<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant /X/
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CINERGY CORP.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CINERGY CORP.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- - --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
CINERGY CORP.
139 EAST FOURTH STREET
CINCINNATI, OHIO 45202
March 17, 1995
DEAR SHAREHOLDER:
You are cordially invited to attend the initial Annual Meeting of
Shareholders of CINergy Corp. on Thursday, April 20, 1995, to be held at 11:00
a.m., Eastern Daylight Saving Time, in the Oak Room of the Cincinnati Club
Building, 30 Garfield Place, Cincinnati, Ohio. Whether or not you plan to
attend, we will greatly appreciate your giving prompt attention to the attached
materials. At the meeting, the shareholders will elect one Class II director and
five Class I directors, and transact such other business as may legally come
before the meeting, or any adjournment thereof.
It is important to your interests that all shareholders, regardless of
the number of shares owned, participate in the affairs of the Company. Even if
you plan to attend the meeting, we urge you to mark, sign and date the enclosed
proxy and return it promptly. By signing and returning your proxy card promptly,
you are assuring that your shares will be voted.
Thank you for your continued interest in the Company.
Sincerely yours,
[Sig.] [Sig.]
Jackson H. Randolph James E. Rogers
Chairman and Vice Chairman, President and
Chief Executive Officer Chief Operating Officer
<PAGE> 3
CINERGY CORP.
139 EAST FOURTH STREET
CINCINNATI, OHIO 45202
---------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 20, 1995
TO THE SHAREHOLDERS OF
CINergy Corp.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CINergy
Corp. will be held in the OAK ROOM of the CINCINNATI CLUB BUILDING, 30 GARFIELD
PLACE, Cincinnati, Ohio, on Thursday, April 20, 1995 at 11:00 a.m., Eastern
Daylight Saving Time, for the purposes of:
(1) the election of one Class II director to serve for a one-year term
expiring in 1996, and five Class I directors to serve for three-year
terms expiring in 1998;
(2) acting upon, if presented at the meeting, a shareholder proposal
which the Board of Directors OPPOSES;
and transacting such other business as may legally come before the meeting.
Only shareholders of record at the close of business on Tuesday, February
21, 1995, will be entitled to vote at the meeting and at any adjournment
thereof. It is important that your shares be represented at this meeting in
order that the presence of a quorum may be assured. Shareholders, whether or not
they now expect to be present at the meeting, are requested to mark, date and
sign the enclosed proxy, and return it promptly. An addressed envelope, on which
no postage stamp is necessary if mailed in the United States, is enclosed for
use in returning the proxy. A shareholder executing and delivering the enclosed
proxy has the power to revoke it at any time before the authority granted by the
proxy is exercised.
CINergy Corp.
BY CHERYL M. FOLEY, SECRETARY
Dated: March 17, 1995
<PAGE> 4
CINERGY CORP.
139 EAST FOURTH STREET
CINCINNATI, OHIO 45202
PROXY STATEMENT
INTRODUCTION
Effective October 24, 1994 (the "Effective Date"), CINergy Corp., a
Delaware corporation (the "Company"), became the holding company for The
Cincinnati Gas & Electric Company ("CG&E") and PSI Energy, Inc. ("PSI Energy"),
the operating subsidiary of the former PSI Resources, Inc. ("PSI"). On the
Effective Date, the Company acquired all the common stock of both CG&E and PSI,
and the former common stock holders of CG&E and PSI became holders of common
stock of the Company (the "Merger"). The Company also owns all the stock of
CINergy Services, Inc. ("CINergy Services") and CINergy Investments, Inc.
("CINergy Investments"). CG&E is an operating utility primarily engaged in
providing electric and gas service in the southwestern portion of Ohio and,
through its principal subsidiary, The Union Light, Heat and Power Company
("Union Light"), in adjacent areas in Kentucky. PSI Energy is an operating
utility primarily engaged in providing electric service in north central,
central, and southern Indiana. CINergy Services provides management, financial,
administrative, engineering, legal and other services to the Company, CG&E, PSI
Energy, and CINergy Investments. CINergy Investments is the subsidiary under
which all nonregulated subsidiaries of the Company are formed.
This Proxy Statement is first being mailed on or about March 17, 1995, to
holders of the common stock of the Company in connection with the solicitation
of proxies by the Board of Directors (the "Board") of the Company for use at the
Annual Meeting of Shareholders to be held on April 20, 1995, and any adjournment
of such meeting (the "Annual Meeting").
The Company's Annual Report to Shareholders, including financial
statements, for the year ended December 31, 1994 accompanies the mailing of this
Proxy Statement.
VOTING PROCEDURES AND RIGHTS
Only holders of record of the Company's common stock at the close of
business on February 21, 1995 (the "Record Date") will be entitled to vote at
the Annual Meeting. A majority of such holders, present in person or represented
by proxy, constitutes a quorum. The number of shares of the Company's common
stock outstanding as of the Record Date was 155,747,210. Each share of common
stock entitles its owner to one vote upon each matter to come before the
meeting.
In accordance with the General Corporation Law of the State of Delaware
and the Company's By-Laws, directors will be elected at the Annual Meeting by a
plurality of the votes cast. Each other matter to be presented at the Annual
Meeting will be determined by the vote of a majority of the votes cast. In
tabulating the vote on each matter to be presented, abstentions and broker
non-votes, if any, will be disregarded and have no effect on the outcome of the
vote. Votes at the Annual Meeting will be tabulated preliminarily by the Company
acting as its own transfer agent. Inspectors of election, duly appointed by the
presiding officer
<PAGE> 5
of the Annual Meeting, will definitively count and tabulate the votes and
determine and announce the results at the meeting. The Company has no
established procedure for confidential voting.
PROXIES
The enclosed proxy is solicited by the Board of the Company, which
recommends voting FOR the election of all nominees as directors, and AGAINST the
shareholder proposal. Shares of the Company's common stock represented by
properly executed proxies received at or prior to the Annual Meeting will be
voted in accordance with the instructions thereon. If no instructions are
indicated, duly executed proxies will be voted in accordance with the
recommendations of the Board. It is not anticipated that any other matters will
be brought before the Annual Meeting. However, the enclosed proxy gives
discretionary authority to the proxy holders named therein should any other
matters be presented at the Annual Meeting, and it is the intention of the proxy
holders to act on any other matters in accordance with their best judgment.
Execution of a proxy will not prevent a shareholder from attending the
Annual Meeting and voting in person. Any shareholder giving a proxy may revoke
it at any time before it is voted by delivering to the Secretary of the Company
written notice of revocation bearing a later date than the proxy, by delivering
a duly executed proxy bearing a later date or by voting in person at the Annual
Meeting.
The Company will bear the cost of the solicitation of proxies by the
Board. The Company has engaged Corporate Investor Communications, Inc. to assist
in the solicitation of proxies for a fee estimated to be $6,500 plus
reimbursement of reasonable out-of-pocket expenses. Proxies will be solicited by
mail. In addition, officers and regular employees of the Company may solicit
proxies personally or by telephone; such persons will receive no additional
compensation for these services.
The Company has requested that brokerage houses and other custodians,
nominees and fiduciaries forward solicitation materials to the beneficial owners
of shares of the Company's common stock held of record by such persons and will
reimburse such brokers and other fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith.
ELECTION OF DIRECTORS
In accordance with the provisions of the By-Laws of the Company, the
Board is divided into three classes (Class I, Class II, and Class III), with all
classes as nearly equal in number as possible. One class of directors is
ordinarily elected at each annual meeting of shareholders for a three-year term.
Neil A. Armstrong, James K. Baker, Clement L. Buenger, John A. Hillenbrand, II,
and George C. Juilfs have been nominated by the Board for election as Class I
directors at the Annual Meeting for terms of three years each and until their
successors are duly elected and qualified.
Mr. Hugh A. Barker, presently a director in Class II whose term would
have expired at the 1996 annual meeting, will retire as a member of the Board
effective at the Annual Meeting. Accordingly, Philip R. Sharp has been nominated
by the Board to fill this vacancy in Class II for a one-year term expiring in
1996. The Company would like to acknowledge Mr. Barker, who had served as a
director of PSI Energy since 1968 and of PSI from 1988 through the Effective
Date. Additionally, Mr. Barker retired in February 1989 as President of PSI and
Chairman of PSI Energy. His advice and support have been sincerely appreciated.
2
<PAGE> 6
Duly executed and returned proxies representing shares held on the Record
Date will be voted, unless otherwise specified, in favor of the nominees for the
Board. With the exception of Dr. Sharp, each nominee and continuing director is
a member of the Company's present Board and was a director of CG&E or PSI prior
to the Effective Date. Messrs. Armstrong, Buenger, Cox, Juilfs, Petry, Randolph,
Schiff, Taft and Waddell were directors of CG&E, and Messrs. Baker, Browning,
Duberstein, Hillenbrand, II, Perelman, Rogers and Smith were directors of PSI.
The dates given below relating to length of service as a director include prior
service as a director of CG&E or PSI Energy. All nominees have consented to
serve if elected, but if any becomes unavailable to serve, the persons named as
proxies may exercise their discretion to vote for a substitute nominee.
Except as otherwise noted, the principal occupation or employment of each
individual set forth below has been such individual's principal occupation or
employment for the past five years and no such individual holds another position
or office with the Company. All nominees and continuing directors, other than
Messrs. Randolph and Rogers, are otherwise unaffiliated with the Company and its
subsidiaries.
THE BOARD RECOMMENDS VOTING FOR ALL NOMINEES, DESIGNATED IN THE PROXY AS
ITEM 1.
<TABLE>
<CAPTION>
NAMES, AGES, PRINCIPAL OCCUPATIONS AND SELECTED INFORMATION
- - ----------------------------------------------------------------------------------------------
<S> <C>
CLASS II NOMINEE FOR ELECTION AS DIRECTOR WHOSE TERM EXPIRES IN 1996
PHILIP R. SHARP, PH.D.
Age 52
Dr. Sharp is a lecturer in public policy at the John F. Kennedy School of
Government at Harvard University in Cambridge, Massachusetts. He is also
Chairman of the Energy Board of The Keystone Center, a not-for-profit
public policy, scientific and educational organization with locations in
Keystone, Colorado and Washington, D.C. Dr. Sharp served as a member of
the U.S. House of Representatives from 1975 until January 1995,
representing the second Congressional district of the State of Indiana.
He was a ranking member of the House Energy and Commerce Committee, where
he chaired the Energy and Power Subcommittee and served on the
Transportation and Hazardous Materials Subcommittee, and of the House
Natural Resources Committee, where he served on the Energy and Mineral
Resources and the Oversight and Investigations Subcommittees.
- - -----------------------------------------------------------------------------------------------
CLASS I DIRECTOR NOMINEES FOR TERMS TO EXPIRE IN 1998
NEIL A. ARMSTRONG
Director since 1973. Age 64
Member-Executive Committee
and Audit Committee
Mr. Armstrong is Chairman of the Board of AIL Systems Inc., a subsidiary
of Eaton Corp., which is engaged in the manufacturing of electronic
devices and systems. He is a director of Cincinnati Milacron Inc., Eaton
Corp., RMI Titanium Co., Thiokol Corp., and USX Corp. Mr. Armstrong
completed his tenure as Chairman of Computing Technologies For Aviation,
Inc. in 1992.
- - -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAMES, AGES, PRINCIPAL OCCUPATIONS AND SELECTED INFORMATION
- - -----------------------------------------------------------------------------------------------
<S> <C>
JAMES K. BAKER
Director since 1986. Age 63
Chairman-Audit Committee
Member-Executive Committee
Mr. Baker is Chairman of the Board of Arvin Industries, Inc., which is
engaged in the manufacturing of automotive parts. He is a director of PSI
Energy, NBD Bancorp, Inc., Space Industries International, Inc., Tokheim
Corporation, GEON Company, and Amcast Industrial Corp.
- - -----------------------------------------------------------------------------------------------
CLEMENT L. BUENGER
Director since 1984. Age 68
Member-Finance Committee
Mr. Buenger was Chairman of the Board of Fifth Third Bancorp and The
Fifth Third Bank from 1991 until his retirement in 1993. During the years
1989-1990, Mr. Buenger held the executive positions of Chairman of the
Board and Chief Executive Officer; he previously served as President and
Chief Executive Officer of Fifth Third Bancorp and The Fifth Third Bank.
