-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYBKITxcjNSuj4sg6KFl5vRoGiqsbWczHASEIWKUTPiQRbw8EeL1Ubq2YVXjDeup RjyqeBQ3vx876/KuMpHlZw== 0000092195-01-500006.txt : 20010402 0000092195-01-500006.hdr.sgml : 20010402 ACCESSION NUMBER: 0000092195-01-500006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN INDIANA GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000092195 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 350672570 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03553 FILM NUMBER: 1588080 BUSINESS ADDRESS: STREET 1: 20 NW FOURTH ST CITY: EVANSVILLE STATE: IN ZIP: 47741-0001 BUSINESS PHONE: 8124655300 10-K405 1 sigeco10-k.txt SIGECO 10K FILING FOR 12/31/2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Registrant, State of Commission Incorporation; IRS Employer File Number Address and Telephone Number Identification No. - ------------ ----------------------------- ------------------ Southern Indiana Gas and 1-3553 Electric Company 35-0672570 (An Indiana Corporation) 20 N. W. Fourth Street Evansville, Indiana 47741-0001 (812) 465-5300 Securities registered pursuant to Section 12(b) of the Act: Title of each Name of each exchange Registrant class on which registered - ---------------------- -------------- ---------------------- Southern Indiana Gas None and Electric Company Securities registered pursuant to Section 12(g) of the Act: Name of each Title of exchange on which Registrant each class registered - -------------------- ----------------- -------------------- Cumulative New York Stock Southern Indiana Gas Preferred Stock, Exchange and Electric Company $100 Par Value Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days: Yes X No At January 30, 2001, the aggregate market values of Southern Indiana Gas and Electric Company Cumulative Preferred Stock, $100 Par Value, 163,895 shares, held by non-affiliates was $13,812,650. As of March 21, 2001, the number of shares outstanding of the Registrant's classes of common stock were: Southern Indiana Gas and Common stock, no par value, Electric Company: 15,754,826 shares outstanding and held by Vectren Corporation Documents Incorporated by Reference Certain information in Vectren Corporation's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders, which was filed with the Securities and Exchange Commission on March 16, 2001, is incorporated by reference in Part III of this Form 10-K.
Table of Contents Item Page Number Number Part I 1 Business 2 2 Properties 7 3 Legal Proceedings 8 4 Submission of Matters to Vote of Security Holders 8 Part II 5 Market for Registrant's Common Equity and Related Security Holder Matters 8 6 Selected Financial Data 9 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 7A Qualitative and Quantitative Disclosures of Market Risks 15 8 Financial Statements and Supplementary Data 16 9 Change in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Part III 10 Directors and Executive Officers of the Registrants 38 11 Executive Compensation 38 12 Security Ownership of Certain Beneficial Owners and Management 43 13 Certain Relationships and Related Transactions 44 Part IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 45 Signatures 48
2 PART I ITEM 1. BUSINESS Southern Indiana Gas and Electric Company (SIGECO) is an operating public utility incorporated June 10, 1912, under the laws of the State of Indiana and is a wholly owned subsidiary of Vectren Corporation (Vectren). During 2000, SIGECO had two operating segments: (1) Electric Utility Services and (2) Gas Utility Services. The Electric Utility Services segment generates, transmits, distributes and sells electricity to Evansville, Indiana, and 74 other cities, towns and communities, and adjacent rural areas; and in periods of under utilized capacity, excess electricity is sold to other wholesale customers, cities and municipalities. The Gas Utility Services segment distributes, transports and sells natural gas to Evansville, Indiana and 64 communities in ten counties in southwestern Indiana. Vectren was organized on June 10, 1999 solely for the purpose of effecting the merger of Indiana Energy, Inc. (Indiana Energy) and SIGCORP, Inc.(SIGCORP), SIGECO's former parent company. On March 31, 2000, the merger of Indiana Energy with SIGCORP and into Vectren was consummated with a tax-free exchange of shares that has been accounted for as a pooling-of-interests. Prior to March 31, 2000, all of the outstanding shares of common stock of the company were owned by SIGCORP. The merger did not affect SIGECO's preferred stock or debt securities. Information regarding SIGECO's operating segments is included in Note 15 of SIGECO's financial statements included under Item 8 Financial Statements and Supplementary Data. The principal industries served by SIGECO include polycarbonate resin (Lexan) and plastic products, aluminum smelting and recycling, aluminum sheet products, automotive assembly, steel finishing, appliance manufacturing, pharmaceutical and nutritional products, automotive glass, gasoline and oil products and coal mining. Electric Utility Services Overview Electric Utility Services supplied electric service to 132,340 Indiana customers (114,946 residential, 17,207 commercial, 187 industrial) during 2000. This represents customer base growth of approximately 5 percent over the previous year. At December 31, 2000, SIGECO was obligated to provide for firm power commitments to the City of Jasper, Indiana and to maintain spinning reserve margin requirements under an agreement with the East Central Area Reliability Group (ECAR). Revenues For the year ended December 31, 2000, electricity sales totaled 7,524,700 megawatt hours, resulting in revenues of approximately $336.4 million. Residential customers provided 27.6 percent of 2000 revenues; industrial 24.6 percent; commercial 21.9 percent; other wholesale 16.4 percent; municipals and cities 7.0 percent; and other 2.5 percent. Generating Capacity Installed generating capacity as of December 31, 2000 was rated at 1,256 megawatts (MW). Coal-fired generating units provide 1,041 MW of capacity and gas or oil-fired turbines used for peaking or emergency conditions provide 215 MW. In addition to its generating capacity, electric Utility Services has 50 MW available under firm contracts and 120 MW available under interruptible contracts. New peaking capacity of 80 MW is under development and will be available for summer peak in 2002. This new generating capacity will be fueled by natural gas. Electric Utility Services has interconnections with Louisville Gas and Electric Company, Cinergy Services, Inc., Indianapolis Power & Light Company, Hoosier Energy Rural Electric Cooperative, Inc., Big Rivers Electric Corporation, Wabash Valley Power Association, and the City of Jasper, providing an ability to simultaneously interchange approximately 750 MW. 3 Total load, including its firm power commitments to the City of Jasper, Indiana, for each of the years 1996 through 2000 at the time of the system summer peak, and the related reserve margin, are presented below.
Date of Summer Peak Load 8-21-96 7-14-97 7-21-98 7-6-99 8-17-00 ------- ------- ------- ------ ------- Total Load at Peak 1,053 1,086 1,140 1,230 1,212 Generating Capability (MW) 1,236 1,236 1,256 1,256 1,256 Firm Purchase Supply - - - - 50 Interruptible Contracts - - - 95 120 ------- ------- ------- ------ ------- Total Power Supply Capacity 1,236 1,236 1,256 1,351 1,426 Reserve Margin at Peak 15% 12% 9% 9% 15%
The winter peak load of the 1999-2000 season of approximately 873 MW occurred on January 25, 2000 and was 4.6% higher than the previous winter peak load of approximately 834 MW which occurred on January 5, 1999. Through March 2001 and since 1956, SIGECO, primarily as agent of ALCOA Generating Corporation (AGC), operated the Warrick Generating Station, a coal-fired steam electric plant which interconnects with SIGECO's system and provides power for ALCOA, INC.'s (ALCOA) Warrick Operations, which includes aluminum smelting and fabricating facilities. Of the four turbine generators at the plant, Warrick Units 1, 2 and 3, with a capacity of 144 MW each, are owned by AGC. Warrick Unit 4, with a rated capacity of 270 MW, is owned by SIGECO and AGC as tenants in common, each having shared equally in the cost of construction and sharing equally in the cost of operation and in the output. On August 21, 2000, SIGECO announced that no later than April 18, 2001, ALCOA would begin operating the Warrick Generating Station. The operating change will have no impact on generating capacity and is not expected to have any negative impact on Electric Utility Services financial results. Additionally, ALCOA will be retained as a wholesale power and transmission services customer. Transition of the plant operations was completed in March 2001. Electric Utility Services maintains a 1.5 percent interest in the Ohio Valley Electric Corporation (OVEC). The OVEC is comprised of 15 electric utility companies, including SIGECO, that supplies power requirements to the United States Department of Energy's (DOE) uranium enrichment plant near Portsmouth, Ohio. The participating companies are entitled to receive from OVEC, and are obligated to pay for, any available power in excess of the DOE contract demand. The proceeds from the sale of power by OVEC are designed to be sufficient to meet all of its costs and to provide for a return on its common stock. The DOE is currently decreasing production at the Portsmouth plant, and as a result, Electric Utility Services' 1.5 percent interest in the OVEC makes available approximately 23 MW of capacity, in addition to its generating capacity, for use in other Electric Utility Services operations. Fuel Costs Electric generation for 2000 was fueled by coal (99.0 percent) and natural gas (1.0 percent). Oil was used only for testing of gas/oil-fired peaking units. There are substantial coal reserves in the southern Indiana area, and coal for coal-fired generating stations has been supplied from operators of nearby Indiana strip mines including those owned by Vectren Fuels, Inc., a wholly owned subsidiary of Vectren. Approximately 2.6 million tons of coal were purchased for generating electricity during 2000. Of this tonnage, Vectren Fuels, Inc supplied 47 percent. The average cost of all coal consumed in generating electrical energy decreased substantially subsequent to 1996 . This decrease results from the buy out of long-term contracts, enabling the purchase of lower-priced spot market coal and the purchase of lower priced coal from Vectren Fuels, Inc. The average cost of all coal consumed in generating electrical energy for the years 1996 through 2000 was as follows: 4 Average Cost Average Cost Average Cost Per Kwh Year Per Ton Per MMBTU (In Mills) -------- ------------ ------------ ------------- 1996 26.01 1.16 12.40 1997 20.75 0.91 9.80 1998 21.34 0.94 9.97 1999 21.88 0.96 10.13 2000 22.49 0.98 10.39 Research and Development Electric Utility Services participates with seven other utilities and 31 other affiliated groups located in eight states comprising the east central area of the United States, in the East Central Area Reliability group, the purpose of which is to strengthen the area's electric power supply reliability. Additionally, SIGECO is one of a number of transmission owners who are members of the Midwest Independent System Operator (MISO) which is a regional transmission organization established to ensure the dependable and efficient transmission of electric energy among transmission utilities located in the midwestern United States. The MISO expects to be in commercial operation no later than December 15, 2001. Regulatory Matters Changes in prices for electricity are determined primarily by market prices for fuel for electric generation and purchased power. Operations with regards to rates and charges, terms of service, accounting matters, issuance of securities, and certain other operational matters are regulated by the Indiana Utility Regulatory Commission (IURC). Adjustments to rates and charges related to the cost of fuel and the net energy cost of purchased power charged to Indiana customers are made through fuel cost adjustment procedures established by Indiana law and administered by the IURC. Fuel cost adjustment procedures involve scheduled quarterly filings and IURC hearings to establish the amount of price adjustments for future quarters. The procedures also provide for inclusion in a later quarter of any variances between estimated and actual costs of fuel and purchased power in a given quarter. The order provides that any over- or underrecovery caused by variances between estimated and actual cost in a given quarter will be included in the second succeeding quarter's adjustment factor. This continuous reconciliation of estimated incremental fuel costs billed with actual incremental fuel costs incurred closely matches revenues to expenses. An earnings test is the principal restriction to recovery of fuel cost increases. Such recovery is not allowed to the extent that total operating income for the 60- month period including the twelve-month period provided in the fuel cost adjustment filing exceeds the total operating income authorized by the IURC during the same 60-month period. For the period 1998 through 2000, the earnings test has not affected the company's ability to recover fuel costs, and the company does not anticipate the earnings test will restrict the recovery of fuel costs in the near future. (See Note 13 of SIGECO's financial statements included in Item 8 Financial Statements and Supplementary Data regarding negotiations with the IURC and the Indiana Office of Utility Consumer Counselor (OUCC) on purchased power costs). Environmental Matters SIGECO is subject to federal, state and local regulations with respect to environmental matters, principally air, solid waste and water quality. Pursuant to environmental regulations, the company is required to obtain operating permits for the electric generating plants that it owns or operates and construction permits for any new plants it might propose to build. Regulations concerning air quality establish standards with respect to both ambient air quality and emissions from electric generating facilities, including particulate matter, sulfur dioxide (SO2) and nitrogen oxides (NOx). Regulations concerning water quality establish standards relating to intake and discharge of water from electric generating facilities, including water used for cooling purposes in electric generating facilities. Because of the scope and complexity of these regulations, the company is unable to predict the ultimate effect of such regulations on its future operations, nor is it possible to predict what other regulations may be adopted in the future. The company intends to comply with all applicable governmental regulations, but will contest any regulation it deems to be unreasonable or impossible. 5 Refer to Note 12 of SIGECO's financial statements included in Item 8 Financial Statements and Supplementary Data for further discussion of the company's Clean Air Act Compliance Plan and the USEPA's lawsuit against SIGECO for alleged violations of the Clean Air Act. Refer also to the Liquidity and Capital Resources section of Management's Discussion and Analysis included in Item 7 for the planned associated costs. Gas Utility Services Revenues and Customers SIGECO supplies natural gas service to 110,564 customers, including 100,646 residential, 9,707 commercial and 211 contract customers. For the year ended December 31, 2000, Gas Utility Services' revenues were approximately $109 million of which residential customers provided 53 percent, commercial 20 percent, contract 6 and other 21 percent. Gas Utility Services may earn gas revenues by selling gas directly to residential and commercial customers at approved rates or by transporting gas through its pipelines at approved rates to contract customers that have purchased gas directly from other producers, brokers or marketers. Gas provided to both sales and transportation customers (throughput), totaled approximately 35,600 MDth for the year ended December 31, 2000. Transported gas represented 63 percent of total throughput. Rates for transporting gas provide for the same margins generally earned by selling gas under applicable sales tariffs. The sale of gas is seasonal and strongly affected by variations in weather conditions. To mitigate seasonal demand, SIGECO owns and operates three underground gas storage fields with an estimated ready delivery from storage of 3.9 million Dth of gas. Natural gas purchased from suppliers is injected into these storage fields during periods of light demand which are typically periods of lower prices. The injected gas is then available to supplement the contracted volumes during periods of peak requirements. Approximately 119,000 Dth of gas per day can be withdrawn from the three storage fields during peak demand periods on the system. Gas Purchases In 2000, SIGECO purchased 13,519 MDth volumes of gas at an average cost of $5.09 per MDth from multiple suppliers. This compares to the average cost of gas per MDth purchased in prior years as follows: $3.47 in 1996, $3.25 in 1997, $3.22 in 1998, and $3.10 in 1999. Regulatory Matters Gas operations with regard to rates and charges, terms of service, accounting matters, issuance of securities, and certain other operational matters are regulated by the IURC. Adjustments to rates and charges related to the cost of gas charged are made through gas cost adjustment (GCA) procedures established by Indiana law and administered by the IURC. GCA procedures involve scheduled quarterly filings and IURC hearings to establish the amount of price adjustments for a designated future quarter. The procedures also provide for inclusion in later quarters of any variances between estimated and actual costs of gas sold in a given quarter. This reconciliation process with regard to changes in the cost of gas sold closely matches revenues to expenses. The IURC has also applied the statute authorizing the GCA procedures to reduce rates when necessary so as to limit net operating income to the level authorized in its last general rate order. An earnings test operates in conjunction with GCA procedures. Recovery of gas costs is not allowed to the extent that total operating income for a 60-month period, including the twelve-month period provided in the gas cost adjustment filing, exceeds the total operating income authorized by the IURC. For the period 1998 through 2000, the earnings test has not affected the company's ability to recover gas costs, and the company does not anticipate the earnings test will restrict the recovery of gas costs in the near future. SIGECO's rate structure does not include a weather normalization- type clause whereby it would be authorized to recover the gross margin on sales established in their last general rate case, regardless of actual weather patterns. 6 Competition The utility industry has been undergoing dramatic structural change for several years, resulting in increasing competitive pressures faced by electric and gas utility companies. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce earnings from retail electric and gas sales. Currently, several states have passed legislation that allows electricity customers to choose their electricity supplier in a competitive electricity market and several other states are considering such legislation. At the present time, Indiana has not adopted such legislation. Indiana also has not adopted any regulation requiring gas choice except for large volume customers. Personnel SIGECO's network of gas and electric operations directly involves 779 employees. On July 31, 2000, SIGECO signed a new four-year labor agreement with Local 702 of the International Brotherhood of Electrical Workers. The new agreement provides a 3 percent wage increase for each year in addition to improvements in health care coverage, retirement benefits and incentive pay. On October 4, 1999, SIGECO signed a new two-year labor contract, ending September 23, 2001, with Local 135 of the Teamsters, Chauffeurs, Warehousemen and Helpers. The contract provides for annual wage increases of 3 percent and improvements in health care coverage costs and pension and other benefits. 7 ITEM 2. PROPERTIES Electric Utility Services SIGECO's installed generating capacity as of December 31, 2000 was rated at 1,256 MW. SIGECO's coal-fired generating facilities are: the Brown Station with 500 MW of capacity, located in Posey County approximately eight miles east of Mt. Vernon, Indiana; the Culley Station with 406 MW of capacity, and Warrick Unit 4 with 135 MW of capacity. Both the Culley and Warrick Stations are located in Warrick County near Yankeetown, Indiana. SIGECO's gas- fired turbine peaking units are: the 80 MW Brown Gas Turbine located at the Brown Station; two Broadway Gas Turbines located in Evansville, Indiana, with a combined capacity of 115 MW; and two Northeast Gas Turbines located northeast of Evansville in Vanderburgh County, Indiana with a combined capacity of 20 MW. The Brown and Broadway turbines are also equipped to burn oil. Total capacity of SIGECO's five gas turbines is 215 MW, and they are generally used only for reserve, peaking or emergency purposes. SIGECO's transmission system consists of 826 circuit miles of 138,000 and 69,000 volt lines. The transmission system also includes 27 substations with an installed capacity of 4,014,190 kilovolt amperes (Kva). The electric distribution system includes 3,196 pole miles of lower voltage overhead lines and 245 trench miles of conduit containing 1,423 miles of underground distribution cable. The distribution system also includes 94 distribution substations with an installed capacity of 1,803,878 Kva and 49,832 distribution transformers with an installed capacity of 2,255,483 Kva. Gas Utility Services SIGECO owns and operates three underground gas storage fields with an estimated ready delivery from storage capability of 3.9 million Dth of gas with daily delivery capabilities of 119,000 Dth. SIGECO's gas delivery system includes 2,921 miles of distribution and transmission mains. Property Serving as Collateral SIGECO's properties are subject to the lien of the First Mortgage Indenture dated as of April 1, 1932 between SIGECO and Bankers Trust Company, New York, as Trustee, as supplemented by various supplemental indentures. 8 ITEM 3. LEGAL PROCEEDINGS SIGECO is involved in various legal proceedings arising in the normal course of business. In the opinion of management, with the exception of the matters described in Note 12 of SIGECO's financial statements included in Item 8 Financial Statements and Supplementary Data regarding the Clean Air Act, there are no legal proceedings pending against SIGECO that could be material to its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter to a vote of security holders. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS Market Price All of the outstanding shares of SIGECO's common stock is owned by Vectren at December 31, 2000. SIGECO's common stock is not traded. As of December 31, 2000, there are no outstanding options or warrants to purchase SIGECO's common stock or securities convertible into SIGECO's common stock. Additionally, SIGECO has no plans to publicly offer any of its common equity. Dividends Dividends on shares of common stock are payable out of legally available funds. Future payments of dividends, and the amounts of these dividends, will depend on financial condition, results of operations, capital requirements and other factors. During 2000, the company paid dividends to Vectren of $7.5 million, $7.3 million, $7.3 million and $6.5 million in the first, second, third and fourth quarters, respectively. During 1999, the company paid dividends to Vectren of $7.8 million, $7.8 million, $7.8 million and $7.9 million in the first, second, third and fourth quarters, respectively. Dividend Restrictions The mortgage indenture and the terms of preferred stock of SIGECO contained in its articles of incorporation could limit the ability of SIGECO to pay dividends to Vectren. Under the applicable provisions, SIGECO may pay dividends on common stock from accumulated surplus earned subsequent to 1947 to the extent this surplus exceeds two times the annual dividend requirements on preferred stock. The amount restricted against cash dividends on common stock at December 31,2000 under the restriction based on annual dividend requirements was $1,925,951, leaving $251,630,083 unrestricted for the payment of dividends. 9 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial information. The information should be read in conjunction with the company's financial statements and notes thereto presented under Part II, Item 8 of this Form 10-K.
Year Ended December 31 (in thousands) 2000 1999 1998 - ---------------------- -------- ------- ------- Operating Revenues $ 445,693 $ 375,781 $ 364,666 Operating Income $ 56,268 $ 63,425 $ 62,002 Net Income Before Preferred Stock Dividends $ 41,048 $ 46,768 $ 43,542 Net Income Applicable to Common Shareholder $ 40,031 $ 45,690 $ 42,447 Total Assets $ 951,314 $ 894,759 $ 881,912 Cumulative Redeemable and Special Preferred Stock $ 5,876 $ 8,192 $ 8,308 Long-Term Obligations $ 240,915 $ 240,915 $ 170,915
Year Ended December 31 (in thousands) 1997 1996 - ----------------------- ------- ------- Operating Revenues $ 358,106 $ 372,730 Operating Income $ 62,912 $ 61,041 Net Income Before Preferred Stock Dividends $ 45,363 $ 42,841 Net Income Applicable to Common Shareholder $ 44,266 $ 41,744 Total Assets $ 864,463 $ 852,325 Cumulative Redeemable and Special Preferred Stock $ 8,424 $ 8,424 Long-Term Obligations $ 239,420 $ 252,114
Merger and integration related costs incurred for the year ended December 31, 2000 totaled $14.1 million, or $11.0 million after tax. These costs relate primarily to transaction costs, severance and other merger and acquisition integration activities. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net Income Net income applicable to common shareholder was $40.0 million for the year ended December 31, 2000. Net income applicable to common shareholder before merger and integration costs of $14.1 million, or 11.0 million after tax, was $51.0 million for the year ended December 31, 2000, as compared to net income of $45.7 million and $42.4 million for 1999 and 1998, respectively. (See merger and integration costs below.) Utility Margin (Utility Operating Revenues Less Cost of Gas, Cost of Fuel and Purchased Power) Electric margin increased $9.7 million, or 5 percent, to $224.3 million for the twelve-month period in 2000 compared to the same period in 1999. Although unit prices were lower than in 1999, sales to the wholesale energy markets contributed $4.4 million of the margin increase with volumes up 39 percent for 2000 compared to 1999. Additionally, the impact of much colder temperatures on electric heating sales and a 5 percent growth in commercial customers contributed to the 2000 electric margin increase. Mild summer temperatures impacted both 2000 and 1999. Retail and firm wholesale electric sales for 2000 increased 2 percent and total electric sales increased 8 percent. Electric utility margin for the year ended December 31, 1999 was $214.6 million, compared to $208.3 million for the prior year. The $6.4 million increase in margin reflects a 5 percent increase in retail and firm wholesale electric sales primarily due to stronger industrial and commercial sales and a $1.0 million increase in margin from sales to other wholesale customers. Although sales to other wholesale customers declined 17 percent in 1999 due to milder summer temperatures which eased demand in these markets, several new sales contracts produced higher average unit sales prices to these customers. A 1 percent increase in electric generation and higher per unit coal costs resulted in a $3.5 million, or 5 percent, increase in fuel costs for electric generation for 2000 compared to the prior year. Fuel costs for electric generation increased $3.3 million, or 5 percent, in 1999. Although SIGECO's sales of electric energy to other wholesale customers are provided primarily from otherwise unutilized capacity, SIGECO's purchases of electricity from other utilities for resale to other wholesale customers typically represent the 10 majority of SIGECO's total purchased electric energy costs. The 39 percent increase in sales to other wholesale customers combined with higher average market prices caused purchased electric energy costs to increase $15.6 million, or 75 percent, for the year ended December 31, 2000 compared to 1999. During 1999, total purchases of electric energy declined 13 percent due to the 17 percent decline in sales to wholesale customers, however higher average market prices for energy purchased resulted in total costs remaining comparable to 1998 costs. Gas margin increased $1.8 million to $30.4 million, or 6 percent, compared to the twelve-month period in 1999. The increase reflects 12 percent (4 MMDth) greater throughput (combined sales and transportation) due to much colder temperatures during 2000 than in 1999. Although temperatures were 7 percent warmer than normal for the year, temperatures during 2000 were 13 percent colder than in 1999 causing residential and commercial sales to rise 11 percent and 14 percent, respectively. In 1999, gas utility margin was $28.6 million, as compared to $27.2 million for the prior year. The 1999 increase is primarily attributable to weather being 8 percent colder than the previous year and the addition of new residential and commercial customers. Total cost of gas sold was $78.9 million in 2000 and $39.6 million in 1999 and 1998. Total cost of gas sold increased $39.3 million, or 99 percent, for the year ended December 31, 2000 compared to 1999, primarily due to significantly higher average per unit purchased gas costs. The total average cost per Dth of gas purchased was $5.09 in 2000, compared to $3.10 in 1999. The price changes are due primarily to changing commodity costs in the marketplace. Decreases in the average per unit cost of gas sold in 1999 as compared to 1998 more than offset the impact of the increased throughput, making costs of gas sold in 1999 comparable to 1998. Commodity prices for natural gas purchases during the last six months of 2000 unexpectedly increased significantly, primarily due to the expectation of a colder winter, which led to increased demand and tighter supplies. SIGECO is allowed full recovery of such charges in purchased gas costs from their retail customers through commission-approved gas cost adjustment mechanisms, and margin on gas sales should not be impacted. In 2001, SIGECO may experience higher working capital requirements, increased expenses, including unrecoverable interest costs and uncollectibles, and possibly some level of price sensitive reduction in volumes sold. Operating Expenses SIGECO's operations and maintenance expenses increased $7.4 million, or 8 percent, for the year ended December 31, 2000, compared to the same period in 1999. The increase is primarily attributable to higher general and administrative costs. Operations and maintenance expenses rose $2.3 million, or 2 percent, for 1999 as compared to 1998. This increase results from increased compensation and benefits and other general operation expenses, offset by lower maintenance costs. Depreciation and amortization decreased $ 1.7 million, or 4 percent, and increased $ 2.5 million, or 6 percent, for the years ended December 31, 2000 and 1999, respectively. The decrease in 2000 is primarily attributable to the contribution of certain information systems and equipment to a wholly owned subsidiary of SIGECO's parent, Vectren Corporation. The increase in expense over 1998 reflects depreciation of normal additions of utility plant. Federal and state income taxes declined $1.6 million in 2000, compared to 1999 due primarily to $7.3 million lower pre-tax earnings, partially offset by a higher effective tax rate resulting from the non-deductibility of certain merger costs. Federal and state income taxes increased $1.4 million, or 6 percent during 1999 compared to 1998 due primarily to higher pre- tax income in 1999. Taxes other than income taxes for 2000 and 1999 were comparable to the prior periods. 11 Merger and Integration Costs Merger and integration costs incurred for the year ended December 31, 2000 totaled $14.1 million ($11.0 million after tax). These costs relate primarily to transaction costs, severance, and other merger and integration activities such as signage and vehicle identification changes. Vectren expects to realize net merger savings of nearly $200 million over the next ten years from the elimination of duplicate corporate and administrative programs and greater efficiencies in operations, business processes and purchasing. The continued merger integration activities, which will contribute to the merger savings, will be substantially completed in 2001. Merger costs are reflected in the financial statements of the operating subsidiaries in which merger savings are expected to be realized. Other Income Other income increased $ 1.6 million and $.9 million, respectively, for the years ended December 31, 2000 and 1999 due primarily to increased additional funds used during construction (AFUDC) of utility plant. The increase in 1999 related to capitalized interest was partially offset by the loss of other income resulting from sales of emission allowance credits under a five year contract ending in 1998. Other income from Emission allowance credits sold in 1998 approximated $1.4 million. Other Operating Matters Operation of Warrick Generating Station On August 21, 2000, SIGECO announced that no later than April 18, 2001, ALCOA,INC. (ALCOA) would begin operating the Warrick Generating Station. In 1956, arrangements were made for SIGECO to operate the Warrick Generating Station as an agent for ALCOA. Three generating units at the plant are owned by ALCOA. SIGECO owns the fourth unit equally with ALCOA. The operating change will have no impact on SIGECO's generating capacity and is not expected to have any negative impact on the company's financial results. Additionally, SIGECO will retain ALCOA as a wholesale power and transmission services customer. Transition of the plant operations was completed in March 2001. Realignment Effective January 1, 2001, the SIGECO's operations were reorganized into two primary business units, Energy Delivery and Power Supply. Environmental and Regulatory Matters See Notes 12 and 13 in SIGECO's financial statements included in Item 8 Financial Statements and Supplementary Data regarding matters affecting operations including purchased power costs recovery and Clean Air Act compliance. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000 and must be applied to derivative instruments and certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1998. SIGECO has completed the process of identifying all derivative instruments, determining fair market values of these derivatives, designating and documenting hedge relationships, and evaluating the effectiveness of those hedge relationships. As a result of the successful completion of this process, SIGECO adopted SFAS 133 as of January 1, 2001. SFAS 133 requires that as of the date of initial adoption, the difference between the fair market value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with APB 20, "Accounting Changes." 