provides a compensation component that encourages stable, long-term growth and aligns the interests of the executives with that of the stockholders. For the three-year performance cycle
Upon their retirement, regular employees and officers of the Company and its subsidiaries which adopt the plan (including directors who are also full-time officers) will be entitled to a monthly pension in accordance with the provisions of the Company’s pension plan, originally effective as of January 1, 1945. The directors who are not and have not been officers of the Company are not included in the pension plan. The pensions are payable out of a trust fund established under the pension plan with The Northern Trust Company, trustee. The trust fund consists of contributions made by the Company and the earnings of the fund. Over a period of years the contributions are intended to result in overall actuarial solvency of the trust
The pension plan was amended and restated effective July 1, 2002 to add a “cash balance feature.” Participants in the plan as of December 31,
20022001 were entitled to elect to remain in the “final average pay feature” of the plan or to begin participating in the new cash balance feature. Participants hired on and after January 1, 2002 automatically participate in the cash balance feature. A participant in the cash balance feature will have a benefit consisting of his or her opening account balance (his or her accrued benefit under the final average pay feature of the plan as of December 31,
2002,2001, if any) plus annual pay and interest credits to his or her cash balance account. Pay credits equal a percentage of compensation based on the participant’s combined age and service. Interest is credited to his or her account based on the interest rate on 30-year treasury securities, as determined by the Internal Revenue Service, for the September immediately preceding
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the first day of each year, but not less than 4%. Upon retirement, termination of employment or death, the participant or his or her beneficiary will receive a benefit that is the equivalent of his or her cash balance account balance. Participants and beneficiaries are entitled to elect to receive payment of this benefit pursuant to various alternatives including a lump sum option.
Pension benefits are determined separately under the final average pay portion of the plan for each participant. The formula for a monthly payment for retirement at age 65 is 1.7% of average monthly compensation multiplied by years of service (to a maximum of 30 years) plus 0.6% of average monthly compensation multiplied by years of service over 30. Average monthly compensation is the average for the 60 consecutive highest-paid months in the employee’s last 120 months of service. Covered compensation is defined as wages reported as W-2 earnings (up to a limit set forth in the Internal Revenue Code and adjusted periodically) plus any salary reduction contributions made under the Company’s 401(k) plan, minus any portion of a bonus in excess of 50% of base pay and any amounts paid for unused vacation time and vacation days carried forward from prior years. The benefits listed in the Pension Plan table are not subject to any deduction for Social Security or other offset amounts.
The Company also has a Supplemental Executive Retirement Plan which applies to those officers and other employees selected by the board of directors to participate in the plan. Benefits from this plan are to be paid from the general assets of the Company.
For each officer and employee who first participated in the Supplemental
Executive Retirement Plan prior to January 23, 2004, the Supplemental Executive Retirement Plan provides a retirement benefit at age 65 of the greater of (i) 60% of five-year average pay (prorated for less than 20 years of service) and an additional 0.5% of 5-year average pay per year for participants with between 20 and 30 years of service, less Primary Social Security Benefits or (ii) the benefit formula under the Company’s Pension Plan. In either case, the benefit is reduced by the actual pension payable from the Company’s Pension
Plan.Plan and benefits earned under the Pension Restoration Plan for NiSource Inc. and Affiliates. In addition, the Supplemental Executive Retirement Plan provides certain early retirement and disability benefits and pre-retirement death benefits for the spouse of a participant.
For each officer and employee who first participates in the Supplemental
Executive Retirement Plan on and after January 23, 2004, the Supplemental Executive Retirement Plan provides a credit into a notional account as of the last day of each year beginning on or after January 1, 2004 equal to five percent of the officer or employee’s compensation. Interest will be credited to the account until distribution upon termination of employment after five or more years of service with the Company and its affiliates. In addition, the Officer Nomination and Compensation Committee, subject to approval of the Board of the Company, may authorize supplemental credits to an officer or employee’s account in such amounts and at such times, and subject to such specific terms and provisions, as authorized by the Committee.
Mr. O’Donnell continuesand Mr. Skaggs continue to participate in the Retirement Plan of Columbia Energy Group Companies, a subsidiary of the Company. Mr. O’Donnell has 30 credited years of service and Mr. Skaggs has 24 credited years of service under this plan. The formula for a retiree’s monthly retirement benefit at age 65 under the Retirement Plan of Columbia Energy Group is (i) 1.15% of the retiree’s final average compensation that does not exceed 1/1/2 of the average Social Security wage base times years of service
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up to 30, plus (ii) 1.5% of the retiree’s final average compensation in excess of
1/1/2 of the average Social Security wage base times years of service up to 30, plus (iii) .5% of the retiree’s final average compensation times years of service between 30 and 40.
In addition, Mr. O’Donnell participates in the Pension Restoration Plan for the Columbia Energy Group which provides for a supplemental retirement benefit equal to the difference between (i) the benefit he would have received under the Retirement Plan had such benefit not been limited by section 401(a)(17)As of
the Internal Revenue Code and reduced by his deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit he received under the Retirement Plan. Effective January 1, 2004, Mr. O’Donnell
will participateparticipates in the Supplemental Executive Retirement Plan, described above, based on his service and compensation with the Company and its affiliates from and after November 1, 2000.