Mr. Buenger is a director of Fifth Third Bancorp and The Fifth Third
Bank.
- - -----------------------------------------------------------------------------------------------
JOHN A. HILLENBRAND, II
Director since 1985. Age 63
Chairman-Public Policy Committee
Member-Finance Committee
Mr. Hillenbrand principally serves as Chairman, President and Chief
Executive Officer of Glynnadam, Inc., a personal investment holding
company. He is also Chairman of Able Body Corporation and Nambe' Mills,
Inc., and Vice Chairman of Pri-Pak, Inc. Mr. Hillenbrand is a director of
PSI Energy, Hillenbrand Industries, Inc., and National City Bank,
Indiana.
- - -----------------------------------------------------------------------------------------------
GEORGE C. JUILFS
Director since 1980. Age 55
Member-Public Policy Committee
and Compensation Committee
Mr. Juilfs is President and Chief Executive Officer of SENCORP, an
international holding company with subsidiaries that manufacture
fastening systems, finance and lease capital equipment, and commercialize
health-care technologies.
- - -----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
NAMES, AGES, PRINCIPAL OCCUPATIONS AND SELECTED INFORMATION
- - -----------------------------------------------------------------------------------------------
<S> <C>
CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 1996
MELVIN PERELMAN, PH.D.
Director since 1980. Age 64
Member-Finance Committee and
Committee on Directors
Dr. Perelman was Executive Vice President of Eli Lilly and Company,
engaged in the manufacturing of pharmaceuticals, until his retirement in
1993. He was also President of Lilly Research Laboratories. Dr. Perelman
is a director of PSI Energy.
- - -----------------------------------------------------------------------------------------------
THOMAS E. PETRY
Director since 1986. Age 55
Member-Executive Committee
and Audit Committee
Mr. Petry has served as Chairman of the Board and Chief Executive Officer
of Eagle-Picher Industries, Inc., a diversified manufacturer of
industrial and automotive products, since December 1994. He was Chairman
of the Board, President and Chief Executive Officer of Eagle-Picher
Industries, Inc. from April 1992 until December 1994; from March 1989
through March 1992, he was Chairman of the Board and Chief Executive
Officer, and previously served as President and Chief Executive Officer.
A voluntary petition under Chapter 11 of the U.S. Bankruptcy Code was
filed by Eagle-Picher on January 7, 1991; a plan of reorganization that
provides a basis for emergence from Chapter 11 was filed on February 28,
1995. Mr. Petry is a director of Insilco Corporation, Star Banc
Corporation, Star Bank, N.A., Cincinnati, Ohio, and The Union Central
Life Insurance Company.
- - -----------------------------------------------------------------------------------------------
JACKSON H. RANDOLPH
Director since 1983. Age 64
Chairman-Executive Committee
Mr. Randolph has served as Chairman of the Board and Chief Executive
Officer of the Company, CINergy Investments, CINergy Services, CG&E, and
PSI Energy since October 1994 (and of Union Light since January 1995). He
was Chairman of the Board, President and Chief Executive Officer of CG&E
from May 1993 until October 1994 (and of Union Light from June 1993 until
January 1995); previously he served as President and Chief Executive
Officer of CG&E and Union Light. Mr. Randolph is a director of Cincinnati
Financial Corporation, PNC Bank Corp., and PNC Bank, Ohio, N.A.
- - -----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
NAMES, AGES, PRINCIPAL OCCUPATIONS AND SELECTED INFORMATION
- - -----------------------------------------------------------------------------------------------
<S> <C>
VAN P. SMITH
Director since 1986. Age 66
Chairman-Compensation Committee
Member-Executive Committee
Mr. Smith is Chairman and President of Ontario Corporation which is
engaged in the manufacturing of aircraft engine components. He is a
director of PSI Energy, each of the subsidiaries of Ontario Corporation,
Lilly Industries, Inc., Meridian Insurance Group, Inc., and Meridian
Mutual Insurance Co.
- - -----------------------------------------------------------------------------------------------
DUDLEY S. TAFT
Director since 1985. Age 54
Chairman-Committee on Directors
Mr. Taft is President and Chief Executive Officer of Taft Broadcasting
Company, which owns and operates television broadcasting stations. He is
a director of Fifth Third Bancorp, The Fifth Third Bank, The Future Now,
Inc., The Union Central Life Insurance Company, and U.S. Playing Card
Company.
- - -----------------------------------------------------------------------------------------------
CLASS III DIRECTORS WHOSE TERMS EXPIRE IN 1997
MICHAEL G. BROWNING
Director since 1990. Age 48
Member-Committee on Directors
and Compensation Committee
Mr. Browning is Chairman and President of Browning Investments, Inc.,
which is engaged in real estate ventures. Until December 30, 1994, he was
also President of Browning Real Estate, Inc., the general partner of
various real estate investment partnerships. Mr. Browning is a director
of PSI Energy and Conseco, Inc.
- - -----------------------------------------------------------------------------------------------
PHILLIP R. COX
Director since 1994. Age 48
Member-Committee on Directors
and Public Policy Committee
Mr. Cox is President and Chief Executive Officer of Cox Financial
Corporation, a provider of financial and estate planning services. He is
also a director of Cincinnati Bell Inc., the Cincinnati office of the
Federal Reserve Bank of Cleveland, and PNC Bank, Ohio, N.A.
- - -----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
NAMES, AGES, PRINCIPAL OCCUPATIONS AND SELECTED INFORMATION
- - -----------------------------------------------------------------------------------------------
<S> <C>
KENNETH M. DUBERSTEIN
Director since 1990. Age 50
Member-Public Policy Committee
Mr. Duberstein is Chairman and Chief Executive Officer of The Duberstein
Group, Inc., a provider of planning and consulting services. He is a
director of PSI Energy and McDonnell Douglas Corporation. Mr. Duberstein
is also a member of the Board of Governors of the American Stock
Exchange.
- - -----------------------------------------------------------------------------------------------
JAMES E. ROGERS
Director since 1988. Age 47
Member-Executive Committee
Mr. Rogers has served as Vice Chairman, President and Chief Operating
Officer of the Company and CINergy Services, and Vice Chairman and Chief
Operating Officer of CINergy Investments, CG&E, and PSI Energy since
October 1994 (and Vice Chairman and Chief Operating Officer of Union
Light since January 1995). He was Chairman and Chief Executive Officer of
PSI from October 1993 until October 1994; during the years 1988-1993, he
was Chairman, President and Chief Executive Officer. Mr. Rogers was also
Chairman, President and Chief Executive Officer of PSI Energy from
October 1988 until October 1994. He is a director of Bankers Life Holding
Corporation, Duke Realty Investments, Inc., and NBD Bank, N.A.
- - -----------------------------------------------------------------------------------------------
JOHN J. SCHIFF, JR.
Director since 1986. Age 51
Member-Compensation Committee
Mr. Schiff is Chairman of the Board of Cincinnati Financial Corporation,
an insurance holding company, The Cincinnati Insurance Company, and John
J. & Thomas R. Schiff & Co., Inc., an insurance agency. He is a director
of Fifth Third Bancorp, The Fifth Third Bank and The Standard Register
Company.
- - -----------------------------------------------------------------------------------------------
OLIVER W. WADDELL
Director since 1989. Age 64
Chairman-Finance Committee
Mr. Waddell was Chairman of the Board of Star Banc Corporation until his
retirement in December 1993; he held the additional offices of President
and Chief Executive Officer until May 1993 and June 1993, respectively.
Mr. Waddell was also Vice Chairman of Star Bank, N.A. from June 1993
until his retirement in December 1993; from December 1988 until June 1993
he was Chairman of the Board; he previously served as Chairman and Chief
Executive Officer of Star Bank, N.A. He is a director of Chiquita Brands
International, Inc., Star Banc Corporation, and Star Bank, N.A.,
Cincinnati, Ohio.
- - -----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 11
MEETINGS AND COMMITTEES OF THE BOARD
Because the Company was not operational until the Effective Date, only
two Board meetings were held during the year ended 1994. All directors attended
100% of the aggregate Board meetings and meetings of committees on which they
serve with the exception of Dr. Melvin Perelman, who attended both Board
meetings but was unable to attend one committee meeting. In accordance with the
provisions of the By-Laws of the Company, the Board has six standing committees
which facilitate the carrying out of its responsibilities.
The Audit Committee recommends to the Board a firm of independent
certified public accountants to conduct audits of the accounts and affairs of
the Company and its subsidiaries; reviews the scope and results of audits, as
well as the accounting procedures, internal controls, and accounting and
financial reporting policies and practices of the Company and its subsidiaries,
with the independent certified public accountants; and makes such reports and
recommendations to the Board as it deems appropriate. The Audit Committee did
not meet during 1994.
The Compensation Committee met three times during 1994. The nature and
scope of the Compensation Committee's responsibilities are described in the
Board Compensation Committee Report on Executive Compensation (see page 11).
The Committee on Directors presents to the Board, whenever vacancies
occur, names of individuals who would make suitable directors of the Company and
consults with appropriate officers of the Company on matters relating to the
organization of the Board. The Committee has no established procedures for
consideration of nominees recommended by shareholders. The Committee on
Directors did not meet during 1994.
Other standing committees of the Board include the Executive Committee,
the Finance Committee and the Public Policy Committee.
DIRECTORS' COMPENSATION
Directors who are not employees (the "non-employee directors") receive an
annual retainer fee of $25,000 plus a fee of $1,500 for each Board meeting
attended. Non-employee directors who also serve on one or more standing
committees of the Board receive an annual retainer fee of $3,000 for each
committee membership plus a fee of $1,500 for each committee meeting held. The
fee for any Board or committee meeting held via conference call is $750.
Directors who are also employees of the Company receive no remuneration for
their services as directors.
Under the Company's Directors' Deferred Compensation Plan, each
non-employee director of the Company or any of its subsidiaries may defer fees
and have them accrued either in cash or in units representing shares of Company
common stock. If deferred in such units, the stock will be distributed to the
director at the time of retirement from the appropriate board. Amounts deferred
in cash will be paid at the same time.
Under the Company's Stock Option Plan, each non-employee director has
been granted a non-qualified stock option to purchase 12,500 shares of the
Company's common stock. Each person who is elected for the first time to be a
non-employee director is also granted a non-qualified stock option to purchase
12,500 shares of the Company's common stock. The price per share at which
options are granted
8
<PAGE> 12
must be no less than 100% of the fair market value of the Company's common stock
on the New York Stock Exchange on the date of the grant. Options generally vest
at the rate of 20% per year over a five-year period from the date of grant and
may be exercised over a ten-year term.
Under the Company's Retirement Plan for Directors, non-employee directors
with five or more years of service will receive annual compensation in an amount
equal to the annual Board fees, excluding committee fees, in effect at the time
of termination of service as a director, paid for as many years as the director
served on the Board. This plan covers non-employee directors serving on the
boards of directors of the Company, CINergy Services, CG&E or PSI Energy. Prior
service by non-employee directors of CG&E, PSI, or PSI Energy as of the
Effective Date will be credited under this plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only persons or groups known to the Company to be the beneficial
owners of more than 5% of the Company's common stock, the only voting security,
as of December 31, 1994, are set forth in the following table. This information
is based on the most recently available reports filed with the Securities and
Exchange Commission pursuant to the requirements of Section 13(d) of the
Securities and Exchange Act of 1934 (the "1934 Act") and transmitted to the
Company by the persons named.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------------------------------ ----------------------- --------
<S> <C> <C>
INVESCO PLC 8,435,511 shares(1) 5.44%
11 Devonshire Square
London EC2M 4YR
England
PNC Bank Corp. 7,906,477 shares(2) 5.09%
Fifth Ave. and Wood St.
Pittsburgh, PA 15222
</TABLE>
- - ------------
(1) Holder reports having shared voting and shared dispositive powers with
respect to all shares, and sole voting and sole dispositive powers with
respect to none of these shares.
(2) Of these shares, 7,309,139 are held by PNC Bank, Ohio, N.A. as trustee of
two benefit plans for employees of CG&E and its subsidiaries. Under the
terms of the plans, participants have the right to vote the shares credited
to their accounts; however, the trustee may, at its discretion, vote those
shares not voted by participants. Holder reports having sole voting power
with respect to 7,900,494 shares, shared voting power with respect for 2,537
shares, sole dispositive power with respect to 166,644 shares, and shared
dispositive power with respect to 254,538 shares.