12 A limited number of SIGECO's contracts are defined as derivatives under SFAS 133. These derivatives are forward physical contracts for the purchase and sale of electricity by power marketing operations. The cumulative impact of the adoption of SFAS 133 on January 1, 2001 is an earnings gain of approximately $6.3 million. Liquidity and Capital Resources SIGECO's capitalization objectives are 40-55 percent permanent capitalization. This objective may have varied, and will vary, from time to time, depending on particular business opportunities and seasonal factors that affect the company's operation. SIGECO's common equity component was 52 percent of its total capitalization, including current maturities of long-term debt and adjustable rate bonds subject to tender, at December 31, 2000 and 1999. Short-term cash working capital is required primarily to finance customer accounts receivable, unbilled utility revenues resulting from cycle billing, gas in underground storage, prepaid gas delivery services, capital expenditures and investments until permanently financed. Short-term borrowings tend to be greatest during the summer when accounts receivable and unbilled utility revenues related to electricity are highest and gas storage facilities are being refilled. During 2000, however, short-term borrowings related to working capital requirements were greatest during the last six months of the year due to the higher natural gas costs. Cash Flow From Operations SIGECO's primary source of liquidity to fund working capital requirements has been cash generated from operations, which totaled approximately $66.3 million, $110.1 million and $88.4 million in 2000, 1999 and 1998 respectively. Cash provided by operations decreased during 2000 as compared to 1999 by approximately $43.8 million. The decrease is primarily attributable to merger and integration costs causing lower net income, increased recoverable fuel and natural gas costs and increased working capital requirements resulting from higher natural gas costs. The increase of 1999 cash flow from operations as compared to 1998 of approximately $21.7 million is primarily attributable to lower inventories in storage at year end and increased net income. Capital Expenditures and Other Investing Activities Cash required for investing activities was $52.7 million for the year ended December 31, 2000. This is an decrease of approximately $9.0 million over prior year due primarily to increased expenditures in 1999 for the design and implementation of several comprehensive information systems necessary to meet expanding customer needs and to better manage resources. This expenditure was also the primary reason 1999 investing activities exceeded 1998 levels. New construction and normal system improvements needed to provide service to a growing customer base will continue to require substantial capital expenditures. Additionally, during the four year period 2001 through 2004, construction costs for NOx emissions control equipment are estimated to total approximately $160 million. Capital expenditures for the five year period 2001 - - 2005 are as follows (in millions): 13 2001 $ 96.5 2002 84.8 2003 83.4 2004 62.4 2005 73.6 Total $ 400.7 The above projected expenditures include the following: - - Expenditures for NOx compliance of approximately $40 million in 2001, $30 million in 2002, $55 million in 2003 and $35 million in 2004. - - Expenditures for an 80-megawatt gas combustion turbine generator of $20 million in 2001 and $13 million in 2002. - - Expenditures for additional generation assets of approximately $40 million in 2005. Financing Activities Cash flow required for financing activities of $12.4 million for the year ended December 31, 2000 includes $16.8 million of additional net borrowings offset by $32.0 million of dividends on shares of common and preferred stock and reductions in preferred stock. Cash required for financing activities in 1999 increased $16.7 million compared to 1998 requirements. The increase is primarily the result of internally generated funds used to pay down short term borrowings. The decrease in short term borrowings was partially offset by the issuance of long term notes payable. On March 1, 2000, the interest rate on $31.5 million of Adjustable Rate Pollution Control bonds of SIGECO, due March 1, 2025, was changed from 3.00 percent to 4.30 percent. The new interest rate was fixed through February 28, 2001. Also on March 1, 2000, the interest rate on $22.2 million of Adjustable Rate Pollution Control bonds of SIGECO, due March 1, 2020, was changed from 3.05 percent to 4.45 percent. The new interest rate was also fixed through February 28, 2001. For financial statement presentation, the $53.7 million of Adjustable Rate Pollution Control bonds are shown as a current liability. The two series of bonds were re-set for a five-year period effective March 1, 2001 at 4.65 percent for the $31.5 million bonds and 5.00 percent for the $22.2 million bonds SIGECO's credit rating on outstanding debt at December 31, 2000 was A/A1. At December 31, 2000, SIGECO had $63 million of short-term borrowing capacity for use in its operations, of which approximately $23 million was available. Forward-Looking Information A "safe harbor" for forwarding-looking statements is provided by the Private Securities Litigation Reform Act of 1995 (Reform Act of 1995). The Reform Act of 1995 was adopted to encourage such forward-looking statements without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statements. Certain matters described in Management's Discussion and Analysis of Financial Condition and Results of Operations, including, but not limited to, Vectren's realization of net merger savings, are forward-looking statements. Such statements are based on management's beliefs, as well as assumptions made by and information currently available to management. When used in this filing, the words "believe," "anticipate," "endeavor," "estimate," "expect," "objective," "projection," "forecast," "goal," and similar expressions are intended to identify forward- looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward- looking statements, factors that could cause SIGECO's actual results to differ materially from those contemplated in any forward-looking statements included, among others, the following: 14 * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unusual maintenance or repairs; unanticipated changes to fossil fuel costs; unanticipated changes to gas supply costs, or availability due to higher demand, shortages, transportation problems or other developments; environmental or pipeline incidents; transmission or distribution incidents; unanticipated changes to electric energy supply costs, or availability due to demand, shortages, transmission problems or other developments; or electric transmission or gas pipeline system constraints. * Increased competition in the energy environment including effects of industry restructuring and unbundling. * Regulatory factors such as unanticipated changes in rate- setting policies or procedures, recovery of investments and costs made under traditional regulation, and the frequency and timing of rate increases. * Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission, state public utility commissions, state entities which regulate natural gas transmission, gathering and processing, and similar entities with regulatory oversight. * Economic conditions including inflation rates and monetary fluctuations. * Changing market conditions and a variety of other factors associated with physical energy and financial trading activities including, but not limited to, price, basis, credit, liquidity, volatility, capacity, interest rate, and warranty risks. * Availability or cost of capital, resulting from changes in SIGECO, interest rates, and securities ratings or market perceptions of the utility industry and energy-related industries. * Employee workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages. * Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures. * Costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters, including, but not limited to, those described in the Other Operating Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations. * Changes in federal, state or local legislature requirements, such as changes in tax laws or rates, environmental laws and regulations. SIGECO undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISKS SIGECO is exposed to market risks associated with interest rates, commodity prices and counterparty risk. The company employs a variety of risk management policies to monitor and control these risks including the use of both derivative and non- derivative financial instruments. The company does not presently utilize financial instruments for trading or speculative purposes. Interest Rate Risks SIGECO attempts to mitigate its exposure to interest rate fluctuations through management of its short-term borrowings. An internal guideline to manage short-term interest rate exposure has been established. This guideline targets a maximum of 25 percent of the company's total debt portfolio to consist of adjustable rate bonds with a maturity of less than one year, short-term notes and commercial paper. However, there may be 15 times during the business cycle that the guideline may be exceeded. At December 31, 2000, SIGECO's short-term debt, including adjustable rate bonds, represented 28 percent of the company's total debt portfolio, due primarily to increased working capital requirements resulting from higher purchased gas costs and increased customer consumption. Commodity Price Risk SIGECO utilizes contracts for the forward sale of electricity to effectively manage the utilization of its available generating capability. Such contracts include forward physical contracts for wholesale sales of its generating capability, during periods when SIGECO's available generating capability is expected to exceed the demands of its retail, or native load, customers. To minimize the risk related to these forward contracts, SIGECO may utilize call option contracts to hedge against the unexpected loss of its generating capability during periods of heavy demand. SIGECO also utilizes forward physical contracts for the wholesale purchase of generating capability to resell to other utilities and power marketers through non-firm "buy-resell" transactions where the sale and purchase prices of power are concurrently set. These forward physical contracts expose SIGECO to electricity market price risk. With respect to the provision of electric energy and natural gas to its retail customers in Indiana, SIGECO is permitted by statute to pass through its purchase costs to its customers. Regarding electric energy, this ability to pass through all costs is arguably limited to the fuel cost component of electric energy purchases and does not encompass demand costs. After issuance in 1999 of a generic order by the IURC regarding the recoverability of the cost of purchased electric power which resulted in appeals by certain parties, SIGECO and several other Indiana electric utilities entered into a settlement with the OUCC which sets a benchmark for the recoverability of such costs and provides assurance that regardless of the market cost of power during outage situations, SIGECO will be able to recoup the majority of its costs. The IURC approved the settlement in 1999 and thereby vacated its prior order and all litigation regarding the issue was terminated. This settlement has been extended through March 2002. Counterparty Credit Risk SIGECO is also exposed to counterparty credit risk when a supplier defaults upon a contract to pay or deliver the commodity. To mitigate risk, procedures to determine and monitor the creditworthiness of counterparties have been established. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (in thousands) December 31 2000 1999 --------- ---------- ASSETS Utility Plant, at original cost: Electric $1,175,552 $1,160,216 Gas 160,872 156,918 ---------- ---------- 1,336,424 1,317,134 Less: accumulated depreciation and amortization 650,499 623,611 ---------- ---------- 685,925 693,523 Construction work in progress 52,582 45,393 ---------- ---------- Net utility plant 738,507 738,916 ---------- ---------- Current Assets: Cash and cash equivalents 1,613 449 Accounts receivables, less reserves of $2,639 and $2,138, respectively 49,554 34,738 Accounts receivable from affiliated company 27,829 1,159 Accrued unbilled revenues 24,414 18,736 Inventories 31,055 41,459 Recoverable fuel and natural gas costs 28,703 5,585 Other current assets 312 5,306 ---------- ---------- Total current assets 163,480 107,432 ---------- ---------- Other Investments and Property: Environmental improvement fund held by trustee 1,056 996 Nonutility property and other, net 1,960 1,627 --------- --------- Total other investments and property 3,016 2,623 --------- --------- Other Assets: Regulatory assets 33,443 34,027 Deferred charges 12,868 11,761 ---------- --------- Total other assets 46,311 45,788 ---------- ---------- TOTAL ASSETS $ 951,314 $ 894,759 ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 17
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (in thousands) December 31 2000 1999 --------- --------- SHAREHOLDER'S EQUITY AND LIABILITIES Capitalization: Common Stock $ 78,258 $ 78,258 Retained Earnings 258,877 256,312 --------- --------- Total common shareholder's equity 337,135 334,570 Cumulative nonredeemable preferred stock 11,090 11,090 Cumulative redeemable preferred stock 5,300 7,500 Cumulative special preferred stock 576 692 Long-term debt, net of current maturities 237,799 238,282 --------- --------- Total capitalization, net of current maturities 591,900 592,134 --------- --------- Commitments and Contingencies Current Liabilities: Current maturities of adjustable rate bonds subject to tender 53,700 53,700 Short-term borrowings 40,154 22,880 Accounts payable to affiliated company 11,486 - Accounts payable 60,085 28,560 Dividends payable 144 117 Accrued taxes 9,956 8,408 Accrued interest 6,047 6,012 Refunds to customers 3,543 5,375 Deferred income taxes 11,295 2,427 Other accrued liabilities 14,278 14,346 --------- --------- Total current liabilities 210,688 141,825 --------- --------- Deferred Credits And Other Liabilities: Deferred income taxes 112,122 120,550 Unamortized investment tax credits 15,944 17,372 Accrued postretirement benefits other than pensions 14,054 12,041 Accrued pensions 6,310 8,360 Other 296 2,477 --------- --------- Total deferred credits and other liabilities 148,726 160,800 --------- --------- TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES $951,314 $894,759 ========= =========
The accompanying notes to financial statements are an integral part of these statements. 18
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF INCOME (in thousands) Year Ended December 31 ------------------------------ 2000 1999 1998 --------- --------- --------- OPERATING REVENUES: Electric revenues $ 336,409 $ 307,569 $ 297,865 Gas revenues 109,284 68,212 66,801 --------- -------- -------- Total operating revenues 445,693 375,781 364,666 -------- -------- -------- COST OF OPERATING REVENUES: Cost of fuel and purchased power 112,093 92,946 89,611 Cost of gas 78,903 39,612 39,627 -------- -------- -------- Total cost of operating revenues 190,996 132,558 129,238 -------- -------- -------- Total margin 254,697 243,223 235,428 OPERATING EXPENSES: Operations and maintenance 103,053 95,658 93,399 Merger and integration costs 14,072 - - Depreciation and amortization 43,214 44,868 42,401 Income taxes 24,832 26,428 25,035 Taxes other than income taxes 13,258 12,844 12,591 -------- -------- -------- Total operating expenses 198,429 179,798 173,426 -------- -------- -------- OPERATING INCOME 56,268 63,425 62,002 OTHER INCOME -NET 4,674 3,109 2,221 -------- -------- -------- INCOME BEFORE INTEREST AND PREFERRED STOCK DIVIDEND 60,942 66,534 64,223 INTEREST EXPENSE 19,894 19,766 20,681 -------- -------- -------- NET INCOME 41,048 46,768 43,542 PREFERRED STOCK DIVIDEND 1,017 1,078 1,095 -------- -------- -------- NET INCOME APPLICABLE TO COMMON SHAREHOLDER $ 40,031 $ 45,690 $ 42,447 ======== ======== =========
The accompanying notes to financial statements are an integral part of these statements. 19
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31 ---------------------------- 2000 1999 1998 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 41,048 $ 46,768 $ 43,542 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 43,214 44,868 42,401 Deferred income taxes and investment tax credits, net 13 3,396 2,665 Allowance for other funds used during construction (2,051) (296) - Changes in assets and liabilities: Receivables, net (including accrued unbilled revenues) (47,163) (5,183) 5,152 Inventories 10,404 5,201 (12,586) Recoverable fuel costs (23,117) 346 3,198 Regulatory assets 584 1,435 970 Accounts payable 43,012 433 1,061 Accrued taxes 1,548 3,637 (1,153) Refunds to customers (1,832) 3,219 1,000 Other assets and liabilities 661 6,312 2,163 -------- -------- -------- Net cash flows from operating activities 66,321 110,136 88,413 -------- -------- -------- CASH FLOWS (REQUIRED FOR) FINANCING ACTIVITIES: Retirement of long-term debt - (55,000) (14,000) Proceeds from long-term debt - 80,000 - Dividends paid (29,656) (32,380) (30,188) Reduction in preferred stock (2,316) (116) (116) Net change in short-term borrowings 16,791 (44,379) 13,588 Other 2,773 3,393 (1,065) -------- -------- -------- Net cash flows (required for) financing activities (12,408) (48,482) (31,781) -------- -------- -------- Construction expenditures (net of allowance for funds used during construction) (51,119) (60,677) (55,313) Change in nonutility property (333) (50) (25) Other (1,297) (990) (1,896) -------- -------- -------- Net cash flows (required for) investing activities (52,749) (61,717) (57,234) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,164 (63) (602) Cash and cash equivalents at beginning of period 449 512 1,114 -------- -------- -------- Cash and cash equivalents at end of period $ 1,613 $ 449 $ 512 ======== ======== ========
The accompanying notes to financial statements are an integral part of these statements. 20
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS (in thousands) December 31 2000 1999 1998 -------- -------- --------- Balance Beginning of Period $256,312 $241,924 $228,570 Net Income 41,048 46,768 43,542 -------- -------- -------- 297,360 288,692 272,112 Preferred Stock Dividends 1,017 1,078 1,095 Common Stock Dividends 28,639 31,302 29,093 -------- -------- -------- 29,656 32,380 30,188 Other 317 - - Contribution of assets to parent (9,144) - - -------- -------- -------- Balance End of Period $258,877 $256,312 $241,924 ======== ========= =========
The accompanying notes to financial statements are an integral part of these statements 22 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS 1. Organization and Nature of Operations Southern Indiana Gas and Electric Company (SIGECO) provides generation, transmission, distribution and the sale of electric power to Evansville, Indiana, and 74 other communities, and the distribution and sale of natural gas to Evansville, Indiana, and 64 communities in ten counties in southwestern Indiana. Vectren Corporation (Vectren) was organized on June 10, 1999 solely for the purpose of effecting the merger of Indiana Energy, Inc. (Indiana Energy) and SIGCORP, Inc. (SIGCORP), SIGECO's former parent company. On March 31, 2000, the merger of Indiana Energy with SIGCORP and into Vectren was consummated with a tax- free exchange of shares that has been accounted for as a pooling- of-interests. The merger did not affect SIGECO's preferred stock or debt securities. SIGECO operates as a separate wholly owned subsidiary of Vectren. 2. Merger and Integration Costs Merger and integration costs incurred for the year ended December 31, 2000 totaled $14.1 million. These costs relate primarily to transaction costs, severance, and other merger and integration activities such as signage and vehicle identification changes. Merger costs are reflected in the financial statements of the operating subsidiaries in which merger savings are expected to be realized. At March 31, 2000, SIGECO accrued $12.4 million of merger and integration costs, and the accrual remaining for such costs at December 31, 2000 is $.5 million. In addition, during 2000, an additional $1.7 million of merger and integration costs were charged directly to expense. The merger integration activities will be substantially complete in 2001. 3. Summary of Significant Accounting Policies A. Utility Plant and Depreciation Utility plant is stated at historical cost, including an allowance for the cost of funds used during construction. Depreciation of utility property is provided using the straight- line method over the estimated service lives of the depreciable assets. The average depreciation rates, expressed as a percentage of original cost, were 3.3 percent, 3.5 percent and 3.4 percent for the years ended December 31, 2000, 1999 and 1998, respectively. SIGECO follows the practice of charging maintenance and repairs, including the cost of removal of minor items of property, to expense as incurred. When property that represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant, and such cost, together with the cost of removal less salvage, is charged to the accumulated provision for depreciation. B. Cash Flow Information For purposes of the Statements of Cash Flows, SIGECO considers cash investments with an original maturity of three months or less to be cash equivalents. Cash paid during the periods reported for interest and income taxes were as follows: Year Ended December 31 (in thousands) 2000 1999 1998 --------- ---------- --------- Cash paid during the year for Interest (net of amount $ 17,506 $ 15,437 $ 18,484 capitalized) Income taxes 21,627 25,476 23,789 During 2000, SIGECO contributed computer software and hardware with a book value of approximately $9.1 million to Vectren as a special dividend. This transaction resulted in no gain or loss and is omitted from the Statement of Cash Flows. 23 C. Revenues Revenues are recorded as products and services are delivered to customers. To more closely match revenues and expenses, SIGECO records revenues for all gas and electricity delivered to customers but not billed at the end of the accounting period. D. Earnings Per Share Historical earnings per share are not presented as Vectren holds the common shares of SIGECO. E. Reclassifications Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. These reclassifications have no impact on net income previously reported. F. Inventories SIGECO accounts for inventories under the average cost method except for gas in underground storage which is accounted for under the last-in, first-out (LIFO) method. At December 31 (in thousands) 2000 1999 ------ ------ Fuel (coal and oil) for electric generation $ 4,111 $ 12,229 Materials and supplies 15,022 13,352 Emission allowances 3,860 4,437 Gas in underground storage - at LIFO cost 8,062 11,441 Total inventories $ 31,055 $ 41,459 Based on the average cost of gas purchased during December, the cost of replacing the current portion of gas in underground storage exceeded LIFO cost at December 31, 2000 and 1999 by approximately $35 million and $12 million, respectively. G. Refundable or Recoverable Gas Costs, Fuel for Electric Production and Purchased Power All metered gas rates contain a gas cost adjustment clause, which allows for adjustment in charges for changes in the cost of purchased gas. Metered electric rates typically contain a fuel adjustment clause that allows for adjustment in charges for electric energy to reflect changes in the cost of fuel and the net energy cost of purchased power. SIGECO also collects through a quarterly rate adjustment mechanism the margin on electric sales lost due to the implementation of demand side management programs. SIGECO records any adjustment clause under-or-overrecovery each month in revenues. A corresponding asset or liability is recorded until such time as the under-or-overrecovery is billed or refunded to utility customers. The cost of gas sold is charged to operating expense as delivered to customers and the cost of fuel for electric generation is charged to operating expense when consumed. H. Allowance for Funds used During Construction An allowance for funds used during construction (AFUDC), which represents the cost of borrowed and equity funds used for construction purposes, is charged to construction work in progress during the period of construction and included in other - - net on the Statements of Income. The table below reflects the total AFUDC capitalized and the portion of which was computed on borrowed and equity funds for all periods reported. Year Ended December 31 (in thousands) 2000 1999 1998 -------- -------- -------- AFUDC - borrowed funds $ 1,817 $ 2,508 $ 1,465 AFUDC - equity funds 2,051 296 - -------- -------- -------- Total AFUDC capitalized $ 3,868 $ 2,804 $ 1,465 ======== ======== ======== 24 I. Income Taxes The liability method of accounting is used for income taxes under which deferred income taxes are recognized, at currently enacted income tax rates, to reflect the tax effect of temporary differences between the book and tax bases of assets and liabilities. Deferred investment tax credits are being amortized over the life of the related asset. J. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. K. Regulation SIGECO is subject to regulation by the Indiana Utility Regulatory Commission (IURC). The wholesale energy sales of SIGECO are subject to regulation by the Federal Energy Regulatory Commission (FERC). The accounting policies of SIGECO give recognition to the ratemaking and accounting practices of these agencies and to accounting principles generally accepted in the United States, including the provisions of Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). Regulatory assets represent probable future revenues associated with certain incurred costs, which will be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. The following regulatory assets and liabilities are reflected in the financial statements: At December 31 (in thousands) 2000 1999 ------ ------ Regulatory Assets: Demand side management programs $ 26,243 $ 25,900 Unamortized premium on reacquired debt 4,192 4,416 Unamortized debt discount and expenses 2,886 2,456 Other 122 1,255 Regulatory assets in other assets 33,443 34,027 Recoverable fuel and natural gas costs 28,703 5,585 Total regulatory assets $ 62,146 $ 39,612 As of December 31, 2000, the recovery of $40.7 million of SIGECO's $ 62.1 million of total regulatory assets is reflected in rates charged to customers. The remaining $21.4 million of regulatory assets, which are not yet included in rates, represent SIGECO's demand side management (DSM) costs incurred after 1993. When SIGECO files its next electric base rate case, these costs will be included in rate base and requested to earn a return. Amortization of the costs over a period anticipated to be 15 years will be recovered through rates as a cost of operations. Of the $40.7 million of regulatory assets currently reflected in rates, a total of $9.1 million is earning a return: $4.9 million of pre-1994 DSM costs and $4.2 million of unamortized premium on reacquired debt. The remaining recovery periods for the DSM costs and premium on reacquired debt are 11.5 years and 20 years, respectively. The remaining $31.6 million of regulatory assets included in rates, but not earning a return, are being recovered over varying periods: $7.1 million of fuel costs and $21.6 million of gas costs, over 12 months; and $2.9 million of unamortized debt discount and expense to be recovered over the lives of the related issues. SIGECO's policy is to continually assess the recoverability of costs recognized as regulatory assets and the ability to continue to account for their activities in accordance with SFAS 71, based on the criteria set forth in SFAS 71. Based on current regulation, SIGECO believes such accounting is appropriate. If all or part of SIGECO's operations cease to meet the criteria of SFAS 71, a write-off of related regulatory assets and liabilities could be required. In addition, SIGECO would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. 25 L. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000 and must be applied to derivative instruments and certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1998. SIGECO has completed the process of identifying all derivative instruments, determining fair market values of these derivatives, designating and documenting hedge relationships, and evaluating the effectiveness of those hedge relationships. As a result of the successful completion of this process, SIGECO adopted SFAS 133 as of January 1, 2001. SFAS 133 requires that as of the date of initial adoption, the difference between the fair market value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with APB 20, "Accounting Changes." A limited number of SIGECO's contracts are defined as derivatives under SFAS 133. SIGECO uses derivative and non-derivative forward contracts in its power marketing operations to effectively manage the utilization of its generation capability. Certain forward sales contracts are used to sell the excess generation capacity of SIGECO when demand conditions warrant this activity. These contracts involve the normal sale of electricity and therefore do not require fair value accounting under SFAS 133. Certain forward purchase and sale contracts entered into as part of "buy- sell" transactions with other utilities and power marketers are derivatives but do not qualify for hedge accounting. The mark to market impact of these derivatives upon adoption of SFAS 133 is reflected as part of the transition adjustment recorded to earnings on January 1, 2001. The cumulative impact of the adoption of SFAS 133 on January 1, 2001 is an earnings gain of approximately $6.3 million. 4. Preferred Stock Cumulative Preferred Stock The amount payable in the event of involuntary liquidation of each series of the $100 par value preferred stock is $100 per share, plus accrued dividends. This nonredeemable preferred stock is callable at the option of SIGECO as follows: the 4.8% Series at $110 per share, plus accrued dividends; and the 4.75% Series at $101 per share, plus accrued dividends. Cumulative Redeemable Preferred Stock The Series has a dividend rate of 6.50% and is redeemable at $100 per share on December 1, 2002. In the event of involuntary liquidation of this series of $100 par value preferred stock, the amount payable is $100 per share, plus accrued dividends. Cumulative Special Preferred Stock The Cumulative Special Preferred Stock contains a provision which allows the stock to be tendered on any of its dividend payment dates. 26 5. Long-Term Debt First mortgage bonds and notes payable outstanding and classified as long-term are as follows:
At December 31 (in thousands) 2000 1999 ------- ------- First Mortgage Bonds due: 2014, 4.60% Pollution Control Series A $ 22,500 $ 22,500 Adjustable Rate Pollution Control: 2015, Series A, presently 4.55% 9,975 9,975 2016, 8.875% 13,000 13,000 2020, 4.40% Pollution Control Series B 4,640 4,640 Adjustable Rate Environmental Improvement: 2023, Series B, presently 6% 22,800 22,800 2023, 7.60% 45,000 45,000 2025, 7.625% 20,000 20,000 2029, 6.72% 80,000 80,000 2030, 4.40% Pollution Control Series B 22,000 22,000 ------- ------- Total first mortgage bonds 239,915 239,915 Notes Payable: Tax Exempt, due 2003, 6.25% 1,000 1,000 ------- ------- Total long-term debt outstanding 240,915 240,915 Less: Maturities and sinking fund requirements - - Unamortized debt premium and discount, net (3,116) (2,633) ------- ------- Total long-term debt and other obligations, net of current maturities $ 237,799 $ 238,282 ======= =======
Consolidated maturities and sinking fund requirements on long- term debt subject to mandatory redemption during the five years following 2000 (in millions) are $0 in 2001, $0 in 2002, $1.0 in 2003, $0 in 2004, and $0 in 2005. In addition to the obligations presented in the table above, SIGECO has $53.7 million of adjustable rate pollution control series first mortgage bonds which could, at the election of the bondholder, be tendered to SIGECO annually in March. If SIGECO's agent is unable to remarket any bonds tendered at that time, SIGECO would be required to obtain additional funds for payment to bondholders. For financial statement presentation purposes those bonds subject to tender in 2001 are shown as current liabilities. The two series of bonds will be re-set for a five- year period effective March 1, 2001. The annual sinking fund requirement of SIGECO's first mortgage bonds is 1 percent of the greatest amount of bonds outstanding under the Mortgage Indenture. This requirement may be satisfied by certification to the Trustee of unfunded property additions in the prescribed amount as provided in the Mortgage Indenture. SIGECO intends to meet the 2001 sinking fund requirement by this means and, accordingly, the sinking fund requirement for 2001 is excluded from current liabilities on the Balance Sheets. At December 31, 2000, $220.9 million of SIGECO's utility plant remained unfunded under SIGECO's Mortgage Indenture. The above debt agreements contain certain financial covenants and other restrictions with which SIGECO must comply, and SIGECO was in compliance with all financial covenants and restrictions. 26 6. Short-Term Borrowings At December 31, 2000, SIGECO has approximately $63 million of short-term borrowing capacity of which approximately $23 million is available for operations. See the table below for outstanding balances and interest rates. At December 31 (in thousands) 2000 1999 ------ ------ Notes Payable Balance at year end $ 40,154 $ 22,880 Weighted average interest rate on year end balance 7.26% 6.42% Average daily amount outstanding during the year $ 20,026 $ 54,576 Weighted average interest rate on average daily amount outstanding during the year 6.24% 5.74% 7. Income Taxes The components of income tax expense were as follows:
Year Ended December 31 ( in thousands) 2000 1999 1998 ------- ------- ------- Current: Federal $ 21,754 $ 19,837 $ 19,521 State 3,065 3,195 ------- ------- ------- Total current taxes 24,819 23,032 22,370 ------- ------- ------- Deferred: Federal 1,030 4,080 3,270 State 411 746 842 ------- ------- ------- Total deferred taxes 1,441 4,826 4,112 ------- ------- ------- Amortization of Investment tax credit (1,428) (1,430) (1,447) Income tax expense $ 24,832 $ 26,428 $ 25,035 ======= ======= =======
A reconciliation of the statutory rate to the effective income tax rate is as follows:
Year Ended December 31 2000 1999 1998 ----- ----- ----- Statutory federal and state rate 37.9% 37.9% 37.9% Non deductible merger costs 3.5 - - Amortization of deferred investment tax (2.2) (1.9) 2.1) credit All other, net (0.9) 0.6 .3 ----- ----- ----- Effective tax rate 38.3% 36.6% 37.1% ----- ----- -----
Significant components of SIGECO's net deferred tax liability as of December 31, 2000 and 1999 are as follows:
At December 31 (in thousands) 2000 1999 ------- ------- Deferred Tax Liabilities: Depreciation and cost recovery timing differences $ 113,075 $ 120,307 Deferred fuel costs, net 8,168 2,427 Regulatory assets recoverable through future rates 24,836 26,128 Other 3,128 - Deferred Tax Assets: Regulatory liabilities to be settled through future rates (17,654) (20,388) Other (8,136) (5,497) -------- -------- Net deferred income tax liability $ 123,417 $ 122,977 ======== ========
28 8. Retirement Plans and Other Postretirement Benefits Prior to July 1, 2000, SIGECO and Indiana Energy had separate retirement and other postretirement benefit plans. Effective July 1, 2000, the SIGECO and Indiana Energy pension plans and retirement savings plans for employees not covered by a collective bargaining unit were merged. The pension plans and retirement savings plans described above became Vectren plans. As a result, the respective plan assets and plan obligations were transferred to Vectren. SIGECO has multiple defined benefit pension and other postretirement benefit plans which cover eligible full-time regular employees. All of the plans are non-contributory. The nonpension plans include plans for health care and life insurance through a combination of self-insured and fully insured plans. The IURC has authorized SIGECO to recover the costs related to postretirement benefits other than pensions under the accrual method of accounting consistent with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. Amounts accrued prior to that authorization were deferred as allowed by the IURC and amortized over a 60-month period. The detailed disclosures of benefit components that follow are based on an actuarial valuation performed for the December 31, 2000 financial statements using a measurement date as of September 30, 2000. Net periodic benefit cost consisted of the following components:
Year Ended December 31, Pension Benefits ------------------------ In thousands 2000 1999 1998 ------- ------- ------- Service cost $ 1,907 $ 3,020 $ 2,639 Interest cost 4,346 5,637 5,020 Expected return on plan assets (4,891) (6,517) (5,985) Amortization of prior service cost 210 307 178 Amortization of transitional (asset) obligation (330) (418) (418) Recognized actuarial gain (464) (300) (47) Settlement charge 711 - - Special termination benefit charge - - - ------- ------- ------- Net periodic benefit cost $ 1,489 $ 1,729 $ 1,387 ======= ======= =======
Year Ended December 31, Other Benefits ------------------------ In thousands 2000 1999 1998 ------- ------- ------- Service cost $ 542 $ 620 $ 578 Interest cost 1,914 1,707 1,664 Expected return on plan assets (921) (751) (577) Amortization of prior service cost - - - Amortization of transitional (asset) obligation 1,294 1,311 1,311 Recognized actuarial gain (816) (757) (743) Settlement charge - - - Special termination benefit charge - - - ------- ------- ------- Net periodic benefit cost $ 2,013 $ 2,130 $2,233 ======= ======= =======
A reconciliation of the plan's benefit obligations, fair value of plan assets, funded status and amounts recognized in the Balance Sheets follows:
At December 31, Benefit obligation Pension Benefits Other Benefits ------------------ ------------------ In thousands 2000 1999 2000 1999 -------- -------- -------- -------- Benefit obligation at beginning of year $ 81,702 $ 79,743 $ 24,908 $ 25,529 Service cost - benefits earned during the year 1,907 3,020 542 620 Interest cost on projected benefit obligation 4,346 5,637 1,914 1,707 Plan amendments - 33 (711) - Transfers (46,989) - - - Settlements 711 - - - Benefits paid (2,118) (3,286) (1,082) (661) Actuarial (gain) loss (610) (3,445) 111 (2,287) -------- -------- -------- -------- Benefit obligation at end of year $ 38,949 $ 81,702 $ 25,682 $ 24,908 ======== ======== ======== ========
29
Fair value of Plan Assets Pension Benefits Other Benefits ----------------- ---------------- In thousands 2000 1999 2000 1999 ------- ------- ------- ------- Plan assets at fair value at beginning of year $86,051 $83,337 $11,709 $ 9,511 Actual return on plan assets 5,020 6,000 595 1,434 Employer contributions - - - 1,425 Transfers (48,058) - - - Benefits paid (2,118) (3,286) (1,082) (661) -------- ------- ------- ------- Fair value of plan assets at end of year $40,895 $86,051 $11,222 $11,709 ======== ======= ======= =======
Funded Status Pension Benefits Other Benefits ------------------ -------------------- In thousands 2000 1999 2000 1999 -------- -------- --------- --------- Funded status $ 1,946 $ 4,349 $(14,458) $(13,199) Unrecognized transitional obligation (asset) (804) (1,398) 15,037 17,043 Unrecognized service cost 1,125 3,180 - - Unrecognized net (gain) loss and other (8,577) (14,491) (14,633) (15,885) -------- -------- --------- --------- Net amount recognized $(6,310) $(8,360) $(14,054) $(12,041) ======== ======== ========= =========
The fair value of plan assets for pension plans with benefit obligations is in excess of the benefit obligation as of December 31, 2000 and 1999. Weighted-average assumptions used in the accounting for these plans were as follows:
