<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / 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 240.14a-11(c) or 240.14a-12
CINERGY CORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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>
[CINERGY LOGO]
Cinergy Corp.
139 East Fourth Street
Cincinnati, Ohio 45202
March 17, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Cinergy Corp. on Thursday, April 17, 1997, 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 six Class III directors and transact
such other business as may legally come before the meeting, or any adjournment
or postponement thereof.
It is important to your interests that all shareholders, regardless of the
number of shares owned, participate in the affairs of the Company. Last year,
over 87% of the Company's shares were represented in person or by proxy at the
annual meeting. Even if you plan to attend the meeting, we urge you to mark,
sign and date 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 your use in returning the proxy. By signing and returning your
proxy, you are assuring that your shares will be voted.
Thank you for your continued interest in the Company.
Sincerely yours,
<TABLE>
<S> <C>
[JACKSON H. RANDOLPH SIGNATURE] [JAMES E. ROGERS SIGNATURE]
Jackson H. Randolph James E. Rogers
Chairman of the Board Vice Chairman, President and
Chief Executive Officer
</TABLE>
P. S. IF YOU PLAN TO ATTEND THE 1997 ANNUAL MEETING, PLEASE LET US KNOW BY
CHECKING THE BOX ON THE FORM OF PROXY.
<PAGE>
CINERGY CORP.
139 EAST FOURTH STREET
CINCINNATI, OHIO 45202
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 17, 1997
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 17, 1997 at 11:00 a.m., eastern
daylight saving time, for the purposes of:
(1) the election of six Class III directors to serve for three-year terms
expiring in 2000;
(2) acting upon, if presented at the meeting, a shareholder proposal which
the Board of Directors OPPOSES;
and the transaction of such other business as may legally come before the
meeting, or any adjournment or postponement thereof.
Only shareholders of record at the close of business on Tuesday, February
18, 1997, will be entitled to vote at the meeting, or any adjournment or
postponement 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. 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.
By Order of the Board of Directors,
CHERYL M. FOLEY
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Dated: March 17, 1997
<PAGE>
CINERGY CORP.
139 EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 381-2000
PROXY STATEMENT
INTRODUCTION
Cinergy Corp., a Delaware corporation (the "Company"), is a registered
holding company under the Public Utility Holding Company Act of 1935, as
amended, and the parent company of The Cincinnati Gas & Electric Company
("CG&E"), PSI Energy, Inc. ("PSI"), Cinergy Services, Inc. ("Services"), and
Cinergy Investments, Inc. ("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 ("ULH&P"), in adjacent areas in Kentucky. PSI is an operating
utility primarily engaged in providing electric service in north central,
central, and southern Indiana. Services provides management, financial,
administrative, engineering, legal and other services to the Company, CG&E, PSI,
and Investments. The Company conducts its foreign and non-regulated businesses
through Investments and its subsidiaries.
SOLICITATION
This Proxy Statement and the enclosed form of proxy are first being mailed
on or about March 17, 1997, 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 17, 1997, or any adjournment or postponement of such meeting (the
"Annual Meeting").
The Board 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 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.
<PAGE>
The Company's Annual Report to Shareholders, including financial statements
for the year ended December 31, 1996, was mailed to shareholders concurrently
with or prior to the mailing of this proxy solicitation material.
VOTING PROCEDURES AND RIGHTS
Only holders of record of the Company's common stock at the close of
business on February 18, 1997 (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 157,679,129. 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 affirmative vote of a majority of the votes
cast. In tabulating the vote on each such other matter, abstentions will have
the same effect as votes against such matter; broker non-votes will be deemed
absent shares 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 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.
ITEM 1. 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.
Michael G. Browning, Phillip R. Cox, Kenneth M. Duberstein, James E. Rogers,
John J. Schiff, Jr., and Oliver W. Waddell have been nominated by the Board for
election as Class III directors at the Annual Meeting for terms of three years
each and until their successors are duly elected and qualified.
Mr. Clement L. Buenger, who served since 1994 as a director of the Company
in Class I, and whose term was due to expire at the 1998 annual meeting, retired
as a member of the Board during April 1996. He had previously served as a
director of CG&E from 1984 to 1995. Mr. Buenger's advice and support have been
sincerely appreciated.
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. Each nominee and continuing director is a member of the Company's present
Board. 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. 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.
2
<PAGE>
Names, Ages, Principal Occupations and Selected Information
- --------------------------------------------------------------------------------
CLASS III DIRECTOR NOMINEES FOR TERMS TO EXPIRE IN 2000
MICHAEL G. BROWNING
Director of the Company since 1994;
Member-Compensation Committee and
Corporate Governance Committee.
Director of PSI since 1990. Age 50.
Mr. Browning is Chairman and President of Browning
Investments, Inc., which is engaged in real estate ventures.
He also served as President of Browning Real Estate, Inc.,
the general partner of various real estate investment
partnerships, through December 30, 1994.
- --------------------------------------------------------------------------------
PHILLIP R. COX
Director of the Company since 1994;
Member-Corporate Governance Committee and
Public Policy Committee.
Director of CG&E from 1994 to 1995. Age 50.
Mr. Cox is President and Chief Executive Officer of Cox
Financial Corporation, a provider of financial and estate
planning services. He is a director of BDM International,
Inc., Cincinnati Bell Inc., the Cincinnati office of the
Federal Reserve Bank of Cleveland, and PNC Bank, Ohio, N.A.
- --------------------------------------------------------------------------------
KENNETH M. DUBERSTEIN
Director of the Company since 1994;
Member-Public Policy Committee.
Director of PSI from 1990 to 1995. Age 52.
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 McDonnell Douglas Corporation
and USF&G Corporation, and is also a member of the Board of
Governors of the American Stock Exchange.
- --------------------------------------------------------------------------------
3
<PAGE>
Names, Ages, Principal Occupations and Selected Information
- --------------------------------------------------------------------------------
JAMES E. ROGERS
Director of the Company since 1993;
Chairman-Executive Committee and
Member-Corporate Governance Committee.
Director of PSI since 1988 and CG&E since 1994. Age 49.
Mr. Rogers has served as Vice Chairman, President and Chief
Executive Officer of the Company and Services, and Vice
Chairman and Chief Executive Officer of CG&E, PSI,
Investments, and ULH&P since December 1995. He served as Vice
Chairman, President and Chief Operating Officer of the
Company and Services, and Vice Chairman and Chief Operating
Officer of CG&E, PSI and Investments from October 1994 (and
Vice Chairman and Chief Operating Officer of ULH&P from
January 1995) through November 1995. Mr. Rogers served as
Chairman, President and Chief Executive Officer of PSI from
August 1990 until October 1994; he previously served as
Chairman and Chief Executive Officer. He also served as
Chairman and Chief Executive Officer of PSI Resources, Inc.
from October 1993 until October 1994; he previously served as
Chairman, President and Chief Executive Officer. Mr. Rogers
is a director of Bankers Life Holding Corporation, Duke
Realty Investments, Inc., Fifth Third Bancorp, and The Fifth
Third Bank.
- --------------------------------------------------------------------------------
JOHN J. SCHIFF, JR.
Director of the Company since 1994;
Member-Compensation Committee.
Director of CG&E from 1986 to 1995. Age 53.
Mr. Schiff is Chairman of the Board of Cincinnati Financial
Corporation, an insurance holding company, and The Cincinnati
Insurance Company. He also served as Chairman and Chief
Executive Officer of John J. & Thomas R. Schiff & Co., Inc.,
an insurance agency, through December 31, 1996. He is a
director of Fifth Third Bancorp, The Fifth Third Bank, and
The Standard Register Company.
