph shall reimburse
CG&E for a portion of the premium paid by CG&E. The amount of the
reimbursement shall equal the value of the economic benefit
attributable to the life insurance protection provided to Randolph
under this Agreement. The value of the economic benefit shall be
calculated using the lower of the P.S. 58 rates or the Insurer's
term rates multiplied by the lesser of (i) Randolph's share of the
death benefit as provided in Schedule B attached hereto or (ii)
the Policy's total death benefit minus the cumulative amount of
premiums on the Policy paid by CG&E other than funds reimbursed to
it by Randolph.
b) CG&E Required to Pay Premiums for Eight Years. Notwithstanding the
foregoing, during the term of this Agreement CG&E shall pay a
portion of the annual premium for 8 years commencing with the
premium for the initial policy year beginning May 1, 1993;
provided, CG&E may agree to pay such additional premiums as it and
Randolph may agree.
c) Randolph Required to Pay Premiums Thereafter. If CG&E is not
obligated to pay a portion of the premium on the policy for any
policy year during the term of this Agreement, Randolph shall pay
such premium either in cash or by the application of policy
dividends and/or surrenders of values, provided such application
of policy dividends or surrender of values does not reduce CG&E's
Policy Interest (as defined herein).
3. Collateral Assignment. To secure Randolph's reimbursement of the amount
of premiums CG&E pays on the Policy pursuant to this Agreement, Randolph
shall, promptly upon issuance of the Policy, assign and deliver the
Policy to CG&E as collateral (the "Collateral Assignment"). Such
Collateral Assignment shall be in such form as CG&E requires and shall
grant to CG&E the limited rights in and to the Policy specified therein.
All rights in and to the Policy not granted to CG&E by the Collateral
Assignment or this Agreement, including but not limited to the right to
designate and change the beneficiary of that portion of the Policy
proceeds to which Randolph is entitled hereunder, shall be retained by
Randolph. The Collateral Assignment is intended only to grant to CG&E a
security interest in the Policy and this security interest shall not be
interpreted in any way to include any incidents of ownership, except as
provided in this Agreement and/or the Collateral Assignment. Such
Collateral Assignment shall not be canceled, altered or amended except
as provided in this Agreement by both parties. CG&E and Randolph agree
to take all action necessary to cause such Collateral Assignment to
conform to the provisions of this Agreement.
4. Policy Interests.
a) CG&E's Policy Interest.
1) Surrender or Cancellation. In the event of the surrender or
cancellation of the Policy, CG&E's interest in the Policy
is limited to its right to recover a portion of the cash
value equal to the lesser of:
A) the cumulative amount of premiums on the Policy paid
by CG&E other than funds reimbursed to it by Randolph,
or
B) the entire Policy cash value.
2) Death. Upon Randolph's death, CG&E's interest in the
Policy's death benefit is the greater of:
A) the Policy's total death benefit reduced by the death
benefit payable to Randolph's beneficiary as provided
in Schedule B, or
B) an amount equal to the cumulative amount of premiums
on the Policy paid by CG&E other than funds reimbursed
to it by Randolph.
The Policy interests described in this 4(a) shall be referred to
as "CG&E's Policy Interest."
b) Randolph's Policy Interest. In the event of the surrender or
cancellation of the Policy, Randolph's interest in the Policy
shall be the total Policy cash value minus CG&E's interest in such
cash value. Upon Randolph's death, his beneficiary's interest in
the Policy's death benefit is the lesser of:
1) Randolph's share of the death benefit as provided in
Schedule B, which is attached and incorporated herein, or
2) the Policy's total death benefit reduced by the
cumulative amount of premiums on the Policy paid by CG&E
other than funds reimbursed to it by Randolph.
c) Allocation of Payments Under the Policy. Any payments made under
the Policy to CG&E in connection with the rights granted to CG&E
pursuant to this Agreement shall first be made from the Policy's
cash value attributable to the paid-up additional life insurance
purchased by dividends payable under the Policy. Randolph shall
have no interest in the paid-up additional life insurance
protection except to the extent the death benefit or cash value
thereof exceeds CG&E's Policy Interest. Notwithstanding any
provision in this Agreement or the Collateral Assignment to the
contrary, neither CG&E nor Randolph shall have the right to obtain
one or more policy loans without the express written consent of
the other party.
d) Effect of Early Death. Randolph acknowledges that if he dies
during the first two years after the policy issued under the Plan
is in force, and Randolph made any material misrepresentation in
the policy application that would have resulted in a different
classification or rating or in insurance not being accepted, a
claim for benefits under the policy may be denied. Randolph also
acknowledges that if, during the first year the policy issued
under the Plan is in force, Randolph dies as a result of suicide,
Policy death benefits will not be paid.