Year Ended December 31, Pension Benefits Other Benefits In thousands 2000 1999 2000 1999 ----- -------- ------- ------ Discount rate 7.75% 7.50% 7.75% 7.50% Expected return on plan assets 8.50% 8.50% N/A N/A Rate of compensation increase 5.00% 5.00% N/A N/A CPI rate N/A N/A 7.00% 6.50%
As of December 31, 2000, the health care cost trend is 7 percent declining to 5 percent in 2004 and remaining level thereafter. The accrued health care cost trend rate for 2001 is 7 percent. The estimated cost of these future benefits could be significantly affected by future changes in health care costs, work force demographics, interest rates or plan changes. A 1 percent change in the assumed health care cost trend for the postretirement health care plan would have the following effects: In thousands 1% Increase 1% Decrease ----------- ------------ Effect on the aggregate of the service and interest cost components $ 309 $ (242) Effect on the postretirement benefit obligation 2,549 (2,038) SIGECO has adopted Voluntary Employee Beneficiary Association (VEBA) Trust Agreements for the benefit of SIGECO employees for the funding of postretirement health benefits for retirees and their eligible dependents and beneficiaries. Annual funding is discretionary and is based on the projected cost over time of benefits to be provided to cover persons consistent with acceptable actuarial methods. To the extent these postretirement benefits are funded, the benefits will not be shown as a liability on SIGECO's financial statements. 30 9. Fair Value of Financial Instruments Except for the following financial instruments, fair value of SIGECO's financial instruments is equivalent to carrying value due to their short-term nature. At December 31 (in thousands) 2000 Carrying Estimated Amount Fair Value --------- ---------- Long-Term Debt (includes current maturities) $ 291,499 $ 326,653 Redeemable Preferred Stock 5,300 5,467 At December 31 (in thousands) 1999 Carrying Estimated Amount Fair Value --------- ---------- Long-Term Debt (includes current maturities) $ 291,982 $ 316,535 Redeemable Preferred Stock 7,500 7,538 Certain methods and assumptions must be used to estimate the fair value of financial instruments. Because of the short maturity of notes payable, the carrying amounts approximate fair values for these financial instruments. The fair value of SIGECO's long- term debt was estimated based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities. The fair value of redeemable preferred stock was based on the current quoted market rate of long-term debt with similar characteristics. The market price used to value these transactions reflects management's best estimate of market prices considering various factors, including published prices for certain delivery locations, time value and volatility factors underlying the commitments. 10. Stock-Based Compensation SIGECO does not have stock-based compensation plans separate from Vectren. SIGECO's employees, officers and directors participate in Vectren's stock-based compensation plans that provide for awards of restricted stock and stock options to purchase Vectren common stock at prices equal to the fair value of the underlying shares at the date of grant. Consistent with Vectren, SIGECO accounts for participation in these plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in measuring compensation costs for its stock options and discloses pro forma net income as if compensation costs had been determined consistent with the SFAS No. 123, "Accounting for Stock-based Compensation." Had compensation cost for stock options been determined consistent with SFAS No. 123 "Accounting for Stock-based Compensation," net income applicable to common shareholder would not have been materially different than reported amounts. 11. Commitments and Contingencies Vectren, through a wholly owned subsidiary, has entered into a contract to purchase and construct an 80-megawatt combustion gas turbine generator which, upon regulatory approval will be owned by SIGECO. The total capital cost of the project is estimated to be $33 million during the 2001-2002 construction period. SIGECO is party to various legal proceedings arising in the normal course of business. In the opinion of management, with the exception of the litigation matter related to the Clean Air Act (the Act), there are no legal proceedings pending against SIGECO that are likely to have a material adverse effect on the financial position or results of operations. Refer to Note 12 for litigation matters concerning the Clean Air Act. 31 12. Environmental Matters NOx SIP Call Matter. In October 1997, the United States Environmental Protection Agency (USEPA) proposed a rulemaking that could require uniform nitrogen oxide (NOx) emissions reductions of 85 percent by utilities and other large sources in a 22-state region spanning areas in the Northeast, Midwest, Great Lakes, Mid-Atlantic and South. This rule is referred to as the "NOx SIP call". The USEPA provided each state a proposed budget of allowed NOx emissions, a key ingredient of ozone, which requires a significant reduction of such emissions. Under that budget, utilities may be required to reduce NOx emissions to a rate of 0.15 lb/mmBtu below levels already imposed by Phase I and Phase II of the Clean Air Act Amendments of 1990 (the Act). Midwestern states (the alliance) have been working together to determine the most appropriate compliance strategy as an alternative to the USEPA proposal. The alliance submitted its proposal, which calls for a smaller, phased in reduction of NOx levels, to the USEPA and the Indiana Department of Environmental Management (IDEM) in June 1998. In July 1998, Indiana submitted its proposed plan to the USEPA in response to the USEPA's proposed new NOx rule and the emissions budget proposed for Indiana. The Indiana plan, which calls for a reduction of NOx emissions to a rate of 0.25 lb/mmBtu by 2003, is less stringent than the USEPA proposal but more stringent than the alliance proposal. On October 27, 1998, USEPA issued a final rule "Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone," (63 Fed. Reg. 57355). The final rule requires that 23 states and jurisdictions must file revised state implementation plans (SIPs) with the USEPA by no later than September 30, 1999, which was essentially unchanged from its October 1997, proposed rule. The USEPA has encouraged states to target utility coal-fired boilers for the majority of the reductions required, especially NOx emissions. Northeastern states have claimed that ozone transport from midwestern states (including Indiana) is the primary reason for their ozone concentration problems. Although this premise is challenged by others based on various air quality modeling studies, including studies commissioned by the USEPA, the USEPA intends to incorporate a regional control strategy to reduce ozone transport. The USEPA's final ruling is being litigated in the federal courts by approximately ten midwestern states, including Indiana. During the second quarter of 1999, the USEPA lost two federal court challenges to key air-pollution control requirements. In the first ruling by the U.S. Circuit Court of Appeals for the District of Columbia on May 14, 1999, the Court struck down the USEPA's attempt to tighten the one-hour ozone standard to an eight-hour standard and the attempt to tighten the standard for particulate emissions, finding the actions unconstitutional. In the second ruling by the same Court on May 25, 1999, the Court placed an indefinite stay on the USEPA's attempts to reduce the allowed NOx emissions rate from levels required by the Clean Air Act Amendments of 1990. The USEPA appealed both court rulings. On October 29, 1999, the Court refused to reconsider its May 14, 1999 ruling. On March 3, 2000, the D.C. Circuit of Appeals upheld the USEPA's October 27, 1998 final rule requiring 23 states and the District of Columbia to file revised SIPs with the USEPA by no later than September 30, 1999. Numerous petitioners, including several states, have filed petitions for rehearing with the U.S. Court of Appeals for the District of Columbia in Michigan v. the USEPA. On June 22, 2000, the D.C. Circuit Court of Appeals denied petition for rehearing en banc and lifted its May 25, 1999 stay. Following this decision, on August 30, 2000, the D.C. Circuit Court of Appeals issued an extension of the SIP Call implementation deadline, previously May 1, 2003, to May 31, 2004. On September 20, 2000, petitioners filed a Petition of Writ of Certiori with the United States Supreme Court requesting review of the D.C. Circuit Court's March 3, 2000 Order. The Court has not yet ruled on the Petition for Certiorari. The EPA granted Section 126 Petitions filed by northeastern states that require named sources in the eastern half of Indiana to achieve NOx reduction by May 1, 2003. No SIGECO facilities are named in the Section 126 Petitions filed by northeastern states, therefore the compliance date remains May 31, 2004. The proposed NOx emissions budget for Indiana stipulated in the USEPA's final ruling requires a 36 percent reduction in total NOx emissions from Indiana. The ruling, pending finalization of state rule making, could require SIGECO to lower its system-wide emissions by approximately 70 percent. Depending on the level of system-wide emissions reductions ultimately required, and the control technology utilized to achieve the reductions, the estimated construction costs of the control equipment could reach $160 million, which are expected to be expended during the 2001- 2004 period, and related additional operation and maintenance expenses could be an estimated $8 million to $10 million, annually. 32 Mercury Emissions. On December 14, 2000, the USEPA released a statement announcing that reductions of mercury emissions from coal-fired plants will be required in the near future. The USEPA will propose regulations by December 2003 and issue final rules by December 2004. Under the Act, the USEPA is required to study emissions from power plants in order to determine if additional regulations are necessary to protect public health. The USEPA reported its study to Congress in February 1998. That study concluded that of all toxic pollution examined, mercury posed the greatest concern to public health. An earlier USEPA study concluded that the largest source of human-made mercury pollution in the United States was coal-fired power plants. After completion of the study, the Act required the USEPA to determine whether to proceed with the development of regulations. The USEPA announced that it had affirmatively decided that mercury air emissions from power plants should be regulated. Culley Generating Station Investigation Matter. The USEPA initiated an investigation under Section 114 of the Act of SIGECO's coal-fired electric generating units in commercial operation by 1977 to determine compliance with environmental permitting requirements related to repairs, maintenance, modifications and operations changes. The focus of the investigation was to determine whether new source performance standards should be applied to the modifications and whether the best available control technology was, or should have been, used. Numerous other electric utilities were, and are currently, being investigated by the USEPA under an industry-wide review for similar compliance. SIGECO responded to all of the USEPA's data requests during the investigation. In July 1999, SIGECO received a letter from the Office of Enforcement and Compliance Assurance of the USEPA discussing the industry-wide investigation, vaguely referring to the investigation of SIGECO and inviting SIGECO to participate in a discussion of the issues. No specifics were noted; furthermore, the letter stated that the communication was not intended to serve as a notice of violation. Subsequent meetings were conducted in September and October with the USEPA and targeted utilities, including SIGECO, regarding potential remedies to the USEPA's general allegations. On November 3, 1999, the USEPA filed a lawsuit against seven utilities, including SIGECO. The USEPA alleges that, beginning in 1992, SIGECO violated the Act by: (i) making modifications to its Culley Generating Station in Yankeetown, Indiana without obtaining required permits; (ii) making major modifications to the Culley Generating Station without installing the best available emission control technology; and (iii) failing to notify the USEPA of the modifications. In addition, the lawsuit alleges that the modifications to the Culley Generating Station required SIGECO to begin complying with federal new source performance standards. SIGECO believes it performed only maintenance, repair and replacement activities at the Culley Generating Station, as allowed under the Act. Because proper maintenance does not require permits, application of the best available emission control technology, notice to the USEPA, or compliance with new source performance standards, SIGECO believes that the lawsuit is without merit, and intends to vigorously defend the lawsuit. The lawsuit seeks fines against SIGECO in the amount of $27,500 per day per violation. The lawsuit does not specify the number of days or violations the USEPA believes occurred. The lawsuit also seeks a court order requiring SIGECO to install the best available emissions technology at the Culley Generating Station. If the USEPA is successful in obtaining an order, SIGECO estimates that it would incur capital costs of approximately $40 million to $50 million complying with the order. In the event that SIGECO is required to install system-wide NOx emission control equipment, as a result of the NOx SIP call issue, the majority of the $40 million to $50 million for best available emissions technology at Culley Generating Station would be included in the $160 million expenditure previously discussed. The USEPA has also issued an administrative notice of violation to SIGECO making the same allegations, but alleging that violations began in 1977. While it is possible that SIGECO could be subjected to criminal penalties if the Culley Generating Station continues to operate without complying with the new source performance standards and the allegations are determined by a court to be valid, SIGECO believes such penalties are unlikely as the USEPA and the electric utility industry have a bonafide dispute over the proper interpretation of the Act. Consequently, SIGECO anticipates at this time that the plant will continue to operate while the matter is being decided. 33 Information Request. On January 23, 2001, SIGECO received an information request from the USEPA under Section 114(a) of the Act for historical operational information on the Warrick and A.B. Brown generating stations. SIGECO plans to provide all information requested, and management believes that no significant issues will arise from this request. 13. Rate and Regulatory Matters As a result of the ongoing appeal of a generic order issued by the IURC in August 1999 regarding guidelines for the recovery of purchased power costs, SIGECO entered into a settlement agreement with the Indiana Office of Utility Consumer Counselor (OUCC) that provides certain terms with respect to the recoverability of such costs. The settlement, originally approved by the IURC on August 9, 2000, has been extended by agreement through March 2002. Under the settlement, SIGECO can recover the entire cost of purchased power up to an established benchmark, and during forced outages, SIGECO will bear a limited share of its purchased power costs regardless of the market costs at that time. Based on this agreement, SIGECO believes it has significantly limited its exposure to unrecoverable purchased power costs. 14. Affiliate Transactions Vectren and certain subsidiaries of Vectren have provided certain corporate general and administrative services to the company including legal, finance, tax, risk management and employee benefits. A portion of the related costs has been allocated to SIGECO based on the proportion of corporate expense related to SIGECO. SIGECO was charged with corporate costs in the amount of approximately $30 million for the year ended December 31, 2000. No amounts were charged in 1999 or 1998 because such services were provided by SIGECO personnel during those periods. Vectren Fuels, Inc., a wholly owned subsidiary of Vectren, owns and operates coal mines from which SIGECO purchases fuel used for electric generation. Amounts paid for such purchases for the years ended December 31, 2000, 1999 and 1998 totaled $25.7 million $20.5 million and $16.8 million, respectively. As of December 31, Amounts owed to unconsolidated affiliates totaled $11.5 million and $0 at December 31, 2000 and 1999, respectively. Amounts due from unconsolidated affiliates totaled $27.8 million and $1.2 million at December 31, 2000 and 1999, respectively. 15. Segment Reporting SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for reporting information about operating segments in financial statements and disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. During 2000, SIGECO had two operating segments: (1) Electric Utility Services and (2) Gas Utility Services. The Electric Utility Services segment generates, transmits, distributes and sells electricity to Evansville, Indiana, and 74 other cities, towns and communities, and adjacent rural areas; and in periods of under utilized capacity, excess electricity is sold to other wholesale customers, cities and municipalities. The Gas Utility Services segment distributes, transports and sells natural gas to Evansville, Indiana and 64 communities in ten counties in southwestern Indiana. 34 Certain financial information relating to significant segments of business is presented below:
Year Ended December 31 (in thousands) 2000 1999 1998 ------ ------ ------ Operating revenues: Electric Utility Services $ 336,409 $ 307,569 $ 297,865 Gas Utility Services 109,284 68,212 66,801 ------- ------- ------- Total $ 445,693 $ 375,781 $ 364,666 ------- ------- ------- Interest expense: Electric Utility Services $ 18,103 $ 18,031 $ 18,882 Gas Utility Services 1,791 1,735 1,799 ------- ------- ------- Total $ 19,894 $ 19,766 $ 20,681 ------- ------- ------- Income taxes: Electric Utility Services $ 23,386 $ 24,331 $ 22,881 Gas Utility Services 1,446 2,097 2,154 ------- ------- ------- Total $ 24,832 $ 26,428 $ 25,035 ------- ------- ------- Net Income applicable to common shareholder: Electric Utility Services $ 36,811 $ 41,820 $ 38,342 Gas Utility Services 3,220 3,870 4,105 ------- ------- ------- Total $ 40,031 $ 45,690 $ 42,447 ------- ------- ------- Depreciation and amortization: Electric Utility Services $ 38,639 $ 40,829 $ 38,077 Gas Utility Services 4,575 4,039 4,324 ------- ------- ------- Total $ 43,214 $ 44,868 $ 42,401 ------- ------- ------- Capital Expenditures: Electric Utility Services $ 43,520 $ 51,080 $ 47,114 Gas Utility Services 9,649 9,893 9,381 ------- ------- ------- Total $ 53,169 $ 60,973 $ 56,495 ------- ------- ------- Identifiable assets: Electric Utility Services $ 799,104 $ 751,598 $ 740,746 Gas Utility Services 152,210 143,161 141,174 ------- ------- ------- Total assets $ 951,314 $ 894,759 $ 881,920 ======= ======= =======
16. Selected Quarterly Financial Data (Unaudited) (1)
2000 In thousands Q1 Q2 Q3 Q4 -------- ------- -------- -------- Operating revenues $102,217 $92,471 $112,675 $138,330 Operating income (2) 8,350 10,700 20,867 16,351 Net income (2) 3,998 6,459 16,782 12,792
1999 In thousands Q1 Q2 Q3 Q4 -------- ------- -------- ------- Operating revenues $100,685 $84,318 $101,930 $88,848 Operating income 17,147 12,338 21,219 12,721 Net income 12,237 7,617 17,601 8,235
(1) Information in any one quarterly period is not indicative of annual results due to seasonal variations common to the utility industry. (2) Includes merger and integration charges. See Note 2. 35 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Southern Indiana Gas and Electric Company (SIGECO) is responsible for the preparation of the financial statements and the related financial data contained in this report. The financial statements are prepared in conformity with accounting principles generally accepted in the United States and follow accounting policies and principles applicable to regulated public utilities. The integrity and objectivity of the data in this report, including required estimates and judgments, are the responsibility of management. Management maintains a system of internal control and utilizes an internal auditing program to provide reasonable assurance of compliance with company policies and procedures and the safeguard of assets. The board of directors of SIGECO's parent company, Vectren Corporation, pursues its responsibility for these financial statements through its audit committee, which meets periodically with management, the internal auditors and the independent auditors, to assure that each is carrying out its responsibilities. Both the internal auditors and the independent auditors meet with the audit committee of Vectren's board of directors, with and without management representatives present, to discuss the scope and results of their audits, their comments on the adequacy of internal accounting control and the quality of financial reporting. /s/ J. Gordon Hurst J. Gordon Hurst President 36 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder and Board of Directors of Southern Indiana Gas and Electric Company: We have audited the accompanying balance sheets of Southern Indiana Gas and Electric Company (an Indiana corporation) as of December 31, 2000 and 1999, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of Southern Indiana Gas and Electric Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern Indiana Gas and Electric Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a) (2) is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP Indianapolis, Indiana, January 24, 2001. 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 38 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Niel C. Ellerbrook, age 51, has been a director of SIGECO since March 31, 2000. Mr. Ellerbrook has been a director of Indiana Energy or Vectren since 1991. Mr. Ellerbrook is Chairman of the Board and Chief Executive Officer of Vectren, having served in that capacity since March 2000. Prior to that time and since October 1997, Mr. Ellerbrook served as President and Chief Operating Officer of Indiana Energy. From January through October 1997, Mr. Ellerbrook served as Executive Vice President, Treasurer and Chief Financial Officer of Indiana Energy; and prior to that time and since 1986, Vice President, Treasurer and Chief Financial Officer. He is also a director of Fifth Third Bank, Indiana, and Deaconess Hospital of Evansville, Indiana. Andrew E. Goebel, age 53, has been a director of SIGECO since 1984. Mr. Goebel has also been a director of SIGCORP or Vectren since 1997. Mr. Goebel is President and Chief Operating Officer of Vectren, having served in that capacity since March 2000. Prior to that time and since April 1999, Mr. Goebel was President and Chief Operating Officer of SIGCORP. From September 1997 through April 1999, Mr. Goebel served as Executive Vice President of SIGCORP; and prior to that time and since 1996, he served as Secretary and Treasurer of SIGCORP. He is also a director of Old National Bancorp. J. Gordon Hurst, age 57, has been a director since March 31, 2000 and an executive officer, serving as President, of SIGECO since May 1999. Mr. Hurst was elected Executive Vice President of Vectren on March 31, 2000. Prior to March 31, 2000 and since 1966, Mr. Hurst has served in various positions with SIGECO. From 1997 to 2000, he was Executive Vice President and Chief Operating Officer; from 1992 to 1997, he was Senior Vice President and General Manager of Operations. Mr. Hurst has served as Vice President of Power and Gas Operations, Vice President of Gas and Warrick Operations, and Vice President of SIGECO. He has also served as Director of Gas Operations, Director of Power Production, and Director of Electrical Engineering. Jerome A. Benkert, Jr., age 42, has been a director and an executive officer, serving as Executive Vice President and Chief Financial Officer, of SIGECO since March 31, 2000. Mr. Benkert was elected as Executive Vice President and Chief Financial Officer of Vectren on March 31, 2000. Prior to March 31, 2000 and since October 1, 1997, he was Executive Vice President and Chief Operating Officer of Indiana Energy's administrative services company. Mr. Benkert has served as Controller and Vice President of Indiana Gas and Indiana Energy from April 1, 1996 to October 1, 1997, and as controller from October 1, 1993 to April 1, 1996. Ronald E. Christian, age 42, has been a director and an executive officer, serving as Senior Vice President, General Counsel and Secretary, of SIGECO since March 31, 2000. Mr. Christian was elected Senior Vice President, General Counsel, and Corporate Secretary of the Vectren on March 31, 2000. Prior to March 31, 2000 and since July 1999, Mr. Christian was Vice President and General Counsel of Indiana Energy. From June 1998 to July 1999, Mr. Christian was the Vice President, General Counsel and Secretary of Michigan Consolidated Gas Company in Detroit, Michigan. Prior to that, from 1993 through June 1998, he was the General Counsel and Secretary of Indiana Energy, Indiana Gas and Indiana Energy Investments, Inc. 39 ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS The information required to be shown in this part for Item 11, Executive Compensation, is incorporated by reference, with the exception of the Compensation Committee Report and Performance Graph, from the Proxy Statement of the registrant's parent company, Vectren Corporation. That report was prepared and filed electronically with the Securities and Exchange Commission on March 16, 2001 and is attached to this filing as Exhibit 99.1. As a wholly owned subsidiary, SIGECO pays its portion of Vectren's executive compensation arrangements and plans through allocations of Vectren's total executive compensation expense which is reasonably related to SIGECO's operations. The following tables set forth compensation allocated to SIGECO's President and named executive officers whose total cash compensation for the calendar year 2000, after considering allocations to SIGECO, exceeded $100,000. The tables include a Summary Compensation Table (Table 1) for the years 1998 through 2000, a Summary of Option Grants in Last Fiscal year (Table 2), a table showing Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values (Table 3) and a table showing the Long-Term Incentive Plan Awards in Last Fiscal Year (Table 4).
TABLE 1(1) SUMMARY COMPENSATION TABLE (a) (b) (c) (d) (e) Annual Compensation Other Name and Principal Salary Bonus Compensation Position at SIGECO Year ($) ($) (2) ($) (3) - ---------------------- ----- -------- -------- ------------ J. Gordon Hurst 2000 118,158 45,185 1,435 President 1999 217,048 62,500 1998 196,637 59,375 Jerome A. Benkert, Jr. 2000 88,801 13,354 2,272 Executive Vice President and Chief Financial 1999 - - - Officer 1998 - - - Ronald E. Christian 2000 86,121 14,412 1,639 Senior Vice President, General Counsel 1999 - - - and Secretary 1998 - - -
(a) (b) (g) (h) (i) Long-term Compensation Payouts Options LTIP Other Name and Principal (# shares) Payouts Compensation Position at SIGECO Year (4) $) (5) ($) (6) - -------------------- ----- ---------- -------- ------------ J. Gordon Hurst 2000 - - 5,624 President 1999 33,390 - 8,762 1998 2,631 - - Jerome A. Benkert, Jr. 2000 - 69,440 67,809 Executive Vice 1999 - - - President and Chief Financial Officer 1998 - - - Ronald E. Christian 2000 - 39,683 43,230 Senior Vice President, 1999 - - - General Counsel and Secretary 1998 - - -
(1) Amounts in this table and corresponding footnotes represent SIGECO's allocated portion of the executive's total Vectren compensation. (2) The amounts shown in this column are payments under Indiana Energy's Annual Management Incentive Plan (Mr. Benkert and Mr. Christian) and the SIGCORP Corporate Performance Plan (for Mr. Hurst). The amounts paid to Mr. Hurst and in 1998 and 1999 are attributable to SIGCORP's performance in the previous year. At the close of the merger of Indiana Energy and SIGCORP into Vectren, the existing annual incentive programs of the two companies were terminated and a "stub year" pay out was made based on the portion of the performance cycle that had passed. For Indiana Energy, a prorated payout for six months, October 1, 1999 to March 31, 2000 was made. For Mr. Benkert and Mr. Christian, these bonus payments are listed in year 2000 in the table. For the SIGCORP Performance Plan, a prorated payout for three months, January 1, 2000 to March 31, 2000 was made. For Mr. Hurst, the stub year bonus was $8,978. The balance of the amount shown for 2000 (for Mr. Hurst, $79,401) is attributable to SIGCORP's performance for the period January 1 to December 31, 1999. The amounts earned in the period beginning April 1, 2000 and ending December 31, 2000 under the Vectren Corporation At-Risk Incentive Plan have not been determined and approved for distribution by the Vectren's Compensation Committee. (3) The shares shown in this column have been restated to reflect the conversion ratio of 1.333 described above in Section titled "Voting Securities" in Vectren's Proxy which was filed with the Securities and Exchange Commission on March 16, 2001 and is attached to this filing as Exhibit 99.1. 40 (4) The amounts shown in this column are dividends paid on restricted shares issued under the Indiana Energy Executive Restricted Stock Plan. Note that Vectren adopted the Stock Plan on March 31, 2000. Mr. Hurst did not participate in the Stock Plan prior to March 31, 2000. (5) The amounts shown in this column represent the value of shares issued under the Stock Plan and for which restrictions were lifted in each year. At the time of the merger, Indiana Energy executives had restricted stock performance grants relating to open performance measurement periods. (Under normal circumstances, at the close of each performance cycle, Indiana Energy's Total Shareholder Return would have been compared to a peer group and the number of restricted shares granted would have been adjusted in accordance with the plan.) The Board concluded that it would be difficult, if not inappropriate, to use Vectren's performance to make adjustments to the prior grants. Based upon the frequency of past performance grants, the Board awarded 75% of the present value of the potential performance grants. The value of these grants is included in the 2000 row. Grants related to this closing cycle are: Mr. Benkert - 3,828 shares, $75,967 total ($32,286 allocated to SIGECO) and Mr. Christian - 2,674 shares, $53,066 ($22,553 allocated to SIGECO). The balance of the value in the 2000 row reflects stock from other grant cycles for which restrictions were lifted in 2000 coincident with the consummation of the merger. (6) The amount shown in this column represents several compensation elements. a) Relocation - As a result of the Vectren merger, many employees of Indiana Energy were asked to move to Evansville, Indiana, the new headquarters of Vectren Corporation. As part of a relocation program, relocating employees were offered a "relocation bonus" equal to 25% of their annual base salary and other allowances related to the move. Of the five officers discussed in this section, two relocated and, therefore, received income related to relocation: Mr. Benkert -- $36,897 and Mr. Christian -- $33,742. b) Change-in-Control Walk-Away Provisions - Several Indiana Energy officers had change-in-control agreements at the time of the merger. These agreements contained "walk-away" provisions that would have allowed officers to exercise their agreements anytime within a thirteen-month period following the close of the Vectren merger. The Board felt it was important to maintain the continuity of the officer group through the merger process and asked that all change-in-control agreements be terminated at the close of the merger and new agreements be put in place. Recognizing the value of the walk-away provision, the Board felt that officers should be compensated for losing the right to exercise the provision. A settlement equal to 25% of the officers' annual base salary was made. Of the officers discussed in this section, one received this settlement: Mr. Benkert -- $23,375. This amount was paid in 2000. c) For Mr. Benkert and Mr. Christian, the balance of this column reflects Vectren contributions to the retirement savings plan (Benkert: 2000 -- $4,335; Christian: 2000 -- $4,212), the dollar value of insurance premiums paid by, or on behalf of, the company and its subsidiaries with respect to split- dollar life insurance for the benefit of executive officers (Benkert: 2000 -- $2,000; Christian: 2000 -- $4,358) credits for flexible spending accounts, wellness, and perfect attendance (Benkert: 2000 -- $83; Christian: 2000 -- $53), and deferred compensation contributions to restore employer contributions to the Company Retirement Savings Plan (Benkert: 2000 -- $1,119; Christian: 2000 -- $865) d) For Mr. Hurst, this column contains income related to reimbursement for club dues (Hurst: 2000 - $490, 1999 - $1,190), imputed earnings from automobile usage (Hurst: 2000 -- $283, 1999 -- $2,772), and Company contributions to the retirement savings plan (Hurst: 2000 -- $2,326. 1999 -- $2,189). In addition, at the close of the merger, officers coming from SIGCORP were no longer furnished with company automobiles (Indiana Energy executives were not furnished with company automobiles). As a result of the termination of this perquisite, officers with company cars were given a one-time automobile buyout of (Hurst -- $2,525). 41
TABLE 2 OPTION GRANTS IN LAST FISCAL YEAR TABLE 2 OPTION GRANTS IN LAST FISCAL YEAR % of Total Number of Options Shares Granted to Exercise or Underlying Employees Base Price Options in Fiscal (Per Share) Expiration Name Granted Year ($) Date ------------- ---------- ----------- ------------ ----------- J.G. Hurst 0 0 $0 N/A J.A. Benkert 0 0 $0 N/A R.E. Christian 0 0 $0 N/A
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Name Option Term ($) ------------- -------------- 5% 10% ------------- --------------- J.G. Hurst $0 $0 J.A. Benkert $0 $0 R.E. Christian $0 $0
TABLE 3 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES Underlying Shares Unexercised Number of Securities Acquired Value Underlying Unexercised On Exercise Realized Options at Year-End Name (#) ($)(1) (2) (#) -------------- ---------- ----------- ------------------------ --- Exercisable Unexer- cisable J.G. Hurst 0 0 93,354 16,695 J.A. Benkert 0 0 0 0 R.E. Christian 0 0 0 0
Value of Unexercised In-the-Money Name Options at Year-End ($)(3) ---------------------- --------------------------- Exercisable /Unexercisable J.G. Hurst 809,176 89,736 J.A. Benkert 0 0 R.E. Christian 0 0 (1) Market value of underlying securities at time of exercise minus the exercise price (2) Each option granted to purchase SIGCORP common shares was converted into an option to purchase the number of Vectren common shares that could have been purchased under the original option multiplied by 1.333. (3) Market value of underlying securities at year end of $25.63 per share minus the exercise price. TABLE 4 LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR (a) (b) (c) Performance or Other Number of Periods Until Shares; Units or Maturation Other Rights (1) or Payout (2) ------------------ ------------------- J.G. Hurst 12,346 J.A. Benkert 12,950 R.E. Christian 11,086 Estimated Future Payouts Under Non-Stock Price-Based Plans (a) (d) (e) (f) Threshold Target Maximum Number of Number Number of Shares (3) of Shares (4) Shares (5) ---------- ------------- ---------- J.G. Hurst 0 12,346 24,692 J.A. Benkert 0 12,950 25,900 R.E. Christian 0 11,086 22,172 (1) This column shows the restricted shares awarded during fiscal year 2000 under the Stock Plan. The market value of the shares on the dates of the grants is determined according to a formula in the Stock Plan based on an average price over a period of time preceding the grant. Dividends are paid directly to the holders of the stock. (2) For the grant authorized on October 1, 2000, the measurement period for each third of the grant will commence on October 1, 2000, and conclude on December 31, 2002, 2003, and 2004. Upon conclusion of each measurement period and subsequent adjustment to the number of shares contingently granted, an additional 1 year employment restriction is imposed. The granting of additional shares, if any, and the application of forfeiture provisions depends upon certain measurements of Vectren's total return to shareholders in comparison to the total return to shareholders of a predetermined group of comparable companies. (3) The initial grant shares, which are the same as the total number of shares in column (b), are also set forth in column (3), are subject to forfeiture. If Vectren's performance compared to the peer group during this measurement period places it in the bottom quartile, the executive officers will forfeit all of the shares granted for this period. (4) The initial grant shares, which are the same as the total number of shares in column (b), are presented in this column. If Vectren's performance compared to the peer group during this measurement period places it in the middle two quartiles, these shares will vest. (5) Under the Stock Plan, if Vectren's performance compared to the peer group during the initial measuring period places it in the top quartile, an additional performance grant equal to the original grant will be made. In that event, the shares shown in column (e) will be doubled. 43 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners As of December 31, 2000, each of the following stockholders was known to the management to be the beneficial owner of more than five percent of the outstanding shares of any class of voting securities as set forth below.