- --------------------------------------------------------------------------------
OLIVER W. WADDELL
Director of the Company since 1994;
Chairman-Finance Committee.
Director of CG&E from 1989 to 1995. Age 66.
Mr. Waddell served as 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. He was
also Vice Chairman of Star Bank, N.A. from June 1993 until
his retirement in December 1993; he previously served as
Chairman and Chief Executive Officer. Mr. Waddell is a
director of Chiquita Brands International, Inc., Star Banc
Corporation, and Star Bank, N.A., Cincinnati, Ohio.
- --------------------------------------------------------------------------------
4
<PAGE>
Names, Ages, Principal Occupations and Selected Information
- --------------------------------------------------------------------------------
CLASS I DIRECTORS WHOSE TERMS EXPIRE IN 1998
NEIL A. ARMSTRONG
Director of the Company since 1994;
Member-Audit Committee and
Executive Committee.
Director of CG&E from 1973 to 1995. Age 66.
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 completed
his tenure as Chairman of Computing Technologies For
Aviation, Inc. in 1992. Mr. Armstrong is a director of
Cincinnati Milacron Inc., Eaton Corp., RMI Titanium Co.,
Thiokol Corp., and USX Corp.
- --------------------------------------------------------------------------------
JAMES K. BAKER
Director of the Company since 1994;
Chairman-Audit Committee and
Member-Executive Committee.
Director of PSI since 1986. Age 65.
Mr. Baker has served as Vice Chairman of Arvin Industries,
Inc., a worldwide supplier of automotive parts, since
February 1996. He served as Chairman of the Board of Arvin
Industries from November 1986 through January 1996 and as
Chief Executive Officer from 1981 until June 1993. Mr. Baker
is a director of Amcast Industrial Corp., First Chicago NBD
Corp., Geon Company, and Tokheim Corporation.
- --------------------------------------------------------------------------------
JOHN A. HILLENBRAND II
Director of the Company since 1994;
Chairman-Public Policy Committee and
Member-Finance Committee.
Director of PSI since 1985. Age 65.
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. He is a director of Hillenbrand Industries,
Inc. and National City Bank, Indiana.
- --------------------------------------------------------------------------------
GEORGE C. JUILFS
Director of the Company since 1994;
Member-Compensation Committee and
Public Policy Committee.
Director of CG&E from 1980 to 1995. Age 57.
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. He is
a director, serving as chairman of the board, of the
Cincinnati office of the Federal Reserve Bank of Cleveland.
- --------------------------------------------------------------------------------
5
<PAGE>
Names, Ages, Principal Occupations and Selected Information
- --------------------------------------------------------------------------------
CLASS II DIRECTORS WHOSE TERMS EXPIRE IN 1999
MELVIN PERELMAN, PH.D.
Director of the Company since 1994;
Member-Corporate Governance Committee and
Finance Committee.
Director of PSI from 1980 to 1995. Age 66.
Dr. Perelman served as Executive Vice President and as a
member of the board of directors of Eli Lilly and Company,
which is engaged in the manufacturing of pharmaceuticals,
until his retirement in 1993. He also served as President of
Lilly Research Laboratories. Dr. Perelman is a director of
The Immune Response Corporation and Inhale Therapeutic
Systems, Inc.
- --------------------------------------------------------------------------------
THOMAS E. PETRY
Director of the Company since 1994;
Member-Audit Committee and
Executive Committee.
Director of CG&E from 1986 to 1995. Age 57.
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 from
April 1992 until December 1994; he previously served as
Chairman of the Board and Chief Executive Officer. A plan of
reorganization that provided a basis for emergence from
Chapter 11 of the U. S. Bankruptcy Code was filed by
Eagle-Picher during February 1995; an amended reorganization
plan was filed during August 1996 and approved by U.S.
Bankruptcy Court during November 1996, whereby Eagle-Picher
emerged from bankruptcy reorganization. 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 of the Company since 1993;
Member-Executive Committee.
Director of CG&E since 1983 and PSI since 1994. Age 66.
Mr. Randolph has served as Chairman of the Board of the
Company, Investments, Services, CG&E, PSI, and ULH&P since
December 1995. He served as Chairman of the Board and Chief
Executive Officer of the Company, Investments, Services,
CG&E, and PSI from October 1994 (and of ULH&P from January
1995) through November 1995. Mr. Randolph was Chairman of the
Board, President and Chief Executive Officer of CG&E from May
1993 until October 1994 (and of ULH&P from June 1993 until
January 1995); previously he served as President and Chief
Executive Officer of CG&E and ULH&P. Mr. Randolph is a
director of Cincinnati Financial Corporation, PNC Bank Corp.,
and PNC Bank, Ohio, N.A.
- --------------------------------------------------------------------------------
6
<PAGE>
Names, Ages, Principal Occupations and Selected Information
- --------------------------------------------------------------------------------
PHILIP R. SHARP, PH.D.
Director of the Company since 1995;
Member-Audit Committee. Age 54.
Dr. Sharp is Director of the Institute of Politics and a
lecturer in public policy at the John F. Kennedy School of
Government at Harvard University in Cambridge, Massachusetts.
He serves as a member of the Secretary of Energy Advisory
Board and as Chairman of the Secretary's Electric System
Reliability Task Force. 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.
- --------------------------------------------------------------------------------
VAN P. SMITH
Director of the Company since 1994;
Chairman-Compensation Committee and
Member-Executive Committee.
Director of PSI since 1986. Age 68.
Mr. Smith is Chairman of the Board of Ontario Corporation
which manufactures precision components for semiconductor
process equipment, provides custom hardware and software
products, and operates commercial testing laboratories. He is
a director of each of the subsidiaries of Ontario
Corporation, and also a director of Lilly Industries, Inc.,
Meridian Insurance Group, Inc., and Meridian Mutual Insurance
Co.
- --------------------------------------------------------------------------------
DUDLEY S. TAFT
Director of the Company since 1994;
Chairman-Corporate Governance Committee.
Director of CG&E from 1985 to 1995. Age 56.
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, Tribune Company, The Union
Central Life Insurance Company, and U.S. Playing Card
Company.
- --------------------------------------------------------------------------------
7
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD
During the calendar year ended December 31, 1996, the Board held seven
meetings. All directors attended more than 75% of the aggregate number of Board
meetings and meetings of committees on which they serve. 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 met twice during 1996. This 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 with the
independent certified public accountants 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;
and makes such reports and recommendations to the Board as it deems appropriate.
The Compensation Committee met six times during 1996. 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 Corporate Governance Committee met once during 1996. This Committee
recommends to the Board the slate of nominees of directors to be elected by the
shareholders, and 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 and its committees. The Committee has no established procedures for
consideration of nominees recommended by shareholders.
Other standing committees of the Board include the Executive Committee, the
Finance Committee and the Public Policy Committee.
COMPENSATION OF DIRECTORS
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 attended.
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
must be no less than 100% of the fair market value of the Company's common stock
on the New York Stock Exchange ("NYSE") 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.
