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 Section240.14a-11(c) or
Section240.14a-12
CILCORP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
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[LOGO]
May 21, 1999
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of CILCORP Inc. which will be held at 300 Liberty Street, Peoria,
Illinois, on June 24, 1999 at 10:00 AM, Central Time. The date of this
year's meeting was changed to accommodate the Special Meeting of
Shareholders held on May 20, 1999. Detailed information as to the
business to be transacted at the meeting is contained in the
accompanying Notice of Annual Meeting and Proxy Statement.
It is important that your shares be represented at the meeting. Please
complete, sign and date the enclosed Proxy and return it in the
envelope provided as soon as possible.
Your continued interest and cooperation are greatly appreciated.
Sincerely,
[SIGNATURE]
Robert O. Viets
President and Chief
Executive Officer
CILCORP INC.
300 HAMILTON BOULEVARD, SUITE 300
PEORIA, ILLINOIS 61602
NOTICE OF ANNUAL MEETING
May 21, 1999
Dear Shareholders:
The Annual Meeting of Shareholders of CILCORP Inc. will be held on Thursday,
June 24, 1999 at 10:00 AM, Central Time, at 300 Liberty Street, Peoria, Illinois
61602 for the following purposes:
1. To elect three members of the Board of Directors; and
2. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on May 10, 1999 are entitled to
vote at the meeting.
By Order of the Board of Directors,
[SIGNATURE]
John G. Sahn
Vice President, Secretary and Treasurer
IMPORTANT
It is important that your shares be represented at the meeting. Please mark,
sign, date and return the enclosed proxy promptly in order that your shares will
be voted.
PROXY STATEMENT
GENERAL
This statement is furnished in connection with a solicitation of proxies
by the Board of Directors of CILCORP Inc. (the "Company" or "CILCORP"), for use
at the Annual Meeting of Shareholders to be held on Thursday, June 24, 1999 at
10:00 AM, Central Time, at 300 Liberty Street, Peoria, Illinois, and any
adjournment thereof. The executive offices of the Company are located at 300
Hamilton Boulevard, Suite 300, Peoria, Illinois 61602. The shares represented by
your proxy will be voted as directed therein if the proxy is duly executed and
returned prior to the meeting. If no choice has been specified, the persons
named in the proxy intend to vote for the election of the nominees listed
herein. You may revoke your proxy by a duly executed later proxy, or at any time
before it is exercised by written notice to the Secretary of the Company,
received prior to the time of the meeting, or orally at the meeting.
Shareholders of record participating in the Company's Investors Choice
Automatic Reinvestment and Stock Purchase Plan will receive one proxy for shares
held of record as well as shares held for that person's account under such Plan.
Shares in the account of an employee participating in the savings plans of the
Company's subsidiaries, Central Illinois Light Company ("CILCO") or QST
Environmental Inc. ("QST"), will be voted in accordance with the employee's
instructions; or, if no instructions are given, pursuant to the trust agreements
pertaining to the plans.
The expense of the solicitation of proxies is being borne by the Company.
In addition to solicitation by mail, officers and regular employees of the
Company may solicit proxies either personally, or by telephone, e-mail or fax.
The Company will reimburse banks, brokers or other similar agents or fiduciaries
for forwarding proxy material to their principals, the beneficial owners of the
stock. The Company has arranged for D. F. King & Co., Inc., for a fee of
approximately $8,500, to assist in the solicitation of proxies. Such
solicitation may be made by mail, telephone, e-mail, fax or in person.
The annual report of the Company for the year ended December 31, 1998 is
being sent, along with the Notice of Annual Meeting, this Proxy Statement and
the accompanying Proxy, to all shareholders of record at the close of business
on May 10, 1999, which is the record date for the determination of shareholders
entitled to vote at the meeting. These items are to be first mailed to
shareholders on or about May 21, 1999.
VOTING SECURITIES AND PRINCIPAL HOLDERS
On May 10, 1999, the record date for the meeting, the outstanding voting
stock of the Company consisted of 13,610,680 shares of common stock, no par
value (the "common stock"). Each share of common stock entitles the holder
thereof to one vote upon
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each matter coming before the meeting. Votes cast by proxy or in person at the
annual meeting will be tabulated by the election inspectors appointed for the
meeting who will determine whether or not a quorum is present. The election
inspectors will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
As of January 1, 1999, the following information, regarding beneficial
ownership of the Company's equity securities, is furnished with respect to each
person or group of persons acting together who, as of such date, is known to the
Company to be the beneficial owner of more than 5% of any class of the Company's
voting securities and no independent inquiry has been made to determine whether
any shareholder is the beneficial owner of shares not registered in the name of
such shareholder or whether any shareholder is a member of a shareholder group.