Amount and Nature of Name and Address of Beneficial Percent Title of Class Beneficial Owner Ownership of Class - -------------- ----------------------- ------------- -------- $100 Par IDS Certificate Company 75,000 Shares 45.8% Preferred Stock %IDS Financial Registered Owner Services, Inc. 3000 IDS Tower 10 Minneapolis, MN 55440 Common Stock Vectren Corporation 15,754,826 Shares 100% 20 N.W. Fourth Street Registered Owner P.O. Box 3606 Evansville, IN 47735-3606
Security Ownership of Directors and Executive Officers The following table shows the beneficial ownership, as of December 31, 2000, of Vectren common stock, by each director and executive officer named in the Compensation Table found under "Executive Compensation." Also shown is the total ownership for such persons as a group. No member of the group is the beneficial owner of any of SIGECO's Preferred Stock. Except as otherwise indicated, each individual has sole voting and investment power with respect to the shares listed below. Name of Beneficial Owner Shares Owned Beneficially (1) ------------------------ ---------------- ** Neil C. Ellerbrook 71,837 (2) (4) ** Andrew E. Goebel 147,350 (2) (3) (4) (5) * J. Gordon Hurst 108,576 (2) (3) (4) (5) * Jerome A. Benkert, Jr. 15,656 (2) (4) * Ronald E. Christian 16,329 (2) (4) * Also an executive officer of the company ** Also a director of Vectren Corporation All Directors and Executive Officers as a Group (5 Persons) Shares Owned Beneficially Percent of Class - ------------------------- ---------------- 359,748 .58 percent (1) No director or executive officer owned beneficially as of December 31, 2000, more than .24 percent of common stock of Vectren. (2) This amount does not include derivative securities held under Vectren's Non-Qualified Deferred Compensation Plan. 44 These derivative securities are in the form of phantom stock units which are valued as if they were Vectren common stock. The amounts shown for the following individuals include the following amounts of phantom units: Name of Individuals or Identity of Group Phantom Stock Units - ---------------------------------------- ------------------- Niel C. Ellerbrook 48,515 Andrew E. Goebel 4,530 Jerome A. Benkert, Jr. 14,811 J. Gordon Hurst 726 Ronald E. Christian 24,792 ------- All Directors and Executive Officers as a Group (5 Persons) 93,374 (3) Includes shares held by spouse or jointly with spouse. (4) Includes shares granted to executives under Vectren's Executive Restricted Stock Plan, which are subject to certain transferability restrictions and forfeiture provisions. (5) Includes shares which the named individual has the right to acquire under the SIGCORP, Inc. Stock Option Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Vectren and Vectren affiliates Refer to Note 14 in SIGECO's financial statements included in Item 8 Financial Statements and Supplementary Data for transactions with Vectren and Vectren affiliates. Transactions with directors and officers Andrew E. Goebel Andrew E. Goebel is President and Chief Operating Officer and Director of Vectren. During 1999 and 2000, Hasgoe Cleaning Systems, a cleaning company owned by Mr. Goebel's brother, performed certain cleaning services for SIGECO and is expected to perform such services in 2001. During 2000, the cost of such services was $170,588, which the company believes to be a fair and reasonable price for the services rendered. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements Financial statements filed as part of this Form 10-K are included under Part II, Item 8. (a)(2) Financial Statement Schedules: PAGES IN FORM 10-K Report of Independent Accountants 36 For the years ended December 31, 2000, 1999, and 1998: Schedule II -- Valuation and Qualifying Accounts 46 All other schedules are omitted as the required information is inapplicable or the information is presented in the Financial Statements or related notes. 46 SCHEDULE II
Southern Indiana Gas And Electric Company VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Column A Column B Column C - --------- -------- -------------------- Additions Balance Charged Charged Beginning to to Other Description of Year Expenses Accounts - ------------ --------- --------- --------- (in thousands) VALUATION AND QUALIFYING ACCOUNTS: Year 2000 - Accumulated Provision for uncollectible accounts $ 2,138 $ 1,189 $ - Year 1999 - Accumulated Provision for uncollectible accounts $ 2,156 $ 604 $ - Year 1998 - Accumulated Provision for uncollectible accounts $ 328 $ 2,797 $ - OTHER RESERVES: Year 2000 - Reserve for Merger and integration costs $ - $ 12,400 $ - Year 2000 - Reserve for Injuries and damages $ 1,047 $ 351 $ - Year 1999 - Reserve for Injuries and damages $ 782 $ 661 $ - Year 1998 - Reserve for Injuries and damages $ 1,047 $ 68 $ 261
Column A Column D Column E - --------- ---------- ---------- Deductions Balance from End of Description Reserves, Net Year ------------- ----------- (in thousands) VALUATION AND QUALIFYING ACCOUNTS: Year 2000 - Accumulated Provision for uncollectible accounts $ 688 $ 2,639 Year 1999 - Accumulated Provision for uncollectible accounts $ 622 $ 2,138 Year 1998 - Accumulated Provision for uncollectible accounts $ 969 $ 2,156 OTHER RESERVES: Year 2000 - Reserve for Merger and integration costs $ 11,874 $ 526 Year 2000 - Reserve for Injuries and damages $ 374 $ 1,024 Year 1999 - Reserve for Injuries and damages $ 396 $ 1,047 Year 1998 - Reserve for Injuries and damages $ 594 $ 782
47 (a)(3) EXHIBITS Exhibits for the company are listed in the Index to Exhibits beginning on page 50. (b) REPORTS ON FORM 8-K On December 15, 2000, Southern Indiana Gas and Electric Company filed a Current Report on Form 8-K with respect to providing an update on potential impact of Increased Gas Costs and Gas Cost Adjustment Proceedings. Items reported include: Item 5. Other Events 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY Dated March 28, 2001 /S/ J. Gordon Hurst J.Gordon Hurst, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in capacities and on the dates indicated.
Signature Title Date Principal Executive Officer /S/ J. Gordon Hurst President March 28, 2001 J. Gordon Hurst Principal Financial Officer /S/ Jerome A. Benkert, Jr. Executive Vice March 28, 2001 Jerome A. Benkert, Jr. President and Chief Financial Officer Principal Accounting Officer /S/ M. Susan Hardwick Vice President and March 28, 2001 M. Susan Hardwick Controller Majority of the Board of Directors /S/ Jerome A. Benkert, Jr. Director March 28, 2001 Jerome A. Benkert, Jr. /S/ Ronald E. Christian Director March 28, 2001 Ronald E. Christian /S/ Niel C. Ellerbrook Director March 28, 2001 Niel C. Ellerbrook /S/ J. Gordon Hurst Director March 28, 2001 J. Gordon Hurst /S/ Andrew E. Goebel Director March 28, 2001 Andrew E. Goebel
50 INDEX TO EXHIBITS EX - 3.1 Amended Articles of Incorporation as amended March 26, 1985. (Filed and designated in Form 10-K, for the fiscal year 1985, File No. 1-3553, as Exhibit 3-A.) Articles of Amendment of the Amended Articles of Incorporation, dated March 24, 1987. (Filed and designated in Form 10-K for the fiscal year 1987, File No. 1-3553, as Exhibit 3- A.) Articles of Amendment of the Amended Articles of Incorporation, dated November 27, 1992. (Filed and designated in Form 10-K for the fiscal year 1992, File No. 1-3553, as Exhibit 3-A) EX - 3.2 By-Laws as amended through December 18, 1990. (Filed in Form 10-K for the fiscal year 1990, File No. 1-3553, as Exhibit 3-B.) By-Laws as amended through September 22, 1993. (Filed and designated in Form 10-K for the fiscal year 1993, File No. 1-3553, as EX-3 (b).) By-Laws as amended through January 1, 1995. (Filed and designated in Form 10-K for the fiscal year 1995, File No. 1-3553, as EX-3(b).) EX - 4.1 Mortgage and Deed of Trust dated as of April 1, 1932 between Southern Indiana Gas and Electric Company and Bankers Trust Company, as Trustee, and Supplemental Indentures thereto dated August 31, 1936, October 1, 1937, March 22, 1939, July 1, 1948, June 1, 1949, October 1, 1949, January 1, 1951, April 1, 1954, March 1, 1957, October 1, 1965, September 1, 1966, August 1, 1968, May 1, 1970, August 1, 1971, April 1, 1972, October 1, 1973, April 1, 1975, January 15, 1977, April 1, 1978, June 4, 1981, January 20, 1983, November 1, 1983, March 1, 1984, June 1, 1984, November 1, 1984, July 1, 1985, November 1, 1985, June 1, 1986. (Filed and designated in Registration No. 2-2536 as Exhibits B-1 and B-2; in Post- effective Amendment No. 1 to Registration No. 2- 62032 as Exhibit (b)(4)(ii), in Registration No. 2-88923 as Exhibit 4(b)(2), in Form 8-K, File No. 1- 3553, dated June 1, 1984 as Exhibit (4), File No. 1- 3553, dated March 24, 1986 as Exhibit 4-A, in Form 8-K, File No. 1-3553, dated June 3, 1986 as Exhibit (4).) July 1, 1985 and November 1, 1985 (Filed and designated in Form 10-K, for the fiscal year 1985, File No. 1-3553, as Exhibit 4- A.) November 15, 1986 and January 15, 1987. (Filed and designated in Form 10-K, for the fiscal year 1986, File No. 1-3553, as Exhibit 4- A.) December 15, 1987. (Filed and designated in Form 10-K, for the fiscal year 1987, File No. 1-3553, as Exhibit 4-A.) December 13, 1990. (Filed and designated in Form 10- K, for the fiscal year 1990, File No. 1-3553, as Exhibit 4-A.) April 1, 1993. (Filed and designated in Form 8-K, dated April 13, 1993, File 1-3553, as Exhibit 4.) June 1, 1993 (Filed and designated in Form 8-K, dated June 14, 1993, File 1-3553, as Exhibit 4.) May 1, 1993. (Filed and designated in Form 10- K, for the fiscal year 1993, File No. 1-3553, as Exhibit 4(a).) July 1, 1999. (Filed and designated in Form 10-Q, dated August 16, 1999, File 1-3553, as Exhibit 4(a).) EX - 10.1 Agreement, dated, January 30, 1968, for Unit No. 4 at the Warrick Power Plant of Alcoa Generating Corporation ("Alcoa"), between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-29653 as Exhibit 4(d)-A.) EX - 10.2 Letter of Agreement, dated June 1, 1971, and Letter Agreement, dated June 26, 1969, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-41209 as Exhibit 4(e)-2.) EX - 10.3 Letter Agreement, dated April 9, 1973, and Agreement dated April 30, 1973, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-53005 as Exhibit 4(e)-4.) EX - 10.4 Electric Power Agreement (the "Power Agreement"), dated May 28, 1971, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-41209 as Exhibit 4(e)-1.) EX - 10.5 Second Supplement, dated as of July 10, 1975, to the Power Agreement and Letter Agreement dated April 30, 1973 - First Supplement. (Filed and designated in Form 10-K for the fiscal year 1975, File No. 1-3553, as Exhibit 1(e).) 51 EX - 10.6 Third Supplement, dated as of May 26, 1978, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1978 as Exhibit A- 1.) EX - 10.7 Letter Agreement dated August 22, 1978 between Southern Indiana Gas and Electric Company and Alcoa, which amends Agreement for Sale in an Emergency of Electrical Power and Energy Generation by Alcoa and Southern Indiana Gas and Electric Company dated June 26, 1979. (Filed and designated in Form 10-K for the fiscal year 1978, File No. 1-3553, as Exhibit A-2.) EX - 10.8 Fifth Supplement, dated as of December 13, 1978, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1-3553, as Exhibit A-3.) EX - 10.9 Sixth Supplement, dated as of July 1, 1979, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1- 3553, as Exhibit A-5.) EX - 10.10 Seventh Supplement, dated as of October 1, 1979, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1-3553, as Exhibit A-6.) EX - 10.11 Eighth Supplement, dated as of June 1, 1980 to the Electric Power Agreement, dated May 28, 1971, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Form 10-K for the fiscal year 1980, File No. 1-3553, as Exhibit (20)-1.) EX - 10.12 Summary description of Southern Indiana Gas and Electric Company's nonqualified Supplemental Retirement Plan (Filed and designated in Form 10-K for the fiscal year 1992, File No. 1- 3553, as Exhibit 10-A-17.) EX - 10.13 Supplemental Post Retirement Death Benefits Plan, dated October 10, 1984. (Filed and designated in Form 10-K for the fiscal year 1992, File No. 1-3553, as Exhibit 10-A-18.) EX - 10.14 Summary description of Southern Indiana Gas and Electric Company's Corporate Performance Incentive Plan. (Filed and designated in Form 10- K for the fiscal year 1992, File No. 1-3553, as Exhibit 10-A-19.) EX - 10.15 Southern Indiana Gas and Electric Company's Corporate Performance Incentive Plan as amended for the plan year beginning January 1, 1994. (Filed and designated in Form 10-K for the fiscal year 1993, File No. 1-3553, as Exhibit 10-A-20.) EX - 10.16 Southern Indiana Gas and Electric Company 1994 Stock Option Plan (Filed and designated in Southern Indiana Gas and Electric Company's Proxy Statement dated February 22, 1994, File No. 1- 3553, as Exhibit A.) EX - 10.17 Summary description of Southern Indiana Gas and Electric Company's Corporate Performance Incentive Plan as amended for the plan year beginning January 1, 1997. (Filed and designated in the SIGCORP, Inc. and Southern Indiana Gas and Electric Company's Joint Proxy Statement dated March 23, 1998, File No. 1-11603 and File No. 1-3553, under "Compensation Committee Report On Executive Compensation", page 9.) EX - 10.18 Southern Indiana Gas and Electric Company's nonqualified Supplemental Retirement Plan as amended, effective April 16, 1997. (Filed and designated in Form 10-K for the fiscal year 1997, File No. 1-3553, as Exhibit 10.29.) EX - 10.19 Agreement dated April 16, 1997 between Southern Indiana Gas and Electric Company and Ronald G. Reherman regarding supplemental pension and disability benefits, which supercedes such agreement dated February 1, 1995. (Filed and designated in Form 10-K for the fiscal year 1997, File No. 1-3553, as Exhibit 10.27.) EX - 10.20 Southern Indiana Gas and Electric Company's nonqualified Supplemental Retirement Plan as amended, effective April 16, 1997. (Filed and designated in Form 10-K for the fiscal year 1997, File No. 1-3553, as Exhibit 10.29.) 52 EX - 10.21 Indiana Energy, Inc. Director's Restricted Stock Plan as amended and restated effective May 1, 1997. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 1997, File 1- 9091, as Exhibit 10-B.) EX - 10.22 First Amendment to Indiana Energy, Inc. Director's Restricted Stock Plan, effective December 1, 1998. (Filed and designated in Form 10-Q for the quarterly period ended December 31, 1998, File 1-9091, as Exhibit 10-J.) EX - 10.23 Second Amendment to Indiana Energy, Inc. Director's Restricted Stock Plan, renamed the Vectren Corporation Directors Restricted Stock Plan effective October 1, 2000. (Filed and designated in Form 10-K for the year ended December 31, 2000, File No. 1-15467, as Exhibit 10.34.) EX - 10.24 Third Amendment to Indiana Energy, Inc. Director's Restricted Stock Plan, renamed the Vectren Corporation Directors Restricted Stock Plan effective March 28, 2000. (Filed and designated in Form 10-K for the year ended December 31, 2000, File No. 1-15467, as Exhibit 10.35.) EX - 10.25 Vectren Corporation Retirement Savings Plan. (Filed and designated in Form 10-Q for the quarterly period ended September 30, 2000, File 1-15467, as Exhibit 99.1.) EX - 10.26 Vectren Corporation Combined Non-Bargaining Retirement Plan. (Filed and designated in Form 10-Q for the quarterly period ended September 30, 2000, File 1-15467, as Exhibit 99.2.) EX - 10.27 Vectren Corporation Employment Agreement between Vectren Corporation and Niel C. Ellerbrook dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.1.) EX - 10.28 Vectren Corporation Employment Agreement between Vectren Corporation and Andrew E. Goebel dated as of March 31, 2000(Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.2.) EX - 10.29 Vectren Corporation Employment Agreement between Vectren Corporation and Jerome A. Benkert, Jr. dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.3.) EX - 10.30 Vectren Corporation Employment Agreement between Vectren Corporation and Ronald E. Christian dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.5.) EX - 10.31 Vectren Corporation Employment Agreement between Vectren Corporation and Timothy M. Hewitt dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.6.) EX - 10.32 Vectren Corporation Employment Agreement between Vectren Corporation and J. Gordon Hurst dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.7.) EX - 10.33 Vectren Corporation Employment Agreement between Vectren Corporation and Richard G. Lynch dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File 1-15467, as Exhibit 99.8.) EX - 12 Ratio of Ratio of Earning to Fixed Charges. (Filed herewith.) EX - 99.1 Vectren Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, but not including the Compensation Committee Report and Performance Graph. (Filed herewith.) 53 EX - 99.2 Agreement and Plan of Merger dated as of June 11,1999 among Indiana Energy, Inc., SIGCORP, Inc. and Vectren Corporation (the ''Merger Agreement ''). (Filed and designated in Form S-4 to (No. 333-90763) filed on November 12, 1999, File 1-15467, as Exhibit 2.) EX - 99.3 Amendment No. 1 to the Merger Agreement dated December 14,1999 (Filed and designated in Current Report on Form 8-K filed December 16, 1999, File 1-09091, as Exhibit 2.) EX - 99.4 Amended and Restated Articles of Incorporation of Vectren Corporation effective March 31,2000. (Filed and designated in Current Report on Form 8-K filed April 12, 2000, File 1-15467, as Exhibit 4.1.) EX - 99.5 Code of By-Laws of Vectren Corporation. (Filed and designated in Form S-3 (No 333-5390) filed January 19, 2001, File 1-15467, as Exhibit 4.2.) EX - 99.6 Shareholders Rights Agreement dated as of October 21, 1999 between Vectren Corporation and Equiserve Trust Company, N.A., as Rights Agent. (Filed and designated in Form S-4 to (No. 333-90763) filed on November 12, 1999, File 1- 15467, as Exhibit 4.) EX-12 2 sig-exhibit12.txt COMPUTATION OF RATIO OF EARNINGS 54 EX-12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In Thousands, Except Ratios) Year Ended December 31 ---------------------------- Earnings: 2000(1) 1999 1998 ------- ------- ------- Net income(2) $41,048 $46,768 $43,542 Income taxes 24,832 26,427 25,035 Fixed charges (see below) 20,469 20,371 21,166 Less AFUDC funds borrowed (1,817) (2,508) (1,465) ------- ------- ------- Total adjusted earnings $84,532 $91,058 $88,278 ------- ------- ------- Fixed charges: Total interest expense $19,894 $19,766 $20,680 Interest component of rents (3) 575 605 486 ------- ------- ------- Total fixed charges $20,469 $20,371 $21,166 ------- ------- ------- Ratio of earnings to fixed charges 4.1 4.5 4.2 (4) ======= ======= =======
Year Ended December 31 ---------------------- Earnings: 1997 1996 -------- --------- Net income(2) $45,363 $42,841 Income taxes 27,259 24,035 Fixed charges (see below) 20,916 21,910 Less AFUDC funds borrowed (797) (445) -------- ------- Total adjusted earnings $92,741 $88,341 ------- ------- Fixed charges: Total interest expense $20,460 $21,472 Interest component of rents (3) 456 438 ------- ------- Total fixed charges $20,916 $21,910 ------- ------- Ratio of earnings to fixed charges (4) 4.4 4.0 ======= =======
(1) Merger and integration related costs incurred for the year ended December 31,2000 totaled $14.1 million ($11.0 million after tax). These costs relate primarily to transaction costs, severance and other merger and acquisition integration activities. SIGECO's ratio of earnings to fixed charges for 2000 before merger and integration charges was 4.7. (2) Net income, as defined, is before preferred dividend requirements (3) One-third of rentals represents a reasonable approximation of the interest factor. (4) The ratios shown above do not reflect the fixed charge component in SIGECO's power contract with OVEC. Inclusion of the component in the computation would not have a significant effect on the ratios. EX-99.1PROXY 3 vvcproxymar.txt VECTREN CORP PROXY STATEMENT SCHEDULE 14A 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 (S) 240.14a-11(c) or (S) 240.14a-12 Vectren Corporation - ------------------------------------------------------------------ - -------------- (Name of Registrant as Specified In Its Charter) - ------------------------------------------------------------------ - -------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a- 6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------- - ------------ (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------- - ------------ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------- - ------------ (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------- - ------------ (5) Total fee paid: ------------------------------------------------------------- - ------------ [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------- - ------------ (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------- - ------------ (3) Filing Party: ------------------------------------------------------------- - ------------ (4) Date Filed: ------------------------------------------------------------- - ------------ Notes: [VECTREN CORPORATION LOGO] VECTREN CORPORATION 20 N. W. Fourth Street Evansville, Indiana 47708 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 25, 2001 TO THE SHAREHOLDERS OF VECTREN CORPORATION The annual meeting of shareholders of Vectren Corporation (the "Company") will be held at the Company's Norman P. Wagner Operations Center, One North Main Street, Evansville, Indiana on Wednesday, April 25, 2001, at 9:30 a.m. (Central Daylight Time), for the following purposes: 1. To elect four directors of the Company to serve for a term of three years or until their successors are duly qualified and elected; 2. To approve the Company's At-Risk Compensation Plan; and 3. To transact such other business as may properly come before the meeting, or any adjournment of the meeting. As allowed by the Company's Code of By-Laws, the board of directors has fixed the close of business on March 2, 2001 as the record date for determining the shareholders entitled to notice of and to vote at the meeting and at any adjournment of the meeting. It is important that your stock be represented at this meeting to assure a quorum. Whether or not you now expect to be present at the meeting, please fill in, date and sign the enclosed proxy and return it promptly to the Company in the accompanying addressed envelope. No stamp is required if mailed in the United States. You may also authorize the individuals named on your proxy card to vote your shares by calling toll-free 1-877-779-8683 or using the Internet (www.eproxyvote.com/vvc) by following the instructions included with your proxy card. Please note that if your shares are not registered in your own name, your bank, broker or other institution holding your shares may not offer telephone or Internet voting. You have the unconditional right to revoke your proxy at any time before the authority granted by it is exercised. By order of the board of directors. Vectren Corporation [Ronald E. Christian] RONALD E. CHRISTIAN Senior Vice President, General Counsel, and Corporate Secretary Evansville, Indiana March 16, 2001 LOCATION OF APRIL 25, 2001 ANNUAL SHAREHOLDERS' MEETING [MAP] NORMAN P. WAGNER OPERATIONS CENTER Vectren Corporation One North Main Street Evansville, Indiana Parking for shareholders will be provided in the Employee and Visitor parking lot on the corner of North Main and Division Streets. Please use the Main Street entrance. YOUR VOTE IS IMPORTANT PLEASE READ THE PROXY STATEMENT AND SIGN, DATE AND MAIL THE PROXY IN THE PREPAID ENVELOPE WITHOUT DELAY, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY PRIOR TO OR AT THE MEETING AND VOTE IN PERSON IF YOU WISH. IF YOUR SHARES ARE HELD BY A BROKER, BANK OR NOMINEE, IT IS IMPORTANT THAT THEY RECEIVE YOUR VOTING INSTRUCTIONS. TABLE OF CONTENTS
Page - ---- Proxy Statement......................................................... .. 1 Solicitations of Proxies................................................ 1 Purposes of Meeting..................................................... 1 Voting Securities....................................................... 1 Item 1. Election of Directors............................................. 2 Class I Directors....................................................... 2 Class II Directors...................................................... 3 Class III Directors..................................................... 3 Other Executive Officers.................................................. 4 Common Stock Ownership by Directors and Executive Officers................ 5 Certain Relationships and Related Transactions............................ 6 Meetings and Committees of the Board of Directors......................... 6 Director Compensation..................................................... 7 Section 16(a) Beneficial Ownership Reporting Compliance................... 7 Report of the Audit Committee............................................. 7 Executive Compensation and Other Information.............................. 8 Report of the Compensation Committee...................................... 8 A. Executive Compensation Policy........................................ 8 B. Components of Executive Compensation................................. 9 Base Salary........................................................... 9 Annual Incentive Compensation......................................... 9 Long-Term Incentive Compensation...................................... 10 C. Chief Executive Officer Compensation................................. 11 D. Share Ownership...................................................... 11 E. Compensation Consultant, Termination Benefits Agreements and Deductibility of Executive Compensation............................... 11 Compensation Committee Interlocks and Insider Participation............... 13 Compensation...................................................... ........ 13 Table I:Summary Compensation............................................ 13 Table I(A):Earnings for Former Indiana Energy Executives................ 14 Table II:Option Grants in Last Fiscal Year.............................. 16 Table III: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values from 1/1/2000 - 12/31/2000........... 16 Table IV: Long-Term Incentive Plan Awards in Last Fiscal Year........... 16 Retirement Savings Plan................................................... 17 Retirement Plans.......................................................... 17 Table: Pension Plan..................................................... 18 Stock Option Plan......................................................... 19 Employment Agreements..................................................... 19 Corporate Performance..................................................... 20 Comparison of 9 Month Cumulative Total Return........................... 20
i
Page - ---- Item 2. Approval of Company's At-Risk Compensation Plan................... 21 Stock Options........................................................... 21 Restricted Stock........................................................ 21 Other Stock Based Awards................................................ 22 Annual Incentive Awards................................................. 22 Awards Under the At-Risk Compensation Plan.............................. 22 United States Federal Income Tax Aspects of the At-Risk Compensation Plan.............................................................. ..... 22 Incentive Stock Options............................................... 22 Restricted Stock...................................................... 23 Stock Units Awards.................................................... 23 Section 162(m) of the Internal Revenue Code........................... 23 Required Vote and Recommendation........................................ 24 Independent Public Accountants of the Company............................. 24 Audit Fees.............................................................. 24 Financial Systems Design and Implementation Fees........................ 24 All Other Fees.......................................................... 24 Cost and Method of Solicitation........................................... 25 Annual Report............................................................ . 25 Revocation Rights......................................................... 25 Nomination of Directors by Shareholders................................... 25 Shareholders' Proposals for 2002 Annual Meeting........................... 26 APPENDIX A--Audit Committee Charter....................................... A-1 APPENDIX B--At-Risk Compensation Plan..................................... B-1
ii VECTREN CORPORATION 20 N. W. Fourth Street Evansville, Indiana 47708 (812) 491-4000 PROXY STATEMENT The following information is furnished in connection with the solicitation of the enclosed proxy by and on behalf of the board of directors of the Company. The proxy will be used at the annual meeting of shareholders to be held at the Company's Norman P. Wagner Operations Center, One North Main Street, Evansville, Indiana, on Wednesday, April 25, 2001, at 9:30 a.m. (Central Daylight Time), and at any adjournment of the meeting for the matters to be acted upon under its authority. The proxy and this proxy statement were first mailed to the shareholders on or about March 16, 2001. SOLICITATIONS OF PROXIES The management solicits your proxy for use at the annual meeting of the Company. Shares held in your name and represented by your proxy will be voted as you instruct if your proxy is duly executed and returned prior to the meeting. Shares represented by proxies that are returned signed but without instructions for voting will be voted as recommended by management. Shares represented by proxies that are returned unsigned or improperly marked will be treated as abstentions for voting purposes. You may revoke your proxy 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. If you are a participant in the Company's Automatic Dividend Reinvestment and Stock Purchase Plan, your proxy card will represent the number of shares registered in your name and the number of shares credited to your plan account. For those shares held in the plan, your proxy card will serve as direction to the Plan Administrator as to how your account is to be voted. PURPOSES OF MEETING As of this date, the only known business to be presented at the 2001 annual meeting of shareholders is (1) the reelection of four directors of the Company to serve for a term of three years or until their successors are duly qualified and elected, and (2) the approval of the Company's At- Risk Compensation Plan. However, the enclosed proxy authorizes the proxy holders to vote on all other matters that may properly come before the meeting, and it is the intention of the proxy holders to take any such action utilizing their best judgment. Only shares held by those present at the meeting or for which proxies are returned will be considered to be represented at the meeting. For the purposes of determining a quorum, shares represented at the meeting are counted without regard to abstentions or broker non-votes as to any particular item. VOTING SECURITIES On March 31, 2000, Indiana Energy, Inc. ("Indiana Energy") and SIGCORP, Inc. ("SIGCORP") merged with and into the Company. As a result of the merger, each Indiana Energy shareholder received 1 share of the Company's common stock for each share of Indiana Energy common stock owned by the shareholder, and each SIGCORP shareholder received 1.333 shares of the Company's common stock for each share of SIGCORP common stock owned by the shareholder. Immediately following the merger, the former Indiana Energy shareholders owned 48.6% of the Company, and the former SIGCORP shareholders owned 51.4% of the Company. As of March 2, 2001, the Company had one class of capital stock outstanding, consisting of 67,712,468 shares of common stock without par value. The holders of the outstanding shares of common stock are entitled 1 to one vote for each share held of record on each matter presented to a vote of the shareholders at the meeting. However, unless the holder personally appears at the meeting, shares for which no proxy is returned (whether registered in the name of the actual holder thereof or in nominee or street name) will not be voted. Only shareholders of record at the close of business on March 2, 2001 will be entitled to vote at the meeting or at any adjournment of the meeting. ITEM 1. ELECTION OF DIRECTORS The Company's board of directors currently consists of sixteen directors divided into three classes having staggered terms of three years each. Four of the five Class I directors, John D. Engelbrecht, William G. Mays, J. Timothy McGinley, and Richard P. Rechter, are nominees for election with terms expiring in 2004. The fifth member of Class I, James S. Vinson, is not standing for reelection due to his impending retirement and relocation to South Carolina. The Class II directors, Lawrence A. Ferger, Donald A. Rausch, Ronald G. Reherman, Richard W. Shymanski, and Jean L. Wojtowicz, have terms expiring in 2002. The Class III directors, John M. Dunn, Niel C. Ellerbrook, Anton H. George, Andrew E. Goebel, Robert L. Koch II, and James C. Shook, have terms expiring in 2003. Messrs. Ellerbrook and Goebel also serve as directors of Vectren Utility Holdings, Inc., a holding company for the Company's regulated gas and electric distribution company subsidiaries, Indiana Gas Company, Inc. ("Indiana Gas"), Southern Indiana Gas and Electric Company ("SIGECO"), and Vectren Energy Delivery of Ohio, Inc. Messrs. Ellerbrook and Goebel also serve as directors of Vectren Capital, Corp. ("Vectren Capital"), the Company's subsidiary that serves as the vehicle for financing non- regulated business activities, and Vectren Enterprises, Inc. ("Vectren Enterprises"), the Company's subsidiary that serves as the corporate parent for non-regulated business activities. The placement of a portion of the Company's directors on the board of directors of Vectren Capital and Vectren Enterprises will ensure the participation of those individuals in decision making with respect to financing and non-regulated business activities. At each annual meeting of shareholders, directors are elected to succeed those whose terms then expire for a term of three years or until their successors are duly qualified and elected. Accordingly, four directors are to be elected by a plurality of votes cast at the annual meeting of shareholders to be held on April 25, 2001. The board of directors intends that the enclosed proxy will be voted by the proxy holders in favor of the election of the nominees named below for the office of director of the Company to hold office for a term of three years or until their respective successors are duly qualified and elected. Each of such nominees is now serving as a director of the Company and has signified the willingness to serve if elected. Directors are elected by a plurality of the votes cast. Plurality means that the individuals who receive the largest number of votes cast are elected up to the maximum number of directors to be chosen at the meeting. Abstentions, broker non-votes, and instructions on the accompanying proxy card to withhold authority to vote for one or more of the nominees might result in some nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such action. If, however, any situation should arise under which any nominee should be unable to serve, the authority granted in the enclosed proxy may be exercised by the proxy holders for the purpose of voting for a substitute nominee. Certain information concerning the nominees and the other directors of the Company is set forth below and under the caption "Meetings and Committees of the Board of Directors." If not otherwise indicated, the principal occupation listed for any individual has been the same for at least five years. Class I Directors--Term expiring 2004 John D. Engelbrecht, age 49, has been a director of SIGCORP or the Company since 1996. Mr. Engelbrecht is President and Chief Executive Officer of South Central Communications, owner and operator of radio and television stations in Indiana, Kentucky and Tennessee, and MUZAK franchises in 14 U.S. cities. William G. Mays, age 54, has been a director of Indiana Energy or the Company since 1998. Mr. Mays is President of Mays Chemical Company, Inc., an Indianapolis, Indiana based chemical company, and is also a director of Anthem, Inc. 2 J. Timothy McGinley, age 60, has been a director of Indiana Energy or the Company since January 1999. Mr. McGinley is Managing Partner and principal owner of House Investments, a real estate investment company. Mr. McGinley is also a director of Bindley Western Industries, Inc. Richard P. Rechter, age 61, has been a director of Indiana Gas, Indiana Energy, or the Company since 1984. Mr. Rechter is Chairman of Rogers Group, Inc., a company providing crushed stone, sand and gravel, asphalt, highway construction, concrete masonry and construction materials recycling; President, Chief Executive Officer and director of Rogers Management, Inc.; and President, Chief Executive Officer and director of Mid-South Stone, Inc. Mr. Rechter is also a director of Monroe County Bank and Monroe Bancorp. The board of directors recommends a vote "FOR" all nominees for Class I director. Class II Directors--Term expiring 2002 Lawrence A. Ferger, age 66, has been a director of Indiana Gas, Indiana Energy, or the Company since 1984. From October 1997 through June 1, 1999, Mr. Ferger served as Chairman and Chief Executive Officer of Indiana Energy and Indiana Gas. Prior to that time and since January 1996, Mr. Ferger served as Chairman, President and Chief Executive Officer of Indiana Energy and Indiana Gas; and prior to that time and since 1987, Mr. Ferger was President and Chief Executive Officer of Indiana Energy and Indiana Gas. Donald A. Rausch, age 70, has been a director of SIGECO, SIGCORP, or the Company since 1982. From 1990 through 1995, Mr. Rausch served as Chairman, President and Chief Executive Officer of UF Bancorp, Inc. in Evansville, Indiana. From 1985 through 1995, Mr. Rausch served as Chairman and President of Union Federal Savings Bank in Evansville, Indiana. Ronald G. Reherman, age 65, has been a director of SIGECO, SIGCORP, or the Company since 1985. From January 1996 through March 2000, Mr. Reherman served as Chairman, President, and Chief Executive Officer of SIGCORP. From September 1997 through March 2000, Mr. Reherman also served as Chairman of SIGECO. Prior to that time and since 1991, Mr. Reherman served as Chairman, President and Chief Executive Officer of SIGECO. Mr. Reherman is also a director of Integra Bank of Evansville, Indiana. Richard W. Shymanski, age 64, has been a director of SIGECO, SIGCORP, or the Company since 1989. Mr. Shymanski is the retired Chairman and Chief Executive Officer of Harding, Shymanski & Company, Professional Corporation, Certified Public Accountants, in Evansville, Indiana. Jean L. Wojtowicz, age 43, has been a director of Indiana Energy or the Company since 1996. Ms. Wojtowicz is President and founder of Cambridge Capital Management Corp., a consulting and venture capital firm. Class III Directors--Term expiring 2003 John M. Dunn, age 63, has been a director of SIGCORP or the Company since 1996. Mr. Dunn is President and Chief Executive Officer of Dunn Hospitality Group, a hotel development and management company. He is also director of Old National Bank of Evansville. Niel C. Ellerbrook, age 52, has been a director of Indiana Energy or the Company since 1991. Mr. Ellerbrook is Chairman of the Board and Chief Executive Officer of the Company, having served in that capacity since March 2000. Prior to that time and since June 1999, Mr. Ellerbrook served as President and Chief Executive Officer of Indiana Energy. Prior to that time and since October 1997, Mr. Ellerbrook served as President and Chief Operating Officer of Indiana Energy. From January through October 1997, Mr. Ellerbrook served as Executive Vice President, Treasurer and Chief Financial Officer of Indiana Energy; and prior to that time and since 1986, Vice President, Treasurer and Chief Financial Officer. Mr. Ellerbrook is a director of Vectren Utility 3 Holdings, Vectren Capital, and Vectren Enterprises. He is also a director of Fifth Third Bank, Indiana, and Deaconess Hospital of Evansville, Indiana. Anton H. George, age 41, has been a director of Indiana Energy or the Company since 1990. Mr. George is President and a director of Indianapolis Motor Speedway Corporation, an auto racing company. Mr. George is also President and a director of Hulman & Company, a manufacturer and distributor of baking powder, and a director of First Financial Corporation. Andrew E. Goebel, age 53, has been a director of SIGCORP or the Company since 1997. Mr. Goebel is President and Chief Operating Officer of the Company, having served in that capacity since March 2000. Prior to that time and since April 1999, Mr. Goebel was President and Chief Operating Officer of SIGCORP. From September 1997 through April 1999, Mr. Goebel served as Executive Vice President of SIGCORP; and prior to that time and since 1996, he served as Secretary and Treasurer of SIGCORP. Mr. Goebel is a director of Vectren Utility Holdings, Vectren Capital, and Vectren Enterprises. Mr. Goebel is also a director of Old National Bancorp and Old National Bank. Robert L. Koch II, age 62, has been a director of SIGECO, SIGCORP, or the Company since 1986. Mr. Koch is President and Chief Executive Officer of Koch Enterprises, Inc., a holding company comprised of manufacturers of industrial painting systems and wholesale distributors of heating and air conditioning equipment. Mr. Koch is also a director of Fifth Third Bancorp, and Bindley Western Industries, Inc. James C. Shook, age 69, has been a director of Indiana Gas, Indiana Energy, or the Company since 1983. Mr. Shook is President of Coldwell Banker / The Shook Agency, Inc., a residential, commercial, and industrial real estate brokerage firm in Lafayette, Indiana. Mr. Shook is also a director of Crossmann Communities, Inc. OTHER EXECUTIVE OFFICERS Other executive officers of the Company are Jerome A. Benkert, Jr., age 42, Carl L. Chapman, age 45, and J. Gordon Hurst, age 57. On March 31, 2000, Mr. Benkert was elected as Executive Vice President and Chief Financial Officer of the Company. Prior to March 31, 2000 and since October 1, 1997, he was Executive Vice President and Chief Operating Officer of Indiana Energy's administrative services company. Mr. Benkert has served as Controller and Vice President of Indiana Gas. Mr. Benkert served as Chief Accountant, Secretary/Treasurer and was a member of the board of directors of Richmond Gas Corporation from February 1, 1986 to January 1, 1991. Mr. Benkert served as Assistant Treasurer for Indiana Gas from January 1, 1991 to October 1, 1993. On March 31, 2000, Mr. Chapman was elected Executive Vice President of the Company. Prior to March 31, 2000 and since 1986, Mr. Chapman served as Assistant Treasurer of Indiana Energy. Since October 1, 1997, Mr. Chapman has served as President of IGC Energy, Inc., which has been renamed Vectren Energy Solutions, Inc. As of May 1, 1998, when he assumed this position full-time, he was again considered to be a named executive officer of Indiana Energy. Mr. Chapman served as President of ProLiance Energy, LLC ("ProLiance"), a gas supply and energy marketing joint venture partially owned by Vectren Energy Solutions, Inc., an indirect, wholly owned subsidiary of the Company, from March 15, 1996, until April 30, 1998. Currently, Mr. Chapman is the chairman of ProLiance. From 1995 until March 15, 1996, he was Senior Vice President of Corporate Development for Indiana Gas. Prior to 1995 and since 1987, he was Vice President of Planning for Indiana Gas. On March 31, 2000, Mr. Hurst was elected Executive Vice President of the Company. Prior to March 31, 2000 and since 1966, Mr. Hurst has served in various positions with SIGECO. From 1997 to 2000, he was Executive Vice President and Chief Operating Officer; from 1992 to 1997, he was Senior Vice President and General Manager of Operations. Mr. Hurst has served as Vice President of Power and Gas Operations, Vice President of Gas and Warrick Operations, and Vice President of SIGECO. He has also served as Director of Gas Operations, Director of Power Production, and Director of Electrical Engineering. 