9
<PAGE> 13
The beneficial ownership of the Company's common stock held by each
nominee, continuing director and named executive officer (as defined on page
16), and of units equal to one share of the Company's common stock paid as
compensation to non-employee directors, as of December 31, 1994 is set forth in
the following table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) UNITS(3)
------------------------------------------ ------------------------- -------
<S> <C> <C>
Neil A. Armstrong......................... 750 shares
James K. Baker............................ 13,605 shares
Michael G. Browning....................... 18,835 shares 2,172
Clement L. Buenger........................ 750 shares
Phillip R. Cox............................ none
Kenneth M. Duberstein..................... 12,991 shares
John A. Hillenbrand, II................... 28,259 shares 1,878
George C. Juilfs.......................... 3,750 shares
J. Wayne Leonard.......................... 60,259 shares
John M. Mutz.............................. 13,992 shares
Melvin Perelman........................... 23,499 shares 2,010
Thomas E. Petry........................... 2,000 shares
Jackson H. Randolph....................... 23,549 shares
James E. Rogers........................... 212,147 shares
John J. Schiff, Jr........................ 31,059 shares(4)
Philip R. Sharp........................... none
Van P. Smith.............................. 17,390 shares
Dudley S. Taft............................ 3,000 shares
Larry E. Thomas........................... 65,568 shares
Oliver W. Waddell......................... 2,938 shares
All directors and executive officers as a
group................................... 646,887 shares.42% of
(representing 0the
class)
</TABLE>
- - ------------
(1)No individual listed beneficially owned more than 0.14% of the outstanding
shares of common stock.
(2)Includes shares which the individual listed has the right to acquire within
60 days pursuant to the exercise of stock options in the following amounts:
Mr. Baker--12,787; Mr. Browning--12,787; Mr. Duberstein--12,787; Mr.
Hillenbrand--12,787; Mr. Leonard--51,150; Mr. Mutz--12,787; Mr.
Perelman--12,787; Mr. Rogers--179,025; Mr. Smith--12,787; and Mr.
Thomas--51,150.
(3)Each unit represents one share of the Company's common stock credited to the
account of the respective directors as of December 31, 1994 under the
Company's Directors' Deferred Compensation Plan.
(4)Includes 15,000 shares owned of record by a trust of which Mr. Schiff is one
of three trustees who share voting and investment power equally. Does not
include 1,154,000 shares, as to which Mr. Schiff disclaims any beneficial
interest, held by Cincinnati Financial Corporation and certain of its
subsidiaries.
10
<PAGE> 14
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation program of the Company is administered by the
Compensation Committee (the "Committee") of the Board. The Committee establishes
the Company's compensation philosophy and the compensation of the Chief
Executive Officer and all other executive officers. The Committee also
recommends and administers compensation plans for all executive officers and key
employees. The Committee is composed of Messrs. Van P. Smith (Chairman), Michael
G. Browning, George C. Juilfs, and John J. Schiff, Jr., each of whom is an
independent, non-employee director of the Company.
Compensation Philosophy
Prior to the Merger, PSI and CG&E had similar executive compensation
philosophies. Both companies sought to provide a total compensation program that
would attract, retain, and motivate the high quality employees needed to provide
superior service to their customers and to maximize returns to their
shareholders. CG&E's policy, in considering base salary and performance based
annual incentives, was designed to provide competitive levels of compensation
that would integrate pay with CG&E's annual performance goals, reward above
average corporate performance, and recognize individual achievement. PSI's
executive compensation program sought to link executive and shareholder
interests through both cash-based and equity-based incentive plans, in order to
reward both corporate and individual performance and balance short-term and
long-term considerations.
It was CG&E's practice to review compensation data provided by the Edison
Electric Institute for utility companies of comparable size based on revenue.
The compensation level for each executive officer was reviewed based on an
evaluation of compensation levels at such companies for executives with similar
job responsibilities, with the objective of providing total compensation
equivalent to approximately the 75th percentile. The performance of each
executive was evaluated based upon that individual's performance for the year in
relation to the established goals and objectives for the year.
It was PSI's goal to provide the opportunity for that company's executive
officers, including its chief executive officer, to earn total compensation that
was commensurate with their contribution to the success of PSI and that was
above the 50th percentile level of comparable utilities based on revenue and
trending toward the pay practices of a broader range of American companies with
comparable revenue.
CG&E's executive compensation program consisted of two components, base
salary and annual cash incentive opportunities. PSI's executive compensation
program consisted of three components: base salary, annual cash incentive
opportunities, and long-term equity-based incentive opportunities.
Under the terms of the Merger Agreement, certain executive compensation
and benefit plans of PSI and PSI Energy were to be adopted and implemented by
the Company as of the Effective Date. On October 18, 1994, the Company adopted,
effective as of the Effective Date, the Stock Option Plan, Performance Shares
Plan, Annual Incentive Plan, and Executive Supplemental Life Insurance Program
(the "Board approved plans"). Each of these plans is substantially similar to
its predecessor PSI or PSI Energy plan. Each PSI or PSI Energy predecessor plan
was merged into and became a part of the Company plan which bears the same name.
11
<PAGE> 15
The Company has retained an independent compensation and benefits
consulting firm to conduct a study of existing executive compensation program
structures and to assist the Committee as it formulates an integrated Company
compensation philosophy, including the elements of compensation and the mix of
base salary, annual and long-term incentives. The consulting firm will also
advise as to the retention, modification, or replacement of the Board approved
plans and as to plan design and administration generally.
Annual Cash Incentive Plan
For 1994, CG&E had a Key Employee Annual Incentive Plan which was
intended to provide additional incentive for superior performance. Approximately
210 key employees of CG&E participated in the plan during 1994 and were granted
cash awards to the extent that certain pre-determined corporate and individual
goals were attained. Under the Key Employee Annual Incentive Plan, the chief
executive officer was eligible for additional compensation of up to 55% of base
pay and other CG&E executive officers were eligible for additional compensation
of up to 37.5% of base pay. The Management Compensation Committee of CG&E's
board of directors determined that the maximum available awards were payable
based upon the extraordinary efforts of the executive officers during 1994
leading to the consummation of the Merger. The Key Employee Annual Incentive
Plan was replaced by the Company's Annual Incentive Plan as of the Effective
Date.
The granting of compensation under the Key Employee Annual Incentive Plan
was first subject to a Shareholder Protection Trigger. This Trigger provided
that no incentive payments were made for the current fiscal year unless
dividends per share for that fiscal year equalled or exceeded the amount per
share paid in the previous fiscal year, and total pre-tax earnings were
sufficient to cover all dividends payable for the current fiscal year, plus the
amount necessary to cover total awards payable under the Plan. The amounts of
any awards varied depending on the meeting of various other goals established
and approved by CG&E's Management Compensation Committee. Such goals included
consummation of the Merger, overall customer satisfaction and relationships,
corporate culture initiatives, and cost control. Any award was then subject to
modification based on the relative level of rates charged customers, a Customer
Protection Modifier, which was based on the relative ranking of electric and gas
rates for the city of Cincinnati as compared to 30 other cities. If CG&E
maintained its relative position, this Modifier had no effect. If CG&E's
relative position improved or declined, the awards payable were subject to
upward or downward adjustment, accordingly. The data on electric rates was as
published by the Edison Electric Institute, and by the American Gas Association
for gas rates. Because CG&E's board of directors recognized that the interests
of shareholders and customers are paramount, the Shareholder Protection Trigger
and Customer Protection Modifier, as indicated above, were integral to the Plan.
For 1994, PSI executive officers were eligible for incentives under PSI's
Annual Incentive Plan. Approximately 140 key PSI employees participated in the
plan in 1994 and were granted cash awards to the extent that certain
pre-determined corporate and individual goals were attained during that year.
Graduated standards for achievement were developed to encourage each employee's
contribution. The potential awards ranged from 6.5% to 55% of the annual salary
of the participant (including deferred compensation) depending upon the
achievement levels and the participant's position. The PSI Compensation and
Nominating Committee reviewed and approved both the plan goals at the beginning
of the year and the achievements at the end of the year.
12
<PAGE> 16
In 1994, PSI's plan used a combination of corporate and individual goals.
Achievement of corporate goals accounted for 50% of the total possible award
while achievement of individual goals constituted the remainder. The portion of
the payout in March, 1995, attributable to the corporate goals was based on 1994
achievement in two areas: (1) operating income so as to maximize PSI's return on
equity; and (2) fuel cost per million BTU. The operating income goal accounted
for 37.5% and the fuel cost goal constituted 12.5% of the total possible award.
In 1994, incentive awards for each executive officer who was a PSI
employee reflected individual achievement as well as PSI's attainment of its
corporate goals. Individual performance goals for each PSI executive varied from
executive to executive; however, all related to the achievement of PSI's overall
strategic mission of becoming a premier general energy services company.
For each executive officer who was a PSI employee, the PSI Compensation
and Nominating Committee assessed the extent to which each person contributed
toward the accomplishment of PSI's mission in 1994. Although its determinations
were subjective, that Committee believed that its assessment accurately measured
the performance of each executive officer. Based upon the extraordinary efforts
of the executive officers in 1994 leading to the consummation of the Merger, the
PSI Compensation and Nominating Committee determined that the maximum available
award was payable.
For 1995, the Company's Annual Incentive Plan will use a combination of
corporate and individual goals. Corporate goals will account for 50% of the
total possible award and achievement of individual goals will make up the
balance. The corporate goals for 1995 will be based in two areas: (1) earnings
per share; and (2) non-fuel O&M merger savings.
The earnings per share goal will account for 37.5% and the merger savings
goal will constitute 12.5% of the total possible award. For 1995, approximately
400 key employees will participate in the plan. The potential awards will range
up to a maximum of 55% of the participant's annual salary, depending upon the
achievement levels and the participant's position.
Other Compensation Decisions
The PSI Compensation and Nominating Committee, at its discretion, could
award other forms of compensation in recognition of outstanding service to PSI
or any of its subsidiaries. Consistent with that philosophy, the Committee
approved in 1994 special performance awards for Messrs. Rogers, Leonard, and
Thomas (as set forth in footnotes to the Summary Compensation Table) for
exemplary performance associated with consummation of the Merger.
Long-Term Incentive Plan and Stock Option Plan
The Company's Performance Shares Plan (the "Performance Shares Plan") is
a long-term incentive plan developed to reward officers and other key employees
for contributing to long-term success by achieving corporate and individual
goals approved by the Committee. The executive officers named in the
compensation tables participate in this plan, and the same corporate and
individual goals used in the Company's Annual Incentive Plan are applicable to
this plan. The potential award opportunities are established in the same manner
as the Annual Incentive Plan, with the minimum award opportunities ranging from
13.33% to 36.66% of annual salary for the full performance cycle. Performance
cycles consist of overlapping four year periods. Because the former PSI Energy
Performance Shares Plan was merged into the Company's
13
<PAGE> 17
Performance Shares Plan on the Effective Date, the then existing PSI Energy
performance cycles of 1992-1995 and 1994-1997 are the current performance cycles
under the Company's plan.
The Company's executive officers and other key employees are also
eligible for grants under the Company's Stock Option Plan. The Plan is designed
to align executive compensation with shareholder interests. Both non-qualified
and incentive stock options have been granted under the plan. Options vest at
the rate of 20% per year over a five-year period from the date of grant and may
be exercised over a ten-year term.
Chief Executive Officer
Mr. Randolph's 1994 base salary was determined pursuant to an employment
agreement with the Company dated December 11, 1992, as amended and restated as
of the Effective Date (see Employment Agreements and Severance Arrangements on
page 21). For 1994, Mr. Randolph also received incentive compensation under the
CG&E Key Employee Annual Incentive Plan in the amount of $255,750, of which 57%
was based on achievement of CG&E goals and 43% was based upon the CG&E
Management Compensation Committee's determination of his achievement of
individual goals. Mr. Randolph also was granted an option to purchase 250,000
shares of the Company's common stock on the Effective Date at a price of
$22.875.
Giving consideration to the accomplishments of 1994 which resulted in the
consummation of the Merger, sufficient goals were met to obtain the maximum
award available. Other goals pertaining to customer satisfaction and
relationships, corporate culture initiatives, and cost control were also met.