8
<PAGE>
Under the Company's Retirement Plan for Directors, non-employee directors
with five or more years of service will receive annual retirement compensation
in an amount equal to the annual Board retainer fee in effect at the time of
termination of service as a director, plus the product of the fee paid for
attendance at a Board meeting multiplied by five. Retirement compensation is
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,
Services, CG&E or PSI. Prior service by non-employee directors of CG&E or PSI is
credited under this plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only person or group known to the Company to be the beneficial owner of
more than 5% of the Company's common stock, the only voting security, as of
December 31, 1996, is set forth in the following table. This information is
based on the most recently available report filed with the Securities and
Exchange Commission ("SEC") pursuant to the requirements of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and transmitted to
the Company by the person or group named.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------ ---------------------- ------------
<S> <C> <C>
U. S. Trust Company of California, N. A. 9,800,945 shares(1) 6.22%
515 South Flower Street
Los Angeles, CA 90071
</TABLE>
- --------------------------
(1) Shares held as trustee of benefit plans for employees of the Company 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 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.
9
<PAGE>
The beneficial ownership of the Company's common stock held by each nominee,
continuing director and named executive officer (as defined on page 17), and of
units representing shares of the Company's common stock paid as compensation to
non-employee directors, as of December 31, 1996, is set forth in the following
table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2) UNITS(3)
- ---------------------------------------------------------------- ------------------------- -----------
<S> <C> <C>
Neil A. Armstrong............................................... 5,750 shares
James K. Baker.................................................. 18,605 shares 2,795
Michael G. Browning............................................. 23,835 shares 6,124
Phillip R. Cox.................................................. 5,238 shares
Kenneth M. Duberstein........................................... 17,991 shares
William J. Grealis.............................................. 22,710 shares
John A. Hillenbrand II.......................................... 33,259 shares 5,737
George C. Juilfs................................................ 8,750 shares
J. Wayne Leonard................................................ 96,651 shares
John M. Mutz.................................................... 57,563 shares
Melvin Perelman................................................. 29,868 shares 5,658
Thomas E. Petry................................................. 7,000 shares
Jackson H. Randolph............................................. 129,893 shares
James E. Rogers................................................. 218,171 shares
John J. Schiff, Jr.............................................. 46,059 shares(4)
Philip R. Sharp................................................. 1,000 shares
Van P. Smith.................................................... 22,390 shares
Dudley S. Taft.................................................. 8,000 shares
Larry E. Thomas................................................. 88,441 shares
Oliver W. Waddell............................................... 9,361 shares
All directors and executive officers as a group................. 1,117,934 shares(2)
(representing 0.71% of the class)
</TABLE>
- --------------------------
(1) No individual listed beneficially owned more than 0.14% of the outstanding
shares of common stock.
(2) Includes shares which there is a right to acquire within 60 days pursuant
to the exercise of stock options in the following amounts: Mr.
Armstrong--5,000; Mr. Baker--17,787; Mr. Browning--17,787; Mr. Cox--5,000;
Mr. Duberstein--17,787; Mr. Grealis--15,887; Mr. Hillenbrand--17,787; Mr.
Juilfs--5,000; Mr. Leonard--77,611; Mr. Mutz--52,787; Dr. Perelman--17,787;
Mr. Petry--5,000; Mr. Randolph--50,000; Mr. Rogers--95,629; Mr.
Schiff--5,000; Mr. Smith-- 17,787; Mr. Taft--5,000; Mr. Thomas--54,104; Mr.
Waddell--2,500; and all directors and executive officers as a group--
646,393.
(3) Each unit represents one share of the Company's common stock credited to
the account of the respective directors as of December 31, 1996 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 1,791,000 shares, as to which Mr. Schiff disclaims any
beneficial interest, held by Cincinnati Financial Corporation and certain of
its subsidiaries.
10
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The executive compensation program of the Company is administered by the
Compensation Committee of the Board (the "Committee"). The Committee establishes
the Company's compensation philosophy and the compensation of the chief
executive officer and the remaining 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, within the meaning of
Section 16(b) of the 1934 Act, and an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
COMPENSATION PHILOSOPHY
As reported in the Company's 1996 proxy statement, the Committee's executive
compensation philosophy emphasizes incentive compensation, both short-term and
long-term, in order to tie the interests of the executive officers and the
Company's shareholders. Base salary, annual cash incentives, and long-term
incentives are an integral part of the Company's executive compensation program.
The Company seeks to provide a total compensation program that will attract,
retain, and motivate the high quality employees needed to provide superior
service to its customers and to maximize returns to its shareholders. Base
salaries for the executive group are targeted at the median of comparably sized
utility companies based on kilowatt hours sold. Because of the Company's
low-cost position, kilowatt hours sold is considered to be a better measure than
revenues for constructing a comparative group. Base salary levels are reviewed
annually, and any increases are based on such factors as the Company's financial
results, each individual's performance, and the executive's role and skills. The
Company's executive compensation program also seeks to link executive and
shareholder interests through cash-based and equity-based incentive plans, in
order to reward corporate and individual performance and balance short-term and
long-term considerations. Annual and long-term incentive plans are structured to
provide opportunities that are competitive with general industry companies.
This philosophy results in a compensation mix for the chief executive
officer and the remaining executive officers consisting of annual and long-term
incentives accounting for at least 50% of the employee's annual compensation.
The Committee's charter supports the Company's executive compensation
philosophy and the Committee's role in designing and implementing that
philosophy. Pursuant to the charter, the Committee:
- reviews and determines the annual base salaries, annual incentives, and
long-term incentives of the Company's executives, and develops an
appropriate balance between short-term and long-term incentives while
focusing on long-term shareholder interests; and
- reviews the operation of the Company's executive compensation programs;
establishes and periodically reviews policies for the administration of
these programs; and takes steps, if appropriate, to modify such programs
and to design and implement new executive compensation programs.
Consistent with the objectives set forth in its charter, the Committee has,
since its inception, sought to simplify existing compensation programs and to
design new ones that emphasize short-term and long-term incentive opportunities,
that distinguish between short-term and long-term corporate goals, and that will
incentivize the type of behavior crucial to managing successfully in an
increasingly competitive environment.
11
<PAGE>
Because of its commitment to implement an executive compensation program
that enhances the financial success of the Company and increases shareholder
value, the Committee recommended in January 1996 that the Board adopt a new
employee incentive compensation plan, i.e., the Company's 1996 Long-Term
Incentive Compensation Plan (the "1996 LTIP"), subject to approval by the
Company's shareholders. The Board so adopted, and the Company's shareholders
overwhelmingly approved the 1996 LTIP at last year's annual meeting. In
describing the 1996 LTIP in last year's proxy statement, the Company succinctly
stated the 1996 LTIP's objectives: "The Plan will provide the Company, in this
era of utility competition, greater flexibility to design long-term compensation
incentives for the Company's officers and other key employees by rewarding
long-term performance.... In utilizing the Plan, a greater portion of pay for
officers and key employees is placed at risk, but ownership of stock assists in
the attraction and retention of qualified employees and provides them with
additional incentives to devote their best efforts to pursue and sustain the
Company's growth and profitability through the accomplishment of corporate
goals. The Plan is thus intended to coalesce the interests of the Company's
shareholders, customers and management to enhance the Company's value."
With the adoption and approval of the 1996 LTIP, the Committee met six times
during 1996 to design a new long-term incentive compensation program that aligns
the interests of the Company's executive officers with its shareholders'
interests. The Committee consulted with institutional investor representatives
in order to better comprehend the importance incentive compensation, both
short-term and long-term, has from the perspective of such investors.
Accordingly, it is the Committee's understanding that from the institutional
investors' standpoint, incentive compensation programs help attract and retain
talented employees thereby providing for stability of the management team, and
incentivize appropriate behavior toward the accomplishment of long-term
corporate goals. The Committee believes that a well-planned and well-implemented
executive incentive compensation program, with meaningful and measurable targets
and competitive award opportunities, sends a strong, positive message to the
financial markets.