4 COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the number of shares of common stock of the Company beneficially owned by the directors, the chief executive officer, the four additional named executive officers, and all directors and executive officers as a group, as of December 31, 2000. Except as otherwise indicated, each individual has sole voting and investment power with respect to the shares listed below.
Name of Individuals or Identity of Group Shares Owned Beneficially (1) ---------------------------------------- ---------------- - ------------- John M. Dunn............................... 3,751 (2)(4) Niel C. Ellerbrook......................... 71,837 (2)(6) John D. Engelbrecht........................ 5,178 (3)(4) Lawrence. A. Ferger........................ 144,487 (4)(7) Anton H. George............................ 2,586,907 (1)(4)(5) Andrew E. Goebel........................... 147,350 (2)(3)(6)(9) Robert L. Koch II.......................... 5,267 (2)(3)(4) William G. Mays............................ 1,829 (4) J. Timothy McGinley........................ 4,434 (2)(4) Donald A. Rausch........................... 20,446 (4) Richard P. Rechter......................... 11,714 (2)(4) Ronald G. Reherman......................... 224,845 (3)(4)(10) James C. Shook............................. 62,921 (4)(8) Richard W. Shymanski....................... 15,014 (3)(4) James S. Vinson............................ 1,813 (3)(4) Jean L. Wojtowicz.......................... 1,798 (2)(4) Jerome A. Benkert, Jr...................... 15,656 (2)(6) Carl L. Chapman............................ 27,012 (2)(6) J. Gordon Hurst............................ 108,576 (2)(3)(6)(9) All Directors and Executive Officers as a Group (19 Persons)........................ 3,460,835 (1)
- -------- (1) Except for Anton H. George, no director or executive officer owned beneficially as of December 31, 2000, more than .33 percent of common stock of the Company. Excluding Anton H. George, all directors and executive officers owned beneficially an aggregate of 873,928 shares or 1.29 percent of Common Stock of the Company. The beneficial ownership by Anton H. George of 2,586,907 shares or 3.82% of Common Stock of the Company is discussed below in footnote (5). (2) This amount does not include derivative securities held under the Company's Non-Qualified Deferred Compensation Plan. These derivative securities are in the form of phantom stock units which are valued as if they were Company Common Stock. The amounts shown for the following individuals include the following amounts of phantom units:
Name of Individuals or Identity of Group Phantom Stock Units ---------------------------------------- ------ - ------------- John M. Dunn......................................... 1,348 Niel C. Ellerbrook................................... 48,515 Andrew E. Goebel..................................... 4,530 Robert L. Koch II.................................... 395 J. Timothy McGinley.................................. 851 Richard P. Rechter................................... 11,896 Jean L. Wojtowicz.................................... 5,464 Jerome A. Benkert, Jr................................ 14,811 Carl L. Chapman...................................... 25,596 J. Gordon Hurst...................................... 726 All Directors and Executive Officers as a Group (10 Persons)........................................ 114,132
(3) Includes shares held by spouse or jointly with spouse. 5 (4) Includes shares granted to non-employee directors under the Company's Directors Restricted Stock Plan, which are subject to certain transferability restrictions and forfeiture provisions. (5) Of the 2,586,907 shares, Mr. George has both voting and investment power with respect to 13,858 shares. Regarding the balance he may be deemed to share voting or investment power in his capacity as a member of the shareowner's board of directors or charitable donations committee. Mr. George disclaims beneficial interest in these shares. (6) Includes shares granted to executives under the Company's Executive Restricted Stock Plan, which are subject to certain transferability restrictions and forfeiture provisions. (7) Includes 144,053 shares held in a family limited partnership, in which Mr. Ferger is a general partner and owns limited partnership interests. Mr. Ferger shares voting and investment power over these shares with his wife. (8) Includes 2,000 shares held by Mr. Shook's wife, and he disclaims beneficial interest therein. (9) Includes shares which the named individual has the right to acquire under the SIGCORP, Inc. Stock Option Plan. See Table III for the number of shares that can currently be acquired. (10) As of December 31, 2000, Mr. Reherman had the right to acquire 242,908 shares under the SIGCORP, Inc. Stock Option Plan. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Andrew E. Goebel is President and Chief Operating Officer of the Company. During 2000, Hasgoe Cleaning Systems, a cleaning company owned by Mr. Goebel's brother, performed certain cleaning services for the Company and certain of its subsidiaries and is expected to perform such services in 2001. During 2000, the cost of such services was $174,372.88, which the Company believes to be a fair and reasonable price for the services rendered. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The board of directors of the Company had eight (8) meetings during the last fiscal year. No member attended fewer than 75 percent of the aggregate of board meetings and meetings of the respective committees of the board of which they are members. The members of the Company's board of directors are elected to various committees. The standing committees of the board are: the Executive Committee, the Audit Committee, the Compensation Committee, and the Public and Environmental Affairs Committee. The members of the Executive Committee are Niel C. Ellerbrook, chairman, Andrew E. Goebel, Anton H. George, Robert L. Koch II, John M. Dunn, and Richard P. Rechter. The Executive Committee acts on behalf of the board of directors of the Company when the board is not in session, except on those matters which require action of the full board of directors. The Executive Committee meets as required. There were two (2) meetings of the committee during the past fiscal year. The members of the Audit Committee are Anton H. George, chairman, John M. Dunn, John D. Engelbrecht, J. Timothy McGinley, Dr. James S. Vinson, and Jean L. Wojtowicz. The functions of the Audit Committee are described under "Report of the Audit Committee" below. There were three (3) meetings of the committee during the past fiscal year. The members of the Compensation Committee are Robert L. Koch II, chairman, J. Timothy McGinley, Donald A. Rausch, Richard P. Rechter, Richard W. Shymanski, and Jean L. Wojtowicz. None of the members is an officer or employee of the Company. The committee has the responsibility of formulating recommendations to the board as to the compensation to be paid to the officers of the Company and certain of its subsidiaries. If 6 the Company's At-Risk Compensation Plan is approved by the shareholders at the annual meeting (see "Approval of Company's At-Risk Compensation Plan" below), the committee will also administer that plan. There were five (5) meetings of the committee during the past fiscal year. See the "Report of the Compensation Committee" below. The members of the Public and Environmental Affairs Committee are Dr. James S. Vinson, chairman, Lawrence A. Ferger, William G. Mays, Ronald G. Reherman, James C. Shook, and Richard W. Shymanski. The duties and powers of the committee are to review current policies, programs, procedures, and processes of the Company and its subsidiaries affected by public policy and affecting the environment. It also reviews reports from Company management on public policy and environmental matters and monitors compliance with, and trends and emerging policy developments in, business and environmental regulation. In addition, the committee reports to the board of directors on public policy and environmental issues affecting the Company and its subsidiaries. There were two (2) meetings of the committee during the past fiscal year. DIRECTOR COMPENSATION Non-employee directors of the Company receive combined fees totaling $20,000 per year for service on the board. The fees are paid in the form of a monthly retainer of $1,666.66. Committee chairs receive a cash retainer of $2,000 per year, which is paid in the form of a monthly retainer of $166.66. Non-employee directors also receive a fee of $1,000 for each Company board meeting attended. Each non-employee member of a committee of the board is paid a fee of $1,000 for each meeting of the committee attended, and each non- employee chair of a committee is paid an additional fee of $500 for each meeting attended. On October 1, 2000, each non-employee member of the board received a grant of 434 shares of restricted stock under the Vectren Corporation Directors Restricted Stock Plan (formerly the Indiana Energy, Inc. Directors Restricted Stock Plan). The terms of that grant provide that, subject to certain limited exceptions, the restrictions will lift on October 1, 2003. At that time, if the director continues serving on the board he or she will receive the shares without restrictions. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers, directors, and persons who own more than 10% of the Company's common stock to file reports of ownership and changes in ownership concerning the common stock with the Securities and Exchange Commission, and to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Company's review of the Section 16(a) filings that the Company has received, the Company believes that all filings required to be made under Section 16(a) during 2000 were timely made. REPORT OF THE AUDIT COMMITTEE The Audit Committee oversees the Company's financial reporting process on behalf of the board of directors. The committee consists of six members, all of whom are independent from the Company and the Company's management in accordance with the New York Stock Exchange's listing requirements. The committee met three (3) times during the past fiscal year, and operates under a written Audit Committee Charter adopted by the board of directors of the Company on March 31, 2000, a copy of which is included as Appendix A to this proxy statement. Under the Audit Committee Charter, the committee has the authority and the responsibility to select, evaluate, and replace the independent accountants, to review the scope, conduct, and results of audits performed, and to make inquiries as to the differences of views, if any, between such independent accountants and officers and employees of the Company and subsidiaries with respect to the 7 financial statements and records and accounting policies, principles, methods and systems. It further considers whether the provision by the independent auditors of services for the Company in addition to the annual audit examination is compatible with maintaining the independent auditors' independence. Finally, the committee reviews the policies and guidelines of the Company and subsidiaries designed to ensure the proper use and accounting for corporate assets, and the activities of the Company's Internal Audit department. In fulfilling its oversight responsibilities, the committee reviewed the audited financial statements in the Annual Report on Form 10-K with management, including a discussion of the quality and acceptability of the Company's financial reporting and controls. The committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality and the acceptability of the Company's financial reporting and such other matters as are required to be discussed with the committee under generally accepted auditing standards. In addition, the committee has discussed with the independent auditors the auditors' independence from management and the Company, including the matters in the auditors' written disclosures required by the Independence Standards Board. The committee also discussed with the Company's internal and independent auditors the overall scope and plans for their respective audits. The committee meets periodically with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting. In reliance on the reviews and discussions referred to above, the committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for filing with the Securities and Exchange Commission. The committee also evaluated and recommended to the board of directors the reappointment of the Company's independent auditors for fiscal year 2001. Audit Committee Anton H. George, Chairman John M. Dunn John D. Engelbrecht J. Timothy McGinley James S. Vinson Jean L. Wojtowicz EXECUTIVE COMPENSATION AND OTHER INFORMATION REPORT OF THE COMPENSATION COMMITTEE The Compensation Committee is responsible for reviewing and approving all elements of the total compensation program for officers of the Company and certain of its subsidiaries and serves as the administrator of the annual and long-term incentive plan. In the future the committee will also administer the Company's "At-Risk Compensation Plan" which will provide for annual and long- term incentives. The "At-Risk Compensation Plan" is attached as Appendix B to this document for review and approval by shareholders. The committee is also responsible for monitoring the Company's executive compensation programs to ensure that they are aligned with the Company's business strategies and financial goals. The committee is composed entirely of independent, non- employee directors. A. Executive Compensation Policy. The Company's total compensation program for officers includes base salaries, an annual incentive program, and long-term incentives. The committee's primary objective is to achieve above-average performance by providing the opportunity to earn above-average total compensation (base salary, at-risk annual and long-term 8 incentives) for above-average performance. Each element of total compensation is designed to work in concert. The total program is designed to attract, motivate, reward and retain the broad-based management talent required to serve customer, employee, and shareholder interests. The Company believes that the program also motivates the Company's officers to acquire and retain appropriate levels of stock ownership and is competitive with programs offered by comparable organizations of similar revenue size. It is the opinion of the committee that the total compensation earned by Company officers in 2000 achieves these objectives and is fair and reasonable. Each aspect of the total compensation program is discussed in greater detail below. B. Components of Executive Compensation. Base Salary Individual salaries are set based on market comparisons to actual pay for comparable positions within the utility industry, and industry in general. In determining actual salaries, the committee takes into consideration individual performance, experience, potential, and changes in executive responsibilities. Establishing industry-based salaries provides an objective standard by which to judge the reasonableness of the Company's salaries, maintains the Company's ability to compete for and retain qualified executives, and ensures that internal responsibilities are properly rewarded. Annual Incentive Compensation All of the Company's officers have a significant portion of their total compensation at risk. Participation in the annual incentive plan, which includes the chief executive officer, is extended to those positions that play key roles in achieving annual financial and operating objectives. Annual incentive opportunities are also based on periodic reviews of prevailing practices for comparable positions among similar companies of comparable size. The potential incentive award is determined annually by non- employee directors and is based upon a percentage of each participant's base salary. During the past year, target annual incentive opportunities for executive officers, excluding the chief executive officer, ranged from 25 to 50 percent of salary. Amounts actually paid under the annual incentive plans during 2000 relate to: . The performance for the first half of the 2000 fiscal year for Indiana Energy up to the effective date of the merger on March 31, 2000. . The performance for SIGCORP for 1999 and the 1st quarter of 2000. For Indiana Energy, prior to the start of the fiscal year, its compensation committee would recommend to the board of directors, and the non- employee directors would determine, minimum, target, and maximum corporate goals to be used in the incentive plan. The specific metric used was the consolidated return on equity as compared to the average return on equity of peer group companies, which consisted of a group of comparable energy companies. Target performance levels were set in excess of peer group performance in order to ensure linkage between financial performance and executive rewards. Depending upon Indiana Energy's financial performance, the size of this component could range from zero to the maximum established for each participant in the plan. The second and smaller performance component was based upon each executive's achievement of individual goals, which were consistent with Indiana Energy's overall objectives and which were established prior to the beginning of the fiscal year. Individual performance was monitored and evaluated subjectively throughout the fiscal year. Overall performance was measured after the end of the fiscal year by the chief executive officer. Among the executive officers, for the amounts actually paid during the past fiscal year, no person had more than 30 percent of their total potential incentive under the Incentive Plan dependent upon the attainment of individual objectives. For executives of the former SIGCORP, the annual incentives paid in 2000 consisted of awards for the calendar year 1999 and for the first quarter of 2000 prior to the merger of Indiana Energy and SIGCORP into the 9 Company. For 1999, all senior corporate SIGCORP executives were measured in part on corporate financial performance as measured by earnings per share ("EPS"). In addition, officers were measured on one of two bases: . How well they achieved specific and measurable progress toward identified strategic objectives; or . Performance against specific operational goals which were: . overall customer satisfaction index; . total electric O&M per kWh sold; . overall equivalent availability; and . safety record. For the 2000 partial performance year, all SIGCORP officers were measured either on the basis of EPS only or a combination of EPS and the four operational measures listed above. The amounts payable under the Company's incentive plan commencing on April 1, 2000, will not be determined and paid until early in 2001 and accordingly will be reflected in next year's proxy statement as part of calendar year 2001 compensation. Long-Term Incentive Compensation The purpose of the long-term incentive plan is to retain and motivate the Company's principal officers to increase their incentive to work toward the attainment of the Company's long-term growth and profit objectives. Under the plan, the committee recommends to the board of directors, and the non-employee directors determine, the executive officers, as well as other principal officers, to whom grants will be made and the percentage of each officer's base salary to be used for determining the number of shares or options to be granted. Like the potential cash payment that may be received under the annual incentive plan, this component of total compensation is also performance driven and totally at-risk. In 2000 the committee authorized and the board of directors approved grants of restricted stock to each of the Company's executives pursuant to the former Indiana Energy restricted stock plan, which remained in effect following the merger creating the Company. To be eligible for a grant, the executive must consent in writing to observe the restrictions imposed on the shares. The shares may not be sold, transferred, pledged, or assigned until such restrictions are lifted. Pursuant to this plan these contingent grants of restricted stock are subject to adjustment at the end of the performance period based on the Company's performance relative to a peer group. For each measuring period under the plan, depending upon the total return provided to the Company's shareholders relative to the total return provided by each of the companies in the peer group, there are three possible outcomes. If the Company's total return places it in the bottom quartile, all of the shares are forfeited. If the Company's total return places it in the second or third quartiles, the original grant is vested, subject to continuing employment by the executives during the remaining period of restriction. If the Company's total return places it in the top quartile, the original grant is doubled and vested, subject to continuing employment by the executives during the remaining period of restriction. For the grant authorized on October 1, 2000, the measurement period for each third of the grant will commence on October 1, 2000, and conclude on December 31, 2002, 2003, and 2004. Upon conclusion of each measurement period and subsequent adjustment to the number of shares contingently granted, an additional 1 year employment restriction is imposed. It is the opinion of the committee that the long-term plan meets its objective of providing executive officers, as well as other principal officers, with the appropriate long-term interest in maximizing shareholder value. A participant's increased level of equity in the Company is contingent upon the additional enhancement of 10 shareholder value relative to the performance of companies in the peer group. In addition, the vesting restrictions provide an incentive for all plan participants to remain with the Company. C. Chief Executive Officer Compensation. The compensation of Niel C. Ellerbrook, Chairman and Chief Executive Officer, consists of the same components as for other executive officers, namely base salary, an at-risk payment under the annual incentive plan, and an at-risk long-term incentive. In establishing Mr. Ellerbrook's total compensation for 2000, the committee considered the total compensation of other chief executive officers in comparable companies, the financial and business performance of the Company, and a subjective evaluation of the leadership role provided by Mr. Ellerbrook. Mr. Ellerbrook's base salary was established on the same basis as the other Company officers. This basis was described previously in this document. Mr. Ellerbrook's payment received under the annual incentive plan during 2000 was based entirely upon the financial performance of Indiana Energy as measured by its consolidated return on equity relative to the average return on equity of companies in a peer group in accordance with Indiana Energy's former plan. This method of measurement ensured the linkage of this aspect of Mr. Ellerbrook's compensation to Indiana Energy's performance. For the first half of Indiana Energy's fiscal year 2000, which began on October 1, 1999, Mr. Ellerbrook was eligible to receive a maximum annual incentive of 60% of base pay. Mr. Ellerbrook's receipt of restricted shares under the long- term incentive plan stock plan is likewise directly linked to the Company's performance. Whether stock is received and, if so, in what amount, will depend upon the measurement of the total return provided to the Company's shareholders in comparison to the total return provided to the shareholders of companies in the peer group as previously described. For the same reasons expressed above with respect to the conclusion regarding the appropriateness of the total compensation provided other executive officers, it is the opinion of the committee that Mr. Ellerbrook's total compensation is reasonable and appropriate. D. Share Ownership. The Company's share ownership policy requires officers to meet share ownership targets. The program includes these key features: . Participants have a share ownership target based on a multiple of their base salary, ranging from two times base salary for certain participants to five times for Mr. Ellerbrook. . As an incentive to maximize shareholder value, a participant may count toward his or her target the value of owned shares, including phantom units of Company stock in the Company's Non-Qualified Deferred Compensation Plan, the value of vested "in the money" stock options and the market value of restricted shares, with market value based on the market price of the Company's common shares. . The committee expects participants to meet their targets within five years and to make ratable progress each year. E. Compensation Consultant, Termination Benefits Agreements And Deductibility Of Executive Compensation. To assist the committee, the services of an independent compensation consultant are utilized. The consultant assists by evaluating the total compensation system relative to the compensation systems employed by comparable companies. The consultant also provides an additional measure of assurance that the system is a reasonable and appropriate means to achieve the Company's objectives. 11 As described elsewhere under the heading "Employment Agreements," the Company has entered into employment agreements with each of the executive officers. These agreements do not affect in any manner the recommendations of the committee and the determinations by the non-employee members of the board with respect to the total compensation provided the executive officers. In 1993, Congress enacted Section 162(m) of the Internal Revenue Code ("Code"), applicable to the individual executives named in the Summary Compensation Table, that disallows corporate deductibility for "compensation" paid in excess of $1 million unless the compensation is payable solely on achievement of an objective performance goal. The "At-Risk Compensation Plan" attached to this document has been structured to satisfy the requirements of 162(m). Consequently, the committee does not anticipate that in the future the compensation paid to executive officers in the form of base salaries and incentive compensation will be non-deductible under Section 162(m) of the Code. Compensation Committee Robert L. Koch II, Chair J. Timothy McGinley Donald A. Rausch Richard P. Rechter Richard W. Shymanski Jean L. Wojtowicz 12 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The functions and members of the Compensation Committee are set forth above under "Meetings And Committees of the Board of Directors." None of the members of the Compensation Committee has served as an officer or employee of the Company or a subsidiary of the Company. COMPENSATION The following tabulation shows for years 1998, 1999, and 2000, the compensation paid by the Company and its subsidiaries to each of the five most highly compensated executive officers of the Company and its subsidiaries in all capacities in which they serve. TABLE I SUMMARY COMPENSATION TABLE
(a) (b) (c) (d) (e) (g) (h) (i) Long- term Compensation Annual Compensation Payouts ---------------------------- ------- - --------------------- All Other Other Annual Options LTIP Compen- Name and Principal Salary Bonus Compensation (# Shares) Payouts sation Position Year ($) ($) (1) ($) (2) (3) ($) (4) ($) (5) - ------------------ ---- ------- ------- ------------ ------- - --- ------- --------- Niel C. Ellerbrook...... 2000 470,873 94,357 19,063 -- 496,433 399,126 Chairman and Chief 1999 363,946 203,829 19,933 -- 214,863 51,286 Executive Officer 1998 284,054 107,508 19,658 -- - -- 21,053 Andrew E. Goebel........ 2000 326,143 137,000 6,720 -- - -- 17,638 President and Chief 1999 275,014 80,156 -- 49,973 -- 13,023 Operating Officer 1998 220,436 65,625 -- 9,340 -- -- J. Gordon Hurst......... 2000 259,118 99,089 3,148 -- - -- 12,333 Executive Vice- 1999 217,048 62,500 -- 33,390 -- 8,762 President, President Utility Group, 1998 196,637 59,375 -- 2,631 -- -- President SIGECO Carl L. Chapman......... 2000 244,437 48,326 7,098 -- 218,066 220,132 Executive Vice 1999 214,615 119,879 9,589 -- 153,335 31,249 President President Vectren 1998 87,115 -- 9,768 -- - -- 7,406 Enterprises Jerome A. Benkert Jr.... 2000 208,943 31,422 5,347 -- 163,389 159,550 Executive Vice 1999 164,692 75,405 5,807 -- 37,207 18,492 President and Chief Financial Officer 1998 137,289 42,970 4,721 -- - -- 11,166
For years 1999 and 2000, earnings are shown on a calendar year basis. For 1998, Mr. Goebel's and Mr. Hurst's earnings are shown on a calendar year basis. For Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert, 1998 earnings are shown for the fiscal year ending September 30, 1998, as reported in the Indiana Energy, Inc. 1999 proxy statement. For the 3-month period beginning October 1, 1998 and ending December 31, 1998, the earnings for Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert are reported in the following table: 13 TABLE I(A) EARNINGS FOR FORMER INDIANA ENERGY EXECUTIVES, OCTOBER 1, 1998 TO DECEMBER 31, 1998
(a) (c) (d) (e) (h) (i) Other Annual Long-term All Other Salary Bonus Compensation Compensation Compensation Name ($) ($) (1) ($) (2) Payouts ($) (3) ($) (2) - ---- ------ ------- ------------ -------------- - - ------------ Niel C. Ellerbrook.... 80,769 174,132 5,701 -- 3,387 Carl L. Chapman....... 51,154 28,500 3,105 -- 3,473 Jerome A. Benkert Jr.. 39,039 65,661 1,443 -- 1,979