The relative importance in meeting these goals was equal in the determination of
awards. The Customer Protection Modifier was neutral resulting in no upward or
downward adjustment.
Summary
The Committee is reviewing the compensation philosophies of PSI and CG&E
in order to determine the Committee's philosophy. Although the Committee's
philosophy has not been finalized, it is the intent of the Committee to
emphasize incentive compensation, both short-term and long-term, in order to tie
the interests of the executive officers and the Company's shareholders. It is
anticipated that base salary, annual cash incentives, and long-term incentives
will play an integral part in executive compensation in the future. Although the
Company currently has adopted executive compensation plans identical to those
previously available at PSI and PSI Energy, the Committee is reviewing those
plans in order to determine the types of plans which will complement its
executive compensation philosophy.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in August,
1993, for compensation earned in 1994 and later. Under the law, income tax
deductions of publicly traded companies may be limited to the extent total
compensation (including base salary, annual bonus, restricted stock awards,
stock option exercises and non-qualified benefits) for certain executive
officers exceeds $1 million in any one year. Under OBRA, the deduction limit
does not apply to payments which qualify as "performance based" or compensation
which is payable under a written contract that was in effect before February 17,
1993. The Committee will review the application of OBRA to future compensation;
however, the Committee intends to compensate executives on performance achieved,
both corporate and individual.
14
<PAGE> 18
Prior to the Merger, the PSI Compensation and Nominating Committee was
composed of Messrs. Browning, Duberstein, Perelman and Smith and the CG&E
Management Compensation Committee was composed of Messrs. Juilfs, Schiff, Taft,
Waddell and Oliver W. Birckhead. Mr. Birckhead retired as a director of CG&E at
the time of the Merger. Messrs. Duberstein and Perelman join in this Report as
it relates to PSI, and Messrs. Taft and Waddell join in this Report as it
relates to CG&E. The tables which follow, and accompanying footnotes, reflect
the decisions covered by the above discussion.
Van P. Smith
Michael G. Browning
George C. Juilfs
John J. Schiff, Jr.
Kenneth M. Duberstein
Melvin Perelman
Dudley S. Taft
Oliver W. Waddell
15
<PAGE> 19
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to the
Company's Chief Executive Officer and to each of its additional four most highly
compensated executive officers (the "named executive officers") for services to
the Company and its subsidiaries during 1994. The data presented includes 1994
compensation from CG&E, PSI and their respective subsidiaries for the period
prior to the Merger.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ---------------------- ----------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
NAME OTHER RESTRICTED SECURITIES
AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS(1) COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- - --------------------- ---- ------- ------- ------------ ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jackson H. Randolph 1994 470,000 255,750 5,719 0 250,000 0 92,724(2)
Chairman and CEO
James E. Rogers 1994 433,144 265,729 64,417 0 250,000 273,720 285,393(2)
Vice Chairman,
President and COO
John M. Mutz 1994 342,380 136,952 3,001 0 100,000 11,436 6,097(3)
President, PSI
Energy
J. Wayne Leonard 1994 211,208 79,203 32,146 0 100,000 81,132 93,555(4)
Group Vice
President and CFO
Larry E. Thomas 1994 209,540 78,578 29,078 0 100,000 77,345 53,945(4)
Group Vice
President,
Reengineering and
Operations Services
</TABLE>
- - ------------
(1) The amounts appearing in this column are the values of the shares and cash
paid out under the Company's Performance Shares Plan as successor to PSI
Energy's Performance Shares Plan. 1994 amounts were earned by the named
executive officers during the four-year cycle from 1990 through 1993 under
the PSI Energy Performance Shares Plan, and were paid in substantially equal
installments in 1994 and 1995.
(2) Amount includes for Messrs. Randolph and Rogers, respectively: a deferred
compensation award in the amount of $50,000 pursuant to the terms of each
officer's Deferred Compensation Agreement; employer matching contributions
under the CG&E and PSI 401(k) Plans of $3,969 and $8,896; above-market
interest on amounts deferred pursuant to the Deferred Compensation
Agreements of $21,211 and $14,559; and benefits under Split Dollar Life
Insurance Agreements of $17,544 and $16,933. Also includes for Mr. Rogers
insurance premiums paid with respect to executive and group-term life
insurance, a special performance award, and relocation compensation in the
amounts of $4,530, $120,500, and $69,975, respectively.
(3) Consists entirely of insurance premiums paid with respect to executive and
group-term insurance.
(4) Includes for Messrs. Leonard and Thomas, respectively: insurance premiums
paid with respect to executive and group-term life insurance of $920 and
$2,956; special performance awards of $50,000 and $10,000; relocation
compensation of $34,700 and $33,100; and employer matching contributions
under the PSI 401(k) Plan of $7,935 and $7,889.
16
<PAGE> 20
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants
of options to purchase the Company's common stock made to the named executive
officers during 1994.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- - -------------------------------------------------------------------------------------- ----------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF %
SECURITIES OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/SARS GRANTED TO OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- - ----------------------------- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jackson H. Randolph 250,000 20.83% 22.875 10/24/2004 1,579,985 3,491,354
James E. Rogers 250,000 20.83% 22.875 10/24/2004 1,579,985 3,491,354
John J. Mutz 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
J. Wayne Leonard 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
Larry E. Thomas 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
</TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning stock options held
by the named executive officers during 1994. During 1994, none of the named
executive officers exercised any stock options. The table shows the numbers of
shares for which options were held as of December 31, 1994, and the values for
"in-the-money" options, which represent the positive spread between the exercise
prices of outstanding stock options and the market price of the shares as of
December 31, 1994, which was $23.50 per share.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END FY-END
(#) ($)
SHARES ACQUIRED VALUE ---------------------- -----------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ---------------------------- ---------------- -------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Jackson H. Randolph 0 N/A 0/250,000 0/156,250
James E. Rogers 0 N/A 179,025/250,000 1,931,823/156,250
John M. Mutz 0 N/A 12,787/100,000 92,694/62,500
J. Wayne Leonard 0 N/A 51,150/100,000 355,150/62,500
Larry E. Thomas 0 N/A 51,150/100,000 355,150/62,500
</TABLE>
17
<PAGE> 21
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth the potential payouts of awards granted
under the Performance Shares Plan to the named executive officers during 1994.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
----------------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF SHARES, PERFORMANCE OR
UNITS OR OTHER OTHER PERIOD THRESHOLD TARGET MAXIMUM
RIGHTS UNTIL MATURATION SHARES SHARES SHARES
NAME (#) OR PAYOUT (#) (#) (#)
- - --------------------------- ------------------ ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Jackson H. Randolph 6,139 1994-1997 (1) 12,278 (1)
James E. Rogers 7,510 1994-1997 (1) 15,020 (1)
John M. Mutz 3,452 1994-1997 (1) 6,905 (1)
J. Wayne Leonard 2,327 1994-1997 (1) 4,653 (1)
Larry E. Thomas 2,249 1994-1997 (1) 4,498 (1)
</TABLE>
- - ------------
(1) The number of performance shares of the Company's common stock contingently
granted is calculated by determining the award opportunity in dollars for
the performance cycle and dividing this by the per share price of the common
stock at the time of the grant. For the 1994 through 1997 performance
period, the award opportunity for participants is measured in terms of
percentages ranging from 13.33% to 36.66% of annual earnings. The
performance shares vest based upon the achievement of long-term corporate
and individual goals established by the Board at the beginning of the
performance period and measured at the end of the cycle. The actual size of
an award is determined by multiplying the amount contingently granted by a
weighted calculation reflecting the extent to which the aggregate of the
pre-established goals has been met. For the 1994 through 1997 performance
period, an award of approximately twice the number of shares as contingently
granted will be made if the aggregate of the pre-established goals are met.
There is no minimum (threshold) award and the Board may enhance the target
award in recognition of exemplary performance or achievement as to
individual goals. Awards are made in cash and Company common stock over a
two-year period immediately following each performance cycle. The amount of
an award that is generally paid in cash is equal to the amount of federal,
state and local income taxes due on each installment, plus, with respect to
the second installment, dividends otherwise payable on such installment.
PENSION BENEFITS
The primary pension benefits payable at retirement to each of the named
executive officers are provided pursuant to the terms of either CG&E's
non-contributory management pension plan (the "CG&E Pension Plan") or PSI
Energy's non-contributory pension plan (the "PSI Energy Pension Plan"). Mr.
Randolph is covered under the terms of the CG&E Pension Plan. Messrs. Rogers,
Mutz, Leonard, and Thomas are covered under the terms of the PSI Energy Pension
Plan.
Under the terms of the CG&E Pension Plan, the retirement income payable
to a pensioner is 1.3% of final average pay plus 0.35% of final average pay in
excess of covered compensation, times the number of years of credited service
through 30 years, plus 0.1% of final average pay times the number of years of
credited service over 30 years. Final average pay is the average annual salary,
based on July 1 pay rates, during
18
<PAGE> 22
the employee's five consecutive calendar years producing the highest such
average within the last 10 calendar years immediately preceding retirement.
Covered compensation is the average social security taxable wage base over a
35-year period.
Mr. Randolph is also a vested participant in CG&E's Supplemental
Executive Retirement Plan which upon his retirement, death or disability will
provide benefits for a period of 15 years in an annual amount equal to 75% of
his highest annual compensation, reduced by social security benefits and by
amounts received from the CG&E Pension Plan.
The following pension plan table illustrates the estimated annual
benefits payable to Mr. Randolph at normal retirement age 65 for the years of
service indicated under the terms of the CG&E Pension Plan and the supplemental
plan. Compensation utilized to determine benefits under the plans includes
salary and bonus as set forth within the respective columns of the summary
compensation table. Mr. Randolph's estimated credited years of service at normal
retirement age 65 are 37 years.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
COMPENSATION 15 20 25 30 OR MORE
- - ------------ -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$200,000.................................. $ 75,000 $100,000 $125,000 $ 150,000
225,000.................................. 84,375 112,500 140,625 168,750
250,000.................................. 93,750 125,000 156,250 187,500
300,000.................................. 112,500 150,000 187,500 225,000
350,000.................................. 131,250 175,000 218,750 262,500
400,000.................................. 150,000 200,000 250,000 300,000
450,000.................................. 168,750 225,000 281,250 337,500
550,000.................................. 206,250 275,000 343,750 412,500
650,000.................................. 243,750 325,000 406,250 487,500
750,000.................................. 281,250 375,000 468,750 562,500
850,000.................................. 318,750 425,000 531,250 637,500
950,000.................................. 356,250 475,000 593,750 712,500
</TABLE>
The PSI Energy Pension Plan covers all of its employees who meet certain
minimum age and service requirements. Compensation utilized to determine
benefits under the PSI Energy Pension Plan includes substantially all salaries
and annual incentive compensation, including deferred compensation for Mr.
Rogers. PSI Energy Pension Plan benefits are determined under a final average
pay formula with consideration of years of service to a maximum of 30, age at
retirement and the applicable average social security wage base. PSI Energy also
maintains an Excess Benefit Plan, in which Messrs. Rogers, Mutz, Leonard, and
Thomas participate, designed to restore pension benefits to those individuals
whose benefits under the PSI Energy Pension Plan would otherwise exceed the
limits imposed by the Internal Revenue Code of 1986, as amended (the "Code").
19
<PAGE> 23
The following pension plan table illustrates the estimated annual
benefits payable as a straight-life annuity under both plans to participants who
retire at age 62. Such benefits are not subject to any deduction for social
security or other offset amounts.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35
- - --------------------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$200,000............ $15,270 $ 30,550 $ 45,820 $ 61,090 $ 76,360 $ 91,640 $106,910
225,000............ 17,270 34,550 51,820 69,090 86,360 103,640 120,910
250,000............ 19,270 38,550 57,820 77,090 96,360 115,640 134,910
300,000............ 23,270 46,550 69,820 93,090 116,360 139,640 162,910
400,000............ 31,270 62,550 93,820 125,090 156,360 187,640 218,910
450,000............ 35,270 70,550 105,820 141,090 176,360 211,640 246,910
550,000............ 43,270 86,550 129,820 173,090 216,360 259,640 302,910
650,000............ 51,270 102,550 153,820 205,090 256,360 307,640 358,910
750,000............ 59,270 118,550 177,820 237,090 296,360 355,640 414,910
850,000............ 67,270 134,550 201,820 269,090 336,360 403,640 470,910
950,000............ 75,270 150,550 225,820 301,090 376,360 451,640 526,910
</TABLE>
The estimated credited years of service at age 62 for each of the named
executive officers covered under the terms of the PSI Energy Pension Plan are as
follows: Mr. Rogers, 21.44 years; Mr. Mutz, 3.39 years; Mr. Leonard, 30 years;
and Mr. Thomas, 30 years.