AMOUNT AND
NATURE OF
CLASS OF BENEFICIAL PERCENT OF
STOCK NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- ----------- --------------------------------------- ------------ -----------
Common FMR Corp. 903,100(1) 6.635%
82 Devonshire Street
Boston, MA 02109
- -------
(1) According to schedule 13G dated February 1, 1999, filed by FMR Corp., FMR
Corp. has sole voting power regarding 233,900 shares and sole dispositive
power with respect to 903,100 shares.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of December 31, 1998 the beneficial
ownership of the Company's common stock (including ownership of stock in the
CILCO Employees' Savings Plan and the QST Environmental Inc. Profit Sharing and
Savings Plan as of December 31, 1998) by all directors (including nominees for
director), the executive officers included in the Summary Compensation Table
herein, and all directors and officers as a group. The following table also sets
forth as of January 1, 1999 the common stock units held by directors
participating in the Company's and CILCO's Deferred Compensation Stock Plans.
COMMON STOCK
------------------------
NAME OF BENEFICIAL OWNER SHARES(1) UNITS(2)
- ------------------------------------------------------------------ ----------- -----------
Marcus Alexis 1,100 4,024
John R. Brazil 400 763
Willard Bunn III 1,200 2,514
Jerry D. Caulder 100 --
Homer J. Holland 1,000 1,031
H. Safford Peacock 1,000 8,468
Katherine E. Smith 1,105 5,044
Robert O. Viets 11,322 7,970
Murray M. Yeomans 1,250 8,443
J. Mark Elliott 1,139 --
William M. Shay 7,609 --
Robert J. Sprowls 2,133 --
James F. Vergon 6,639 --
All directors and officers as a group 38,659 38,256
- -------
(1) In each case, the named individual or his spouse has sole voting and
investment power. The directors and officers individually and as a group own
less than one percent of the Company's common stock.
(2) Compensation deferred under the Deferred Compensation Stock Plans is
converted into units of common stock based upon the market price of such
stock on the trading date next following the date payment would have been
made to the director. Additional amounts are credited to the director's
account equal to common stock dividends paid, and are treated as
automatically reinvested in the Company's common stock.
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1. ELECTION OF DIRECTORS
The number of incumbent directors was reduced from ten to nine upon the
death of Richard N. Ullman in December of 1998. Mr. Ullman had been a director
since 1988. The Board of Directors is divided into three classes, with members
of each class serving a three-year term. At the 1999 Annual Meeting, the
shareholders will elect three persons as directors with terms continuing until
the Annual Meeting of Shareholders in 2002 or until their respective successors
are elected and qualified. H. Safford Peacock, a director since 1985, will
retire from the Board at this Annual Meeting of Shareholders in accordance with
the provisions of the bylaws which require retirement at the first annual
meeting following attainment of the age of 70. The Board does not currently plan
to fill the vacancies created by Mr. Peacock's retirement and by the death of
Mr. Ullman. The remaining five directors will continue to serve as set forth
below, with two directors having terms expiring April 2000 and three directors
having terms expiring April 2001. To be elected a director, a nominee must
receive the affirmative vote of a majority of the Company's outstanding shares
represented at the meeting and entitled to vote. In a case where there are more
nominees than vacancies, the nominees receiving the highest number of votes will
be elected. All of the nominees are now directors of the Company and all have
agreed to serve if elected. The nominees and directors are listed below,
together with biographical information.
The Board of Directors has no reason to believe that the nominees will not
be available, but in the event that a vacancy among the original nominees is
occasioned by death or any other reason prior to the meeting, the proxy will be
voted for a substitute nominee or nominees designated by the Board of Directors.
4
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERMS EXPIRING APRIL 2002
JOHN R. BRAZIL
PRESIDENT OF BRADLEY UNIVERSITY, PEORIA, ILLINOIS [PHOTO]
Director of CILCORP since 1993
Member of Audit and Director Affairs Committees
Dr. Brazil was born at Los Angeles, California in
1946. He received a bachelor's degree in history from
Stanford University in 1968 and a master's degree and Ph.D.
in American studies from Yale University in 1972 and 1975,
respectively. In 1980, he was a Fulbright senior scholar in
English and American studies at the University of Sydney,
Australia. Prior to joining Bradley University as president
in January 1992, he served as chancellor and professor of
English at the University of Massachusetts Dartmouth
(formerly known as Southeastern Massachusetts University)
from 1984 through 1991. Dr. Brazil was previously
associated with San Jose' State University in California
for eleven years, last serving as professor of humanities
and American studies and vice president for academic
affairs. He is a director of Caterpillar Inc., Methodist
Health Services Corporation, National Association of
Independent Colleges and Universities and past chair of the
Walter Byers Post- Graduate Scholarship Committee of the
National Collegiate Athletic Association.
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JERRY D. CAULDER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, [PHOTO]
XYRIS CORPORATION
SAN DIEGO, CALIFORNIA
Director of CILCORP since 1996
Member of Audit and Compensation Committees
Dr. Caulder was born in Gideon, Missouri in 1942. He
received a Bachelor of Science degree in botany and zoology
from Southeast Missouri State University in 1964 and a
Master's degree and a Doctorate in agronomy and plant
physiology in 1969 from the University of Missouri as well
as an Honorary Doctorate of Science in 1997. In 1984, Dr.