- -------- (1) The amounts shown in this column are payments under Indiana Energy's Annual Management Incentive Plan (for Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert) and the SIGCORP Corporate Performance Plan (for Mr. Goebel and Mr. Hurst) which were discussed above in Part B, relating to "Annual Incentive Compensation," and Part C of the Compensation Committee Report. The amounts paid to Mr. Goebel and Mr. Hurst in 1998 and 1999 are attributable to SIGCORP's performance in the previous year. For Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert, bonus payments shown in 1998 are attributable to Indiana Energy's performance for the 1997 fiscal year and the bonus shown in 1999 is attributable to Indiana Energy's performance for the 1999 fiscal year. The bonus earned for the 1998 fiscal year is shown in the supplementary table. At the close of the merger of Indiana Energy and SIGCORP into the Company, the existing annual incentive programs of the two companies were terminated and a "stub year" payout was made based on the portion of the performance cycle that had passed. For Indiana Energy, a prorated payout for six months, October 1, 1999 to March 31, 2000 was made. For Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert, these bonus payments are listed in year 2000 in the table. For the SIGCORP Performance Plan, a prorated payout for three months, January 1, 2000 to March 31, 2000 was made. For Mr. Goebel, this stub year bonus was $29,500. For Mr. Hurst, the stub year bonus was $19,688. The balance of the amount shown for 2000 (for Mr. Goebel, $107,500; for Mr. Hurst, $79,401) is attributable to SIGCORP's performance for the period January 1 to December 31, 1999. The amounts earned in the period beginning April 1, 2000 and ending December 31, 2000 under the Vectren Corporation At-Risk Incentive Plan have not been determined and approved for distribution by the Company's Compensation Committee. (2) The amounts shown in this column are dividends paid on restricted shares issued under the Indiana Energy Executive Restricted Stock Plan, which was discussed above in Part B, relating to "Long-Term Incentive Compensation," and C of the Compensation Committee Report. Note that the Stock Plan was adopted by Vectren on March 31, 2000. Mr. Goebel and Mr. Hurst did not participate in the Stock Plan prior to March 31, 2000. (3) The shares shown in this column have been restated to reflect the conversion ratio of 1.333 described above in Section titled "Voting Securities." (4) The amounts shown in this column represent the value of shares issued under the Stock Plan and for which restrictions were lifted in each year. At the time of the merger, Indiana Energy executives had restricted stock performance grants relating to open performance measurement periods. (Under normal circumstances, at the close of each performance cycle, Indiana Energy's Total Shareholder Return would have been compared to a peer group and the number of restricted shares granted would have been adjusted in accordance with the plan.) The Board concluded that it would be difficult, if not inappropriate, to use Vectren's performance to make adjustments to the prior grants. Based upon the frequency of past performance grants, the Board awarded 75% of the present value of the potential performance grants. The value of these grants is included in the 2000 row. Grants related to this closing cycle are: Mr. Ellerbrook--10,758 shares, $213,493; Mr. Chapman--4,926 shares, $97,756; Mr. Benkert--3,828 shares, $75,967. The balance of the value in the 2000 row reflects stock from other grant cycles for which restrictions were lifted in 2000 coincident with the consummation of the merger. 14 For further information on the Restricted Stock Plan, see the discussion above in Part B relating to "Long-Term Incentive Compensation," and C of the Compensation Committee Report. (5) The amount shown in this column represents several compensation elements. a) Relocation--As a result of the Vectren merger, many employees of Indiana Energy were asked to move to Evansville, Indiana, the new headquarters of Vectren Corporation. As part of a relocation program, relocating employees were offered a "relocation bonus" equal to 25% of their annual base salary and other allowances related to the move. Of the five officers discussed in this section, three relocated and, therefore, received income related to relocation: Mr. Ellerbrook-- $204,797, Mr. Chapman--$114,919, Mr. Benkert--$86,817. b) Change-in-Control Walk-Away Provisions--Several Indiana Energy officers had change-in-control agreements at the time of the merger. These agreements contained "walk-away" provisions that would have allowed officers to exercise their agreements anytime within a thirteen-month period following the close of the Vectren merger. The Board felt it was important to maintain the continuity of the officer group through the merger process and asked that all change-in-control agreements be terminated at the close of the merger and new agreements be put in place. Recognizing the value of the walk-away provision, the Board felt that officers should be compensated for losing the right to exercise the provision. A settlement equal to 25% of the officers' annual base salary was made. Of the five officers discussed in this section, three received these settlements: Mr. Ellerbrook--$122,500, Mr. Chapman-- $62,500, Mr. Benkert--$55,000. These amounts were paid in 2000. c) For Mr. Ellerbrook, Mr. Chapman, and Mr. Benkert, the balance of this column reflects Company contributions to the retirement savings plan (Ellerbrook: 2000--$10,200, 1999--$9,600, 1998--$6,522, last quarter of 1998--$1,794; Chapman: 2000--$10,200, 1999--$9,600, 1998-- $2,689, last quarter of 1998--$1,883, Benkert: 2000--$10,200, 1999-- $9,600, 1998-- $7,022, last quarter of 1998--$1,849), the dollar value of insurance premiums paid by, or on behalf of, the Company and its subsidiaries with respect to split-dollar life insurance for the benefit of executive officers (Ellerbrook: 2000--$24,496, 1999--$18,746, 1998-- $14,530; Chapman: 2000--$8,880, 1999--$8,589, 1998--$4,717; Benkert: 2000-- $4,705, 1999--$4,423, 1998--$4,144), credits for flexible spending accounts, wellness, and perfect attendance (Ellerbrook: 2000- - -$75, 1999 --$579, last quarter of 1998--$2.89; Chapman: 2000--$150, 1999--$438; Benkert: 2000--$196, 1999--$196, last quarter of 1998--$53), deferred compensation contributions to restore employer contributions to the Company Retirement Savings Plan (Ellerbrook: 2000--$18,174, 1999-- $12,237, 1998 Chapman: 2000--$4,507, 1999--$3,277; Benkert: 2000-- $2,632, 1999--$282), reimbursement for taxable expenses (Ellerbrook: 2000--$12,884, 1999--$10,124, last quarter of 1998--$1,590; Chapman: 2000--$18,977, 1999--$9,345, last quarter of 1998--$1,590; Benkert: 1999--$3,991, last quarter of 1998--$77.71), and non-cash earnings (Ellerbrook: 2000--$6,000). d) For Mr. Goebel and Mr. Hurst, this column contains income related to reimbursement for club dues (Goebel: 2000--$954, 1999-- $1,540; Hurst: 2000--$1,074, 1999--$1,190), imputed earnings from automobile usage (Goebel: 2000--$961, 1999--$6,683; Hurst: 2000--$621, 1999-- $2,772), and Company contributions to the retirement savings plan (Goebel: 2000-- $10,184, 1999--$4,800; Hurst: 2000--$5,100, 1999--$4,800). In addition, at the close of the merger, officers coming from SIGCORP were no longer furnished with company automobiles (Indiana Energy executives were not furnished with company automobiles). As a result of the termination of this perquisite, officers with company cars were given a one- time automobile buyout of $5,538. 15 TABLE II OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Number of % of Total Exercise or for Option Term Shares Options Granted Base Price ($) Underlying to Employees (Per Share) Expiration ------------------ Name Options Granted in Fiscal Year ($) Date 5% 10% ---- --------------- --------------- --------- - -- ---------- ------------------ Niel C. Ellerbrook...... 0 0 $ 0 N/A $ 0 $ 0 Andrew E. Goebel........ 0 0 $ 0 N/A $ 0 $ 0 J. Gordon Hurst......... 0 0 $ 0 N/A $ 0 $ 0 Carl L. Chapman......... 0 0 $ 0 N/A $ 0 $ 0 Jerome A. Benkert, Jr... 0 0 $ 0 N/A $ 0 $ 0
TABLE III AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES FROM 1/1/2000 TO 12/31/2000
Number of Unexercised Value of In-The-Money Shares Value Options As of 12/31/00 Options Acquired Realized ------------------ - ------- ------------------------- Name on Exercise ($) Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ---------- ----------- ------ - ------- ----------- ------------- Niel C. Ellerbrook...... 0 $ 0 0 0 $ 0 $ 0 Andrew E. Goebel........ 3,895 $88,320.00 99,094 24,987 $745,818.35 $134,305.13 J. Gordon Hurst......... 0 $ 0 93,354 16,695 $809,175.50 $ 89,735.63 Carl L. Chapman......... 0 $ 0 0 0 $ 0 $ 0 Jerome A. Benkert, Jr... 0 $ 0 0 0 $ 0 $ 0
TABLE IV LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts Under Non- Stock Price-Based Plans ------ - ------------------------- (a) (b) (c) (d) (e) (f) Performance or Maximum Number of Other Periods Threshold Target Number of Shares; Units or Until Maturation Number of Number of Shares Other Rights (1) or Payout (2) Shares (3) Shares (4) (5) ---------------- ---------------- ------ - ---- ---------- --------- Niel C. Ellerbrook...... 50,391 0 50,391 100,782 Andrew E. Goebel........ 26,354 0 26,354 52,708 J. Gordon Hurst......... 12,346 0 12,346 24,692 Carl L. Chapman......... 17,133 0 17,133 34,266 Jerome A. Benkert, Jr. . 12,950 0 12,950 25,900
- -------- (1) This column shows the restricted shares awarded during fiscal year 2000 under the Stock Plan. The manner for determining the awards, and other terms and conditions of the Stock Plan, are discussed in Part B of the Compensation Committee Report relating to "Long-Term Incentive Compensation." The market value of the shares on the dates of the grants is determined according to a formula in the Stock Plan based on an average price over a period of time preceding the grant. Dividends are paid directly to the holders of the stock. (2) As discussed above in Part B of the Compensation Committee Report relating to "Long-Term Incentive Compensation," for the grant authorized on October 1, 2000, the measurement period for each third of the 16 grant will commence on October 1, 2000, and conclude on December 31, 2002, 2003, and 2004. Upon conclusion of each measurement period and subsequent adjustment to the number of shares contingently granted, an additional 1 year employment restriction is imposed. The granting of additional shares, if any, and the application of forfeiture provisions depends upon certain measurements of the Company's total return to shareholders in comparison to the total return to shareholders of a predetermined group of comparable companies. (3) The initial grant shares, which are the same as the total number of shares in column (b), are also set forth in column (e), are subject to forfeiture. If the Company's performance compared to the peer group during this measurement period places it in the bottom quartile, the executive officers will forfeit all of the shares granted for this period. (4) The initial grant shares, which are the same as the total number of shares in column (b), are presented in this column. If the Company's performance compared to the peer group during this measurement period places it in the middle two quartiles, these shares will vest. (5) Under the Stock Plan, if the Company's performance compared to the peer group during the initial measuring period places it in the top quartile, an additional performance grant equal to the original grant will be made. In that event, the shares shown in column (e) will be doubled. RETIREMENT SAVINGS PLAN During the past fiscal year, the Company sponsored the Retirement Savings Plan which covers both bargaining and non-bargaining employees. Effective as of July 1, 2000, retirement savings plans maintained by SIGCORP and its subsidiaries were merged with and into the Company's Retirement Savings Plan. In general, the Company's Retirement Savings Plan permits participants to elect to have not more than 19 percent of their qualified compensation (subject to certain maximums imposed on highly compensated employees by the Internal Revenue Code) invested on a tax-deferred basis in shares of the Company's common stock or various investment funds. Non-bargaining participants in the Savings Plan who were employees of Indiana Energy or its subsidiaries before the merger with the Company have matching Company contributions made to the plan on their behalf equal to 100 percent of their contributions not in excess of 6 percent of their individual redirected compensation; non-bargaining participants in the Savings Plan who were not employees of Indiana Energy or its subsidiaries before the merger with the Company have matching Company contributions made to the plan on their behalf equal to 50 percent of their contributions not in excess of 6 percent of their individual redirected compensation. Also, a 3.0 percent lump sum Company contribution is made to the Savings Plan for all eligible non- bargaining employees at the end of each year who were not employees of Indiana Energy or its subsidiaries before the merger and who did not elect to stay in the SIGECO defined benefit formula as it existed before the merger. The Summary Compensation Table shows the value of contributions made to the plan for executive officers in the column marked "All Other Compensation." RETIREMENT PLANS During the past fiscal year, the Company sponsored a defined benefit pension plan covering full-time employees of the Company and certain of its subsidiaries who meet certain age and service requirements. The Company's plan covers salaried employees, including executive officers, and provides fixed benefits at normal retirement age based upon compensation and length of service, the costs of which are fully paid by the employer and are computed on an actuarial basis. The pension plan also provides for benefits upon death, disability and early retirement under conditions specified therein. The remuneration covered by this plan includes all compensation for regular work periods (including overtime and bonuses). As of July 1, 2000, the retirement plans maintained by SIGECO were merged into, and became part of, the Company's defined benefit pension plan. 17 During the past fiscal year, the Company had a supplemental pension plan covering certain of the principal officers of the Company and its subsidiaries. The supplemental pension plan provides fixed benefits at normal retirement age based upon compensation and is computed on an actuarial basis. The supplemental pension plan also provides for benefits upon death, disability and early retirement under conditions specified therein, including service requirements. This supplemental pension plan also provides a reduced benefit to a participant who voluntarily terminates his employment with a participating employer (which may consist of the Company or one or more of its subsidiaries) before normal retirement age (65), but following a change in control of the Company. The remuneration covered by the supplemental pension plan includes all compensation for regular work periods (including incentive payments and other forms of additional compensation). Upon retirement at or after age 65, any participant in the supplemental pension plan will, in general, be entitled to an annual pension for life which, when added to primary Social Security benefits, defined benefit pension plan benefits, described above, and benefits under the Retirement Savings Plan attributable to contributions by participants' employers, will equal approximately 65 percent of the participant's average annual compensation during the 60 consecutive calendar months immediately preceding the participant's retirement date. The amounts paid under the supplemental pension plan are unfunded and are paid from the general assets of the Company. The following table illustrates the estimated normal annual retirement benefits payable to a covered participant retiring at age 65 under the supplemental pension plan, under the defined benefit plan based on the specified remuneration, under the Retirement Savings Plan attributable to contributions made by the Company and, as pertinent, one or more of its subsidiaries, and including an estimated primary Social Security Benefit. The compensation included in the Summary Compensation Table under salary and payments under the annual Incentive Plan qualifies as remuneration for purposes of these plans. The amounts shown do not reflect reductions, which would result from joint and survivor elections. PENSION PLAN TABLE
Years of Service(1) ---------------------- - ------------- Covered 30 Remuneration 15 20 25 or more ------------ -------- -------- ---- - ---- -------- $125,000............................ $ 40,625 $ 54,167 $ 67,708 $ 81,250 150,000............................ 48,750 65,000 81,250 97,500 175,000............................ 56,875 75,833 94,792 113,750 200,000............................ 65,000 86,667 108,333 130,000 225,000............................ 73,125 97,500 121,875 146,250 250,000............................ 81,250 108,333 135,417 162,500 300,000............................ 97,500 130,000 162,500 195,000 350,000............................ 113,750 151,667 189,583 227,500 400,000............................ 130,000 173,333 216,667 260,000 450,000............................ 146,250 195,000 243,750 292,500 500,000............................ 162,500 216,667 270,833 325,000
- -------- (1) The compensation covered by the plans includes the salary and incentive payments shown on the Summary Compensation Table. Years of service are not used in calculating the benefit amount under the Unfunded Supplemental Retirement Plan. The Supplemental plan above would be offset by Social Security and benefits under the defined benefit plan benefits and Retirement Savings Plan attributable to contributions made by the Company and, as pertinent, one or more of its subsidiaries. (2) Although the benefit attributable to the Savings Plan may be paid in a single lump sum payment, it has been converted to an annual benefit for purposes of this table. The estimated aggregate annual pension plan benefit may be greater than the amounts in the table to the extent that the Savings Plan benefit, after conversion to an annual benefit and when added to the annual benefit under the applicable defined benefit 18 plan, exceeds the amount specified in the table. Since the Savings Plan has only been in effect for a few years, it is unlikely in the near future that the aggregated Savings Plan benefit and defined benefit plan benefits will exceed the amount specified in the table. STOCK OPTION PLAN Prior to the merger with the Company, SIGCORP maintained its 1994 Stock Option Plan. Effective as of the merger, each unexpired and unexercised option to purchase SIGCORP common shares was automatically converted into an option to purchase the number of the Company's common shares that could have been purchased under the original option multiplied by 1.333. The exercise price per share of Company common stock under the new options is equal to the original per share option exercise price divided by 1.333. To date, a total of 999,752 options have been granted. Since the merger, no additional options have been granted under the 1994 Stock Option Plan, nor does the Company intend to issue any additional options under this plan. EMPLOYMENT AGREEMENTS The Company, with the approval of the board of directors, has entered into employment agreements with Messrs. Niel C. Ellerbrook, Andrew E. Goebel, Jerome A. Benkert, Jr., Carl L. Chapman, Ronald E. Christian, Timothy M. Hewitt, J. Gordon Hurst, and Richard G. Lynch, each dated as of March 31, 2000. Each agreement continues for a period of three years, and is automatically renewable on a month-to-month basis thereafter unless notice is given by either party of its intention to terminate the agreement at the end of the then current period. Each individual is entitled to compensation consisting of an annual aggregate base salary, an annual bonus opportunity based on performance targets set forth in each applicable agreement, and such additional compensation as the board of directors determines throughout the employment period. Under the agreements, each individual is eligible to participate in all long-term incentive plans, all stock incentive plans, and all savings and retirement plans to the extent applicable generally to other peer executives of the Company. Each agreement is also subject to termination in the event of disability, death, or voluntary retirement by the individual, attainment by the individual of the age of 65, or his termination for cause. Each employment agreement also requires the Company to pay amounts to the individual when the applicable employment agreement has been terminated under the following circumstances: . If the Company terminates the employment of the executive for any reason (other than cause, death, the executive's attainment of age 65, or the executive's total and permanent disability); or . If the executive voluntarily terminates his employment for good reason (i.e., certain material changes in the terms of the executive's employment); or . The executive voluntarily terminates his employment without reason during the 30-day period immediately following the first anniversary of a change of control of the Company. If an employment agreement is terminated coincident with or after an acquisition of control of the Company, the Company is required to pay to the individual a cash amount equal to: (a) the executive's annual base salary plus the highest bonus paid to the executive during the previous three years multiplied by (b) the lesser of three, or the number of years (rounded to the nearest twelfth ( 1/12th) of a year) between the date the employment agreement is terminated and the executive's attainment of age 65. If an employment agreement is terminated under any of the other circumstances described above, the Company is required to pay to the individual a cash amount equal to: (a) the executive's annual base salary plus the highest bonus paid to the executive during the previous three years multiplied by (b) the number of years remaining in the employment agreement's term (rounded to the nearest twelfth ( 1/12th) of a year). In addition to the cash payment, if an employment agreement terminates under any of the circumstances described above, any restricted stock, stock options, and any other stock awards under any Company sponsored plan or arrangement that were outstanding (immediately prior to March 31, 2000) become immediately vested and/or exercisable. 19 CORPORATE PERFORMANCE The following Total Return to Shareholders graph compares the performance of the Company with that of the S&P 500 Composite and the S&P Utilities Index. COMPARISON OF 9 MONTH CUMULATIVE TOTAL RETURN* AMONG VECTREN CORPORATION, THE S & P 500 INDEX AND THE S & P UTILITIES INDEX [Performance Graph] Vectren Corporation S & P 500 S & P Utilities ------------------- --------- ----- - ---------- 4/3/00 100.00 100.00 100.00 6/00 86.42 97.34 106.70 9/00 103.05 96.40 141.33 12/00 131.40 88.86 147.73 $100 INVESTED IN COMPANY COMMON STOCK ON 4/3/00, WHICH WAS THE FIRST DAY OF TRADING, OR IN THE S&P 500 OR S&P UTILITY INDEX ON 3/31/00-- INCLUDING REINVESTMENT OF DIVIDENDS FOR FISCAL YEAR ENDING DECEMBER 31, 2000. 20 ITEM 2. APPROVAL OF COMPANY'S AT-RISK COMPENSATION PLAN The Company's shareholders are being requested to approve the Company's At- Risk Compensation Plan (the "Plan") adopted by the board of directors of the Company on January 24, 2001, subject to shareholder approval. The following summary description of the Plan is qualified in its entirety by reference to the full text of the Plan which is attached to this proxy statement as Appendix B. The Plan, which includes at-risk compensation payable in cash, stock options, and restricted stock, was approved and recommended by the Compensation Committee (the "Committee") of the board of directors. The Plan is administered by the Committee, which has complete discretion in determining the Company's key employees and officers (the "Eligible Employees") and outside directors who shall be eligible to participate in the Plan. The at- risk compensation for the Eligible Employees is based on the performance of the Company and its success in attaining specific strategic goals. The Plan includes both short-term and long-term incentives. The short-term incentives are accomplished through potential payment of annual incentive awards. Equity ownership, representing long-term incentive compensation, is achieved through restricted shares and stock options. The purpose of the Plan is to promote the interests of the Company and its shareholders through (a) the attraction and retention of participants essential to the success of the Company; (b) the motivation of participants using performance-related incentives linked to performance goals and the interest of the Company shareholders, and (c) enabling such individuals to share in the growth and success of the Company and its subsidiaries. An outside director who is selected by the Committee to participate in the Plan will only be eligible for awards relating to stock and will not be eligible for the annual incentive awards described in more detail below. The number of shares of the Company's common stock which may be issued pursuant to the Plan may not exceed in the aggregate 4,000,000 shares. Shares of common stock may be available from the authorized but unissued shares, shares issued and reacquired by the Company or shares purchased in the open market for purposes of the Plan. As of March 2, 2001, the closing price for the Company's common stock was $23.36 per share. Stock Options. Under the Plan, the Committee may grant stock options to participants as it shall determine. The Committee has complete discretion in determining the type of option granted, the option price (which shall not be less than 100% of the fair market value of the stock on the grant date), the duration of the option, the number of shares of common stock to which an option pertains, any condition imposed upon the exercisability or the transferability of the options (including vesting conditions), the conditions under which the option may be terminated, and any such other provisions as may be warranted to comply with the law or rules of any securities trading system or stock exchange. Each option grant shall have such specified terms and conditions detailed in an option agreement made with the Eligible Employee. The option agreement shall specify whether the option is intended to be an incentive stock option or a non-qualified stock option. However, no incentive stock option may be awarded (a) after the tenth anniversary of the date the Plan was adopted by the board of directors, or (b) to a participant who is not an employee. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine, which will be specified in the option agreement and need not be the same for each participant. Restricted Stock. The Committee may also grant shares of restricted stock under the Plan to such participants, and in such amounts and for such duration and/or consideration as it shall determine. Each restricted stock grant under the Plan shall be evidenced by an award agreement that shall specify the restriction period, the conditions which must be satisfied prior to removal of the restriction, the forfeiture of such shares in the event such conditions are not satisfied, the number of shares of restricted stock granted, and such other provisions as the Committee shall determine. The Committee may specify in the award agreement conditions or restrictions which the Committee may deem advisable, including without limitation, conditions for acceleration or achievement of the end of the restriction period based on any performance criteria. Notwithstanding the foregoing, the Committee has the authority to grant additional unrestricted stock to a participant under the Plan, provided performance criteria are satisfied for a performance period. The shares of restricted stock granted under 21 the Plan may not be sold, or otherwise transferred, until termination of the applicable restriction period or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the applicable award agreement. Other Stock Based Awards. In addition to stock options and restricted stock, the Committee may issue to participants, either alone or in addition to other awards made under the Plan, stock appreciation rights, performance awards or other stock unit awards. Any such awards shall be governed by the terms of an agreement, and the Committee may impose such terms and conditions, similar to those described above, and not inconsistent with the terms of the Plan. Stock appreciation rights shall have an exercise price determined at the time of grant by the Committee, subject to the limitation that the grant price shall not be less than 100% of fair market value of the common stock on the grant date. Performance awards granted hereunder may be issued in the form of either performance units or performance shares. The Committee shall set performance criteria in its discretion for each participant who is granted a performance award, and the extent to which such performance criteria are met will determine the value of the performance unit or performance share to the participant. Stock unit awards granted hereunder may but are not required to be in the form of the Company's common stock or other securities. The value of each such award shall be based, in whole or in part, on the value of the underlying common stock on the grant date. The Committee, in its sole and complete discretion, shall determine the terms, restrictions, conditions, vesting requirements, and payment rules of the award. Annual Incentive Awards. Under the Plan, annual cash incentive awards may also be paid to Eligible Employees on the basis of the Company achieving certain performance goals. Following the completion of a performance period, the Committee will undertake or direct an evaluation of performance criteria, and no annual incentive award may be paid without a certification by the Committee that the performance goals have been met. Performance criteria of the Company will be established in writing by the Committee before the beginning of each performance period or at such later time as may be permitted under the Plan. The maximum individual annual incentive award for a performance period of twelve calendar months will be $1,500,000, provided the Eligible Employee has been a participant under the Plan for such twelve month period. Awards Under The At-Risk Compensation Plan Benefits payable or amounts that will be granted upon the approval of the Plan by the shareholders are not determinable at this time. The Plan defines the class of employees, officers, and directors eligible to participate under the Plan. The Company currently expects that awards under the Plan will be made to the Company's Section 16 officers, its corporate officers and other key employees, and members of the Company's board of directors, which consists of approximately 31 individuals in the aggregate. United States Federal Income Tax Aspects of the At-Risk Compensation Plan With respect to non-statutory stock options (an option other than an incentive stock option, which is described below), as a general rule, no federal income tax is imposed on the optionee upon the grant of a non- statutory stock option. In addition, the Company is not entitled to a tax deduction by reason of such a grant. Generally, upon the exercise of a non- statutory stock option, the optionee will be treated as receiving compensation taxable as ordinary income in the year of exercise in an amount equal to the excess of the fair market value of the shares on the date of exercise over the option price paid for such shares. Upon the exercise of a non-statutory stock option, the Company may claim a deduction for compensation paid at the same time and in the same amount as compensation income is recognized to the award recipient assuming any federal income tax withholding requirements are satisfied. Upon a subsequent disposition of the shares received upon the exercise of a non- statutory stock option, any appreciation after the date of exercise should qualify as a capital gain. Incentive Stock Options. The incentive stock options under the Plan are intended to constitute "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the 22 "Code"). Incentive stock options are subject to special federal income tax treatment. No federal income tax is imposed on the optionee upon the grant or exercise of incentive stock options if the optionee does not dispose of shares acquired pursuant to the exercise within the two-year period beginning on the date the option was granted or within the one-year period beginning on the date the option was exercised (collectively, the "holding period"). If these conditions are met and no tax is imposed on the optionee, then the Company would not be entitled to any deduction for federal income tax purposes in connection with the grant or exercise of the option or the disposition of the underlying shares. With respect to an incentive stock option, the difference between the fair market value of the stock on the date of exercise and the exercise price generally must be included in the optionee's alternative minimum taxable income. Upon disposition of the shares received upon exercise of an incentive stock option after the holding period, the difference between the amount realized and the exercise price should constitute a long-term capital gain or loss. If an optionee disposes of shares acquired pursuant to his or her exercise of an incentive stock option prior to the end of the holding period, the optionee will be treated as having received, at the time of disposition, compensation taxable as ordinary income. In such event, the Company may claim a deduction for compensation paid at the same time and in the same amount as compensation is treated as received by the optionee. The amount treated as compensation is the excess of the fair market value of the shares at the time of exercise (or in the case of a sale in which a loss would be recognized, the amount realized on the sale if less) over the exercise price, and any amount realized in excess of the fair market value of the shares at the time of exercise would be treated as short-term or long-term capital gain, depending on the holding period of the shares. Restricted Stock. An individual who has been granted stock under the Plan will not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time, assuming that the restrictions constitute a substantial risk of forfeiture for federal income tax purposes. Upon expiration of the forfeiture restrictions (i.e., as shares become vested), the holder will realize ordinary income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares, and, subject to the application of Section 162(m) of the Code, the Company will be entitled to a corresponding deduction. Dividend equivalents accrued and paid to the holder during the period that the forfeiture restrictions apply will also be treated as compensation income to the holder and deductible as such by the Company. However, the recipient of restricted stock may elect to be taxed at the time of grant of the restricted stock based upon the fair market value of the shares on the date of the award. If the recipient makes this election, (a) the Company will be entitled to a deduction at the same time and in the same amount (subject to the limitations contained in Section 162(m)), (b) dividends paid to the recipient during the period the forfeiture restrictions apply will be taxable as dividends and will not be deductible by the Company, and (c) there will be no further federal income tax consequences when the forfeiture restrictions lapse. Stock Units Awards. A recipient of stock units awards under the Plan will generally not realize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time. At the time stock units are settled in shares of the Company's common stock, the recipient will have taxable compensation income and, subject to Section 162(m) as discussed below, the Company will receive a corresponding deduction. The measure of this income and deduction will be the fair market value of the shares at the time the stock units are settled, plus any accrued dividend equivalents; provided, however, that, with respect to a recipient subject to Section 16 of the Securities and Exchange Act of 1934, as amended, unless such recipient elects otherwise, such fair market value will be measured at the time any restrictions imposed with respect to such shares under Section 16 of the Exchange Act of 1934 subsequently lapse. Section 162(m) of the Internal Revenue Code. Section 162(m) precludes a public corporation from taking a deduction for compensation in excess of $1 million paid to its chief executive officer or any of its four other highest- paid officers. However, compensation that qualifies under Section 162(m) as "performance-based" is specifically exempt from the deduction limit. Based on Section 162(m) and the regulations issued thereunder, the Company believes that the income generated in connection with the exercise of stock options granted under the Plan should qualify as performance-based compensation and, accordingly, the Company's deductions for such 23 compensation should not be limited by Section 162(m). The Plan has been designed to provide flexibility with respect to whether restricted stock awards will qualify as performance-based compensation under Section 162(m). The Company believes that certain awards of restricted stock under the Plan will so qualify and the Company's deductions with respect to such awards should not be limited by Section 162(m). The Plan does provide that all awards under the Plan to employees covered by Section 162(m) are subject to other conditions, restrictions, and requirements as the Committee may determine to be necessary to avoid the loss of deduction by the Company under Section 162(m). However, certain awards of restricted stock may not qualify as performance-based compensation and, therefore, the Company's compensation expense deductions relating to such awards will be subject to the Section 162(m) deduction limitation. Required Vote and Recommendation Approval of the Company's At-Risk Compensation Plan requires an affirmative vote of a majority of the shares present or by proxy and entitled to vote at the meeting. For this proposal, an abstention will have the same effect as a vote against the proposal. Broker non-votes will not be voted for or against the proposal and will not be counted as entitled to vote. The Board of Directors recommends voting "FOR" this proposal. INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY Arthur Andersen, L.L.P. ("Arthur Andersen") has been selected by the board of directors as the independent public accountants of the Company and its subsidiaries for fiscal year 2001. The selection was made by the board of directors upon the recommendation of the Audit Committee. See "Report of the Audit Committee." Arthur Andersen has served as auditors for the Company since the time of the merger of Indiana Energy and SIGCORP into the Company in March 2000, and prior to that time as auditors for SIGECO since 1918, for SIGCORP since its organization in 1996, for Indiana Energy since 1986, and for Indiana Gas since its organization in 1945. A representative of Arthur Andersen will be present at the annual meeting, will have the opportunity to make a statement and will be available to respond to questions. Audit Fees The aggregate fees billed for professional services rendered for the audit of the Company's 2000 fiscal year annual financial statements, and reviews of the Company's financial statements included in the Company's Forms 10-Q filed during the Company's 2000 fiscal year were $290,000. Arthur Andersen also performed audit services for certain of the Company's subsidiaries and performed audits of the Company's various benefit plan financial statements. The aggregate fees billed for these services totaled $81,000. Financial Systems Design and Implementation Fees No professional services were rendered by Arthur Andersen during the Company's 2000 fiscal year in connection with: (a) operating or supervising the operation of the Company's information system; or (b) designing or implementing a hardware or software system that aggregates source data underlying the Company's financial statements or generates information that is significant to the Company's financial statements. All Other Fees The aggregate fees billed for services rendered by Arthur Andersen for services other than audit fees during the Company's 2000 fiscal year were $464,000. These fees were for such services as (i) tax planning and review of tax returns of the Company, (ii) due diligence reviews, and (iii) evaluation of the impact of various accounting issues and changes in accounting standards. 24 The Audit Committee of the board of directors has considered and determined that the provision by Arthur Andersen of the services described above is compatible with maintaining Arthur Andersen's independence. COST AND METHOD OF SOLICITATION The cost of preparing, assembling, printing and mailing this proxy statement, the enclosed proxy and any other material which may be furnished to shareholders in connection with the solicitation of proxies for the meeting will be borne by the Company. The Company has retained D. F. King & Company to assist in soliciting proxies from shareholders, including brokers' accounts, at an estimated fee of $7,500 plus reasonable out-of-pocket expenses. In addition, some of the officers and regular employees of the Company, who will receive no compensation therefor in addition to their regular salaries, may solicit proxies by telephone, telegraph or personal visits, and it is estimated that the cost of such additional solicitation, if any, will not exceed $500, and will be borne by the Company. The Company expects to reimburse banks, brokerage houses and other custodians of stock for their reasonable charges and expenses in forwarding proxy material to beneficial owners. ANNUAL REPORT A copy of the Company's annual report, including consolidated financial statements for the fiscal year ended December 31, 2000, was mailed to shareholders on or about March 16, 2001. REVOCATION RIGHTS A shareholder executing and delivering the enclosed proxy may revoke it by written notice delivered to the secretary of the Company, or in person at the annual meeting, at any time before the authority granted by it is exercised. NOMINATION OF DIRECTORS BY SHAREHOLDERS If a shareholder entitled to vote for the election of directors at a shareholders' meeting desires to nominate a person for election to the board of directors of the Company, pursuant to the Company's By-Laws, any such nominations must be made pursuant to notice delivered to, or mailed and received at, the principal office of the Company, not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting of the shareholders for the preceding year; provided, however, that if the annual meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends 30 days after such anniversary date, such shareholder notice shall be given by the later of: (a) the date 90 days prior to the actual date of shareholder meeting, or (b) the tenth day following the day on which the annual meeting date is first publicly announced or disclosed. In any case, such shareholder's notice must set forth, in addition to the name and address of the shareholder submitting the nomination, as to each person whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Company which are beneficially owned by such person, (iv) any other information relating to such person that is required to be disclosed in the solicitation of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person's written consent to be named in the proxy statement as a nominee and to serve as a director, if elected), and (v) the qualifications of the nominee to serve as a director of the Company. 