Messrs. Rogers and Mutz also participate in the PSI Energy Supplemental
Retirement Plan, which is designed to provide coverage to employees, previously
designated by the board of directors of PSI Energy, who will not otherwise
qualify for full retirement benefits under the PSI Energy Plan. The benefit
provided by the PSI Energy Supplemental Retirement Plan will be an amount equal
to that which a covered employee with maximum permitted years of participation
(30 years) would have received under the PSI Energy Plan, reduced by the actual
benefit provided by the PSI Energy Plan and the Excess Benefit Plan, and further
reduced by benefits the covered employee will be eligible to receive from
retirement plans from previous self-employment and from previous employers. The
estimated annual benefit payable at age 62 under the PSI Energy Supplemental
Retirement Plan is $140,000 for Mr. Rogers and $39,375 for Mr. Mutz.
The Company has an Executive Supplemental Life Insurance Program, which
provides key management personnel, including the named executive officers, with
either post-retirement life insurance coverage or deferred compensation. A
participant in the program may elect either to continue life insurance coverage
after retirement or to receive the total amount of coverage in the form of
deferred compensation payable in 10 equal annual installments beginning at age
62 or retirement, whichever is later. An employee who elects to receive deferred
compensation will receive, at the later of age 62 or retirement only deferred
compensation payments, and his or her life insurance coverage will be cancelled
at that time. Coverage is $50,000 for participants with annual base salaries of
less than $100,000; $100,000 for participants with annual base salaries between
$100,000 and $200,000; and $150,000 for participants with annual base salaries
over $200,000. The estimated annual benefit payable, at the later of age 62 or
retirement, to each of the named executive officers is $15,000 per year over ten
years.
20
<PAGE> 24
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company entered into individual employment agreements with Mr.
Randolph and Mr. Rogers (each sometimes hereinafter individually referred to as
the "Executive") as of the Effective Date.
Pursuant to his employment agreement, Mr. Randolph will serve as Chairman
and Chief Executive Officer of the Company until November 30, 1995, and then
will retire from the position of Chief Executive Officer but will continue to
serve as Chairman of the Board of the Company until November 30, 2000. Mr.
Rogers will serve as Vice Chairman, President and Chief Operating Officer of the
Company until November 30, 1995, and thereafter will serve as Vice Chairman,
President and Chief Executive Officer. Mr. Rogers' agreement is for a term of
three years; however, on each annual anniversary date it may, with notice, be
automatically extended for an additional year.
During the terms of their agreements, Messrs. Randolph and Rogers will
receive minimum annual base salaries of $465,000 and $422,722, respectively.
Each will also be paid an annual incentive cash award of up to 55% of his annual
salary pursuant to the Company's Annual Incentive Plan, and will be eligible to
participate in all other incentive, stock option, performance award, savings,
retirement and welfare plans applicable generally to Company employees and
executives.
If the Executive's employment terminates as a result of death, his
beneficiary will receive a lump sum cash amount equal to the sum of (a) the
Executive's annual base salary through the termination date to the extent not
previously paid, (b) a pro rata portion of the benefit under the Company's
Annual Incentive Plan calculated based upon the termination date and (c) any
compensation previously deferred but not yet paid to the Executive (with accrued
interest or earnings thereon) and any unpaid accrued vacation pay. In addition
to these accrued amounts, if the Company terminates the Executive's employment
without "cause" or the Executive terminates his employment for "good reason" (as
each is defined in the employment agreements), the Company will pay to the
Executive (a) a lump sum cash amount equal to the present value of his annual
base salary and benefit under the Company's Annual Incentive Plan payable
through the end of the term of employment, at the rate and applying the same
goals and factors in effect at the time of notice of such termination, (b) the
value of all benefits to which the Executive would have been entitled had he
remained in employment until the end of the term of employment under the
Company's Performance Shares Plan and Executive Supplemental Life Insurance
Program, (c) the value of all deferred compensation and all executive life
insurance benefits whether or not then vested or payable and (d) medical and
welfare benefits for the Executive and his family through the end of the term of
employment. If the Executive's employment is terminated by the Company for cause
or by the Executive without good reason, the Executive will receive unpaid
annual base salary accrued through the termination date and any accrued deferred
compensation.
Mr. Mutz has an employment agreement pursuant to which he will serve as
President of, and will be nominated for election as a director of, PSI Energy
until October 4, 1998. Commencing October 4, 1996, the term of the employment
agreement may be extended for one additional year upon mutual agreement. During
the term of his agreement, Mr. Mutz will receive a minimum annual base salary of
$330,000, will be eligible to receive an annual incentive cash award of up to
40% of his annual base salary pursuant to the Company's Annual Incentive Plan,
will be eligible to participate in all other incentive, stock option,
performance award, savings, retirement and welfare plans applicable generally to
Company employees and executives, and will receive other fringe benefits. In
connection with his participation in the PSI Energy Supplemental Retirement
Plan, Mr. Mutz's employment agreement provides that he will be vested in his
21
<PAGE> 25
benefit (calculated including a profession transition allowance of $250,000 paid
in 1993) at a rate of 20% per year of service beginning in 1994 without offset
for other retirement benefits, and will be guaranteed a benefit thereunder based
on its current terms even if the plan subsequently is amended to reduce benefits
or is terminated.
If Mr. Mutz's employment is terminated as a result of death, for cause or
by him without good reason, he or his beneficiary will be paid a lump sum cash
amount equal to (a) his unpaid annual base salary through the termination date,
(b) a pro rata portion of his Annual Incentive Plan award, (c) his vested
accrued benefits under the Performance Shares Plan, the PSI Energy Pension Plan,
the Excess Benefit Plan and the Supplemental Retirement Plan and (d) any unpaid
deferred compensation (including accrued interest or earnings) and unpaid
accrued vacation pay. If, instead, Mr. Mutz's employment is terminated prior to
a change in control (as defined) without cause or by him for good reason, he
will be paid (a) a lump sum cash amount equal to the present value of his annual
base salary and maximum annual incentive cash award payable through the end of
the term of the agreement, at the rate and applying the same goals and factors
in effect at the time of notice of such termination, (b) the present value of
all benefits to which he would have been entitled had he remained in employment
until the end of the term of the agreement under the Company's Performance
Shares Plan and Executive Supplemental Life Insurance Program, and PSI Energy's
Pension Plan, Excess Benefit Plan, and Supplemental Retirement Plan, (c) the
value of all deferred compensation and all executive life insurance benefits
whether or not then vested or payable and (d) continued medical and welfare
benefits through the end of the term of the agreement.
If Mr. Mutz's employment is terminated after a change in control he will
be paid a lump sum cash payment equal to the greater of (i) three times the sum
of his annual base salary immediately prior to the date of his termination of
employment or, if higher, the date of the change in control, plus all incentive
compensation or bonus plan amounts in effect prior to the date of his
termination of employment or, if higher, prior to the change in control, and
(ii) the present value of all annual base salary, bonuses and incentive
compensation and retirement benefits that would otherwise be due under the
agreement plus deferred compensation and executive life insurance benefits. In
addition, he will be provided life, disability, accident and health insurance
benefits for 36 months, reduced to the extent comparable benefits are received,
without cost, by him.
Mr. Randolph has a severance agreement with the Company which provides
that if, within three years after the Effective Date he terminates his
employment for good cause or his employment is terminated by the Company other
than for disability or cause, the Company will pay him a cash amount equal to
300% of his annualized compensation for the most recent five years ending before
the Effective Date, less $1,000, plus a cash "gross-up" payment equal to the
federal excise tax due on such amount, if any.
DEFERRED COMPENSATION AGREEMENTS
Mr. Randolph and CG&E, and Mr. Rogers and PSI and PSI Energy, have
entered into deferred compensation agreements effective as of January 1, 1992
(the "Deferred Compensation Agreements") pursuant to which, in lieu of granting
to each executive officer a cash increase in base salary, each executive officer
was credited with a $50,000 base salary increase in the form of deferred
compensation. Such amount will be deferred annually, in the case of both Mr.
Randolph and Mr. Rogers, for a five-year period beginning January 1, 1992 and
ending December 31, 1996, and in the case of Mr. Rogers, for an additional
five-year
22
<PAGE> 26
period beginning January 1, 1997 and ending December 31, 2001. The Deferred
Compensation Agreements were assumed by the Company as of the Effective Date.
In general, Mr. Randolph's Deferred Compensation Agreement provides that
if his employment terminates for any reason, other than death or disability,
prior to January 1, 1997, he will receive the total amount of his deferred
income plus interest. If Mr. Randolph's employment terminates on or after
January 1, 1997, he will receive an annual cash benefit of $179,000 payable for
a 15-year period beginning January 2001. Proportional benefits are payable to
Mr. Randolph in the event his employment is terminated for death or disability
prior to January 1, 1997.
In general, Mr. Rogers' Deferred Compensation Agreement provides that if
his employment terminates for any reason, other than death, prior to January 1,
1997, he will receive a lump sum cash payment equal to the total amount deferred
for the first five-year period described above plus interest. If Mr. Rogers'
employment terminates for any reason, other than death, on or after January 1,
1997, he will receive an annual cash benefit over a 15-year period beginning the
first January following termination of his employment, but in no event earlier
than January 2003 nor later than January 2010. The annual cash benefit amount
payable for such 15-year period ranges from $179,000 per year if payment begins
in January 2003, increasing to $554,400 per year if payment commences in January
2010. Comparable amounts are payable to Mr. Rogers in the event his employment
is terminated for disability prior to January 1, 1997 or if Mr. Rogers dies (i)
prior to January 1, 1997 while employed or disabled, or (ii) on or after January
1, 1997 but before commencement of payment of the 15-year payments described
above; provided, however, if Mr. Rogers becomes disabled prior to the completion
of the first award period, the amounts paid will be proportionately reduced
based on the ratio of the amount deferred to the date of disability to the total
amount that would have been deferred to the end of the first award period. In
addition, if Mr. Rogers' employment terminates for any reason, other than death
or disability, on or after January 1, 1997, but before January 1, 2002, he will
receive a lump sum cash payment equal to the total amount deferred during the
second five-year period described above plus interest. Additionally, if Mr.
Rogers' employment terminates for any reason, other than death or disability, on
or after January 1, 2002, he will receive an additional annual benefit for a
15-year period beginning the first January following termination of his
employment, but in no event earlier than January 2008 nor later than January
2010. The annual cash benefit amount payable for such period ranges from
$179,000 per year if payment begins in January 2008, increasing to $247,000 per
year if payment begins in January 2010. Provided that Mr. Rogers is employed on
January 1, 1997, comparable amounts are payable to Mr. Rogers in the event his
employment is terminated for disability prior to January 1, 2002 or if Mr.
Rogers dies (i) prior to January 1, 2002 while employed or disabled, or (ii) on
or after January 1, 2002 but before commencement of payment of benefits;
provided, however, if Mr. Rogers becomes disabled prior to the completion of the
second award period, his payments will be proportionately reduced in the same
manner as described above for disability during the first award period.
COMPANY STOCK BENEFIT PLANS
On October 18, 1994, the Board adopted, and the then current common stock
holders approved, the four stock plans described below. Each of these plans
became effective as of the Effective Date, and is substantially similar to its
predecessor PSI or PSI Energy plan. Each PSI or PSI Energy predecessor plan was
merged into and became a part of the Company plan which bears the same name.
23
<PAGE> 27
Employee Stock Purchase and Savings Plan
The Company's Employee Stock Purchase and Savings Plan (the "Stock
Purchase Plan") is an employee stock purchase plan in which eligible employees
may be granted options to purchase shares of the Company's common stock. Up to
2,000,000 shares of authorized but unissued common stock may be offered under
the Stock Purchase Plan. The Stock Purchase Plan is administered by a committee
(the "Plan Committee") consisting of members of the Board who are disinterested
persons under Rule 16b-3 of the 1934 Act, and with respect to executive
officers, are outside directors under Section 162(m) of the Code. Each member of
the Plan Committee serves at the pleasure of the Board and is not eligible to
participate in the Stock Purchase Plan.