Caulder joined Mycogen Corporation (agricultural
biotechnology products and services) as president and chief
executive officer and was elected chairman of the board in
1989. Prior to joining Mycogen, he managed various aspects
of both the international and domestic business of Monsanto
Company for over 15 years. After Mycogen was sold, he
served as chairman emeritus of the company from 1997 to
1998. In June 1998, Dr. Caulder was elected chairman and
chief executive officer of Xyris Corporation (a new company
which also is engaged in agricultural biotechnology
products and services). He also is executive chairman of
Myelos Corporation ( a company which develops therapeutics
for neuropathic pain and diseases of both the peripheral
and central nervous systems). He has served as a consultant
and speaker to various organizations, including the
Brookings Institute (Washington, D.C.), The Keystone Group
(Keystone, Colorado) and the World Economic Forum (Geneva,
Switzerland).
MURRAY M. YEOMANS
RETIRED CHAIRMAN OF YEOMANS DISTRIBUTING COMPANY, [PHOTO]
PEORIA, ILLINOIS
Director of CILCORP since 1987
Member of Executive, Director Affairs and Strategic
Development Committees
Mr. Yeomans was born at Philadelphia, Pennsylvania in
1935. He is a 1958 graduate of Miami University (Ohio) with
a degree in business administration. He joined Yeomans
Distributing Company (wholesale appliances and central
heating and cooling equipment) in 1960 and was named
president in 1972 and chairman and chief executive officer
in 1991. In June of 1996 Mr. Yeomans, who was the sole
shareholder of Yeomans Distributing Company, sold the
company to the employees through an Employee Stock
Ownership Plan (ESOP) and retired from the company. He is
chairman of the Peoria Area Community Foundation Depository
and a director of Peoria Area Community Foundation. In
addition, he is a member of the Saint Francis Medical
Center Advisory Board, and a president of the Illinois
Neurological Institute and a member of its Board of
Directors. Mr. Yeomans is active in civic and charitable
activities.
7
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING APRIL 2000
MARCUS ALEXIS
BOARD OF TRUSTEES PROFESSOR OF ECONOMICS AND [PHOTO]
PROFESSOR OF MANAGEMENT AND STRATEGY
NORTHWESTERN UNIVERSITY, EVANSTON, ILLINOIS
Director of CILCORP since 1988
Member of Compensation and Finance Committees
Dr. Alexis was born at New York, New York in 1932. He
graduated from Brooklyn College in 1953 with a degree in
economics. Dr. Alexis received a Master of Arts degree in
economics from Michigan State University in 1954, and a
Ph.D degree in economics from the University of Minnesota
in 1959. He initially joined Northwestern University in
1970 and served as chairman of the Department of Economics
from 1976-1979 and 1982-1985. During the period 1979 to
1981, he was a member, vice chairman and acting chairman of
the Interstate Commerce Commission. He joined the
University of Illinois at Chicago in 1985 as dean of the
College of Business Administration and professor of
economics. He returned to Northwestern University in 1990.
He is former chairman of the Federal Reserve Bank of
Chicago and serves on the board of the Teachers Insurance
and Annuity Association, and the Lincoln Park Zoological
Society.
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ROBERT O. VIETS
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CILCORP [PHOTO]
Director of CILCORP since 1988
Member of Executive and Strategic Development Committees
Mr. Viets was born at Girard, Kansas in 1943. He
graduated from Washburn University in 1965 with a degree in
economics and received his law degree from Washington
University School of Law in 1969. He is a certified public
accountant and has had experience with a national
accounting firm. Mr. Viets joined CILCO in 1973 as manager
of special studies and was appointed manager of rates and
regulatory affairs in 1976. He was elected assistant vice
president, regulatory and legislative affairs, in 1980;
vice president, financial services in 1981; vice president
(finance group) in 1983; senior vice president of the
Company and CILCO in 1986 and to his present position with
the Company in 1988. He is also chairman, president and
chief executive officer of CILCO, director of QST
Enterprises Inc. and chairman of CILCORP Investment
Management Inc. Mr. Viets is a director of Philadelphia
Suburban Corp.; RLI Corp.; Lincoln Office Supply Co.,
Incorporated; the Peoria Medical Research Corporation and
Methodist Health Services Corporation. He serves as a
member of the board of trustees of Bradley University.
9
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING APRIL 2001
WILLARD BUNN III
SENIOR VICE PRESIDENT AND MANAGING DIRECTOR IN [PHOTO]
THE FINANCIAL SERVICES UNIT
ABN AMRO INCORPORATED, CHICAGO, ILLINOIS
Director of CILCORP since 1994
Member of Audit, Finance and Strategic Development
Committees
Mr. Bunn was born at Springfield, Illinois in 1943.