25 SHAREHOLDERS' PROPOSALS FOR 2002 ANNUAL MEETING Under Rule 14a-8 of the Securities Exchange Act of 1934, shareholders of the Company may present proper proposals for inclusion in the Company's proxy statement and for consideration at the 2002 annual meeting of its shareholders by submitting their proposals to the Company in a timely manner. In order to be so included for the 2002 annual meeting, shareholder proposals must be received at the Company's principal office, 20 N. W. Fourth Street, Evansville, Indiana 47708, Attention: Corporate Secretary, no later than November 16, 2001, and must otherwise comply with the requirements of Rule 14a-8. If a shareholder desires to bring business before the meeting which is not the subject of a proposal timely submitted for inclusion in the proxy statement, the shareholder must follow procedures outlined in the Company's Code of By-Laws. A copy of these procedures is available upon request from the Corporate Secretary at the address referenced above. One of the procedural requirements in the Company's Code of By-Laws is timely notice in writing of the business the shareholder proposes to bring before the meeting. To be timely a shareholder's notice must be delivered to, or mailed and received at, the principal office of the Company not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting of the shareholders for the preceding year; provided, however, that if the annual meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends 30 days after such anniversary date, such shareholder notice shall be given by the later of: (a) the date 90 days prior to the actual date of shareholder meeting, or (b) the tenth day following the day on which the notice of the annual meeting is first publicly announced or disclosed. The shareholder's notice must set forth (i) a brief description of the matter to be brought before the meeting, (ii) the name and address as they appear on the corporate records of the shareholder proposing the business, (iii) the number of shares of capital stock of the Company beneficially owned by the shareholder and (iv) any interest of the shareholder in the business. In addition, if the Company does not receive the shareholder's notice within the time period described above, the proxies designated by the board of directors for that meeting may vote in their discretion on any such proposal any shares for which they have been appointed proxies without mention of such matter in the Company's proxy statement or on the proxy card for such meeting. By order of the board of directors. Vectren Corporation RONALD E. CHRISTIAN Senior Vice President, General Counsel and Corporate Secretary Evansville, Indiana March 16, 2001 Please fill in, date and sign the enclosed proxy and return it in the accompanying addressed envelope. No further postage is required if mailed in the United States. You may also authorize the individuals named on your proxy card to vote your shares by calling toll-free 1-877-779-8683 or using the Internet (www.eproxyvote.com/vvc) by following the instructions included with your proxy card. If you attend the annual meeting and wish to vote your shares in person, you may do so. Your cooperation in giving this matter your prompt attention will be appreciated. 26 APPENDIX A VECTREN CORPORATION AUDIT COMMITTEE CHARTER I. PURPOSE The primary function of the Audit committee is to assist the Board of Directors (Board) in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to a governmental body or the public; the Company's system of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Company's auditing, accounting and financial reporting processes generally. Consistent with this function, the Audit committee should encourage continuous improvement of, and adherence to the Company's policies, procedures and practices. The Audit committee's primary responsibilities are to: . Ensure that management of the Company maintains reliable accounting policies, financial reporting and disclosure practices. . Ensure that management maintains an adequate system of internal control. . Ensure that management maintains processes to assure compliance with all applicable laws, regulations and Company policy. . Provide for open communication among the independent accountants, financial and senior management, the Internal Audit department, and the Board. The Audit committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. II. COMPOSITION The Audit committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors, and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the committee. All members of the committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the committee shall have accounting or related financial management expertise. III. MEETINGS The Audit committee shall meet (either physically or by means of conference call) consistent with the quarterly release of financial data or as other circumstances dictate. As part of its job to foster open communication, the committee should meet at least biannually with the director of internal auditing and the independent accountants in executive sessions to discuss any matters that the committee or either of these parties believe should be discussed privately. IV. RESPONSIBILITIES AND DUTIES To fulfill its responsibilities and duties the Audit committee shall: Documents/Reports Review 1. Review and update this Charter periodically, at least annually, as conditions dictate, and ensure that this charter is disclosed in the Company's Proxy at least every three years. A-1 2. Review the Company's annual financial statements and quarterly financial statements submitted to the Securities and Exchange Commission. The Audit committee may also be convened to review and discuss any significant (e.g., Form 8K) or unusual transactions. (In this context, review shall mean listening to a presentation related to the financial statements, looking at drafts of the statements and discussing unusual or significant transactions.) 3. Review internal reports to management prepared by the Internal Audit department and management's response. 4. Review and discuss earnings information prior to the quarterly release of earnings information to the public. The Chair of the committee may represent the entire committee for purposes of this review. This discussion should focus on significant events, transactions and changes in accounting estimates, which were considered by the independent accountants to have affected the quality of the Company's financial reporting. This discussion should also include appropriate members of financial management, the internal auditor, and legal counsel. (Quality, in this context, refers to relevance, reliability, comparability and understandability. Relevance means that users find the information useful in making decisions; reliability means that information is verifiable and faithfully represents what it purports to represent; comparability means that the user can compare from one company to another, and from one time period to another to identify trends; and understandability means that the information is presented in an organized, concise and clear fashion so that it can be understood by competent users.) Independent Accountants/Auditors 5. The independent accountants are ultimately accountable to the Board and the Audit committee. 6. The Audit committee has the authority and responsibility to select, evaluate, and replace the independent accountants of the Company and its subsidiaries. This responsibility also includes approval of the fees and other compensation to be paid to the independent accountants. 7. The Audit committee is responsible for ensuring that the independent accountants submit a formal written statement regarding relationships and services which may affect objectivity and independence, for discussing any relevant matters with the independent accountants, and for recommending that the full board take appropriate action to ensure the independence of the auditors. 8. Review with management, the independent accountants and internal auditors any significant risks and exposures, audit activities and significant audit findings. 9. Review activities, organizational structure, and qualifications of the Internal Audit department. Financial Reporting Process 10. Consider the independent accountant's judgements about the quality and appropriateness of the Company's accounting principles and practices as applied to its financial reporting. 11. Review any significant disagreement among management and the independent accountants or the Internal Audit department in conjunction with the preparation of the financial statements. 12. Consider, approve, and monitor implementation of changes to the Company's auditing and accounting principles and practices as suggested by the independent accountants, management, or the Internal Audit department. 13. Discuss with the independent accountants and internal auditors any significant difficulties encountered during the course of an audit, including any restrictions on the scope of work or access to required information. Ethical and Legal Compliance 14. Review management's monitoring of the Corporate Code of Conduct (Code) and ensure that management has the proper review controls in place. Suggest changes to the Code as deemed necessary and appropriate. A-2 15. Review, with the Company's counsel, any legal matter that could have a significant impact on the Company's financial statements. 16. Review, with the Company's counsel, legal compliance matters including corporate securities trading policies. 17. Conduct or authorize investigations into any matters within the scope of the Audit committee's responsibilities. The Audit committee shall be empowered to retain any resources necessary including independent counsel, accountants or others to assist in such investigations. 18. Perform any other activities consistent with this Charter, the Company's By-laws and governing law, as the committee or the Board deems necessary or appropriate. A-3 APPENDIX B VECTREN CORPORATION AT RISK COMPENSATION PLAN Effective May 1, 2001 B-1 TABLE OF CONTENTS
Page - ---- ARTICLE I--PURPOSE 1.1 Purpose........................................................... . B-5 ARTICLE II--DEFINITIONS 2.1 "Agreement"....................................................... . B-5 2.2 "Annual Incentive Award"........................................... B-5 2.3 "Award"........................................................... . B-5 2.4 "Award Date" or "Grant Date"....................................... B-5 2.5 "Board" or "Board of Directors".................................... B-5 2.6 "Cashless Exercise"................................................ B-5 2.7 "Cause"........................................................... . B-5 2.8 "Change in Control"................................................ B-5 2.9 "Code"............................................................ . B-5 2.10 "Committee"....................................................... . B-5 2.11 "Common Stock" or "Stock".......................................... B-5 2.12 "Company"......................................................... . B-5 2.13 "Covered Participant".............................................. B-5 2.14 "Designated Beneficiary"........................................... B-6 2.15 "Disability"...................................................... . B-6 2.16 "Effective Date"................................................... B-6 2.17 "Eligible Employee"................................................ B-6 2.18 "Employee"........................................................ . B-6 2.19 "Exchange Act"..................................................... B-6 2.20 "Fair Market Value"................................................ B-6 2.21 "Good Reason"...................................................... B-6 2.22 "Incentive Stock Option"........................................... B-6 2.23 "Non-qualified Stock Option"....................................... B-6 2.24 "Option Price"..................................................... B-6 2.25 "Outside Director"................................................. B-6 2.26 "Participant"..................................................... . B-6 2.27 "Participating Company"............................................ B-6 2.28 "Performance Award"................................................ B-7 2.29 "Performance Criteria"............................................. B-7 2.30 "Performance Period"............................................... B-7 2.31 "Performance Share"................................................ B-7 2.32 "Performance Unit"................................................. B-7 2.33 "Person".......................................................... . B-7 2.34 "Plan"............................................................ . B-7 2.35 "Restricted Stock"................................................. B-7 2.36 "Restriction Period"............................................... B-7 2.37 "Retirement"...................................................... . B-7 2.38 "Rule of 16b- 3".................................................... B-7 2.39 "Section 162(m)"................................................... B-7 2.40 "Securities Act"................................................... B-7 2.41 "Stock" or "Shares"................................................ B-8 2.42 "Stock Appreciation Right"......................................... B-8 2.43 "Stock Option" or "Option"......................................... B-8 2.44 "Stock Unit Award"................................................. B-8 2.45 "Subsidiary"...................................................... . B-8
B-2
Page - ---- ARTICLE III--ELIGIBILITY 3.1 Eligibility....................................................... . B-8 ARTICLE IV--SHARES SUBJECT TO THE PLAN 4.1 Number of Shares................................................... B-8 4.2 Lapsed Awards or Forfeited Shares.................................. B-8 4.3 Delivery of Shares as Payment...................................... B-8 4.4 Capital Adjustments................................................ B-9 ARTICLE V--STOCK OPTIONS 5.1 Grant of Stock Options............................................. B-9 5.2 Option Price....................................................... B-9 5.3 Exercisability.................................................... . B-9 5.4 Method of Exercise................................................. B-9 5.5 Death, Disability, Retirement or Other Termination of Employment... B-10 ARTICLE VI--RESTRICTED STOCK 6.1 Grant of Restricted Stock.......................................... B-10 6.2 Restricted Stock Award Agreement................................... B-10 6.3 Restriction Period................................................. B-10 6.4 Removal of Restrictions and Deferral of Payment.................... B-10 6.5 Voting Rights...................................................... B-11 6.6 Dividends and Other Distributions.................................. B-11 6.7 Death, Disability or Retirement.................................... B-11 ARTICLE VII--OTHER STOCK BASED AWARDS 7.1 Grant of Other Stock Based Awards.................................. B-11 7.2 Stock Appreciation Rights.......................................... B-11 7.3 Performance Awards................................................. B-12 7.4 Stock Unit Awards.................................................. B-12 7.5 Death, Disability, Retirement or Other Termination of Employment... B-13 7.6 Deferral of Payment................................................ B-13 ARTICLE VIII--ANNUAL INCENTIVE AWARDS 8.1 Timing and Determination of Annual Incentive Awards................ B-13 8.2 Performance Criteria for Annual Incentive Awards .................. B-13 8.3 Maximum Annual Incentive Award..................................... B-13 8.4 Short Performance Year............................................. B-14 8.5 Limitation on Right to Payment of Award............................ B-14 ARTICLE IX--SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS 9.1 Special Provisions Applicable to Covered Participants.............. B-14 ARTICLE X--CHANGE IN CONTROL 10.1 Change in Control Agreements....................................... B-15 10.2 Change in Control Defined.......................................... B-15 10.3 Good Reason Defined................................................ B-17 10.4 Cause Defined...................................................... B-18 ARTICLE XI--ADMINISTRATION 11.1 The Committee...................................................... B- 18 11.2 Committee Decisions................................................ B-18 11.3 Rule 16b-3 and Section 162(m) Requirements......................... B-18
B-3
Page - ---- ARTICLE XII--GENERAL PROVISIONS 12.1 Withholding....................................................... . B-19 12.2 Terms of Awards.................................................... B-19 12.3 Non- transferability................................................ B- 19 12.4 No Right to Employment............................................. B-19 12.5 Rights as Shareholder.............................................. B-19 12.6 Construction of the Plan........................................... B-19 12.7 Amendment of Plan.................................................. B-19 12.8 Amendment of Award................................................. B-19 12.9 Exemption from Computation of Compensation for Other Purposes...... B-19 12.10 Legend............................................................ . B-20 12.11 Special Provisions for Certain Participants........................ B-20 12.12 Unfunded Plan...................................................... B-20 12.13 Conflict with Employment Agreement................................. B-20 12.14 Gender and Number.................................................. B-20 12.15 Severability...................................................... . B-20 12.16 Effect of Headings................................................. B-20 12.17 No Liability....................................................... B- 20
B-4 ARTICLE I PURPOSE 1.1 Purpose. Vectren Corporation, an Indiana corporation, hereby establishes the Vectren Corporation At Risk Compensation Plan to promote the interests of the Company and its shareholders through (a) the attraction and retention of Participants essential to the success of the Company; (b) the motivation of Participants using performance-related incentives linked to performance goals and the interests of Company shareholders; and (c) enabling such individuals to share in the growth and success of the Company and its Subsidiaries. The Plan permits cash awards, the grant of Stock Options, Restricted Stock, and, with prior Board approval, any other stock- based forms of awards as the Committee, in its sole and complete discretion, may determine to be appropriate in carrying out the intent and purposes of this Plan. The Plan also provides for the grant of annual incentive awards. ARTICLE II DEFINITIONS 2.1 "Agreement" shall mean a written agreement between the Company and a Participant implementing the grant, and setting forth the particular terms, conditions and restrictions of each Award. With respect to the grant of a Stock Option, the Agreement may be referred to herein as an "Option Agreement," and with respect to any other Award hereunder, the Agreement may be referred to herein as an "Award Agreement." 2.2 "Annual Incentive Award" shall mean a cash bonus payable to a Participant under Article VIII. 2.3 "Award" shall mean an award or grant made to a Participant under Article V, VI, or VII, or an Annual Incentive Award under Article VIII. 2.4 "Award Date" or "Grant Date" shall mean the date on which an Award is made by the Committee under the Plan. 2.5 "Board" or "Board of Directors" shall mean the Board of Directors of the Company. 2.6 "Cashless Exercise" shall mean the exercise of an Option by the Participant through the use of a brokerage firm to make payment to the Company of the exercise price either from the proceeds of a loan to the Participant from the brokerage firm or from the proceeds of the sale of Stock issued pursuant to the exercise of the Option, and upon receipt of such payment, the Company delivers the exercised Shares to the brokerage firm. 2.7 "Cause" shall be defined in Section 10.4. 2.8 "Change in Control" shall be defined in Section 10.2. 2.9 "Code" shall mean the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, or any successor law, as amended from time to time. 2.10 "Committee" shall mean the Compensation Committee of the Board or such other committee appointed by the Board to administer the Plan in accordance with Article XI. 2.11 "Common Stock" or "Stock" shall mean the Common Stock of the Company without par value, or such other security or right or instrument into which such Common Stock may be changed or converted in the future. 2.12 "Company" shall mean Vectren Corporation, an Indiana corporation, or any successor thereto. 2.13 "Covered Participant" shall mean a Participant who is a "covered employee" as defined in Code Section 162(m)(3) and the regulations promulgated thereunder. B-5 2.14 "Designated Beneficiary" shall mean the beneficiary designated by the Participant, pursuant to procedures established by the Committee, to receive amounts due to the Participant in the event of the Participant's death. If the Participant does not make an effective designation, then the Designated Beneficiary will be deemed to be the Participant's estate. 2.15 "Disability" shall mean (a) the mental or physical disability of the Participant defined as "Disability" under the terms of the long- term disability plan sponsored by the Company and in which the Participant is covered, as amended from time to time in accordance with the provisions of such plan; or (b) a determination by the Committee, in its sole discretion, of total disability (based on medical evidence) that precludes the Participant from engaging in any occupation or employment for wage or profit for at least twelve months and appears to be permanent. All decisions by the Committee relating to a Participant's Disability (including a decision that a Participant is not disabled), shall be final and binding on all parties. 2.16 "Effective Date" shall mean: (a) January 1, 2001 with respect to Annual Incentive Awards granted pursuant to Article VIII; and (b) May 1, 2001 with respect to long-term incentive Awards granted pursuant to Articles V, VI or VII. 2.17 "Eligible Employee" shall mean an Employee who is an officer or other key employee of a Participating Company as designated by the Committee to be eligible to participate in the Plan. 2.18 "Employee" shall mean an individual who is employed by a Participating Company in a customary employer-employee relationship and designated as such in accordance with the Company's standard employment practices. 2.19 "Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or any successor law as amended from time to time. 2.20 "Fair Market Value" shall mean, on any given date, the closing price of Common Stock as reported on the composite tape of the primary stock exchange in which the Common Stock is listed on such day or, if no Shares were traded on such stock exchange on such day, then on the next preceding day that Stock was traded on such exchange, all as reported by The Wall Street Journal or such other source as the Committee may select. 2.21 "Good Reason" shall be defined in Section 10.3. 2.22 "Incentive Stock Option" shall mean an option to purchase Stock, granted under Article VI herein, which is designated as an incentive stock option and is intended to meet the requirements of Code Section 422. 2.23 "Non-qualified Stock Option" shall mean an option to purchase Stock, granted under Article V herein, which is not intended to qualify as an Incentive Stock Option. 2.24 "Option Price" shall mean the exercise price per share of Stock covered by an Option in accordance with Section 5.2. 2.25 "Outside Director" shall mean a member of the Board who is not an Employee. 2.26 "Participant" shall mean an Eligible Employee or Outside Director who has been selected from time to time under Article III to receive an Award under the Plan. 2.27 "Participating Company" shall mean the Company, and such other Subsidiaries as the Board authorizes to participate herein. B-6 2.28 "Performance Award" shall mean a performance-based Award made under Section 7.3, which may be in the form of either Performance Shares or Performance Units. 2.29 "Performance Criteria" shall mean objectives established by the Committee for a Performance Period for the purpose of determining when an Award subject to such objectives has been earned, and may include alternative and multiple Performance Criteria, including, but not limited to, operating and maintenance expense targets, customer satisfaction, safety, and financial goals (which may be adjusted for abnormal weather based on National Oceanic and Atmospheric Administration measures or such other objective measures as approved by the Committee before the beginning of a Performance Period) including, but not limited to, absolute or relative (i.e., in relation to a peer group of companies) total shareholder return, revenues, sales, net income, EBITDA, return on assets, earnings per share and/or growth thereof, or net worth of the Company, any of its Subsidiaries, divisions, business units or other areas of the Company. 2.30 "Performance Period" shall mean the time period designated by the Committee during which Performance Criteria must be met in order for a Participant to obtain a performance-based award. 2.31 "Performance Share" shall mean an Award, designated as a Performance Share, granted to a Participant pursuant to Section 7.3, the value of which is linked to Company Stock and which is determined, in whole or in part, by the attainment of pre-established Performance Criteria as deemed appropriate by the Committee and described in the Agreement. 2.32 "Performance Unit" shall mean an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 7.3, the value of which is determined, in whole or in part, by the attainment of pre- established Performance Criteria which is linked to the performance of Company Stock as deemed appropriate by the Committee and described in the Agreement. 2.33 "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof. 2.34 "Plan" shall mean the Vectren Corporation At Risk Compensation Plan, as herein established and as hereafter amended from time to time. 2.35 "Restricted Stock" shall mean an Award of Stock granted to a Participant pursuant to Article VI herein. 2.36 "Restriction Period" shall mean the period during which the transfer of Shares of Restricted Stock is restricted and is subject to a risk of forfeiture, pursuant to Article VI. 2.37 "Retirement" shall mean the termination of employment for a Participant who is eligible for early or normal retirement under the Vectren Corporation Combined Non-Bargaining Retirement Plan. Notwithstanding the foregoing, "Retirement" before the Participant has attained normal retirement under such plan shall require prior approval by the Committee. With respect to a Participant who is an Outside Director, "Retirement" shall mean the end of the director's term of office upon attaining the mandatory retirement age for directors. 2.38 "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the Exchange Act as adopted in Exchange Act Release No. 34-37260 (May 30, 1996), or any successor rule as amended from time to time. 2.39 "Section 162(m)" shall mean Section 162(m) of the Code, or any successor section under the Code, as amended from time to time and as interpreted by final or proposed regulations promulgated thereunder from time to time. 2.40 "Securities Act" shall mean the Securities Act of 1933 and the rules and regulations promulgated thereunder, or any successor law, as amended from time to time. B-7 2.41 "Stock" or "Shares" shall mean the shares of Common Stock of the Company. 2.42 "Stock Appreciation Right" shall mean the right to receive an amount equal to the excess of the Fair Market Value of a share of Stock (as determined on the date of exercise) over the Option Price of a related Option or the Fair Market Value of the Stock on the Grant Date of the Stock Appreciation Right. 2.43 "Stock Option" or "Option" shall mean an Incentive Stock Option or a Non-qualified Stock Option. 2.44 "Stock Unit Award" shall mean an award of Common Stock or units granted under Section 7.4. 2.45 "Subsidiary" shall mean any entity (other than Vectren Corporation) with respect to which Vectren Corporation owns, either directly or indirectly, at least 50% of the total combined voting power of all classes of stock or other ownership interest. ARTICLE III ELIGIBILITY 3.1 Eligibility. The Committee shall have sole and complete discretion in determining the Eligible Employees and Outside Directors who shall be eligible to participate in the Plan. An Outside Director who is selected by the Committee to participate in the Plan shall only be eligible for Awards under Articles V, VI or VII and shall not be eligible for Annual Incentive Awards under Article VIII. An Eligible Employee or Outside Director of the Company designated by the Committee as eligible hereunder shall be considered a Participant upon receiving an Award under the Plan. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to adjustment as provided for in Section 4.4 below, the maximum aggregate number of Shares that may be issued pursuant to Awards made under the Plan shall not exceed 4,000,000 Shares, which shall be in a combination of Stock Options, Restricted Stock, and, at the discretion of the Committee, other Awards as described in Article VII. Notwithstanding the foregoing, the maximum aggregate number of shares which may be issued as Awards in a form other than Stock Options shall not exceed 800,000 Shares. Shares of Common Stock may be available from the authorized but unissued Shares, Shares issued and reacquired by the Company or Shares purchased in the open market for purposes of the Plan. Except as provided in Sections 4.2 and 4.3 herein, the issuance of Shares in connection with the exercise of, or as other payment for, Awards under the Plan shall reduce the number of Shares available for future Awards under the Plan. 4.2 Lapsed Awards or Forfeited Shares. In the event that: (a) any Option or other Award granted under the Plan terminates, expires, or lapses for any reason without having been exercised in accordance with its terms, (b) Shares issued pursuant to the Awards are canceled or forfeited for any reason, or (c) Awards are paid in cash, the Shares subject to such Award shall thereafter be again available for grant of an Award under the Plan. 4.3 Delivery of Shares as Payment. In the event a Participant pays for any Option or other Award granted under the Plan through the delivery of previously acquired shares of Common Stock, the number of shares of Common Stock available for Awards under the Plan shall be increased by the number of shares surrendered by the Participant. B-8 4.4 Capital Adjustments. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure, capitalization or Shares of the Company, the Committee shall make such adjustments as are appropriate in the maximum number and kind of Shares that may be issued under the Plan and to any Participant, in the number and kind of Shares covered by any Awards granted before such change and in the Option Price of any Option granted before such change or in the Fair Market Value of the Shares on the Grant Date of any Stock Appreciation Right granted before such change. Such adjustments shall be intended to put the Participant in the same position as he or she was in immediately before such event. ARTICLE V STOCK OPTIONS 5.1 Grant of Stock Options. Subject to the limitation set forth in Section 4.1 and the other terms and provisions of the Plan and applicable law, the Committee, at any time and from time to time, may grant Stock Options to Participants as it shall determine. The Committee shall have sole and complete discretion in determining the type of Option granted, the Option Price, the duration of the Option, the number of Shares to which an Option pertains, any conditions imposed upon the exercisability or the transferability of the Options, including vesting conditions, the conditions under which the Option may be terminated, and any such other provisions as may be warranted to comply with the law or rules of any securities trading system or stock exchange. Each Option grant shall have such specified terms and conditions detailed in an Option Agreement. The Option Agreement shall specify whether the Option is intended to be an Incentive Stock Option or a Non-qualified Stock Option. However, no Incentive Stock Option may be awarded (a) after the tenth anniversary of the date this Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier, or (b) to a Participant who is not an Employee. 5.2 Option Price. The exercise price per share of Stock covered by an Option shall be determined on the Grant Date by the Committee; provided that the Option Price shall not be less than 100% of the Fair Market Value of the Common Stock on the Grant Date. Further provided, in the case of an Incentive Stock Option granted to any Employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary, the Option Price shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date. (a) Restriction Against Re-Pricing or Replacement. No option shall provide by its terms for the re-setting of its exercise price or for its cancellation and reissuance, in whole or in part; provided that the foregoing shall not limit the authority of the Committee to grant additional Options hereunder. 5.3 Exercisability. Except as otherwise provided herein, Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine, which will be specified in the Option Agreement and need not be the same for each Participant. However, under no circumstances, may an Incentive Stock Option be exercisable after the expiration of 10 years from the Grant Date (5 years from the Grant Date for any Employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary). 5.4 Method of Exercise. Options shall be exercised by the delivery of a written notice from the Participant to the Company in a form prescribed by the Committee setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment of fee for the Shares. The Option Price shall be payable to the Company in full in cash, or its equivalent, or by delivery of Shares of Stock (not subject to any security interest or pledge or acquired from the Company within the preceding six months) having a Fair Market Value at the time of exercise equal to the exercise price of the Shares, or by a combination of the foregoing. In addition, at the request of the Participant, and subject to applicable laws and regulations, the Company may (but shall not be required to) cooperate in a Cashless Exercise of the Option. After receipt of written notice and full payment of the Option Price, the Company shall deliver to the Participant as soon as practicable, or, at a later B-9 date mutually agreed to with a Participant, a stock certificate or other documentation, issued in the Participant's name, evidencing the number of Shares with respect to which the Option was exercised. 5.5 Death, Disability, Retirement or Other Termination of Employment. Except as otherwise provided in a Participant's Option Agreement: (a) in the event of a Participant's death, Disability or Retirement, Options granted to the Participant shall be considered immediately vested and shall be exercisable at such time as specified in the Option Agreement, and (b) subject to Article X, in the event the Participant resigns, is terminated from the Company or, in the case of an Outside Director, is not reelected to the Board or otherwise resigns as a member of the Board, Options which have not vested by such date shall be forfeited, and the Participant shall have three months from such date to exercise vested Options (but not beyond the expiration of the term of the Option, if earlier). Notwithstanding the foregoing, if the Participant is terminated from the Company for Cause (as defined in Section 10.4), the Participant shall be required to exercise any vested Options immediately, and any vested Options not immediately exercised shall lapse. ARTICLE VI RESTRICTED STOCK 6.1 Grant of Restricted Stock. Subject to the limitations set forth in Section 4.1 and the other terms and provisions of the Plan and applicable law, the Committee, at any time, and, from time to time, may grant shares of Restricted Stock under the Plan to such Participants, and in such amounts and for such duration and/or consideration as it shall determine. 6.2 Restricted Stock Award Agreement. Each Restricted Stock granted hereunder shall be evidenced by an Award Agreement that shall specify the Restriction Period, the conditions which must be satisfied prior to removal of the restriction, the forfeiture of such Shares in the event such conditions are not satisfied, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine. The Committee may specify, but is not limited to, the following types of conditions in the Award Agreement: (a) conditions for acceleration or achievement of the end of the Restriction Period based on any Performance Criteria and (b) any other conditions or restrictions which the Committee may deem advisable, including requirements established pursuant to the Securities Act, the Exchange Act, the Code and any securities trading system or stock exchange upon which such Shares under the Plan are listed. Notwithstanding the foregoing, the Committee shall have the authority to grant additional unrestricted Stock to a Participant hereunder, provided Performance Criteria are satisfied for the Performance Period. 