Employees of the Company or any of its subsidiaries who meet the
eligibility requirements may participate in the Stock Purchase Plan. (The
Company and its subsidiaries are hereinafter referred to collectively as the
"Employers" and individually as an "Employer".) Except as provided below, the
eligibility requirements are an employee: (1) must have been employed by an
Employer for at least nine months as of the first day of an Offering Period (as
defined below); and (2) must normally work as least twenty hours a week and five
months a year. Officers who are "highly compensated employees" (as defined in
Section 414(q) of the Code, and employees who receive grants of stock options or
stock appreciation rights under the Company's Stock Option Plan, are not
eligible to participate in the Stock Purchase Plan.
The initial offering of common stock under the Stock Purchase Plan will
be a continuation of the 1994 Offering Period under the PSI Employee Stock
Purchase and Savings Plan, which was merged into the Stock Purchase Plan as of
the Effective Date. Each offering for sale of common stock under the Stock
Purchase Plan will have a term of twenty-six months (the "Offering Period")
commencing and ending on dates determined by the Plan Committee. The initial
offering will end on December 31, 1996. The ending date of an Offering Period
will be the "Purchase Date."
The purchase price per share of common stock under the Stock Purchase
Plan will be equal to the fair market value of a share of common stock on the
first day of the Offering Period less 5% (the "Purchase Price"). For this
purpose, the fair market value of a share of common stock will be equal to the
average of the high and low sales prices of a share of common stock as reported
in the "New York Stock Exchange--Composite Transactions" published in The Wall
Street Journal (the "NYSE") for the first day of the Offering Period or, if no
trading of common stock occurs on the NYSE on that day, the last day prior to
the first day of the Offering Period on which trading of common stock does
occur.
An eligible employee may accumulate funds to purchase common stock under
the Stock Purchase Plan by authorizing his or her Employer to deduct an amount
from each paycheck and deposit that amount in an interest earning account. On
the Purchase Date, the employee may apply the total amount of deposits made to
the account and interest earned thereon to the purchase of shares of common
stock.
The maximum number of shares of common stock an eligible employee may
purchase in an offering under the Stock Purchase Plan is a number equal to (1)
the sum of (a) 10% of his or her annual base compensation as of the first day of
the second calendar month preceding the first day of the relevant Offering
Period, multiplied by 26/12ths, plus (b) the amount of interest earned on the
employee's account during the relevant Offering Period, divided by (2) the
Purchase Price. No employee may participate in the Stock Purchase Plan if (i)
participation would permit the employee's rights to purchase shares of common
stock under all employee stock purchase plans of the Employers to accrue at a
rate exceeding $25,000 of fair
24
<PAGE> 28
market value of such shares (determined at the time such right is granted) for
each calendar year during which such right is outstanding at any time or (ii)
the employee owns, immediately after his or her participation commences, stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of any Employer.
In the event of a "change in control" (as defined below) of the Company,
each eligible employee has the right to elect, within three months from the
change in control or the Purchase Date, whichever is earlier, to purchase all or
fewer than all of the shares of common stock the employee is entitled to
purchase pursuant to the Stock Purchase Plan at the time of the "change in
control". For purposes of the Stock Purchase Plan, a "change in control" will
occur if (1) a person or group becomes the beneficial owner of more than fifty
percent of the Company's voting stock, other than pursuant to a transaction
approved in advance by the Board, (2) the Company's shareholders approve either
(a) an agreement to merge or consolidate the Company with or into another
corporation and the Company or one of its subsidiaries will not be the surviving
company or (b) the sale of at least substantially all of the Company's assets
other than in a merger or sale will result in the Company's voting securities
outstanding prior to the merger or sale continuing to represent at least fifty
percent of the combined voting power of the corporation surviving the merger or
purchasing the assets or (3) during any two-year period, individuals who at the
beginning of such period constitute the Board (and any new director whose
election or nomination to the Board was approved by at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination was previously so approved) cease
for any reason, with the exception of the exercise of certain voting rights held
by holders of the Company's cumulative preferred stock, to constitute a majority
of the Board.
The Company, at any time by action of the Board or the Plan Committee,
may alter, amend, suspend or terminate the Stock Purchase Plan in whole or in
part, or alter or amend any and all terms of participation in an offering made
thereunder, except that the provisions thereof relating to the effect of a
"change in control" of the Company may not be amended for three years following
a "change in control". No such action may, without the approval of the Company's
shareholders, (1) increase the maximum number of shares of common stock that may
be offered or the maximum number of shares of common stock that each eligible
employee may purchase, (2) extend the maximum term of an offering beyond
twenty-six months, (3) decrease the Purchase Price, (4) materially expand the
eligibility requirements or (5) materially increase benefits within the meaning
of Rule 16b-3 or the 1934 Act.
Performance Shares Plan
The Performance Shares Plan is implemented through a long-term incentive
compensation program adopted by the board of directors of each Employer, which
consists of Corporate Target Goals and/or Individual Goals and Award
Opportunities (each as defined below). Up to 800,000 shares of common stock have
been authorized for issuance under the Performance Shares Plan. These shares of
common stock may be either authorized and unissued shares or shares that have
been reacquired by the Company on the open market that are held as treasury
shares. The Performance Shares Plan is administered by the Plan Committee.
Members of the Plan Committee are not eligible to participate in the Performance
Shares Plan.
Employees of the Employers who are officers or who are employed in a
significant executive, administrative, operational or professional capacity or
who have the potential to contribute to the Employers' future success are
eligible to receive awards under the Performance Shares Plan. An Employer's
board of
25
<PAGE> 29
directors will select, subject to the Committee's approval, the employees (other
than the executive officers) who will participate in the Employer's Long-Term
Program for any Performance Period (as defined below). An Employer's Chief
Executive Officer may recommend to the Employer's board of directors that an
employee (other than an executive officer) participate in the Performance Shares
Plan. Eligible employees who are executive officers will be selected to
participate in the Company's Long-Term Program for any Performance Period by the
Plan Committee.
For each Performance Period for which an eligible employee is selected to
participate, the employee will receive a contingent grant of a number of shares
of common stock ("Performance Shares"). Whether or not the employee earns a
vested right to receive the shares of common stock will depend on the attainment
of the Corporate Target Goals and/or Individual Goals applicable to that
Performance Period. The number of Performance Shares contingently granted to an
employee for a Performance Period will be equal to the value of the employee's
Award Opportunity for the Performance Period divided by the average of the
closing prices of common stock for the twenty consecutive trading days
immediately preceding the first day of the Performance Period as reported on the
NYSE (the "Grant Price"). An Employer's board of directors (or, with respect to
executive officers, the Plan Committee) will determine each employee's Award
Opportunity by multiplying the employee's annual base salary as of the first day
of the Performance Period (or, if later, the employee's first date of
participation for the Performance Period) by the product of the employee's
"Percentage Incentive" (as determined by the board of directors or, with respect
to executive officers, by the Plan Committee ) multiplied by the number of years
in the Performance Period. A Performance Period is the period of time over which
the achievement of a Corporate Target Goal or an Individual Goal is measured.
Subject to the Plan Committee's approval, each Employer's board of
directors will establish one or more Corporate Target Goals for each Performance
Period that will apply to its employees (other than executive officers). A
Corporate Target Goal is an objective criterion pertaining to an Employer's
performance, efficiency or profitability, including 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.
Subject to the Plan Committee's approval, each Employer's board of directors
may, but need not, establish one or more Individual Goals for each eligible
employee (other than an executive officer) for a Performance Period. An
Individual Goal is an objective or subjective criterion pertaining to individual
effort as to enhancement of either individual performance or achievement of
Corporate Target Goals or other Individual Goals. The Plan Committee will
establish one or more Corporate Target Goals and may, but need not, establish
one or more Individual Goals for executive officers.
In calculating the number of shares of common stock in which an employee
who has received a contingent grant of Performance Shares has earned a vested
right as of the end of a Performance Period, the Employer's board of directors
will first determine the extent to which each Corporate Target Goal and
Individual Goal has been met for the Performance Period. The factor determined
by the board of directors will be multiplied by the weight, if any, assigned to
each Corporate Target Goal or Individual Goal (expressed as a percentage). The
resulting percentages will be added and the total, when multiplied by the number
of Performance Shares awarded to the employee, will equal the number of shares
of common stock in which the employee has earned a vested right. An Employer's
board of directors may enhance an employee's award above the maximum level in
recognition of exemplary performance as to subjective Individual Goals.
The number of shares of common stock in which an employee has earned a
vested right for a Performance Period generally will be distributed in two equal
installment payments on the February 1
26
<PAGE> 30
following the end of the Performance Period and on the next following February
1. Payments may be made on an earlier date in connection with a "change in
control". Each installment payment will be distributed in the form of whole
shares of common stock, except that cash will be distributed in lieu of
fractional shares and an amount approximately equal to the amount of the
federal, state and local income taxes imposed on the employee's receipt of the
installment payment will be distributed in cash. The second installment payment
will include a cash amount equal to the amount of dividends, if any, that would
have been payable on the portion of the second installment payment payable in
shares of common stock if such shares had been distributed on the February 1
immediately following the end of the relevant Performance Period. In no event
will the value of any distributions during any calendar year to an executive
officer exceed an amount equal to 150 percent of the officer's annual base
salary.
In the event of a "change in control" of the Company, each Corporate
Target Goal and Individual Goal in effect for any Performance Period of each
Employer's Long-Term Program shall be deemed achieved to the extent determined
by the Employer's board of directors as of the date of the change in control and
each employee will be deemed to be vested in a corresponding number of shares of
common stock underlying Performance Shares previously granted, as adjusted to
reflect the actual period between the beginning of the Performance Period and
the date of the change in control. In addition, any installment payment that has
not been distributed as of the date of the change in control will be immediately
distributed. "Change in control" has the same meaning under the Performance
Shares Plan as under the Stock Purchase Plan (see Employee Stock Purchase and
Savings Plan above).
The Board may, at any time, alter, amend, suspend or terminate the
Performance Shares Plan in whole or in part, or may suspend or discontinue the
payment of benefits thereunder; except that the provisions thereof relating to
the effect of a "change in control" of the Company may not be amended for three
years following a "change in control". No such action may, without the approval
of the Company's shareholders, (1) withdraw the administration from the Plan
Committee, (2) permit participation by any member of the Plan Committee, (3)
materially increase the Performance Shares Plan's cost to the Employers or the
benefits thereunder or (4) materially modify the eligibility requirements for
participation.
The Performance Shares Plan is an unfunded plan; the Company and its
subsidiaries have only a contractual obligation to employees to make payments
thereunder. The promise by the Company and its subsidiaries to pay benefits
under the Performance Shares Plan is not secured in any way, and any person
having a claim for payment thereunder will be an unsecured creditor of the
Company and its subsidiaries.
Stock Option Plan
The Company's Stock Option Plan (the "Stock Option Plan") is a stock
option plan in which non-employee directors and eligible employees of the
Company and its subsidiaries may be granted incentive stock options as defined
in Section 422 of the Code, non-qualified stock options, stock appreciation
rights and/or cash awards granted in connection with non-qualified stock options
to reimburse an optionee for the income taxes imposed upon the exercise of such
an option. Up to 5,000,000 shares of common stock have been authorized for
issuance with respect to awards under the Stock Option Plan. These shares of
common stock may be either authorized and unissued shares or shares that have
been reacquired by the Company on the open market, in private transactions or
otherwise, and that are held as treasury shares. The Stock Option Plan is
administered by the Plan Committee. The Plan Committee may make awards of Stock
Options, Stock Appreciation Rights and Cash Awards (as defined below) to
eligible employees selected by the Plan
27
<PAGE> 31
Committee. The Company's Chief Executive Officer may recommend to the Plan
Committee that awards be made to certain eligible employees.