He graduated from Princeton University in 1966 with a
degree in history and received his master's degree in
business administration from The Darden School at the
University of Virginia in 1968. He was associated with
Chemical Bank from 1968 to 1978 serving in various
capacities, including vice president and group head of
domestic depository institutions. He joined Marine Bank of
Springfield in 1978 as an executive vice president and was
subsequently elected president in 1980 and chairman and
chief executive officer in 1989. In 1992, Mr. Bunn became
chairman and chief executive officer of Banc One Illinois
Corporation (which merged with Marine Bank). He retired
from these positions on December 31, 1994 and joined The
Chicago Corporation (which later merged to become ABN AMRO
Incorporated) on April 1, 1995. Mr. Bunn serves on the
boards of various local and state business and civic
organizations.
10
HOMER J. HOLLAND
PRESIDENT OF HOLLAND PARTNERS, INC. [PHOTO]
CHICAGO, ILLINOIS
Director of CILCORP since 1994
Member of Compensation, Director Affairs and Strategic
Development Committees
Mr. Holland was born at Madison, Wisconsin in 1941.
He is a 1963 graduate of the U.S. Military Academy and
served in the U.S. Army from 1963 to 1971. He received
Masters of Science degrees in physics and electrical
engineering from Massachusetts Institute of Technology in
1967 and a Doctor of Business Administration degree from
George Washington University in 1972. Following military
service, he was associated with the First National Bank of
Chicago from 1971 to 1979, last serving as senior vice
president. He was president of Exchange National Bank of
Chicago from 1979 to 1983. Mr. Holland founded Holland
Partners, Inc. in 1983 and through this company acquired
control of six Illinois savings banks and one Texas savings
bank. He sold his banks in 1995 and 1996 and now
concentrates on investments in financial services and real
estate. He is a director of Lifeline Shelter Systems, Inc.,
Wisconsin Industrial Products Inc., The Liberty Hampshire
Company, LLC, First Financial Training Services and the
Institute for the International Education of Students.
11
KATHERINE E. SMITH
PRINCIPAL, SMITH PARTNERS, CHICAGO, ILLINOIS [PHOTO]
Director of CILCORP since 1985
Member of Audit and Director Affairs Committees
Ms. Smith was born at Chicago, Illinois in 1940. She
is a 1961 graduate of Oregon State University with a degree
in family and consumer science. She began her business
career with Southern California Gas Company, a division of
Pacific Lighting Corporation, where she advanced through
various positions related to customer services. She was
formerly with The Great Atlantic & Pacific Tea Company,
Inc. from 1976 to 1982 as vice president, consumer affairs
and marketing services, and prior to that was associated
with The Pillsbury Company. From 1982 to 1994, Ms. Smith
was vice president, consumer affairs, U. S. Grocery
Products Division of The Quaker Oats Company. In 1995 she
became a Group Executive of Dairy Management Inc. and in
1998 formed Smith Partners which provides consulting
services regarding strategic corporate and marketing
communications. Ms. Smith is active in a number of
professional and civic associations including the American
Association of Family & Consumer Science. In addition, she
is a trustee of the Oregon State University Foundation.
12
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has, among others, Audit, Compensation, Director
Affairs and Strategic Development Committees.
The Audit Committee is responsible for reviewing audits made by the
Company's independent accountants, including the scope of the auditors' reports
and reviewing such other matters, such as the effectiveness of internal
controls, as the Committee may deem appropriate. The Audit Committee recommends
to the Board of Directors the independent accounting firm which will be engaged
to audit the Company's financial statements. The Committee also reviews the
activities of the Company's internal auditors. Directors serving as members of
the Committee are Messrs. Brazil, Bunn, Caulder and Ms. Smith. During 1998, the
Committee held four meetings.
The Compensation Committee considers and makes recommendations to the
Board of Directors with respect to the compensation of the Company's executive
officers. Directors serving as members of the Committee are Messrs. Alexis,
Caulder and Holland. During 1998, the Committee held four meetings.
The Director Affairs Committee, in addition to monitoring governance
policies of the Board, reviews and recommends to the Board of Directors nominees
to serve on the Board. The Committee considers nominees brought to its attention
by other members of the Board, by members of management and by shareholders.
Shareholders may submit recommendations to the Committee with respect to
nominees by writing to the Secretary of the Company. Under the Company's
By-laws, written notice of any shareholder nomination of an individual for
election as a director at the Annual Meeting must be received by the Secretary
of the Company at 300 Hamilton Boulevard, Suite 300, Peoria, Illinois 61602, not
later than sixty days prior to the first anniversary of the date of the last
Annual Meeting of Shareholders and set forth the name, age, business and
residential address, principal occupation, number of shares of common stock
owned and such other information concerning the nominee as may be required by
the federal securities laws in respect of an individual nominated as a director
for whom proxies are solicited. (A copy of the Company's By-laws specifying the
requirements for shareholder nominations will be furnished to any shareholder
without charge upon written request to the Secretary.) Directors serving as
members of the Committee are Ms. Smith and Messrs. Brazil, Holland and Yeomans.
During 1998, the Committee held five meetings.