5. Termination of Agreement. This Agreement shall terminate upon the
happening of any of the following:
a) April 30, 2008;
b) Failure of Randolph to either pay his share of a premium or to
reimburse CG&E for it's share of a premium pursuant to 2 hereof;
c) Termination of Randolph's employment for cause.
d) Termination of Randolph's employment with CG&E prior to January 1,
1997 for any reason other than due to Randolph's disability or a
change in control of CG&E; provided, however, that in its sole and
absolute discretion the Board of Directors of CG&E may elect to
continue this Agreement.
6. Definitions.
a) Termination for Cause. Termination for cause shall mean the
termination of Randolph's employment with CG&E for any one or more
of the following reasons:
1) embezzlement or theft from CG&E, or other acts of dishonesty
or disloyalty injurious to CG&E;
2) use by Randolph of alcohol, drugs, narcotics, or other
controlled substances to such an extent that Randolph's
ability to perform his duties as an employee of CG&E is
materially impaired;
3) disclosing without authorization proprietary or confidential
information of CG&E;
4) committing any act of gross negligence or gross malfeasance;
or
5) conviction of a crime amounting to a felony under the laws
of the United States of America or any of the several
states.
The determination of whether or not there has been termination for
cause shall be made by the Board of Directors of CG&E provided
that, if the terminated Randolph remains a member of the Board of
Directors, he shall not participate in the determination.
b) Disability. Disability shall mean the total and permanent
inability of Randolph to perform the duties assigned him by CG&E
for which his training or experience reasonably qualifies him.
The disability may result from either physical or mental
incapacity.
1) In the event that either CG&E or Randolph shall raise the
issue of disability, the Administrator shall give notice to
Randolph of the name of a physician licensed to practice
medicine in Ohio who will examine Randolph on behalf of
CG&E. Randolph will make arrangements and allow himself to
be examined by such physician within thirty (30) days
thereafter. If Randolph disagrees with the findings of such
physician, he will provide CG&E with the name of a second
physician of his choosing who is licensed to practice
medicine in Ohio within ten (10) days thereafter. The two
physicians thus named will then be directed to name a third
physician, also licensed to practice medicine in Ohio.
Randolph will make himself available for additional
examinations by the three physicians, and the decision as to
Disability by any two of the three physicians shall be
binding on all parties for a period of ninety (90) days.
2) If the three physicians determine that Randolph's disability
has ceased and if Randolph does not return to active full
time employment with CG&E within ten (10) days of such
determination, Randolph shall then be deemed to have
terminated employment for a reason other than disability.
c) Change in Control. A change in control means a change in control
as defined in the Executive Severance Agreement which governs the
severance benefits of Randolph.
7. Transfer of Policy Rights Upon Termination. If this Agreement
terminates for any reason provided in 5, Randolph shall have the right
to pay to CG&E within sixty (60) days following the date of such
termination an amount equal to CG&E's Policy Interest. Upon receipt of
such amount, CG&E shall promptly execute and deliver to Randolph an
appropriate instrument releasing any and all rights of CG&E under the
Collateral Assignment so that all rights under the Policy thereafter
inure to Randolph. If Randolph fails to timely repay CG&E's Policy
Interest as hereinabove provided, CG&E shall refund to Randolph any
payment made by Randolph to CG&E or the Insurer for the unexpired
portion of the premium payment period in which the termination of the
Agreement occurred, and thereafter Randolph promptly shall execute any
and all instruments required to vest sole ownership of the Policy in
CG&E. Randolph shall thereafter have no further interest in the Policy
and will be deemed to have satisfied all of his obligations for the
repayment of any and all of CG&E's Policy Interest.