During October 1996, the Committee adopted a new long-term incentive
compensation program consistent with the parameters set forth in the 1996 LTIP.
The new long-term incentive compensation program initially utilizes two
components: performance-based restricted stock and stock options. For the first
performance period, i.e., October 1, 1996 through December 31, 1999, executive
officers and other key employees of the Company are eligible to receive grants
of restricted stock subject to a performance measure, i.e., total shareholder
return. At the end of the measuring period, such grantees will only earn an
award to the extent the Company's total shareholder return meets or exceeds the
median total shareholder return of a comparative group consisting of the top
twenty-five kWh producers in the United States. This portion of the executive
incentive compensation program is known as the "Value Creation Plan"--if the
executive officers as a team produce value for the shareholders, they will be
eligible to share in the value that has been realized.
The second portion of the long-term incentive compensation program consists
of annual grants of stock options that vest every three years. The total
long-term incentive opportunity for each executive officer is allocated 75% to
the performance-based restricted stock and 25% to stock options. Effective
January 1, 1997, restricted stock and stock options were granted to the
Company's executive officers and other key employees in amounts determined to be
appropriate by the Committee and, accordingly, such grants will be discussed
within the Committee's report in the Company's 1998 proxy statement.
12
<PAGE>
ANNUAL INCENTIVE COMPENSATION
During 1996, approximately 400 key employees, including the executive
officers, were eligible to receive incentive compensation under the Company's
Annual Incentive Plan, and were granted cash awards to the extent that certain
pre-determined corporate and individual goals were attained. Graduated standards
for achievement were developed to encourage each employee's contribution. The
potential awards ranged from 2.5% to 90% of the annual base salary of the
participant (including deferred compensation), depending upon the achievement
levels and the participant's position. The Committee reviewed and approved both
the plan goals at the beginning of the year and the achievements at the end of
the year.
In determining the awards payable under the Annual Incentive Plan for 1996,
the Committee considered a combination of corporate and individual goals.
Achievement of the corporate goal for 1996 and achievement of individual goals
each accounted for 50% of the total possible award. The portion of the payout in
March, 1997, attributable to the corporate goal was based on 1996 achievement in
one area, i.e., earnings per share. The achievement level for the corporate goal
was at the 2.6 award level -- on a sliding scale of 1.0 to 3.0 -- for 1996.
During 1996, incentive awards for each executive officer reflected
individual achievement as well as the Company's attainment of its corporate
goals. Individual performance goals for each executive varied from executive to
executive; however, all related to the achievement of the Company's overall
strategic vision of becoming a premier general energy services company.
For each executive officer, the Committee assessed the extent to which each
person contributed toward the accomplishment of the Company's vision in 1996.
Although its determinations were subjective, the Committee believed that its
assessment accurately measured the performance of each executive officer. Thus,
the Committee determined that the achievement level for each executive officer's
individual goals was at the 3.0 award level--on a sliding scale of 1.0 to
3.0--for 1996. In addition, based upon the extraordinary efforts of the
executive officers during 1996, the Committee, acting within the parameters of
discretion conferred under the Annual Incentive Plan, determined that the
contributions and performance of each executive officer merited the maximized
award opportunity payable to each.
For 1997, the Company's Annual Incentive Plan will again use a combination
of corporate and individual goals. The corporate goal will account for 50% of
the total possible award and achievement of individual goals will account for
the remaining 50%. The corporate goal for 1997 will be based on earnings per
share. For 1997, approximately 400 key employees will participate in the plan.
The potential awards will range from 2.5% to 90% of the participant's annual
base salary, depending upon the achievement levels and the participant's
position.
OTHER COMPENSATION DECISIONS
The Committee, at its discretion, can award other forms of compensation in
recognition of outstanding service to the Company or any of its subsidiaries.
Consistent with that philosophy, the Committee approved during 1996 special
performance awards for Messrs. Grealis, Leonard, and Thomas (as set forth in
footnote to the Summary Compensation Table).
13
<PAGE>
LONG-TERM INCENTIVE COMPENSATION AND STOCK OPTIONS
The Company's Performance Shares Plan (the "Performance Shares Plan") has
been a long-term incentive plan developed to reward executive officers and other
key employees for contributing to long-term success by achieving corporate and
individual goals approved by the Committee. During 1996, the goals applicable
for use under the Performance Shares Plan were total shareholder return, plus
those same goals that were applicable for use during 1996 under the Company's
Annual Incentive Plan. The potential award opportunities under this plan also
have been established in the same manner as under the Annual Incentive Plan,
with the minimum award opportunities under the Performance Shares Plan ranging
from 13.33% to 36.66% of annual salary for the full performance cycle.
Performance cycles have consisted of overlapping four year periods. Because the
former PSI Performance Shares Plan was merged into the Performance Shares Plan
effective as of October 24, 1994, the then existing PSI performance cycles of
1992-1995 and 1994-1997 became performance cycles under the Performance Shares
Plan. Awards earned under the 1992-1995 performance cycle by executive officers
were paid in two installments; one-half during February 1996, the dollar values
of which are set forth in the Summary Compensation Table, and the remaining
portion during February 1997.
The 1996 LTIP, which was approved by the Company's shareholders at last
year's annual meeting, replaces the Performance Shares Plan. As part of the
transition toward implementation of the 1996 LTIP, the Performance Shares Plan
was amended effective November 1, 1996, to preclude the commencement of any new
performance cycle subsequent to January 1, 1996, and to provide that the
existing performance cycle of 1994-1997 be shortened to three years, i.e.,
1994-1996, and that the final performance cycle of 1996-1999 be shortened to one
year, i.e., 1996.
Under the 1996 LTIP, executive officers and other key employees are eligible
to receive grants from time to time of stock-related awards of six general
types: (i) options to purchase shares of the Company's common stock (i.e.,
"Options"); (ii) rights to receive, upon exercise, the appreciation in fair
market value of shares of the Company's common stock (i.e., "Stock Appreciation
Rights" or "SARs"); (iii) outright grants of shares of the Company's common
stock, subject to transfer restrictions and risk of forfeiture for a specified
restriction period (i.e., "Restricted Stock") and which may, but need not be,
conditional upon the attainment during a specified performance period of
specified Committee-determined performance criteria and objectives (i.e.,
"Performance Measures"); (iv) rights to receive (a) shares of the Company's
common stock, or in lieu of all or any portion of those shares, their fair
market value (i.e., "Performance Shares"), or (b) a specified dollar amount or,
in lieu of all or any portion of that amount, shares of the Company's common
stock having the same fair market value (i.e., "Performance Awards"), both
conditional upon the attainment of Performance Measures; (v) rights to receive
the Company's common stock or cash or other property equal in value to dividends
paid with respect to a specified number of shares of common stock, and which
may, but need not be, conditional upon the attainment of Performance Measures
(i.e., "Dividend Equivalents"); and (vi) other stock-based awards which are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of the Company's common stock (i.e.,
"Other Stock-Based Awards"). Options meeting the requirements of Code Section
422 and intended to be afforded the federal income tax treatment of Code Section
422 options (i.e., "Incentive Stock Options" or "ISOs"), as well as other
Options (i.e., "Non-qualified Stock Options" or "NSOs"), may be awarded under
the 1996 LTIP. SARs granted under the 1996 LTIP may be awarded either in tandem
with Options (i.e., "Tandem SARs") or standing alone (i.e., "Freestanding
SARs").