The Strategic Development Committee was established in 1998 to explore
strategic combinations with other companies and to recommend action by the Board
of Directors which maximizes shareholder value. Directors serving as members of
the Committee are: Messrs. Bunn, Holland, Viets and Yeomans. During 1998, the
Committee held twelve meetings.
During 1998, the Board of Directors held a total of eight meetings.
13
DIRECTORS' COMPENSATION
No fees are paid to directors who are employees of the Company or its
subsidiaries. Non-employee members of the Board receive a total annual retainer
fee of $18,000 for serving on the Company's Board and on the Board of any of the
Company's subsidiaries, prorated for less than a year's service. Non-employee
directors also receive an attendance fee of $1,000 for attending meetings of the
Board of Directors of the Company and an attendance fee of $1,000 for each
meeting attended of committees of the Board. Directors also are reimbursed for
their travel expenses for each Board or committee meeting attended.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
earned for the years 1998, 1997 and 1996 for the Chief Executive Officer and the
four most highly compensated executive officers of the Company and its
subsidiaries who perform policy-making functions for the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
--------------------- --------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY LTIP PAYOUTS(1) COMPENSATION(2)
- ----------------------------------------- --------- ---------- --------------- ----------------
Robert O. Viets 1998 $ 432,292 $ 251,345 $ 42,334
President and Chief Executive 1997 406,423 61,272 37,817
Officer of the Company 1996 382,544 64,500 31,894
William M. Shay 1998 217,458 203,651 29,856
Senior Vice President 1997 207,737 66,467 26,844
of CILCO (3) 1996 194,398 81,981 22,948
James F. Vergon 1998 210,002 197,664 18,506
Senior Vice President 1997 207,738 65,616 16,831
of CILCO (4) 1996 194,564 86,542 14,634
Robert J. Sprowls 1998 150,177 100,000 8,985
Vice President and Chief 1997 135,916 126,428 8,369
Financial Officer of CILCO (5) 1996 121,913 40,725 5,678
J. Mark Elliott 1998 277,497 15,000 19,593
Senior Vice President 1997 232,269 82,400 18,511
of CILCO (6) 1996 30,288 0 0
(1) Amounts paid were paid pursuant to the Company's
EVA-Registered Trademark--Based Incentive Compensation Plans and include
Award Bank balances which were paid in full upon termination of the plan
effective October 1, 1998. Awards for 1998 include: Mr. Viets
14
$118,000 and $59,000 each to Mr. Shay, Mr. Vergon and Mr. Elliott. Repayment
of a prior loan to his Award Bank eliminated a payment to Mr. Elliott.
(2) Amounts shown in this column for 1998 represent (a) employer contributions
under the CILCO Employees' Savings Plan to Mr. Viets $4,800, Mr. Shay
$4,800, Mr. Vergon $4,800, and under the QST Environmental Inc. Profit
Sharing and Savings Plan, to Mr. Sprowls $4,936 and Mr. Elliott $4,593; (b)
earnings on deferred compensation to Mr. Viets, Mr. Shay, Mr. Vergon and Mr.
Sprowls.
(3) Mr. Shay served as Executive Vice President and Chief Legal Officer of the
Company until his election as Senior Vice President of CILCO effective
August 17, 1998.
(4) Mr. Vergon served as President and Chief Operating Officer of CILCO until
his election as Senior Vice President of CILCO effective August 17, 1998.
(5) Mr. Sprowls served as Senior Vice President and Chief Financial Officer of
QST Enterprises Inc. until his election as Vice President and Chief
Financial Officer of CILCO effective August 17, 1998.
(6) Mr. Elliott was elected Senior Vice President of CILCO effective August 17,
1998. He also continues to serve as President of QST Enterprises Inc.
EVA-REGISTERED TRADEMARK---BASED INCENTIVE COMPENSATION PLAN
Effective October 1, 1998, the Board of Directors of the Company
terminated the EVA-Registered Trademark- - based Incentive Compensation Plan the
("EVA-Registered Trademark- Plan") for all participants. Award balances
accumulated in prior years were distributed to all terminating participants as
set forth in the foregoing Summary Compensation Table. Incentive compensation
was awarded in 1998 in accordance with the EVA-Registered Trademark- Plan. The
purpose of the EVA-Registered Trademark- Plan was to provide an incentive to
eligible officers and senior managers to increase and maintain shareholder value
by rewarding the achievement of these objectives. EVA-Registered Trademark- is a
measure of profitability that is based on the difference between the return
earned on the capital invested in an enterprise and the cost of that capital.