8. Assignment.
a) Randolph's Right to Transfer Interest in the Policy. Randolph may
at any time transfer or assign his interest in the Policy and his
rights and obligations under this Agreement to a third party or
parties. Upon any such transfer, all of Randolph's interest in
the Policy and rights and obligations under this Agreement and the
Collateral Assignment shall be vested in the transferees, who
shall be substituted for Randolph as a party or parties hereto,
and Randolph shall have no further interest in the Policy or
rights under this Agreement.
b) CG&E's Right to Transfer Interest in the Policy. CG&E may assign
its rights, interest and obligations under this Agreement;
provided, however, any such assignment shall be subject to the
terms of this Agreement.
9. ERISA. The following provisions are part of this Agreement and are
intended to meet the requirements of Employee Retirement Income Security
Act of 1974. This Plan is a "welfare plan" under ERISA. This Agreement
(including the Schedules) constitutes a plan description and a summary
plan description under ERISA.
a) Plan Name: JHR Split Dollar Life Insurance Plan
b) Plan Number: 519
c) Plan Year: May 1 - April 30
d) Sponsor: The Cincinnati Gas & Electric Company, 139 East Fourth
Street, Cincinnati, Ohio 45202, telephone (513) 381-2000, Federal
Tax ID #31-0240030
e) Plan Administrator: Robert P. Wiwi, Chairman of the MRP Committee,
The Cincinnati Gas & Electric Company, 139 East Fourth Street,
Cincinnati, Ohio 45202, telephone (513) 287-2294.
f) Agent for Service of Legal Process: Robert P. Wiwi, Chairman of
MRP Committee, c/o The Cincinnati Gas & Electric Company, 139 East
Fourth Street, Cincinnati, Ohio 45202 (Service of process may also
be made on the Plan Administrator.)
g) Eligibility Requirements: Jackson H. Randolph, as President and
CEO of CG&E.
h) Claims: For claims procedure purposes, the "Claims Manager" shall
be the Chairman of the CG&E Management Retirement Plan (or chair
of the administration committee of any successor plan.)
1) If for any reason a claim for benefits under this Agreement
is denied by CG&E, the Claims Manager shall deliver to the
claimant a written explanation setting forth the specific
reasons for the denial, pertinent references to the section
of the Agreement on which the denial is based, such other
data as may be pertinent and information on the procedures
to be followed by the claimant in obtaining a review of his
claim, all written in a manner calculated to be understood
by the claimant. For this purpose:
A) The claimant's claim shall be deemed filed when
presented orally or in writing to the Claims Manager.
B) The Claims Manager's explanation shall be in writing
delivered to the claimant within ninety (90) days of
the date the claim is filed.
2) The claimant shall have sixty (60) days following his
receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. For
such review, the claimant or his representative may submit
pertinent documents and written issues and comments.
3) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within sixty (60) days of
receipt of the claimant's request for review of his claim.
The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner
calculated to be understood by the claimant, as well as
specific references to the pertinent provisions of the
Agreement on which the decision is based. If a copy of the
decision is not so furnished to the claimant within sixty
(60) days, the claim shall be deemed denied on review.
i) ERISA Rights: As a participant in this agreement, Randolph is
entitled to certain rights and protections under the Employee
Retirement Income Security Act of 1974 ("ERISA"). ERISA provides
that all participants shall be entitled to:
Examine, without charge, at the plan administrator's office and at
other specified locations, all plan documents, including insurance
contracts, and copies of all documents filed by the plan with the
U.S. Department of Labor, such as detailed annual reports and plan
descriptions.
Obtain copies of all plan documents and other plan information
upon written request to the plan administrator. The administrator
may make a reasonable charge for the copies.
In addition to creating rights for plan participants, ERISA
imposes duties upon the people who are responsible for the
operation of the employee benefit plan. The people who operate
your plan, called "fiduciaries" of the plan, have a duty to do so
prudently and in the interest of you and other plan participants
and beneficiaries. No one, including your employer or any other
person, may fire you or otherwise discriminate against you in any
way to prevent you from obtaining a benefit or exercising your
rights under ERISA.
Under ERISA, there are steps you can take to enforce the above
rights. For instance, if you request materials from the plan and
do not receive them within 30 days, you may request arbitration as
provided in 10.