14
<PAGE>
As stated above, the Committee has adopted a long-term incentive
compensation program and granted, effective January 1, 1997, both
performance-based restricted stock and stock options to the Company's executive
officers and other key employees; accordingly, such grants will be discussed
within the Committee's report in the Company's 1998 proxy statement.
The Company's Stock Option Plan also has been a part of the Company's
long-term incentive compensation program for executive officers and other key
employees. Both incentive and non-qualified stock options in amounts determined
to be appropriate by the Committee have been granted under the plan. Options
under the plan 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. Although the 1996 LTIP
was not intended to replace this plan, the Committee expects that future awards
of stock options to executive officers and other key employees of the Company
generally will be granted under the 1996 LTIP. Stock options were not granted to
any named executive officer (as defined on page 17) during 1996.
CHIEF EXECUTIVE OFFICER
Mr. Rogers' 1996 base salary was determined pursuant to his employment
agreement with the Company (see Employment Agreements and Severance Arrangements
on page 20). For 1996, Mr. Rogers also earned incentive compensation under the
Annual Incentive Plan in the amount of $607,518, of which 50% was based on
achievement of the Company's goals and 50% was based upon both the Committee's
determination of his achievement of individual goals, and its discretionary
determination to reward him in recognition of outstanding contributions and
exemplary performance.
Giving consideration to the accomplishments during 1996 leading to a total
return to shareholders of 15.42%, an 8% increase in earnings per share (adjusted
for the effects of weather and non-comparable items), and a market-to-book ratio
of 2.04 that at year end was the highest among the twenty-five largest electric
utilities, sufficient goals were met to obtain the maximum award available.
Other significant accomplishments during 1996 included formation of a coalition
to create a multi-state transmission region operated by an independent system
operator, reorganization of the Company's electricity operations into three
strategic business units, acquisition of a 50% interest in Midlands Electricity
plc (headquartered in Birmingham, England), formation of a joint venture with
Trigen Energy Corporation (of White Plains, New York) to develop cogeneration
and trigeneration energy facilities throughout the Unites States and Canada,
participation in retail pilot projects (in Illinois, New Hampshire, and New
York), an 86% increase in megawatt sales in the wholesale power market,
continued reengineering efforts and reductions to staff without layoffs, and
efforts to propose customer choice legislation in both Indiana and Ohio. The
relative importance of these accomplishments was equal in the determination of
awards.
Mr. Rogers also earned an award during the 1992-1995 performance cycle under
the Performance Shares Plan. One-half of the award was paid during February
1996, and the remaining portion was paid during February 1997. Of the portion of
the award paid during February 1996, half was based on achievement of the
Company's goals and half was based upon the Committee's determination of his
achievement of individual goals.
15
<PAGE>
SUMMARY
The Committee's executive compensation philosophy is designed to provide
competitive levels of executive compensation that integrate such compensation
with the Company's goals, reward superior corporate performance, recognize
individual initiative and achievement, and assist the Company in attracting and
retaining qualified and highly motivated executive employees. In utilizing
long-term, incentive-based compensation, i.e., as available under the 1996 LTIP,
a greater portion of executive compensation is placed at risk. The Committee
believes that ownership of stock assists in the attraction and retention of
qualified executive employees, and provides them with additional incentives to
devote their best efforts to pursue and sustain the Company's growth and
profitability through the accomplishment of corporate goals. The philosophy thus
intends to coalesce the interests of the Company's shareholders, customers and
management to enhance the Company's value.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") is applicable to
compensation earned during 1994 and later. Under OBRA, income tax deductions of
publicly traded companies may be limited to the extent total compensation for
certain executive officers exceeds one million dollars during any year; however,
the deduction limit does not apply to payments which qualify as "performance
based". The Committee has reviewed the final regulations issued by the Internal
Revenue Service ("IRS") and will continue to review the application of these
rules to future compensation; however, the Committee intends to continue basing
its executive compensation decisions primarily upon performance achieved, both
corporate and individual, but retains the right to make subjective decisions and
to award compensation that meets all of the requirements for excludability under
OBRA.
The tables which follow, and accompanying footnotes, reflect the decisions
covered by the above discussion.
COMPENSATION COMMITTEE
Van P. Smith, Chairman
Michael G. Browning
George C. Juilfs
John J. Schiff, Jr.
16
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the chief executive
officer and each of the additional five most highly compensated executive
officers (these six executive officers sometimes hereinafter collectively
referred to as the "named executive officers") for services to the Company and
its subsidiaries during the calendar years ended December 31, 1996, 1995 and
1994. (The data presented for 1994 includes compensation from PSI and CG&E for
the period January 1, 1994 through October 24, 1994.)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------------ -----------
--------------------------------------- (G)
(E) (F) SECURITIES (H)
(A) (C) (D) OTHER ANNUAL RESTRICTED UNDERLYING LTIP
NAME AND (B) SALARY BONUS(1) COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS(2)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ----------------------------------- --------- --------- ----------- --------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James E. Rogers 1996 625,020 607,518 3,697 0 0 492,847
Vice Chairman, President 1995 535,000 321,750 15,322 0 0 283,427
and Chief Executive Officer 1994 433,144 265,729 64,417 0 250,000 273,720
Jackson H. Randolph 1996 535,000 321,750 10,675 0 0 180,144
Chairman of the Board 1995 535,000 321,750 11,594 0 0 0
1994 470,000 255,750 5,719 0 250,000 0
John M. Mutz 1996 376,584 150,634 2,431 0 0 137,705
Vice President of the Company, 1995 358,656 143,462 2,041 0 0 11,804
and President of PSI 1994 342,380 136,952 3,001 0 100,000 11,436
William J. Grealis (4) 1996 343,200 205,920 8,828 0 0 48,925
Vice President of the Company, 1995 276,000 103,500 37,677 0 100,000 0
and President of the Energy
Services Business Unit, CG&E, and
Investments
J. Wayne Leonard 1996 317,720 190,632 53,985 0 0 135,374
Group Vice President and Chief 1995 250,008 93,753 17,385 0 0 83,974
Financial Officer of the 1994 211,208 79,203 32,146 0 100,000 81,132
Company, and President of the
Energy Commodities Business Unit
Larry E. Thomas 1996 294,350 176,610 5,030 0 0 133,397
Group Vice President of the 1995 240,000 90,000 1,794 0 0 80,066
Company, and President of 1994 209,540 78,578 29,078 0 100,000 77,345
the Energy Delivery Business Unit
<CAPTION>
(I)
(A) ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ----------------------------------- -------------
<S> <C>
James E. Rogers 108,108(3)
Vice Chairman, President 135,676
and Chief Executive Officer 285,393
Jackson H. Randolph 120,512(3)
Chairman of the Board 104,112
92,724
John M. Mutz 14,993(5)
Vice President of the Company, 16,530
and President of PSI 6,097
William J. Grealis (4) 35,611(5)
Vice President of the Company, 116,136
and President of the Energy
Services Business Unit, CG&E, and
Investments
J. Wayne Leonard 34,220(5)
Group Vice President and Chief 49,726
Financial Officer of the 93,555
Company, and President of the
Energy Commodities Business Unit
Larry E. Thomas 36,162(5)
Group Vice President of the 29,464
Company, and President of 53,945
the Energy Delivery Business Unit
</TABLE>
- ------------------------------
(1) Amounts appearing in this column reflect the Annual Incentive Plan awards
earned during the year listed and paid in the following year.