This difference can be either positive or negative and results in an addition to
or a deduction from award balances accumulated from prior years. Each year, one
third of the net balance accumulated was paid to the participant. That portion
of the incentive compensation which has been deferred is "at risk" since a
negative EVA-Registered Trademark- in a subsequent year may eliminate previously
accumulated balances. The calculation of the award pool was based, in part, on a
fixed percentage of the improvement in EVA-Registered Trademark- from the prior
year and, in part, on a fixed percentage of the average of EVA-Registered
Trademark- contributed over a three-year period. These percentages, which did
not change from year to year, were determined when the EVA-Registered Trademark-
Plan was originally established and were designed, using historical financial
data, to create an award pool of sufficient size to achieve the Plan objectives
and are used only for that purpose. Annually, at the outset of each plan year,
the Compensation Committee determined the portion of the award pool to be
allocated to each participant, including the
15
executive officers, based on that individual's job responsibilities and the
Committee's evaluation of the effect which that individual's performance is
expected to have on the size of the award pool. A portion of the award pool was
allocated, at the Committee's discretion, at the conclusion of each plan year.
Discretionary awards were determined on the basis of the CEO's recommendation
and the compensation policies established by the Committee. Both the
non-discretionary and discretionary portions of an award were added to each
participant's account balance, one third of which was paid and the remainder of
which remained at risk in the account balance.
EXECUTIVE EMPLOYMENT AGREEMENTS AND
MANAGEMENT CONTINUITY AGREEMENTS
In 1998, the Company, with the approval of the Board of Directors,
extended for a period of one (1) year the employment agreements with Messrs.
Viets and Shay, and the employment agreements between QST Enterprises and Mr.
Elliott and between CILCO and Mr. Vergon were similarly extended for one (1)
year. The term of each agreement is for a period of three years unless a notice
of termination or an event of termination (resignation following a reduction in
compensation or change of the officer's principal place of employment) occurs,
in which event the compensation and benefit payments under the agreement will
terminate three years following termination of employment. During the period
following such termination of employment, each officer is entitled to
compensation consisting of annual base salary, continued participation in
certain employee benefit plans, and a single payment in a sum equal to the
officer's last three annual incentive awards. Following termination, the officer
may not compete for a period of one year with the Company and is obliged to make
reasonable efforts to obtain other comparable employment. The Agreements also
provide additional payments to the officer in an amount equal to any excise tax
imposed by the Internal Revenue Code. Salary and benefit payments do not
continue in the event employment is terminated for cause or as a result of death
or disability.
The Company, with the approval of the Board of Directors, has also entered
into a management continuity agreement with Mr. Sprowls. The agreement provides
that, in the event of a change in control of the Company and a subsequent
termination of employment, the Company, or its successor, is obligated to pay
termination benefits for a period of up to two years. Termination benefits
include the continuation of salary, incentive compensation and certain employee
benefits. Compensation and benefits are payable if termination of employment
occurs within two years following a change in control and termination must be
involuntary or due to material changes in the terms of employment.
16
SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN
The purposes of the Shareholder Return Incentive Compensation Plan are to
promote growth in the value of the Company's common stock, to attract and retain
executives of outstanding ability, to encourage teamwork among the executives of
the Company and its subsidiaries, and to reward performance based on the
successful achievement of pre-established corporate financial goals.
Participants under this Plan are eligible key employees of the Company or its
subsidiaries, who, due to the nature and scope of their positions, regularly and
directly make or influence policy decisions which impact the overall long-term
results or success of the Company. Performance share grants are made by a
committee of the Board (comprised of disinterested directors) which has
discretion to establish the performance periods, the number of performance
shares granted and the threshold price above which performance share grants may
be exercised. Performance shares are exercisable by participants at such times
as the market price of the Company's common stock exceeds the threshold price.
The number of performance shares granted determines the number of shares of
common stock which may be awarded. Any exercise of performance shares which
would result in an award in excess of the number of shares of common stock
available under the Plan is paid as a separate cash bonus based on the market
price of the excess shares. With the exception of Mr. Sprowls, the executive
officers listed in the Summary Compensation Table received performance share
grants under this Plan in 1997 as set forth in the table below. This represents
100% of the performance shares granted in 1997. No performance share grants were
made in 1998.
17
LONG TERM INCENTIVE PLANS--AWARDS IN 1997 (1)
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS
OR OTHER RIGHTS MATURATION OR -----------------------------------------------
NAME (2) PAYOUT THRESHOLD(3) TARGET(4) MAXIMUM(5)
- ------------------- --------------- ------------------ ------------------- ----------- -------------
R. O. Viets 190,000 1997-1999 0 41,304 67,858
J. M. Elliott 42,000 1997-1999 0 9,130 15,000
W. M. Shay 59,000 1997-1999 0 12,826 21,071
J. F. Vergon 59,000 1997-1999 0 12,826 21,071
- -------
(1) Amounts listed pertain to the Company's Shareholder Return Incentive
Compensation Plan.
(2) Amounts listed are the number of performance shares allocated in 1997.
(3) Represents minimum amount received if market price of Company stock does not
exceed $36 per share.
(4) Amounts listed are the number of shares of common stock of the Company
received upon exercise of all performance shares if the market price is
$46.00 per share.
(5) Amounts listed are the number of shares of common stock of the Company
received upon exercise of all performance shares if the market price is
$56.00 per share. A market price in excess of $56 per share would result in
the payment of a cash bonus based on the amount of such excess and the
number of performance shares held.