If it should happen that plan fiduciaries misuse the plan's money,
or if you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor, or you may
seek arbitration.
If you have any questions about your plan, you should contact the
plan administrator. If you have any questions about this
statement or about your rights under ERISA, you should contact the
nearest Area Office of the U.S. Labor-Management Services
Administration, Department of Labor.
10. Arbitration of Denied Claims. Any controversy or claim arising out of or
relating to a final decision, upon review pursuant to the procedures set
forth in 9 above, that denies a claim for benefits under this Agreement
shall be settled by arbitration under three arbitrators in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof. Any such
arbitration shall be subject to the statute of limitations that would
apply if the claim on which the arbitration is based were brought as a
suit in a United States district court under ERISA. The site of any
such arbitration shall be Cincinnati, Ohio.
11. Entire Agreement; Amendment. This Agreement and the Collateral
Assignment and any written amendments thereto contain all the terms and
provisions of the parties' rights and obligations relating to the
subject hereof and shall constitute the entire agreement of the parties,
any other alleged terms or provisions being of no effect. Neither this
Agreement nor the Collateral Assignment may be amended or modified
except by a written instrument signed by all parties hereto.
12. Liability of Insurer. The Insurer shall be bound only by the provisions
of and endorsements on the Policy, and any payments made or action taken
by it in accordance therewith shall fully discharge it from all claims,
suits and demands of all persons whatsoever. The Insurer shall be
entitled to rely exclusively on a statement by CG&E as to the
determination of the parties' respective interests in the Policy. The
Insurer shall in no way be bound by or be deemed to have notice of the
provisions of this Agreement.
13. Liability of CG&E. The benefits provided by the Insurer shall be
governed by the terms of the Policy. All such benefits are provided
solely by the Insurer and are subject to the Insurer's ability to pay
benefits. CG&E does not guarantee the Insurer's payments under the
Policy.
14. Binding Effect. This Agreement is binding upon and inures to the benefit
of CG&E and any successor or transferee, Randolph (and his heirs,
executors, administrators and transferees), and any Policy beneficiary.
15. Merger or Consolidation. In the event of a merger or a consolidation by
CG&E with another corporation, or the acquisition of substantially all
of the assets or outstanding stock of CG&E by another corporation, then
and in such event the obligations and responsibilities of CG&E under
this Agreement shall be assumed by any such successor or acquiring
corporation, and all of the rights, privileges and benefits of Randolph
under this Agreement shall continue.
16. No Employment Agreement. This Agreement is not an employment agreement
and nothing in this Agreement changes or in any way affects CG&E's
rights to terminate Randolph's employment.
17. No Guarantee of Any Particular Tax Results. Neither CG&E nor any of its
agents, consultants or advisors guarantee any particular income tax
treatment of this Agreement and the Policy. Randolph acknowledges that
while the Agreement is in effect, Randolph is subject to income taxation
each year on the excess, if any, of the value of the economic benefit
attributable to the life insurance protection provided to Randolph under
this Agreement over Randolph's premium payment for such year. Randolph
also acknowledges that although the Policy is designed not to be or
become a Modified Endowment Contract ("MEC") as defined in Section 7702A
of the Internal Revenue Code of 1986, it may nevertheless be or become a
MEC. Under a MEC, cash withdrawals and Policy loans are taxed to the
extent there are earnings in the Policy, and may be subject to an
additional tax.
18. Randolph's Interest Is Exempt from Creditors (to the Extent Permitted by
Law). To the extent enforceable under applicable law, neither Randolph's
interest in the Policy and this Agreement nor any part thereof is
subject in any manner to (1) any claims of any creditor of Randolph or
CG&E, (2)the debts, contracts, liabilities or torts of Randolph or CG&E,
or (3) voluntary or involuntary transfer to, on behalf of, or on
account of any creditor of Randolph or CG&E. If any person or entity
attempts to take any action contrary to this Section and if this Section
is enforceable under applicable law, such action will have no effect,
and CG&E and Randolph will disregard the action, will not in any manner
be bound by it, and will not incur any liability on account of it or the
disregard of it.