(2) Amounts appearing in this column reflect the values of the shares and cash
paid under the Company's Performance Shares Plan (as successor to PSI's
Performance Shares Plan). Amounts paid in 1996 were earned during the
four-year cycle from 1992 through 1995. Amounts paid in 1995 and 1994 were
earned during the four-year cycle from 1990 through 1993.
(3) Amount includes for Messrs. Rogers and Randolph, 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 PSI and CG&E 401(k) plans of $6,468 and $8,160; above-market
interest on amounts deferred pursuant to the Deferred Compensation
Agreements of $29,007 and $43,748; benefits under Split Dollar Life
Insurance Agreements of $16,120 and $17,979; and insurance premiums paid
with respect to executive/group-term life insurance of $6,513 and $625.
(4) Mr. Grealis was not in the direct employ of the Company and its subsidiaries
prior to January 1995.
(5) Amount includes for Messrs. Mutz, Grealis, Leonard, and Thomas,
respectively: insurance premiums paid with respect to executive/group-term
life insurance of $10,160, $3,752, $2,004, and $6,281; and employer matching
contributions under the PSI 401(k) plan of $4,833, $6,859, $7,216, and
$4,881. Also includes for each of Messrs. Grealis, Leonard, and Thomas a
special performance award in the amount of $25,000.
17
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND YEAR END OPTION/SAR VALUE TABLE
The following table sets forth information concerning stock options
exercised by the named executive officers during 1996, including the values
realized for such options exercised, which represent the positive spread between
the respective exercise prices and market prices on dates of exercises, and the
numbers of shares for which options were held as of December 31, 1996, including
the values for "in-the-money" options, which represent the positive spread
between the respective exercise prices of outstanding stock options and the
market price of the shares as of December 31, 1996, which was $33.375 per share.
<TABLE>
<CAPTION>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR END YEAR END
(B) (C) (#) ($)
SHARES ACQUIRED VALUE ---------------- ---------------------
(A) ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------ --------------- ---------- ---------------- ---------------------
<S> <C> <C> <C> <C>
James E. Rogers................................. 143,774 2,534,846 95,629/150,000 1,004,105/1,575,000
Jackson H. Randolph............................. 50,000 431,250 50,000/150,000 525,000/1,575,000
John M. Mutz.................................... 0 N/A 52,787/60,000 638,971/630,000
William J. Grealis.............................. 4,113 32,904 15,887/80,000 143,976/725,000
J. Wayne Leonard................................ 0 N/A 77,611/60,000 1,052,553/630,000
Larry E. Thomas................................. 17,003 275,482 54,104/60,000 669,810/630,000
</TABLE>
PENSION BENEFITS
The 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's non-contributory
pension plan (the "PSI Pension Plan"), plus certain supplemental plans or
agreements. Mr. Randolph is covered under the terms of the CG&E Pension Plan.
Messrs. Rogers, Mutz, Grealis, Leonard, and Thomas are covered under the terms
of the PSI 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 the employee's four consecutive calendar years
producing the highest such average within the last ten calendar years
immediately preceding retirement. The IRS annually establishes a dollar limit,
indexed to inflation, of the amount of pay permitted for consideration under the
terms of the plan, which for 1996 was $150,000. Covered compensation is the
average social security taxable wage base over a 35-year period. The accrued
annual benefit payable to Mr. Randolph upon his retirement under the terms of
the plan is $106,911 based upon IRS limits and credited service of 37 years.
The Company and Mr. Randolph have entered into an Amended and Restated
Supplemental Executive Retirement Income Agreement which in effect freezes as of
December 31, 1994, the accrual of benefits payable to Mr. Randolph under CG&E's
Supplemental Executive Retirement Plan upon his retirement, death, or
disability. Under the amended agreement, the supplemental retirement benefit of
$511,654 shall be paid to Mr. Randolph or his beneficiary in monthly
installments of $42,638 for 180 months beginning December 1, 2000.
18
<PAGE>
The PSI Pension Plan covers all of its employees who meet certain minimum
age and service requirements. Compensation utilized to determine benefits under
the PSI Pension Plan includes substantially all salaries and annual incentive
compensation, including deferred compensation for Mr. Rogers, and such benefits
are determined using a final average pay formula with consideration of years of
service to a maximum of 35, age at retirement and the applicable average social
security wage base. The PSI Excess Benefit Plan, in which Messrs. Rogers, Mutz,
Grealis, Leonard, and Thomas participate, is designed to restore pension
benefits to those individuals whose benefits under the PSI Pension Plan would
otherwise exceed the limits imposed by the Code.
The following pension plan table illustrates the estimated annual benefits
payable as a straight-life annuity under both PSI 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>
$ 300,000......................... $ 23,145 $ 46,290 $ 69,435 $ 92,580 $ 115,725 $ 138,870 $ 162,015
400,000......................... 31,145 62,290 93,435 124,580 155,725 186,870 218,015
500,000......................... 39,145 78,290 117,435 156,580 195,725 234,870 274,015
600,000......................... 47,145 94,290 141,435 188,580 235,725 282,870 330,015
700,000......................... 55,145 110,290 165,435 220,580 275,725 330,870 386,015
800,000......................... 63,145 126,290 189,435 252,580 315,725 378,870 442,015
900,000......................... 71,145 142,290 213,435 284,580 355,725 426,870 498,015
1,000,000........................ 79,145 158,290 237,435 316,580 395,725 474,870 554,015
1,100,000........................ 87,145 174,290 261,435 348,580 435,725 522,870 610,015
1,200,000........................ 95,145 190,290 285,435 380,580 475,725 570,870 666,015
1,300,000........................ 103,145 206,290 309,435 412,580 515,725 618,870 722,015
1,400,000........................ 111,145 222,290 333,435 444,580 555,725 666,870 778,015
1,500,000........................ 119,145 238,290 357,435 476,580 595,725 714,870 834,015
1,600,000........................ 127,145 254,290 381,435 508,580 635,725 762,870 890,015
</TABLE>
The estimated credited years of service at age 62 for each of the named
executive officers covered under the terms of the PSI Pension Plan are as
follows: Mr. Rogers, 20.22 years; Mr. Mutz, 3.39 years; Mr. Grealis, 11.69
years; Mr. Leonard, 35 years; and Mr. Thomas, 35 years.
Messrs. Rogers, Mutz, and Grealis also participate in the PSI Supplemental
Retirement Plan, which is designed to provide coverage to employees, previously
designated by PSI's board of directors, who will not otherwise qualify for full
retirement benefits under the PSI Pension Plan. The benefit provided by the PSI
Supplemental Retirement Plan will be an amount equal to that which a covered
employee with maximum permitted years of participation (35 years) would have
received under the PSI Pension Plan, reduced by the actual benefit provided by
such Plan and the PSI 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 Supplemental Retirement Plan is $64,551 to Mr.
Rogers, $125,662 to Mr. Mutz, and $12,746 to Mr. Grealis.
19
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The Company has an Executive Supplemental Life Insurance Program, which
provides key management personnel, including the named executive officers, with
additional life insurance coverage during employment, and post-retirement
deferred compensation. At the later of age 55 or retirement, the participant's
life insurance coverage under the program will be canceled. At that time, the
participant will receive the total amount of coverage in the form of deferred
compensation payable in ten equal annual installments. The annual benefit
payable, at the later of age 55 or retirement, to each of the named executive
officers is $15,000 per year over ten years.
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") effective as of October 24, 1994.