6.3 Restriction Period. Except as otherwise provided in this Article, the Shares of Restricted Stock granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the termination of the applicable Restriction Period or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the applicable Award Agreement. Subject to Section 6.7 and Article X, if a Participant resigns, is otherwise terminated from the Company or, in the case of an Outside Director is not reelected to the Board or otherwise resigns as a member of the Board, prior to the end of the Restriction Period, he or she will forfeit all interests in the Award. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative. 6.4 Removal of Restrictions and Deferral of Payment. Except as otherwise provided in this Article, Restricted Stock covered by each Award made under the Plan shall become freely transferable by the Participant after the last day of the Restriction Period and/or upon the satisfaction of other conditions as determined by the Committee. B-10 Furthermore, upon the expiration of the Restriction Period, a Participant may defer the value of the Awards under the non-qualified deferred compensation plan, including any successor plan, sponsored by the Company if the Participant is eligible under such plan and if such plan provides for deferral of Awards hereunder. 6.5 Voting Rights. During the Restriction Period, Participants in whose name Restricted Stock is granted under the Plan may exercise full voting rights with respect to those shares. 6.6 Dividends and Other Distributions. During the Restriction Period, Participants in whose name Restricted Stock is granted under the Plan shall be entitled to receive all dividends and other distributions paid with respect to those Shares. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were distributed. 6.7 Death, Disability or Retirement. Except as otherwise provided in a Participant's Award Agreement, in the event of the Participant's death, Disability, or Retirement the following shall apply: (a) If such event occurs after the end of the Performance Period but before the end of the Restriction Period, restrictions on all Shares shall be immediately removed; (b) In the event of the Participant's Disability or Retirement before the Performance Period has ended, the restrictions on the shares awarded to the Participant shall be removed upon expiration of the Performance Period, and the number of Shares the Participant shall be entitled to, if any, shall equal (i) the number of Shares, if any, the Participant would otherwise be entitled to had the individual been an active Participant at the end of the Performance Period (i.e., as adjusted or forfeited based on the Performance Criteria) multiplied by (ii) the portion of the Performance Period the Participant was an active Participant hereunder; and (c) In the event of the Participant's death before the Performance Period has ended, the restrictions on the shares awarded to the Participant shall be removed upon the Participant's date of death, and the number of Shares the Participant shall be entitled to, if any, shall equal the number of Shares contingently granted to the Participant, without any further adjustment. ARTICLE VII OTHER STOCK BASED AWARDS 7.1 Grant of Other Stock Based Awards. Subject to the limitations set forth in Section 4.1 and the other terms and provisions of the Plan and applicable law, with prior Board approval, the Committee may, at any time and from time to time, issue to Participants, either alone or in addition to other Awards made under the Plan, Stock Appreciation Rights as described in Section 7.2, Performance Awards as described in Section 7.3, or other Stock Unit Awards as described in Section 7.4. Any such Awards shall be governed by the terms of an Agreement, and the Committee may impose such terms and conditions, similar to those described in Section 5.1 and/or Section 6.2 and not inconsistent with the terms of this Plan, as it deems appropriate on such Award. 7.2 Stock Appreciation Rights. (a) Grant of Stock Appreciation Rights. Stock Appreciation Rights granted in tandem with an Option or in addition to an Option may be granted at the time of the Option or at a later time. No Stock Appreciation Rights granted under the Plan may be exercisable until the expiration of at least six months after the Grant Date (except that such limitations shall not apply in the case of death or Disability of the Participant). (b) Price. The exercise price of each Stock Appreciation Right shall be determined at the time of grant by the Committee, subject to the limitation that the grant price shall not be less than 100% of Fair Market Value of the Common Stock on the Grant Date. B-11 (c) Exercise. Stock Appreciation Rights shall be exercised by the delivery of a written notice from the Participant to the Company in a form prescribed by the Committee. Upon such exercise, the Participant shall be entitled to receive an amount equal to the excess of the Fair Market Value of a Share over the grant price thereof on the date of exercise of the Stock Appreciation Right multiplied by the number of Shares for which the Stock Appreciation Right was granted. (d) Payment. Payment upon exercise of the Stock Appreciation Right shall be made in the form of cash, cash installments, Shares of Common Stock, or a combination thereof, as determined in the sole and complete discretion of the Committee. However, if any payment in the form of Shares results in a fractional share, such payment for the fractional share shall be made in cash. 7.3 Performance Awards. (a) Grant of Performance Awards. Performance Awards granted hereunder may be issued in the form of either Performance Units or Performance Shares to Participants subject to the Performance Criteria, Performance Period and other considerations or restrictions as the Committee shall determine. The Committee shall have complete discretion in determining the number and value of Performance Units or Performance Shares granted to each Participant. (b) Value of Performance Awards. The Committee shall determine the number and value of Performance Units or Performance Shares granted to each Participant as a Performance Award. The Committee shall set Performance Criteria in its discretion for each Participant who is granted a Performance Award. The extent to which such Performance Criteria are met will determine the value of the Performance Unit or Performance Share to the Participant. (c) Settlement of Performance Awards. After a Performance Period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof based on the degree to which the Performance Criteria established by the Committee and set forth in the Award Agreement have been satisfied. (d) Form of Payment. Payment of the amount to which a Participant shall be entitled upon the settlement of the Performance Award shall be made in cash, Stock, or a combination thereof and may be made in a lump sum or installments all as determined by the Committee and set forth in the related Award Agreement. 7.4 Stock Unit Awards. (a) Grant of Other Stock Unit Awards. Stock Unit Awards granted hereunder may be in the form of Common Stock or other securities. The value of each such Award shall be based, in whole or in part, on the value of the underlying Common Stock on the Grant Date. The Committee, in its sole and complete discretion, may determine that an Award, either in the form of a Stock Unit Award under this Section or as an Award granted pursuant to the other provisions of the Plan, may provide to the Participant (i) dividends or dividend equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or in addition to an Award. Subject to the provisions of the Plan, the Committee, in its sole and complete discretion, shall determine the terms, restrictions, conditions, vesting requirements, and payment rules of the Award. The Award Agreement shall specify the rules of each Award as determined by the Committee. However, each Stock Unit Award need not be subject to identical rules. (b) Rules. The Committee, in its sole and complete discretion, may grant a Stock Unit Award subject to the following rules: (i) Common Stock or other securities issued pursuant to Stock Unit Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a Participant until the expiration of at least six months from the Grant Date, except that such limitation shall not apply in the case of death or Disability of the Participant, a Change in Control, or where a Committee of the Board, comprised of non- Employee directors of the Company within the meaning of Rule 16b-3, approved the Award. To the extent Stock Unit Awards are deemed to be derivative securities within the meaning B-12 of Rule 16b-3, the rights of a Participant who is subject to Section 16 of the Exchange Act with respect to such Awards shall not vest or be exercisable until the expiration of at least six months from the Award Date unless the Board or the Committee, comprised of non- Employee directors of the Company within the meaning of Rule 16b-3, specifies otherwise. All rights with respect to such Stock Unit Awards granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or his or her guardian or legal representative. (ii) Stock Unit Awards may require the payment of cash consideration by the Participant in receipt of the Award or provide that the Award, and any Common Stock or other securities issued in conjunction with the Award, be delivered without the payment of cash consideration. (iii) The Committee, in its sole and complete discretion, may establish certain Performance Criteria that may relate in whole or in part to receipt of Stock Unit Awards. (iv) Stock Unit Awards may be subject to a deferred payment schedule and/or vesting over a specified period. (v) The Committee, in its sole and complete discretion, as a result of certain circumstances, may waive or otherwise remove, in whole or in part, any restriction or condition imposed on a Stock Unit Award, except to the extent that the existence of such discretion would cause the tax deduction of the Company in respect of the Stock Unit Award to be limited under Code Section 162(m). 7.5 Death, Disability, Retirement or Other Termination of Employment. Unless otherwise provided in a Participant's Award Agreement, in the event of death, Disability, or Retirement similar rules as provided in Section 5.5 or 6.7 (as applicable) shall apply to an Award granted under this Article. 7.6 Deferral of Payment. Notwithstanding the above, a Participant who is entitled to payment of an Award under this Article and who is eligible under the non-qualified deferred compensation plan sponsored by the Company may defer such payment to the extent provided under such plan. ARTICLE VIII ANNUAL INCENTIVE AWARDS 8.1 Timing and Determination of Annual Incentive Awards. Following the completion of a Performance Period, the Committee shall undertake or direct an evaluation of Performance Criteria for such Performance Period as determined in Section 8.2. No Annual Incentive Award may be paid without a certification by the Committee that the Performance Goals have been met. Any Annual Incentive Awards will be paid at such time or times as may be determined by the Committee following the end of the Performance Period to which they relate, but not later than the last day of the third month following the end of the Performance Period without the consent of the affected Participant. 8.2 Performance Criteria for Annual Incentive Awards. Performance Criteria of the Company will be established in writing by the Committee before the beginning of each Performance Period or at such later time as may be permitted by Section 162(m) of the Code to maintain the status of Annual Incentive Awards as performance-based Compensation. The Performance Period with respect to Awards shall be the calendar year or any other period designated as such by the Committee. 8.3 Maximum Annual Incentive Award. The maximum individual Annual Incentive Award for a Performance Period of twelve calendar months will be $1,500,000, provided the Eligible Employee has been a Participant for such twelve month period. In the event that an Annual Incentive Award is being determined for a B-13 Performance Period of less than twelve calendar months or for the Performance Period in which the Eligible Employee becomes a Participant, dies or incurs a Disability, the maximum Annual Incentive Award of $1,500,000 shall be prorated in accordance with Section 8.4 or 8.5, whichever is applicable. 8.4 Short Performance Year. (a) Death, Disability or Retirement. In the event of a Participant's death, Disability or Retirement prior to the date the Annual Incentive Award is paid, the following shall apply: (i) In the event of the Participant's death or Disability before the end of the Performance Period, the Company will be assumed to have achieved a target performance level for the Performance Period in which death or Disability occurs for purposes of determining the Annual Incentive Award. In the event of the Participant's death or Disability after the end of the Performance Period, but before the date the Annual Incentive Award is paid, the Participant's Annual Incentive Award shall be payable based on the actual Performance Criteria for the entire period. (ii) In the event of a Participant's Retirement, the Participant's Annual Incentive Award shall be determined and payable following the end of the Performance Period based on the actual Performance Criteria for the entire period. (iii) The amount of Annual Incentive Award shall be prorated as necessary to reflect the period of time during which the individual was employed in the Performance Period. (b) New Participants. In the event an individual becomes a Participant and is eligible for an Annual Incentive Award based on a Performance Period shorter than twelve months, such Annual Incentive Award shall be prorated to reflect the period of time the individual was employed in the Performance Period. 8.5 Limitation on Right to Payment of Award. Notwithstanding any other Plan provision to the contrary, no Participant shall have a right to receive payment of an Annual Incentive Award under the Plan if, subsequent to the commencement of the Performance Period and prior to the date any Award would otherwise be payable, the Participant resigns or is otherwise terminated from the Participating Company for reasons other than death, Disability, or Retirement or following a Change in Control. ARTICLE IX SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS 9.1 Special Provisions Applicable to Covered Participants. Awards to Covered Participants shall be governed by the conditions of this Article in addition to the requirements of Articles V through VIII above. Should conditions set forth under this Article conflict with the requirements of Articles V through VIII, the conditions of this Article shall prevail. (a) All Performance Criteria relating to Covered Participants for a relevant Performance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for the Performance Period as may be permitted under Section 162(m) of the Code. (b) The Performance Criteria must be objective and must satisfy third party "objectivity" standards under Code Section 162(m), and the regulations promulgated thereunder. (c) The Performance Criteria shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible. (d) The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Criteria that are applicable to such Award. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Criteria have been satisfied. Resolutions adopted by the Committee may be used for this purpose. B-14 (e) The aggregate maximum Awards that may be granted to any Covered Participant under Article VI and the maximum number of Shares represented by Performance Shares that may be granted to any Covered Participant under Article VII during any calendar year shall be 100,000 Shares. The maximum aggregate amount payable in respect of all other Stock Based Awards (except Stock Appreciation Rights) granted to a Covered Participant pursuant to Article VII during any calendar year cannot exceed $1 million. (f) The aggregate maximum number of shares of Stock subject to Options under Article V and Stock Appreciation Rights under Article VII made to any Covered Participant during any calendar year shall be 500,000. (g) All Awards under this Plan to Covered Participants or to other Participants who may become Covered Participants at a relevant future date shall be further subject to such other conditions, restrictions, and requirements as the Committee may determine to be necessary to carry out the purposes of this Article, which is to avoid the loss of deductions by the Company under Code section 162(m). ARTICLE X CHANGE IN CONTROL 10.1 Change in Control Agreements. The provision of this Section regarding the terms and conditions of an Award Agreement upon a Change in Control shall apply notwithstanding any Plan provision to the contrary, and notwithstanding any agreement between the Participating Company and such Participant which relate to the terms of the Awards hereunder upon a Change in Control. Upon a Change in Control, the following shall apply: (a) The Awards previously granted shall be immediately vested and not subject to forfeiture due to any subsequent termination from employment or removal or resignation from the Board. (b) In the event the Participant terminates employment from the Company with Good Reason or is terminated by the Company (except for Cause), any Stock Option Awards shall be exercisable within such time as specified in the Option Agreement. In the event the Participant otherwise resigns from the Company any Stock Option Awards shall be exercisable within 3 months following such termination of employment. In the event the Participant is terminated by the Company for Cause, the Participant shall be required to exercise Options immediately, and Options not immediately exercised shall lapse. (c) Restrictions on any Restricted Stock shall be eliminated as of such event. (d) If the Change in Control occurs before the end of the Performance Period, no further adjustment shall be made to the number of Shares of Restricted Stock contingently granted based on the Performance Criteria. (e) Annual Incentive Awards shall be considered earned and shall not be subject to forfeiture due to any subsequent termination from employment. If the Change in Control occurs before the end of the Performance Period, the amount of the Annual Incentive Award shall be determined assuming the Company has achieved a target performance level and, the amount shall then be multiplied by the portion of the Performance Period the individual was an active Participant hereunder. If the Change in Control occurs after the end of the Performance Period but before the Annual Incentive Award is paid, the amount payable shall be determined based on the actual performance level. In either case payment of the Annual Incentive Award shall be made as soon as practicable following the Change in Control. 10.2 Change in Control Defined. For purposes of this Article, "Change in Control" shall have the same meaning as such term or similar term is defined in a Participant's individual agreement with the Company which relates to such Participant's compensation and benefits upon the occurrence of a change in ownership of the Participating Company or similar event. (a) In the event there is no such agreement, "Change in Control" shall mean: B-15 (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (A) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute an acquisition of control: any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), any acquisition by the Company, any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of subsection (iii) of this section are satisfied; (ii) Individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company (the "Board"); provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan or related trust of the Company, or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; (iv) Approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition (1) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, B-16 respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding the Company and any employee benefit plan or related trust of the Company, or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; or (v) The closing, as defined in the documents relating to, or as evidenced by a certificate of any state or federal governmental authority in connection with, a transaction approval of which by the shareholders of the Company would constitute an "Change in Control" under subsection (iii) or (iv) of this Section. (b) Notwithstanding (a) above, if the Participant's employment is terminated before a Change in Control as defined in this Section and the Participant reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a "Change in Control" and who effectuates a "Change in Control" or (ii) otherwise occurred in connection with, or in anticipation of, a "Change in Control" which actually occurs, then for all purposes of this Agreement, the date of a "Change in Control" with respect to the Participant shall mean the date immediately prior to the date of such termination of the Participant's employment. 10.3 Good Reason Defined. For purposes of Section 10.1(b), "Good Reason" shall mean, without the Participant's written consent, (a) a demotion in the Participant's status, position or responsibilities which, in his reasonable judgment, does not represent a promotion from his status, position or responsibilities as in effect immediately prior to the Change in Control; (b) the assignment to the Participant of any duties or responsibilities which, in his reasonable judgment, are inconsistent with such status, position or responsibilities immediately prior to the Change in Control; or any removal of the Participant from or failure to reappoint or reelect him to any of such positions that the Participant had immediately prior to the Change in Control; (c) a reduction by the Company in the Participant's base salary or the Company's failure to increase (within twelve (12) months of the Participant's last increase in base salary) the Participant's base salary after a Change in Control in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all executive and senior executives of the Company effected in the preceding twelve (12) months; (d) the relocation of the principal executive offices of the Company or Subsidiary, whichever entity on behalf of which the Participant performs a principal function of that entity as part of his employment services, to a location more than fifty (50) miles outside the Evansville, Indiana metropolitan area or, if his services are not performed in Evansville, Indiana, the Company's requiring him to be based at any place other than the location at which he performed his duties immediately prior to the Change in Control, except for required travel on the Company's business to an extent substantially consistent with his business travel obligations at the time of a Change in Control; (e) the failure by the Company to continue in effect any incentive, bonus or other compensation plan in which the Participant participates immediately prior to the Change in Control, including but not limited B-17 to this Plan, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan), with which he has consented, has been made with respect to such plan in connection with the Change in Control, or the failure by the Company to continue his participation therein, or any action by the Company which would directly or indirectly materially reduce his participation therein; (f) the failure by the Company to continue to provide the Participant with benefits substantially similar to those enjoyed by him or to which he was entitled under any of the Company's pension, profit sharing, life insurance, medical, dental, health and accident, or disability plans in which he was participating at the time of a Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive him of any material fringe benefit enjoyed by him or to which he was entitled at the time of the Change in Control, or the failure by the Company to provide him with the number of paid vacation and sick leave days to which he is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; (g) the failure of the Company to obtain a satisfactory agreement with any successor or assign of the Company to assume and agree to perform under any Change in Control agreement between the Company and the Participant; or (h) any request by the Company that the Participant participate in an unlawful act or take any action constituting a breach of the Participant's professional standard of conduct. For the purpose of Section 10.1(b), "Good Reason" shall also mean with the Participant's written consent, the exercise by the Participant of a contractual right to terminate his or her employment voluntarily, without good reason, during a thirty (30) day period immediately following the first annual anniversary of a Change in Control. 10.4 Cause Defined. For purposes of Sections 10.1(b) and 5.5(b), "Cause" shall mean (a) intentional gross misconduct by the Participant damaging in a material way to the Company, or (b) a material breach of the Participant's employment agreement, after the Company has given the Participant notice thereof and a reasonable opportunity to cure. ARTICLE XI ADMINISTRATION 11.1 The Committee. The Plan shall be administered and interpreted by the Committee which shall have full authority, discretion and power necessary or desirable for such administration and interpretation. The express grant in this Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. In its sole and complete discretion the Committee may adopt, alter, suspend and repeal any such administrative rules, regulations, guidelines, and practices governing the operation of the Plan as it shall from time to time deem advisable. In addition to any other powers and, subject to the provisions of the Plan, the Committee shall have the following specific powers: (a) to determine the terms and conditions upon which Awards may be made and exercised; (b) to determine the Participants to which Awards shall be made; (c) to determine all terms and provisions of each Agreement, which need not be identical for types of Awards nor for the same type of Award to different Participants; (d) to construe and interpret all terms, conditions and provisions of the Plan and all Agreements; (e) to establish, amend, or waive rules or regulations for the Plan's administration; (f) to accelerate the exercisability of any Award, the length of a Performance Period or the termination of any Period of Restriction; and (g) to make all other determinations and take all other actions necessary or advisable for the administration or interpretation of the Plan. The Committee may seek the assistance or advice of any persons it deems necessary to the proper administration of the Plan. 11.2 Committee Decisions. Unless strictly and expressly prohibited by law, all determinations and decisions made by the Committee pursuant to the provisions of this Plan shall be final, conclusive, and binding upon all persons, including Participants, Designated Beneficiaries, the Company, its shareholders and employees. 11.3 Rule 16b-3 and Section 162(m) Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on any Award as it may deem to be advisable or required to satisfy the requirements of Rule 16b-3 or Section 162(m). B-18 ARTICLE XII GENERAL PROVISIONS 12.1 Withholding. The Company shall have the right to deduct or withhold, or require a Participant to remit to the Company, any taxes required by law to be withheld from Awards made under this Plan. In the event an Award is paid in the form of Common Stock, the Participant may remit to the Company the amount of any taxes required to be withheld from such payment in cash, or, in lieu thereof, the Company may withhold (or the Participant may be provided the opportunity to elect to tender) the number of shares of Common Stock equal in Fair Market Value to the amount required to be withheld. 12.2 Terms of Awards. Each Award granted under the Plan shall be evidenced in a corresponding Award Agreement provided in writing to the Participant, which shall specify the terms, conditions and any rules applicable to the Award, including but not limited to the effect of a Change in Control, or death, Disability, or other termination of employment of the Participant on the Award. 12.3 Non-transferability. No Award, including any Options, granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution. Further, no lien, obligation, or liability of the Participant may be assigned to any right or interest of the Participant in an Award under this Plan. 12.4 No Right to Employment. Neither the Plan, nor any Award made, or any other action taken, hereunder shall be construed as giving any Participant or other person any right of employment or continued employment with the Participating Company. 12.5 Rights as Shareholder. Subject to the terms and conditions of each particular Award, no Participant or Designated Beneficiary shall be deemed a shareholder of the Company nor have any rights as such with respect to any shares of Common Stock to be provided under the Plan until he or she has become the holder of such shares. 12.6 Construction of the Plan. Except to the extent superceded by the laws of the United States, the Plan and all Agreements shall be governed, construed, interpreted and administered in accordance with the laws of the State of Indiana. In the event any provision of the Plan or any Agreement shall be held invalid, illegal or unenforceable, in whole or in part, for any reason, such determination shall not affect the validity, legality or enforceability of any remaining provision, portion of provision or the Plan overall, which shall remain in full force and effect as if the Plan had been absent the invalid, illegal or unenforceable provision or portion thereof. 12.7 Amendment of Plan. The Committee or the Board of Directors may amend, suspend, or terminate the Plan or any portion thereof at any time, provided such amendment is made with shareholder approval if and to the extent such approval is necessary to comply with any legal requirement, including for these purposes any approval requirement which is a requirement for the performance-based compensation exception under Code Section 162(m). 12.8 Amendment of Award. In no event shall the Committee increase the amount payable pursuant to an Award after it has been granted. In addition, no amendment shall be made to an outstanding Award without written consent of the affected Participant. 12.9 Exemption from Computation of Compensation for Other Purposes. By acceptance of an applicable Award under this Plan, subject to the conditions of such Award, each Participant shall be considered in agreement that all shares of Stock sold or awarded and all Options granted under this Plan shall be considered extraordinary, special incentive compensation and will not be included as "earnings," "wages," "salary" or "compensation" in any pension, welfare, life insurance, or other employee benefit arrangement of the Company except as otherwise specifically provided in such arrangement. B-19 12.10 Legend. In it sole and complete discretion, the Committee may elect to legend certificates representing Shares sold or awarded under the Plan, to make appropriate references to the restrictions imposed on such Shares. 12.11 Special Provisions for Certain Participants. All Award Agreements for Participants subject to Section 16(b) of the Exchange Act shall be deemed to include any such additional terms, conditions, limitations and provisions as Rule 16b-3 requires, unless the Committee in its discretion determines that any such Award should not be governed by Rule 16b-3. All performance-based Awards to Covered Participants shall be deemed to include any such additional terms, conditions, limitations and provisions as are necessary to comply with the performance-based compensation exemption of Code Section 162(m), unless the Committee, in its discretion, determines that any such Award is not intended to qualify for the exemption for performance-based compensation under Code Section 162(m). 12.12 Unfunded Plan. The Plan shall be unfunded and the Company shall not be required to segregate any assets in connection with any Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan or any Award Agreement shall be based solely upon the contractual obligations that may be created as a result of the Plan or any such award or agreement. No such obligation of the Company shall be deemed to be secured by any pledge of, encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary. Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of any Participant (or beneficiary thereof or any other person) any equity or other interest of any kind in any assets of the Company or any Subsidiary or creating a trust of any kind or a fiduciary relationship of any kind between the Company, any Subsidiary and/or any such Participant, any beneficiary thereof or any other person. 12.13 Conflict with Employment Agreement. Except as specified in Article X or otherwise restricted under Section 12.11, to the extent any provision of this Plan conflicts with any provision of a written employment agreement between an Employee and the Company, the material terms of which have been approved by the Board, the provisions of the employment agreement shall control. 12.14 Gender and Number. Where the context admits, words in the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. 12.15 Severability. In the event any provision of this Plan shall be held to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and endorsed as if such illegal or invalid provision had never been contained in this Plan. 12.16 Effect of Headings. The descriptive headings of the Articles and Sections of this Plan are inserted for convenience of reference and identification only and do not constitute a part of this Plan for purposes of interpretation. 12.17 No Liability. No member of the Board or the Committee or any officer or Employee shall be personally liable for any action, omission or determination made in good faith in connection with this Plan. The Company shall indemnify and hold harmless the members of the Committee, the Board and the officers and Employees, and each of them, from and against any and all loss which results from liability to which any of them may be subjected by reason of any act or conduct (except willful misconduct or gross negligence) in their official capacities in connection with the administration of this Plan, including all expenses reasonably incurred in their defense, in case the Company fails to provide such defense. By participating in this Plan, each Employee agrees to release and hold harmless the Company and its Subsidiaries (and their respective directors, officers and employees), the Board and the Committee, from and against any tax or other liability, including without limitation, interest and penalties, incurred by the Employee in connection with his participation in this Plan. B-20 IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized Compensation Committee Chair as of this 24th day of January, 2001. Vectren Corporation /s/ Robert L. Koch II By: _________________________________ Robert L. Koch II Compensation Committee Chair ATTEST /s/ Ronald E. Christian By: _________________________________ Ronald E. Christian Senior Vice President, Secretary and General Counsel B-21 [X] Please mark your vote as in this example. 5455 THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED FOR PROPOSALS 1 AND 2. - ------------------------------------------------------------------ - -------------- The Board of Director recommends a vote FOR each of the items below - ------------------------------------------------------------------ - -------------- FOR WITHHOLD 1. Election of [_] [_] Directors FOR AGAINST ABSTAIN 2. Approval of the Company's [_] [_] [_] At-Risk Compensation Plan. 3. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Nominees: 01. John D. Engelbrecht 02. William G. Mays 03. J. Timothy McGinley 04. Richard P. Rechter For, except vote withheld from the following nominee(s): - ------------------------------------------------------------------ - -------------- THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE ON THE PROPOSALS. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY. THANK YOU. Signature of Shareholder(s) ________________________________ Date: ______ Please sign exactly as your name(s) appears hereon. All joint tenants should date this proxy and sign. When signing as attorney, executor, administrator, trustee or guardian, give full title as such. If a corporation, sign the full corporate name by an authorized officer. If a partnership, sign in partnership name by authorized person. . FOLD AND DETACH HERE . VECTREN CORPORATION Dear Shareholder: We encourage you to vote your shares electronically this year either by telephone or via the Internet. This will eliminate the need to return your proxy card. You will need your proxy card and Social Security number (where applicable) when voting your shares electronically. The Vote Control Number that appears in the box above, just below the perforation, must be used in order to vote by telephone or via the Internet. The EquiServe Vote by Telephone and Vote by Internet systems can be accessed 24-hours a day, seven days a week up until the day prior to the meeting. To Vote by Telephone: - --------------------- Using a touch-tone phone call Toll-free: 1-877-779-8683) To Vote by Internet: - -------------------- Log on to the Internet and go to the website: http://www.eproxyvote.com/vvc Note: If you vote over the Internet, you may incur costs such as telecommunication and Internet access charges for which you will be responsible. THANK YOU FOR VOTING YOUR SHARES. YOUR VOTE IS IMPORTANT! Do Not Return this Proxy Card if you are Voting by Telephone or the Internet. PROXY VECTREN CORPORATION PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 25, 2001 The undersigned hereby appoints Jerome A. Benkert, Jr., Ronald E. Christian, and Richard G. Lynch and each of them, jointly and severally, with power of substitution, to vote on all matters which may properly come before the 2001 Annual Meeting of shareholders of Vectren Corporation or any adjournment thereof. -----END PRIVACY-ENHANCED MESSAGE-----