19. Miscellaneous. Where appropriate in this Agreement, words used in the
singular shall include the plural, and words used in masculine shall
include the feminine or neuter. This Agreement and all rights hereunder
are governed by ERISA and, to the extent that state laws is applicable,
the laws of the State of Ohio shall govern this Agreement. Titles have
been inserted for convience of reference. In the event of any conflict,
the text of this agreement, rather than a title, shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the day and year first above written.
THE CINCINNATI GAS & ELECTRIC JACKSON H. RANDOLPH
COMPANY
By:__________________________ __________________________
Oliver W. Birckhead Jackson H. Randolph
Chairman of the Compensation
Committee, Board of Directors
Date:________________________ Date:_____________________
Schedule A
Insured - Jackson H. Randolph
1. Northwestern Mutual Life Insurance Company:
Policy #12524794.
2. Initial Face Amount $ 1,026,915.00.
Schedule B
Schedule of Randolph's Death Benefits
During the Term of this Agreement
Policy Year Ending April 30 Amount
1994 $ 950,000
1995 1,007,000
1996 1,067,420
1997 1,131,465
1998 1,199,353
1999 1,271,314
2000 1,347,593
2001 1,428,449
2002 714,224
2003 714,224
2004 714,224
2005 714,224
2006 714,224
2007 714,224
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated January 23, 1995, included in CINergy Corp.'s
Annual Report on Form 10-K for the year ended December 31, 1994, into its
previously filed Registration Statement Nos. 33-55267, 33-55291, 33-55293,
33-55713, 33-56067, 33-56089, 33-56091, 33-56093 and 33-56095.
Arthur Andersen LLP
Cincinnati, Ohio,
March 27, 1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Neil A. Armstrong,
of the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Lebanon and State of Ohio on this 16th day of
March, 1995.
Neil A. Armstrong
STATE OF Ohio )
) SS:
COUNTY OF Warren )
Before me, Vivian White , a notary public in and for
the aforesaid County and State, personally appeared this day Neil
A. Armstrong, to me known, and known to me to be the same person
whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 16th day of March,
1995.
Vivian White (SEAL)
Notary Public
My commission expires:
January 31, 1999
My county of residence:
Warren
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James K. Baker, of
the City of Columbus and State of Indiana, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp. and
PSI Energy, Inc., to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1994, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Columbus and State of Indiana on this 15th day
of March, 1995.
J. K. Baker
STATE OF Indiana )
) SS:
COUNTY OF Bartholomew )
Before me, Patty S. Frazier , a notary public in and for
the aforesaid County and State, personally appeared this day
James K. Baker, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Patty S. Frazier (SEAL)
Notary Public
My commission expires:
April 28, 1995
My county of residence:
Bartholomew
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Hugh A. Barker, of
the City of Plainfield and State of Indiana, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CInergy Corp. and
PSI Energy, Inc., to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1994, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Green Valley and State of Arizona on this 15th
day of March, 1995.
Hugh A. Barker
STATE OF Arizona )
) SS:
COUNTY OF Pima )
Before me, Cindy A. Sanders , a notary public in and for
the aforesaid County and State, personally appeared this day Hugh
A. Barker, to me known, and known to me to be the same person
whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Cindy A. Sanders (SEAL)
Notary Public
My commission expires:
December 12, 1997
My county of residence:
Pima
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael G. Browning,
of the City of Carmel and State of Indiana, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp.
,,and PSI Energy, Inc., to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1994, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Indianapolis and State of Indiana on this 15th
day of March, 1995.
Michael G. Browning
STATE OF Indiana )
) SS:
COUNTY OF Marion )
Before me, Bonny J. Light , a notary public in and for
the aforesaid County and State, personally appeared this day
Michael G. Browning, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Bonny J. Light (SEAL)
Notary Public
My commission expires:
January 18, 1996
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Clement L. Buenger,
of the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Cincinnati and State of Ohio on this 16th day
of March, 1995.
Clement L. Buenger
STATE OF Ohio )
) SS:
COUNTY OF Hamilton )
Before me, Pamela J. Moon , a notary public in and for
the aforesaid County and State, personally appeared this day
Clement L. Buenger, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 16th day of March,
1995.
Pamela J. Moon (SEAL)
Notary Public
My commission expires:
October 11, 1995
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Phillip R. Cox, of
the City of Lebanon and State of Ohio, do hereby constitute and
appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Cincinnati and State of Ohio on this 15th day
of March, 1995.