Pursuant to his employment agreement, Mr. Randolph served as Chairman and
Chief Executive Officer of the Company until November 30, 1995, at which time he
relinquished the position of Chief Executive Officer; he will continue to serve
as Chairman of the Board of the Company until November 30, 2000. Mr. Rogers
served as Vice Chairman, President and Chief Operating Officer of the Company
until November 30, 1995, and thereafter has served as Vice Chairman, President
and Chief Executive Officer. Mr. Rogers' agreement is for a term of three years;
however, as amended in December 1995, on each annual anniversary date it is
automatically extended for an additional year, unless either the Company or Mr.
Rogers gives timely notice otherwise. During the terms of their agreements,
Messrs. Randolph and Rogers will receive minimum annual base salaries of
$465,000 and $422,722, respectively, and each will be eligible to participate in
all other incentive, stock option, performance award, savings, retirement and
welfare benefit plans applicable generally to Company employees and executives,
and will receive other fringe benefits.
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, which commenced on October 4, 1993,
pursuant to which he will serve as President, and will be nominated for election
as a director, of PSI until October 4, 1998. During the term of his agreement,
Mr. Mutz will receive a minimum annual base salary of $330,000, will be eligible
to
20
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participate in all other incentive, stock option, performance award, savings,
retirement and welfare benefit plans applicable generally to Company employees
and executives, and will receive other fringe benefits. In connection with his
participation in the PSI Supplemental Retirement Plan, Mr. Mutz's employment
agreement provides that he will be vested in his benefit 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.
Mr. Grealis has an employment agreement which commenced on January 16, 1995
and continues until June 30, 2000; however, as amended in January 1997,
commencing on January 1, 1998, and each January 1 thereafter, the term of the
employment agreement will be automatically extended for an additional year
unless either the Company or Mr. Grealis gives timely notice otherwise. During
the term of his agreement, Mr. Grealis will receive a minimum annualized base
salary of $288,000, will be eligible to participate in all other incentive,
stock option, performance award, savings, retirement and welfare benefit plans
applicable generally to Company employees and executives, and will receive other
fringe benefits. In connection with his retirement, the employment agreement
provides that Mr. Grealis will receive an annual benefit of no less than
$283,000 payable as a straight-life annuity at age 62.
The Company has employment agreements with Messrs. Leonard and Thomas which
commenced on October 24, 1994 and shall continue until December 31, 1997;
however, as amended in December 1995, commencing January 1, 1996, and each
January 1 thereafter, the term of each employment agreement is automatically
extended for an additional year unless either the Company or Messrs. Leonard or
Thomas gives timely notice otherwise. During the terms of their agreements,
Messrs. Leonard and Thomas will receive minimum annual base salaries of $250,000
and $240,000, respectively, and each will be eligible to participate in all
other incentive, stock option, performance award, savings, retirement and
welfare benefit plans applicable generally to Company employees and executives,
and will receive other fringe benefits.
If the employment of Messrs. Mutz, Grealis, Leonard, or Thomas (each
sometimes hereinafter individually referred to as the "officer") is terminated
as a result of death, for cause, or by the officer without good reason, the
officer or the officer's beneficiary will be paid a lump sum cash amount equal
to (a) the officer's unpaid annual base salary through the termination date, (b)
a pro rata portion of the officer's award under the Company's Annual Incentive
Plan, (c) the officer's vested accrued benefits under the Company's Performance
Shares Plan (and also including PSI's Pension Plan, Excess Benefit Plan, and
Supplemental Retirement Plan in the case of Mr. Mutz), and (d) any unpaid
deferred compensation (including accrued interest or earnings) and unpaid
accrued vacation pay. If, instead, the officer's employment is terminated prior
to a change in control (as defined) without cause or by the officer for good
reason, the officer will be paid (a) a lump sum cash amount equal to the present
value of the officer's annual base salary and target 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 the officer would have been
entitled had the officer 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 also including PSI's Pension Plan, Excess Benefit
Plan, and Supplemental Retirement Plan in the case of Mr. Mutz), (c) the value
of all deferred compensation and all executive life insurance benefits whether
or not vested or payable, and (d) continued medical and welfare benefits through
the end of the term of the agreement. Mr. Mutz's employment agreement was
amended, effective August 30, 1996 wherein, among other things, the Company
waived its right to challenge Mr. Mutz in the event he elects to terminate his
employment agreement for good reason.
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If the employment of any such officer is terminated after a change in
control, the officer 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, the officer will be provided life, disability, accident and health
insurance benefits for thirty-six months, reduced to the extent comparable
benefits are received, without cost, by the officer.
DEFERRED COMPENSATION AGREEMENTS
Mr. Randolph and CG&E, and Mr. Rogers and PSI, entered into deferred
compensation agreements effective as of January 1, 1992 (the "Deferred
Compensation Agreements") pursuant to which each is credited annually with a
$50,000 base salary increase in the form of deferred compensation. Such amount
was deferred annually in each of the cases of Mr. Randolph and Mr. Rogers for
the five-year period from January 1, 1992 through December 31, 1996, and in the
case of Mr. Rogers, is deferred annually for an additional five-year period
beginning January 1, 1997 and ending December 31, 2001. The Deferred
Compensation Agreements were assumed by the Company effective as of October 24,
1994.
Mr. Randolph's Deferred Compensation Agreement provides that when his
employment terminates, he will receive an annual cash benefit of $179,000
payable for a 15-year period beginning January 2001.
Mr. Rogers' Deferred Compensation Agreement provides that when his
employment terminates for any reason, other than death, 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, to
$554,400 per year if payment commences in January 2010. Comparable amounts are
payable to Mr. Rogers if he dies before commencement of payment of the 15-year
payments described above. In addition, if Mr. Rogers' employment terminates for
any reason, other than death or disability, 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; if his 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, to $247,000 per year if payment begins in January 2010.
Comparable amounts are payable to Mr. Rogers in the event his employment is
terminated for disability prior to January 1, 2002 or if he 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Schiff, Chairman of the Board of Cincinnati Financial Corporation,
serves on the Company's Compensation Committee and Mr. Randolph, Chairman of the
Board of the Company, serves on the board of directors of Cincinnati Financial
Corporation.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's directors and officers,
and persons owning more than ten percent of the Company's common stock, to file
with the SEC and the NYSE initial reports of beneficial ownership, and certain
changes in such beneficial ownership, with respect to the equity securities of
the Company, CG&E, and PSI. The Company prepares and files such reports on
behalf of its directors and officers. During the calendar year ended December
31, 1996, one Form 4 was filed on behalf of Mr. Randolph beyond its due date,
and one amendment to a Form 4, which otherwise was filed in a timely manner, was
filed on behalf of Mr. Rogers. The Form 4 filed on behalf of Mr. Randolph
reported five transactions in addition to five transactions voluntarily reported
early. As to Mr. Rogers, the amended Form 4 reported one transaction in addition
to thirteen transactions reported on the timely filed Form 4 to which the
amendment applied. To the Company's knowledge, all other Section 16(a) filing
requirements applicable to its directors, officers, and greater-than-ten-percent
shareholders were complied with during 1996.