Employees of the Company or any of its subsidiaries who are officers or
are employed in a significant executive, supervisory, administrative,
operational or professional capacity or who have the potential to contribute to
the future success of the Company and its subsidiaries are eligible to receive
awards under the Stock Option Plan. Non-employee directors also are eligible to
receive awards under the Stock Option Plan. No eligible employee owning stock
possessing more than ten percent of the total combined voting power of all
classes of stock of an Employer may be granted an Incentive Stock Option (as
defined below) unless, at the time granted, the exercise price of the option is
at least 110 percent of the fair market value of the common stock subject to the
option and the option is not exercisable beyond five years from the grant date.
Options granted under the Stock Option Plan may be either "Incentive
Stock Options" or "Non-Qualified Stock Options" (each as described below and
herein referred to individually as a "Stock Option" or collectively as "Stock
Options"). At the time of the grant of a Stock Option, the Plan Committee will
determine whether the Stock Option will be an Incentive Stock Option or a
Non-Qualified Stock Option. The Plan Committee may grant Stock Options in tandem
with Stock Appreciation Rights. The right to exercise any tandem Stock Option
will generally terminate to the extent that the common stock underlying the
Stock Option is used to calculate amounts or shares receivable upon the exercise
of a related Stock Appreciation Right.
An Incentive Stock Option is a Stock Option that qualifies as an
incentive stock option under Section 422 of the Code. The aggregate fair market
value (determined on the date on which an Incentive Stock Option is granted) of
the shares of common stock with respect to which Incentive Stock Options are
first exercisable by an awardee in any calendar year may not exceed $100,000 (or
other limit prescribed by the Code). No Incentive Stock Options may be granted
after ten years from the Effective Date. A Non-Qualified Stock Option is a Stock
Option that is not an Incentive Stock Option.
At the time of the grant of a Stock Option, the Plan Committee will
establish the exercise price per share of common stock subject to the Stock
Option which, in no event, will be less than 100 percent of the fair market
value per share of common stock on the grant date. For this purpose, the fair
market value per share of common stock will be determined based upon the average
of the high and low sales prices of a share of common stock on the date of grant
(or on the preceding trading day if the date of grant is not a trading day) as
reported on the NYSE. Also at the time of the grant of a Stock Option, the Plan
Committee will establish the period of time during which the Stock Option will
be exercisable; however, no Incentive Stock Option will be exercisable beyond
the tenth anniversary of the grant date. The Plan Committee may grant Stock
Options to eligible employees that are exercisable in full at any time, or in
installments at specified times, during the term of the Stock Option; however,
no Stock Option will be exercisable in whole or in part for the first twelve
months after the date of the grant of the Stock Option, except as provided in
connection with a "change in control". The Employer may use the proceeds
received upon the exercise of any Stock Option for general corporate purposes.
Each non-employee director was granted, as of the Effective Date, a
Non-Qualified Stock Option to acquire 12,500 shares of common stock at an
exercise price per share equal to the average of the high and low sales prices
of a share of common stock on October 25, 1994 (the initial trading date of the
Company's common stock) as reported on the NYSE. Each person who is elected for
the first time to be a non-employee
28
<PAGE> 32
director (other than persons who were previously employees of the Employers), as
of the first Board meeting held on or after the date he or she first becomes a
non-employee director, will be granted a Non-Qualified Stock Option to acquire
12,500 shares of common stock (or a pro rata portion of the shares available for
awards if insufficient shares are available to grant a Stock Option for 12,500
shares to each new non-employee director) at an exercise price per share equal
to the average of the high and low sales prices of a share of common stock on
the date he or she first becomes a non-employee director (or on the preceding
trading day if that date is not a trading day) as reported on the NYSE. Each
Non-Qualified Stock Option granted to a non-employee director will have a term
of ten years and will become exercisable with respect to twenty percent of the
shares of common stock subject thereto on each of the first five anniversaries
of the grant date. Non-employee directors are not entitled to receive any other
awards.
Any awardee (other than a non-employee director) who has been granted a
Stock Option may be granted a Stock Appreciation Right, which entitles the
awardee to receive, upon surrender of all or a portion of the Stock Option, an
amount equal to the excess of the fair market value of a share of common stock
on the date of the exercise of the Stock Appreciation Right over the exercise
price per share of the Stock Option, multiplied by the number of shares of
common stock with respect to which the Stock Option has been surrendered. The
right to exercise a Stock Appreciation Right terminates to the extent an awardee
exercises the Stock Option to which it is attached. Payment by the Employer of
the amount receivable by an awardee upon the exercise of a Stock Appreciation
Right may be made, as determined by the Plan Committee, by the delivery of whole
shares of common stock, cash or any combination of shares of common stock and
cash. In no event may a Stock Appreciation Right be exercised more than ten
years after the date of the grant of the tandem Stock Option. To the extent a
Stock Appreciation Right is exercised, the tandem Stock Option will be deemed to
have been exercised.
A Cash Award is a right granted to an awardee who has been granted a
Non-Qualified Stock Option to receive a cash payment, at the times and in the
amounts determined by the Plan Committee, that is intended to reimburse the
awardee for all or a portion of the federal, state and local income taxes
imposed upon the awardee as a consequence of the exercise of the Non-Qualified
Stock Option.
In the event of a "change in control" of the Company, each unexpired
Stock Option and Stock Appreciation Right will be immediately exercisable.
"Change in control" has the same meaning under the Stock Option Plan as under
the Stock Purchase Plan (see Employee Stock Purchase and Savings Plan above.)
The Board may, at any time, alter, amend, suspend or terminate the Stock
Option Plan in whole or in part, except that the provisions relating to the
effect of a "change in control" of the Company may not be amended for three
years following a "change in control". No such action may, without the approval
of the Company's shareholders, (1) increase the maximum number of shares of
common stock that may be issued in respect of awards, (2) change the class of
employees eligible to participate or (3) cause the Stock Option Plan to no
longer comply with Rule 16b-3 of the 1934 Act or any other regulatory
requirements. No amendment or termination of the Stock Option Plan may adversely
affect any Stock Option, Stock Appreciation Right or Cash Award previously
granted without the consent of the awardee.
The following is a brief and general summary based upon the law as in
effect as of the date hereof of certain federal income tax consequences of the
issuance and exercise of awards under the Stock Option Plan to an awardee and
the Company.
29
<PAGE> 33
Incentive Stock Options. An awardee will not recognize any taxable income
upon the grant of an Incentive Stock Option. In addition, the awardee will not
recognize any taxable income upon the exercise of an Incentive Stock Option, if
the awardee has satisfied the applicable requirements, including the requirement
that the awardee remain an employee of the Company or any of its subsidiaries at
all times during the period beginning on the grant date and ending on the day
three months (one year if the awardee becomes disabled within the meaning of
Section 22(e)(3) of the Code) before the date the Incentive Stock Option is
exercised. If an awardee does not remain an employee of the Company or any of
its subsidiaries at all times during such period, the Stock Option will not be
treated as an incentive stock option under Section 422 of the Code. In such a
case, the exercise of the Stock Option will be treated as the exercise of a
Non-Qualified Stock Option with the federal income tax consequences described
below. The Company (and its subsidiaries) will not be entitled to any income tax
deduction upon the grant or exercise of an Incentive Stock Option.
Non-Qualified Stock Options. An awardee will not recognize any taxable
income upon the grant of a Non-Qualified Stock Option. At the time a
Non-Qualified Stock Option is exercised, the awardee will recognize compensation
taxable as ordinary income, and the Company (or a subsidiary ) will be entitled
to a corresponding deduction, to the extent the fair market value of the common
stock underlying the Non-Qualified Option on the exercise date thereof exceeds
the exercise price.
Stock Appreciation Rights. An awardee will not recognize any taxable
income upon the grant of a Stock Appreciation Right. Upon the exercise of a
Stock Appreciation Right, an awardee will recognize compensation taxable as
ordinary income, and the Company (or a subsidiary) will be entitled to a
corresponding deduction, in an amount equal to any cash received (before
applicable tax withholding), plus the fair market value as of the exercise date
of any shares of common stock received (before applicable tax withholding).
Cash Awards. An awardee will not recognize any taxable income upon the
grant of a Cash Award. Upon the receipt by the awardee of a cash payment
pursuant to a Cash Award, an awardee will recognize compensation taxable as
ordinary income, and the Company (or a subsidiary) will be entitled to a
corresponding deduction, in an amount equal to the amount of the cash payment
(before applicable tax withholding).
Directors' Deferred Compensation Plan
The Company's Directors' Deferred Compensation Plan (the "Directors'
Plan") allows each non-employee director to defer fees for serving as a
non-employee director, and to have them accrued either in terms of cash or in
terms of theoretical units of shares of the Company's common stock. Up to
200,000 shares of common stock may be offered under the Directors' Plan. These
shares of common stock may be either authorized and unissued shares or shares
that have been reacquired by the Company on the open market and held as treasury
shares. The Plan is administered by the Plan Committee.
All non-employee directors may participate in the Directors' Plan.
(Non-employee directors who elect to participate in, and defer the receipt of
fees under, the Directors' Plan are referred to herein collectively as
"Participants" and individually as a "Participant".) On an annual basis, on or
before July 1, a non-employee director may elect to defer the receipt of all or
a specified portion of his or her fees (any compensation, retainer, attendance,
committee and other fees paid for services as a member of the board of
30
<PAGE> 34
directors of the Company or any of its subsidiaries) payable for following
years. A non-employee director who was not in office on the preceding July 1 may
elect, before his or her term begins, to defer, commencing six months after the
date of the election, all or a specified portion of his or her fees for the
remainder of the year and for following years.
The Company's Secretary will establish and maintain a separate
recordkeeping account for each Participant to which all deferred fees will be
credited. At the time a deferral election is made, a Participant may elect to
have all or a portion of the deferred fees credited to his or her account in
terms of units, each representing a share of common stock, or in cash. Deferred
fees that are credited to a Participant's account in terms of units will be
deemed to be invested in a number of shares of common stock obtained by dividing
the dollar amount of the deferred fees by the closing price per share of common
stock as reported on the NYSE for the date the fees would have otherwise been
paid to the Participant. From time to time thereafter, additional units will be
credited to the Participant's account to reflect any dividend or other
distribution the Participant would have received if the Participant would have
been the record owner of a number of shares of common stock equal to the number
of units credited to his or her account as of the dividend record date or as of
the relevant date for any other distribution. Deferred fees that are credited to
a Participant's account in terms of cash will be credited with interest at a
rate, adjusted quarterly, equal to the per annum rate equivalent to the quoted
interest rate, in effect on the first business day of any calendar quarter, for
a one-year certificate of deposit of a principal amount of $100,000 as quoted in
The Wall Street Journal. Interest credited to a Participant's account will bear
interest, compounding quarterly, at the same rate.
At the time a Participant first makes an election to defer the receipt of
fees under the Directors' Plan, the Participant may elect that the deferred
fees, together with earnings thereon, be distributed in a single payment or in
equal annual installments over a period of two to ten years. At the
Participant's election, a distribution will be made, or in the case of
installment payments distributions will begin, on the first business day of the
year immediately following the year during which the Participant either (1)
ceases to be a member of the board of directors of the Company or any of its
subsidiaries or (2) attains the social security retirement age. Subsequent
installments will be distributed on the first business day of each following
year. Deferred fees may be distributed on an earlier date in connection with a
"change in control" (as defined below).
To the extent deferred fees have been treated as if invested in common
stock, distributions from the Directors' Plan will be made, as determined by the
Company, in the form of newly issued whole shares of common stock or shares of
common stock purchased on the open market, and cash in lieu of fractional
shares. If the Participant has elected a single payment distribution, the number
of shares of common stock to be distributed as defined will equal the number of
whole units credited to the Participant's account as of the last business day of
the year immediately preceding the year during which the distribution is to be
made. The Participant also will receive a cash payment equal to the fair market
value, as of such day, of a fractional number of shares of common stock equal to
any fraction of a unit credited to the Participant's account. If the Participant
has elected installment payments, the number of shares of common stock to be
distributed will be equal to the number of units credited to the Participant's
account on the day preceding the date of payment of an installment, divided by
the number of installments remaining to be paid. No fractional shares of common
stock will be distributed; the Participant will receive a cash payment, computed
by the Company's Treasurer, equal to the fair market value, as of the day
preceding the date of payment of the installment, of a fractional number of
shares of common stock equal to any fraction of a unit to which the Participant
is
31
<PAGE> 35
entitled on that installment date. To the extent deferred fees have been
credited to a Participant's account in cash, distributions will be made in the
form of cash. If the Participant has elected a single payment distribution, the
amount of the distribution will equal the amount of cash credited to the
Participant's account as of the last business day of the year immediately
preceding the year of the distribution. If the Participant has elected
installment payments, the amount of each installment will equal the amount of
cash credited to the Participant's account as of the day preceding the date the
installment is to be made, divided by the number of installments remaining to be
paid. Amounts held in the Participant's account pending distribution shall
continue to accrue interest at the applicable rate.