Phillip R. Cox
STATE OF Ohio )
) SS:
COUNTY OF Hamilton )
Before me, Steven A. Niederbaumer , a notary public in and
for the aforesaid County and State, personally appeared this day
Phillip R. Cox, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Steven A. Niederbaumer (SEAL)
Notary Public
My commission expires:
October 26, 1999
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Kenneth M.
Duberstein, of the City of Washington and District of Columbia,
do hereby constitute and appoint Jackson H. Randolph, James E.
Rogers, and J. Wayne Leonard, or either of them, my true and
lawful attorney for me and in my name to sign my name as a
director of CINergy Corp. and PSI Energy, Inc., to the Form 10-K
Annual Report of each corporation for the fiscal year ended
December 31, 1994, and to deliver said Form 10-K Annual Reports
so signed for filing with the Securities and Exchange Commission
in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Washington and District of Columbia on this 28th
day of March, 1995.
Kenneth M. Duberstein
CITY OF Washington )
) SS:
DISTRICT OF Columbia )
Before me, Susan B. Magee , a notary public in and for
the aforesaid County and State, personally appeared this day
Kenneth M. Duberstein, to me known, and known to me to be the
same person whose name is signed to the foregoing instrument, and
he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 28th day of March,
1995.
Susan B. Magee (SEAL)
Notary Public
My commission expires:
October 31, 1999
My county of residence:
Arlington, VA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, John A. Hillenbrand,
II, of the City of Batesville and State of Indiana, do hereby
constitute and appoint Jackson H. Randolph, James E. Rogers, and
J. Wayne Leonard, or either of them, my true and lawful attorney
for me and in my name to sign my name as a director of CINergy
Corp. and PSI Energy, Inc., to the Form 10-K Annual Report of
each corporation for the fiscal year ended December 31, 1994, and
to deliver said Form 10-K Annual Reports so signed for filing
with the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Batesville and State of Indiana on this 20th
day of March, 1995.
John A. Hillenbrand, II
STATE OF Indiana )
) SS:
COUNTY OF Ripley )
Before me, Carolyn Hahn , a notary public in and for the
aforesaid County and State, personally appeared this day John A.
Hillenbrand, II, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 20th day of March,
1995.
Carolyn Hahn (SEAL)
Notary Public
My commission expires:
December 17, 1997
My county of residence:
Ripley
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, George C. Juilfs, of
the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Newport and State of Kentucky on this 17th day
of March, 1995.
George C. Juilfs
STATE OF Kentucky )
) SS:
COUNTY OF Campbell )
Before me, Renate B. Brake , a notary public in and for
the aforesaid County and State, personally appeared this day
George C. Juilfs, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 17th day of March,
1995.
Renate B. Brake (SEAL)
Notary Public
My commission expires:
October 6, 1997
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Melvin Perelman, of
the City of Indianapolis and State of Indiana, do hereby
constitute and appoint Jackson H. Randolph, James E. Rogers, and
J. Wayne Leonard, or either of them, my true and lawful attorney
for me and in my name to sign my name as a director of CINergy
Corp. and PSI Energy, Inc., to the Form 10-K Annual Report of
each corporation for the fiscal year ended December 31, 1994, and
to deliver said Form 10-K Annual Reports so signed for filing
with the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Davis and State of CA on this 15th day of
March, 1995.
Melvin Perelman
STATE OF California )
)
COUNTY OF Yolo )
On 3-15-95 before me, Denise Murphy/ Notary Public ,
personally appeared Melvin Perelman , proved to me on the basis
of satisfactory evidence to be the person whose name is
subscribed to the within instrument and acknowledged to me that
he executed the same in his authorized capacity, and that by his
signature on the instrument the person or the entity upon behalf
of which the person acted, excecuted the instrument.
WITNESS my hand and official seal.
Denise Murphy
Signature of Notary
My commission expires:
March 17, 1997
My county of residence:
Yolo
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Thomas E. Petry, of
the City of Terrace Park and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Cincinnati and State of Ohio on this 15th day
of March, 1995.