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 Standard & Poor's ("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, 1996, and assumes a $100 investment on such initial trading date and
dividend reinvestment.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
10/25/94 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C>
Company Common Stock $100.00 $104.40 $145.30 $167.70
S&P Electric Utilities
Index $100.00 $104.80 $137.40 $137.20
S&P 500 Stock Index $100.00 $100.10 $137.70 $169.30
</TABLE>
<TABLE>
<CAPTION>
10/25/94 12/31/94 12/31/95 12/31/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Company Common Stock........................................................ $ 100.00 $ 104.40 $ 145.30 $ 167.70
S&P Electric Utilities Index................................................ $ 100.00 $ 104.80 $ 137.40 $ 137.20
S&P 500 Stock Index......................................................... $ 100.00 $ 100.10 $ 137.70 $ 169.30
</TABLE>
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ITEM 2. SHAREHOLDER PROPOSAL
Mr. Jay Housholder, 647 Mulford Ct., Indianapolis, Indiana 46234, an
employee of PSI and a holder of record of Company common stock representing
3,075 shares, has submitted the proposal set forth below for consideration by
shareholders at the Annual Meeting.
THE BOARD STRONGLY OPPOSES THE ADOPTION OF THIS PROPOSAL, WHICH IS
DESIGNATED IN THE PROXY AS ITEM 2, AND RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST
IT.
Resolved: I recommend that the current Annual Incentive Plan and the
Long-Term Incentive Compensation Plan for the respective eligible
employees be abolished. The only incentive award to be awarded
would be tied proportionately to the price of the stock at the
end of the year; for example, if the stock price is up 15% at the
end of the year, then the incentive would be 15% of salary.
Reasons:
1. Management is adequately compensated as illustrated in the cash
compensation table by salary alone. Eligible employees should only
receive extra compensation if the stock price is up. Thus, they
are rewarded equally as are the shareholders if the stock price is
up.
2. Under the current plans, the top management executives are being
given cash bonuses, stock options, and other forms of awards at
excessive and ridiculous levels, far more than what the
shareholders are receiving.
3. There is no need for any Long-Term Incentive plan which only
rewards them for again for what has already been recognized. How
many times should a reward be granted?
4. Justice and equity must be brought back to the workplace. There is
too big of a gap between what top management makes and the pay of
the average employee. This is an insult to the average employee
when what top management makes in a few years is far greater than
the lifetime earnings of the average employee. The morale of the
average employee is affected which in turn has a detrimental
impact on the Company.
5. The Company does have an incentive plan for the average employee,
but it is unequal in impact when compared to the eligible
management personnel's incentive awards.
6. Management must be held accountable, and this proposal will do
that. The present plans of executive compensation are just wrong,
and must be changed.
7. A vote for this proposal will send a clear message to management
that they must respond to the shareholders and the needs of the
average employee.
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STATEMENT OF THE BOARD IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Board believes that the Company's existing executive compensation
program, with its emphasis on both short- and long-term incentive compensation,
and on corporate and individual goals, is one of the most effective means to
align the interests of the Company's executive officers with its shareholders.
Accordingly, the Board believes that the proposal would lessen, rather than
enhance, accountability for performance of the Company's executive officers and
other key management personnel.
Moreover, the Company seeks to provide an executive compensation program
that will attract, retain, and motivate the high quality employees needed to
provide superior service to its customers and to maximize returns to its
shareholders. To that end, the existing plans are essential and, without them,
the Company risks losing the accumulated talent and experience of its executive
team.
The existing executive compensation program provides for short-term
incentive compensation, awarded under the Annual Incentive Plan, and long-term
incentive compensation, awarded under the 1996 LTIP. Each comprises an integral
part of participants' total annual compensation. Together they are structured so
that a significant portion of each participant's potential annual compensation
is at risk by being subject to achievement of corporate and individual goals.
If the proposal were adopted and the Plans were "abolished," there would be
less direct correlation between annual compensation and the Company's
performance, and participants would be less accountable for the achievement of
important Company goals. Setting measurable goals and rewarding personnel on the
basis of whether those goals are achieved creates an important incentive for
improvement of the Company's overall performance. In particular, the 1996 LTIP
provides the Company flexibility in designing long-term incentive programs which
will help achieve its goals.
The Board believes that incentives based on stock price performance are
important, as evidenced by the Company's new long-term incentive compensation
program under the 1996 LTIP. Stock options and restricted stock granted under
such program derive their value directly from the Company's common stock price
appreciation. However, although stock price may be one indication of corporate
performance, it is by no means the only appropriate measure.
Therefore, the grants of restricted stock under the long-term incentive
compensation program will be awarded by comparing, over a three-year period, the
Company's total shareholder return to the median total shareholder return of a
comparative group of the top twenty-five kWh producers in the United States.
Furthermore, Annual Incentive Plan awards are based upon achievement of
corporate and individual goals, including improvement in earnings per share, a
fundamental indicator of performance.
The 1996 LTIP is a new plan, adopted by the affirmative vote of 86.7% of the
votes cast at the Company's 1996 annual meeting of shareholders. Also at such
annual meeting, shareholders adopted an amendment to the Annual Incentive Plan
by the affirmative vote of 94.9% of the votes cast. The Company's shareholders,
therefore, have had a very recent opportunity to give consideration to each
Plan, and have given overwhelming support to both.
The Board believes that achievement of individual and corporate goals is
vital to the prosperity of the Company and that incentive-based compensation
should continue to be a principal component of the Company's executive
compensation program. The Board Compensation Committee Report on Executive
Compensation (see page 11) describes the Company's executive compensation
program; shareholders should find the Report helpful in evaluating this
proposal.
THE BOARD STRONGLY URGES A VOTE AGAINST THIS PROPOSAL, DESIGNATED IN THE
PROXY AS ITEM 2. PROXIES WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY A CONTRARY
CHOICE ON THEIR PROPERLY SIGNED AND RETURNED PROXIES.
25
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Company and its subsidiaries for
the year 1996 were Arthur Andersen LLP. Upon recommendation of the Audit
Committee of the Board, Arthur Andersen LLP was engaged for the year 1997 by the
Board on January 30, 1997. 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 1998 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 17, 1997.
By Order of the Board of Directors,
CHERYL M. FOLEY
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Dated: March 17, 1997
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[LETTERHEAD]
March 17, 1997
Below is your proxy form. Please read both sides, sign, vote
and return it in the enclosed postage-paid envelope.
- --------------------------------------------------------------------------------
PROXY FORM Cinergy Corp. PROXY FORM
- --------------------------------------------------------------------------------
Proxy for Annual Meeting of Shareholders - April 17, 1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Jackson H. Randolph, James E. Rogers, and J.
Wayne Leonard, or any of them, 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 17, 1997 or any adjournment(s) or
postponement(s) thereof.
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.
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.
(Continued and to be signed and dated on the
reverse side and returned promptly.)
<PAGE>
- --------------------------------------------------------------------------------
PROXY FORM Cinergy Corp. PROXY FORM
- --------------------------------------------------------------------------------
The Board of Directors Recommends a vote FOR proposal 1 and AGAINST proposal 2.
(1) ELECTION OF DIRECTORS:
Nominees: Class III - Michael G. Browning, Phillip R. Cox, Kenneth M.
Duberstein, James E. Rogers, John J. Schiff, Jr., and Oliver W.
Waddell
<TABLE>
<CAPTION>
<S> <C>
FOR WITHHOLD (INSTRUCTION: To withhold authority to vote
All nominees listed above / / Authority to vote for all / / for any individual nominee, write that
(except as marked to the nominees listed above nominee's name in the space provided below.)
contrary to the right)
--------------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
(2) SHAREHOLDER PROPOSAL / / / / / /
Please mark box if you plan to attend the Annual Meeting. / /
</TABLE>
PLEASE MARK ALL
CHOICES LIKE THIS /X/
SIGNATURE DATE
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SIGNATURE DATE
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