Any fees deferred under the Directors' Plan, and earnings thereon, then
remaining payable to the Participant will be forfeited if (1) a Participant
becomes a director, proprietor, officer, partner, or employee of, or otherwise
becomes affiliated with, any utility or other company in the States of Indiana,
Ohio or Kentucky that competes with the Company or any of its subsidiaries, or
(2) a Participant who is a former non-employee director refuses a reasonable
request by the Company or any of its direct or indirect subsidiaries to become a
consultant after retirement as a director.
In the event of a "change in control" of the Company, all fees deferred
by Participants will be immediately payable to Participants (or their
beneficiaries). "Change in control" has the same meaning under the Directors'
Plan as under the Stock Purchase Plan (see Employee Stock Purchase and Savings
Plan above).
The Directors' Plan is an unfunded plan; the Company and its direct or
indirect subsidiaries have only a contractual obligation to Participants (and
their beneficiaries) to make payments when due. The promise by the Company and
its subsidiaries to pay benefits under the Directors' Plan is not secured in any
way, and any person having a claim for payment will be an unsecured creditor of
the Company and its subsidiaries.
The Board may, at any time, alter, amend, modify, revoke or terminate the
Directors' Plan, or suspend the payment of benefits thereunder, except that the
provisions thereof relating to the effect of a "change in control" of the
Company may not be amended for three years following a "change in control".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Schiff, Chairman of the Board of Cincinnati Financial Corporation,
serves on the Compensation Committee of the Company's Board and Mr. Randolph,
Chairman of the Board and Chief Executive Officer of the Company, serves on the
Board of Directors of Cincinnati Financial Corporation.
CG&E and its subsidiaries carry various bond coverages, and also carry
insurance coverage for their directors, officers, and employees against certain
civil liabilities. During 1994, insurance premiums, amounting to approximately
$123,300, at competitive rates, were paid to the John J. & Thomas R. Schiff &
Co., Inc., of which Mr. Schiff is also Chairman of the Board.
32
<PAGE> 36
PERFORMANCE GRAPH
The following line graph compares the cumulative total average
shareholder return of the common stock of the Company with the cumulative total
returns during the same time period of the S&P Electric Utilities Index and the
S&P 500 Stock Index. The graph tracks performance from October 25, 1994 (the
initial trading date of the Company's common stock) through December 31, 1994,
and assumes a $100 investment on October 25, 1994 and dividend reinvestment.
<TABLE>
<CAPTION>
S&P Electric
Measurement Period Company Utilities In- S&P 500 Stock
(Fiscal Year Covered) Common Stock dex Index
<S> <C> <C> <C>
10/25/94 100 100 100
12/31/94 104 105 100
</TABLE>
SHAREHOLDER PROPOSAL
Mr. Allen Wolff, 1553 South Carpenter Rd., Brunswick, Ohio 44212, a
holder of record (as trustee) of common stock representing 303 shares, has
informed the Company that he intends to present the proposal set forth below at
the Annual Meeting.
THE BOARD OPPOSES THE ADOPTION OF THIS PROPOSAL, WHICH IS DESIGNATED IN
THE PROXY AS ITEM 2, AND RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST IT.
Shareholder Proposal
Throughout corporate America, many stockholder proposals have been
introduced to try to make some changes including the control of compensation to
directors and top management and to try to tie them
33
<PAGE> 37
in with profits and dividends. Management opposes most of these proposals.....
Most shareholder proposals fail because (1) the investors are not organized and
offer no alternatives, (2) management already controls a large number of votes
and then rewards itself with more shares to vote against such proposals, and (3)
we are not playing on a level field, management gets to count unmarked proxies
as voting in favor of their position and can solicit proxies at the expense of
the company. Some companies even fail to make complete disclosures, hiding
behind the minimum rules of the S.E.C.
I feel that many Boards of Directors have lost touch with the investors
and it seems that they are giving more and more rewards for less and less
success. In Junior High School, we learned that there were three (3) parts to
any business; CAPITAL, LABOR AND MANAGEMENT. The Boards seem to have forgotten
this lesson. The boards, in general, are self-perpetuating groups seemingly
intent on rewarding themselves and members of management, at the expense of the
investor.
I am particularly dismayed at the statement on proxies that says (in
essence) "Proxies signed, but not specifically marked, will be voted as
management has suggested".
Management says that stockholders clearly understand how their votes will
be counted if they don't put Xs in the boxes; yet many shareholders don't
understand THAT (and I have letters about that). They say that this process
allows the stockholder not to be burdened with making FOUR Xs. WOW! How many
shareholders even understand what they are being asked to vote on? Many times
proxies for shares held in street names DO NOT clearly indicate this procedure.
Presently, only a few companies reveal totals, including the number of
unmarked proxies and the number of shares they represent. In reviewing the
results and trying to interpolate, it is easy to feel that decisions on certain
proposals might have been different if the rules were more democratic. The SEC
allows corporations to count unmarked ballots in favor of management, but does
not mandate that they do so.
When I go to the polls and figure there is no clear choice among
candidates and leave that space "unmarked", it is not voted in favor of the
incumbent or the incumbent's party; it is merely a non-vote.
Last year, a similar proposal was presented to five different
corporations in Ohio and garnered an average of 25 percent of the proxies (an
unusually high number for a stockholder proposal). Included in the votes against
were the unmarked proxies. Even though this proposal concerned the counting of
unmarked proxies, none of the corporations involved revealed the numbers
although one requested a payment of $10,000 for me to find out. If they didn't
count them, how did they know how many to count against the shareholder
proposal? When asked for a mailing list of 1994 supporters, none would provide
the same although several would (perhaps) be willing to do a mailing for
approximately three times my calculated cost. I suspect they would have insisted
on editing the contents had I succumbed to that. Does that inspire confidence in
management?
Therefore, be it resolved that in future proxies of this company, there
will be no discretionary power of voting by the named proxy-holder on any issue
where no direction has been given, including ANY ISSUE "WHICH MAY PROPERLY COME
UP AT THE MEETING". Likewise, all voting shall be reported in detail; e.g.:
numbers of proxies and shares voted FOR, number of proxies and shares voted
AGAINST, numbers ABSTAINED, and numbers of proxies and shares UNMARKED, but
counted as in favor of management's position.
34
<PAGE> 38
STATEMENT OF THE BOARD IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Board believes that the intent of the foregoing proposal is to
prohibit properly executed but unmarked proxies from being counted in voting for
any matter described in the Company's proxy statement. A similar proposal was
presented to CG&E's shareholders last year by the same proponent and received
only 11.77% of the vote.
THE BOARD BELIEVES THAT THE PROPOSAL IS CONTRARY TO THE INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT SHAREHOLDERS VOTE
AGAINST THE PROPOSAL FOR THE FOLLOWING REASONS:
Historically, both CG&E's and PSI's proxy statements and proxy cards have
provided shareholders with the ability to grant a discretionary proxy. Indeed,
the entire purpose of a proxy, in contrast to a vote cast in person, is to grant
to another person the power to act on behalf of a shareholder who cannot be
present at the meeting. So long as a proxy is properly signed, a shareholder is
not required to mark the proxy for each matter described in the Company's proxy
statement in order to have the proxy voted at the meeting. The federal proxy
rules promulgated by the Securities and Exchange Commission (the "SEC")
explicitly permit this practice, and the Company's proxy card conforms to SEC
requirements in this regard.
The Company's proxy card indicates in bold-face type how it will be voted
if no direction is given by the shareholder. That information is also contained
in the text of the Company's proxy statement. The Board believes that
shareholders who take advantage of this procedure are fully aware of how their
proxies will be voted and use the procedure as a convenient method to indicate
that they choose to vote in accordance with the Board's recommendations. The
proposal seems to reflect the assumption that shareholders are inadvertently
returning properly executed but unmarked proxies, unaware as to how they will be
voted. The Board does not share that assumption and believes that shareholders
fully understand the process as it now exists.
The Company's procedure is one which is customary and consistently
adhered to by all other public companies of which the Board is aware. The
proposal's deviation from customary procedure would be adverse to the proxy
process itself, as well as confusing to the overall shareholder population.
Additionally, because the current procedure facilitates the execution and return
of proxies, the Board believes that it results in a higher shareholder response
than could be expected if shareholders were required to complete each item on
the proxy card. This, in turn, helps to minimize the Company's time and expense
associated with the solicitation of proxies.
Concerning the aspect of the proposal requiring the reporting of unmarked
proxies, SEC rules dictate that the Company report votes for, against or
withheld, as well as the number of abstentions and broker non-votes, as to each
matter voted on at a meeting. The Company follows this procedure and believes
that additional reporting would be both unnecessary and potentially misleading
to shareholders. Separate reporting of unmarked proxies could give the incorrect
impression that such proxies were improperly counted when, in fact, it was the
full intention of the shareholders to give proxies in accordance with the
Board's recommendations.
35
<PAGE> 39
The Board is not aware of any valid reason to adopt the procedures
outlined in the shareholder proposal.
THE BOARD URGES A VOTE AGAINST THIS PROPOSAL, ITEM 2. THE PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE ON THEIR SIGNED PROXIES.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Company and its subsidiaries
for the year 1994 were Arthur Andersen LLP, with offices both in Cincinnati,
Ohio and Indianapolis, Indiana. Upon recommendation of the Audit Committee of
the Board, Arthur Andersen LLP was employed for the year 1995 by the Board on
January 25, 1995. Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting with the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
In order to be considered for inclusion in the Company's Proxy Statement
for the 1996 Annual Meeting of Shareholders, proposals from shareholders must be
received by the Secretary of the Company at 139 East Fourth Street, Cincinnati,
Ohio 45202 not later than November 18, 1995.
By Order of the Board of Directors
CHERYL M. FOLEY
Secretary
Dated: March 17, 1995
36
<PAGE> 40
- - --------------------------------------------------------------------------------
PROXY CINERGY CORP. PROXY
The undersigned hereby appoints Jackson H. Randolph, James E.
Rogers, and J. Wayne Leonard as proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to
vote as designated hereon and in their discretion with respect to any
other business properly brought before the annual meeting, all the
shares of common stock of CINergy Corp. which the undersigned is
entitled to vote at the annual meeting of shareholders to be held on
April 20, 1995 or any adjournment(s) or postponement(s) thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. This
proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, the
proxy will be voted "FOR" Item 1 and "AGAINST" Item 2.
Indicate your vote by an (X). The Board of Directors recommends
voting FOR Item 1 and AGAINST Item 2.
ITEM
<TABLE>
<S> <C> <C>
1. Election of Directors / / FOR--ALL Nominees / / WITHHELD--ALL Nominees
(except as marked to the contrary below)
</TABLE>
Nominees: Class II - Philip R. Sharp
Class I - Neil A. Armstrong, James K. Baker, Clement L.
Buenger, John A. Hillenbrand II, and George C. Juilfs
INSTRUCTION--TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, MARK
THROUGH THAT NOMINEE'S NAME.
2. Shareholder Proposal / / FOR / / AGAINST /
/ ABSTAIN
(Continued and to be signed and dated on the reverse side and returned
promptly in the enclosed envelope.)
- - --------------------------------------------------------------------------------
-------------------------------------------------------------------------
SHARES REPRESENTED BY ALL PROPERLY EXECUTED
PROXIES WILL BE VOTED IN ACCORDANCE WITH
INSTRUCTIONS
APPEARING ON THE PROXY. IN THE ABSENCE OF
SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED
IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS, AND IN THE DISCRETION OF
THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
Signature(s): Date , 1995
Please sign exactly as name(s) appear on this proxy, and date this
proxy. If joint account, each joint owner should sign. If
signing for a corporation or partnership or as agent, attorney or
fiduciary, indicate the capacity in which you are signing.
- - --------------------------------------------------------------------------------