CERTAIN PLANS
CILCO BENEFIT REPLACEMENT PLAN. The CILCO Board of Directors has
established a Benefit Replacement Plan (the "Benefit Replacement Plan"). The
Benefit Replacement Plan provides for payments to participants from CILCO's
general funds to restore the retirement benefit under the CILCO non-contributory
Pension Plan for Management, Office and Technical Employees (the "Pension
Plan"), when such benefit is restricted by (1) the maximum defined benefit
limitation of Section 415(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), (2) the indexed compensation limitation of Section 401(a)(17) of
the Code, and (3) participation in certain deferred compensation plans. The
Benefit Replacement Plan generally covers all Pension Plan participants affected
by these restrictions and provides for payment at the times and in the forms of
the Pension Plan.
CILCO PENSION PLAN. Pension benefits are provided to Company employees
through CILCO's Pension Plan. Directors who are not employees do not participate
in this Plan. Pension benefits are determined using a formula based on years of
service and highest average rate of monthly earnings for any sixty consecutive
month period. The
18
normal retirement date specified in the Pension Plan is age 65. Retirement
between the ages of 55 and 62 results in an appropriate reduction in pension
benefits.
The following table shows the aggregate annual benefits payable on a
straight life annuity basis upon retirement at normal retirement age under the
Pension Plan and under the Benefit Replacement Plan discussed above. The amounts
shown are not subject to any deduction for Social Security benefits or other
offset amounts other than that for an optional survivorship provision.
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------- ---------- ---------- ---------- ---------- ----------
$200,000 42,750 57,000 71,250 85,500 99,750
225,000 48,096 64,128 80,160 96,192 112,224
250,000 53,442 71,250 89,064 106,878 124,692
300,000 64,128 85,500 106,878 128,250 149,628
350,000 74,814 99,750 124,692 149,628 174,564
400,000 85,500 114,000 142,500 171,000 199,500
500,000 106,878 142,500 178,128 213,715 249,378
The sum of annual and long-term compensation shown for the executive
officers listed in the above Summary Compensation Table is substantially
compensation as covered by the Pension Plan and the Benefit Replacement Plan. At
January 1, 1999, the credited years of service under the Pension Plan for such
officers are as follows: R. O. Viets--25 years, J.M. Elliott--less than one
year, W. M. Shay--16 years, J. F. Vergon-- 27 years and R. J. Sprowls--17 years.
19
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
BACKGROUND AND POLICIES. The Compensation Committee of the Board of
Directors (the "Committee") is comprised of three non-employee members of the
Board. The Committee considers and makes recommendations to the Board with
respect to the compensation of the executive officers (the president and vice
presidents) of the Company. The Committee's compensation policies with respect
to the executive officers are as follows:
1. Compensation levels should be established which are internally fair and
equitable, bearing in mind (a) past practices, patterns and
relationships, and (b) the relationship between officer level
compensation and the compensation provided for top level managers
throughout the Company.
2. Compensation should be comparable and reasonable in relation to similar
positions in other companies of like size, structure and purpose. A
group of utility and utility holding companies of comparable size and
nature was used for comparative purposes. This group includes
consideration of nine holding companies (including eight companies with
revenues under $1 billion) that had a utility as a major subsidiary and
non-regulated businesses. The group differs from the group of companies
identified for comparative stock performance purposes.
3. Compensation of the executive officers should be directly related to the
economic value created for the Company's shareholders.
4. A compensation program should be designed to attract and retain superior
management.
EXECUTIVE OFFICER COMPENSATION PROGRAM. The Company's current executive
officer compensation program is comprised of two major components: base salary
and incentive compensation. Base salary levels for the Company's executive
officers are set by the Committee relative to other utility and utility holding
companies of similar size. In addition, the Committee also considers the
individual officer's experience and performance. Salaries of the executive
officers are reviewed each year by the Committee and may be adjusted based on
the individual's contribution to the Company's performance, as well as
competitive pay levels.
The Company has not yet developed a policy with respect to qualifying
certain performance-based compensation paid to its named executive officers
under the EVA Plan and the Shareholder Return Plan for corporate deductibility
under Section 162(m) of the Internal Revenue Code. The total compensation paid
to each of these officers in 1998 was significantly below the $1,000,000
deductibility cap specified in Section 162(m). If and when it is anticipated
that the total compensation paid to any of these named executive officers will
reach this limit, the Company will establish such a policy.
20
PRESIDENT'S COMPENSATION. All outside directors of the Company are
engaged annually in a review of the president and chief executive officer's
performance prior to approving his compensation. The Compensation Committee of
the Board reviews such evaluations and makes a recommendation to the full Board
regarding compensation for the ensuing year.
Upon the Committee's recommendation, Mr. Viets was awarded a salary of
$440,000 commencing April 1, 1998, representing an increase of 7.3% over his
prior salary level. The Committee based its decision on studies which indicated
that Mr. Viets' base salary was similar to the base salary compensation of the
chief executive officers at comparable companies. The Committee considered the
achievement of the Company's objectives in the preceding year. It recognized Mr.