Thomas E. Petry
STATE OF Ohio )
) SS:
COUNTY OF Hamilton )
Before me, Patricia A. Harris , a notary public in and
for the aforesaid County and State, personally appeared this day
Thomas E. Petry, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Patricia A. Harris (SEAL)
Notary Public
My commission expires:
September 30, 1995
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, John J. Schiff, Jr.,
of the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Fairfield and State of Ohio on this 16th day of
March, 1995.
John J. Schiff, Jr.
STATE OF Ohio )
) SS:
COUNTY OF Butler )
Before me, Christine A. Gerbus , a notary public in and
for the aforesaid County and State, personally appeared this day
John J. Schiff, Jr., to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 16th day of March,
1995.
Christine A. Gerbus (SEAL)
Notary Public
My commission expires:
May 27, 1997
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Van P. Smith, of the
City of Muncie and State of Indiana, do hereby constitute and
appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp. and
PSI Energy, Inc., to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1994, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Muncie and State of Indiana on this 15th day of
March, 1995.
Van P. Smith
STATE OF Indiana )
) SS:
COUNTY OF Delaware )
Before me, Patricia P. Heath , a notary public in and
for the aforesaid County and State, personally appeared this day
Van P. Smith, to me known, and known to me to be the same person
whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Patricia P. Heath (SEAL)
Notary Public
My commission expires:
June 19, 1998
My county of residence:
Randolph
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Dudley S. Taft, of
the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Cincinnati and State of Ohio on this 21st day
of March, 1995.
Dudley S. Taft
STATE OF Ohio )
) SS:
COUNTY OF Hamilton )
Before me, Patricia A. Sammons , a notary public in and
for the aforesaid County and State, personally appeared this day
Dudley S. Taft, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 21st day of March,
1995.
Patricia A. Sammons (SEAL)
Notary Public
My commission expires:
October 18, 1997
My county of residence:
Hamilton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Oliver W. Waddell,
of the City of Cincinnati and State of Ohio, do hereby constitute
and appoint Jackson H. Randolph, James E. Rogers, and J. Wayne
Leonard, or either of them, my true and lawful attorney for me
and in my name to sign my name as a director of CINergy Corp., to
the Form 10-K Annual Report of each corporation for the fiscal
year ended December 31, 1994, and to deliver said Form 10-K
Annual Reports so signed for filing with the Securities and
Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Cincinnati and State of Ohio on this 15th day
of March, 1995.
Oliver W. Waddell
STATE OF Ohio )
) SS:
COUNTY OF Hamilton )
Before me, Steven A. Niederbaumer , a notary public in
and for the aforesaid County and State, personally appeared this
day Oliver W. Waddell, to me known, and known to me to be the
same person whose name is signed to the foregoing instrument, and
he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 15th day of March,
1995.
Steven A. Niederbaumer (SEAL)
Notary Public
My commission expires:
October 26, 1999
My county of residence:
Hamilton
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,198,893
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 811,705
<TOTAL-DEFERRED-CHARGES> 1,004,963
<OTHER-ASSETS> 134,281
<TOTAL-ASSETS> 8,149,842
<COMMON> 1,552
<CAPITAL-SURPLUS-PAID-IN> 1,535,658
<RETAINED-EARNINGS> 877,061
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,414,271
210,000
267,929
<LONG-TERM-DEBT-NET> 2,715,269
<SHORT-TERM-NOTES> 228,900
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 60,400
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,253,073
<TOT-CAPITALIZATION-AND-LIAB> 8,149,842
<GROSS-OPERATING-REVENUE> 2,924,177
<INCOME-TAX-EXPENSE> 152,181
<OTHER-OPERATING-EXPENSES> 2,331,506
<TOTAL-OPERATING-EXPENSES> 2,483,687
<OPERATING-INCOME-LOSS> 440,490
<OTHER-INCOME-NET> 13,497
<INCOME-BEFORE-INTEREST-EXPEN> 453,987
<TOTAL-INTEREST-EXPENSE> 227,286
<NET-INCOME> 226,701
35,559
<EARNINGS-AVAILABLE-FOR-COMM> 191,142
<COMMON-STOCK-DIVIDENDS> 221,362
<TOTAL-INTEREST-ON-BONDS> 219,248
<CASH-FLOW-OPERATIONS> 440,408
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