Viets' vision for the direction of the utility industry, preparation of the
Company for operating in a competitive marketplace, and his leadership regarding
the passage of legislation which restructured the electric utility industry in
Illinois. The Committee's evaluation also focused on management of the ongoing
operations of the Company and its subsidiaries, as well as the effectiveness of
communications with all relevant constituencies. Mr. Viets also received an
award of $118,000 pertaining to the Company's EVA-Registered Trademark--Based
Incentive Compensation Plan.
Compensation Committee
Homer J. Holland, CHAIRPERSON
Marcus Alexis
Jerry D. Caulder
21
COMPARATIVE STOCK PERFORMANCE
The graph below compares the yearly percentage change in the cumulative
total shareholder return on the common stock of the Company during the five
years ended December 31, 1998 with the cumulative total return on the S&P 500
Index and the S&P Utility Index over the same period. The S&P Utility Index
includes gas pipeline and telecommunications companies in addition to electric
and combination gas and electric companies. The comparison assumes $100 was
invested on December 31, 1993 in the Company's common stock and in each of the
foregoing indices, and assumes reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CILCORP INC. S&P 500 S&P UTILITIES
1993 $100.00 $100.00 $100.00
1994 $92.61 $101.32 $92.06
1995 $130.43 $139.40 $130.74
1996 $119.67 $171.40 $134.82
1997 $169.75 $228.59 $168.06
1998 $223.28 $293.91 $192.88
2. OTHER MATTERS
The Board has no knowledge of any business to be presented for
consideration at the Annual Meeting other than that discussed above. Should any
other business properly come before the meeting or any adjournment thereof, it
is intended that the shares represented by proxies will be voted with respect
thereto in accordance with the best judgment of the persons named in such
proxies.
22
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
A report on Form 4 by Mr. Holland regarding his purchase of 500 shares of
the Company's common stock on May 18, 1998 was inadvertently not filed within
the required time period. A report regarding this purchase has been filed with
The Securities and Exchange Commission. The reports on Form 5 by Ms. Smith for
1996 and 1997 inadvertently failed to include the purchase of the Company's
common stock via the reinvestment of dividends in March, June, September and
December of each year. These purchases were made with dividends received on the
Company's common stock owned by Ms. Smith through a broker. The dividends were
automatically applied to the purchase of common stock when and as the dividends
were received. Ms. Smith's report on Form 5 for 1998 includes each of the
aforementioned purchases.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the accounts of the Company for 1999. A
representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting and will be given an opportunity to make a statement if he so desires
and to respond to appropriate questions.
23
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders to be presented at the April 25, 2000, Annual
Meeting must be received not later than November 8, 1999, if they are to be
included in the Company's proxy statement and form of proxy relating to that
meeting. Shareholder proposals received after that date but before January 21,
2000, will not be included in the Company's proxy statement and form of proxy
relating to the meeting, and shareholder proposals received after January 21,
2000, will be considered untimely under the rules of the Securities and Exchange
Commission governing discretionary voting on matters not covered in a proxy
statement. Proposals should be sent to the Secretary, CILCORP Inc., 300 Hamilton
Boulevard, Suite 300, Peoria, Illinois 61602.
By Order of the Board of Directors,
[SIGNATURE]
John G. Sahn
Vice President, Secretary and
Treasurer
May 21, 1999
EVA-Registered Trademark- is a registered trademark of Stern Stewart & Co
24
[LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints R.O. Viets and J.G. Sahn, and each of them,
attorneys and proxies with power of substitution to each, with authority to
vote all shares which the undersigned would be entitled to vote if personally
present at the 1999 annual meeting of shareholders of CILCORP. Inc., or at
any adjournment thereof, upon the item set forth in the notice of meeting and
proxy statement relating thereto and, in their discretion, upon any other
matter which may properly come before the meeting. The shares represented
hereby will be voted as directed on the reverse of this card.
IF NOT OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED FOR ITEM 1.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
PROXY.
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS BELOW. EACH JOINT OWNER SHOULD
SIGN. ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, CORPORATE OFFICER OR OTHERS
SIGNING IN A REPRESENTATIVE CAPACITY SHOULD GIVE THEIR FULL TITLES.
TEAR OFF THIS PORTION
- ------------------------------------------------------------------------------
DATE: __________________________________________________________________, 1999
______________________________________________________________________________
SIGNATURE/S
______________________________________________________________________________
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below (except as marked to the contrary below).
/ / WITHHOLD AUTHORITY to vote for all nominees listed below.
Nominees: J.R. Brazil, J.D. Caulder and M.M. Yeomans
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
______________________________________________________________________________
- ------------------------------------------------------------------------------
NO POSTAGE REQUIRED IF RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE
UNITED STATES.
REMOVE PROXY AT PERFORATION AND RETURN IN ENCLOSED BUSINESS REPLY ENVELOPE.