Effective January 1, 2004, the Company assumed sponsorship of the Pension Restoration Plan for Columbia Energy Group, renamed the plan the “Pension Restoration Plan for NiSource Inc. and Affiliates,” and broadened the plan to include all employees of the Company and its affiliates whose benefits under the
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applicable tax-qualified pension plan are limited by sections 415 and 401(a)(17) of the Internal Revenue Code. The Pension Restoration Plan provides for a supplemental retirement benefit equal to the difference between (i) the benefit a participant would have received under the Retirement Plan had such benefit not been limited by section 401(a)(17) of the Internal Revenue Code and reduced by deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit received under the Retirement Plan. Messrs. Neale and Miller and Ms. Zimmerman became participants in the Pension Restoration Plan effective January 1, 2004. Messrs. O’Donnell and Skaggs were participants in the Pension Restoration Plan prior to 2004. Benefits earned under the Pension Restoration Plan are used to offset amounts earned under the Supplemental Executive Retirement Plan.
Effective January 1, 2004, the Company assumed sponsorship of the Savings Restoration Plan for Columbia Energy Group, renamed the plan the “Savings Restoration Plan for NiSource Inc. and Affiliates,” and broadened the plan to include all
key management employees of the Company and its affiliates. The revised Savings Restoration Plan provides for a supplemental benefit equal to the difference between (i) the benefit an employee would have received under the NiSource Inc. Retirement Savings Plan had such benefit not been limited by sections 415 and 401(a)(17) of the Internal Revenue Code and reduced by his deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit he received under the Savings Plan.
The Messrs. Neale and Miller and Ms. Zimmerman became eligible to participate in the Savings Restoration Plan effective January 1, 2004. Messrs. O’Donnell and Skaggs were participants in the Savings Restoration Plan prior to 2004.
On July 15, 2002, the Company
has entered into an agreement with Ms. Zimmerman which provides for an additional retirement benefit in the event Ms. Zimmerman’s employment with the Company terminates for reasons other than her involuntary termination for good cause. In such event, Ms. Zimmerman’s monthly retirement benefit under the Supplemental Executive Retirement Plan will be computed upon the assumption that her first day of service was January 1, 1981 and will be reduced by the amount of her retirement benefit that she receives under the pension plan of her previous employer.
On December 3, 1996, the Company’s board of directors set March 3, 1974 as Mr. Neale’s first day of service for purposes of credit under the Executive Supplemental Retirement Plan.
Change in Control and Termination Agreements The Company has entered into Change in Control and Termination Agreements with Mr. Neale and the other Named Officers, except Mr. Miller.Officers. The Company believes that these agreements are in the best interests of the stockholders, to insure that in the event of extraordinary events, totally independent judgment is enhanced to maximize stockholder value. The agreements can be terminated on three years’ notice and provide for the payment of specified benefits if the executive terminates employment for good reason or is terminated by the Company for any reason other than good cause within 24 months following certain changes in control. Each of these agreements also provides for payment of these benefits if the executive voluntarily terminates employment for any reason during a specified one-month period within 24 months following a change in control or, in the case of Mr. Neale, at any time during this 24 month period. No amounts will be payable under the agreements if the executive’s employment is terminated by the Company for good cause (as defined in the agreements).
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The agreements provide for the payment of
two or three times the executive’s current annual base salary and target incentive bonus compensation. The executive will also receive a pro rata portion of the executive’s targeted incentive bonus for the year of termination. The executive would also receive benefits from the Company that would otherwise be earned during the
applicable two or three-year period following the executive’s termination under the Company’s Supplemental Executive Retirement Plan and qualified retirement plans.
All stock options held by the executive would become immediately exercisable upon the date of termination of employment, and the restrictions would lapse on all restricted shares awarded to the executive. The Company will increase the payment made to the executive as necessary to compensate the executive on an after-tax basis for any parachute penalty tax imposed on the payment of amounts under the contracts.
During the
applicable two or three-year period following the executive’s termination, the executive and his or her spouse or other dependents will continue to be covered by applicable health or welfare plans of the Company. If the executive dies during
thesuch two or three-year period following the executive’s termination, all amounts payable to the executive will be paid to a named beneficiary.
The agreement with Mr. Neale provides for the same severance payments as described above in the event his employment is terminated at any time by the Company (other than for good cause) or due to death or disability, or if he voluntarily terminates employment with good reason (as defined in the agreement), even in the absence of a change in control.
In connection with Mr. Adik’s retirement and in recognition of his past service and contribution with the Company, the Company entered into a retirement agreement with Mr. Adik entitling him to receive a cash bonus of $450,000 and a grant of restricted shares of common stock equal to $450,000 divided by the closing
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price of a share of the Company’s common stock on January 2, 2004. The restrictions will lapse on the earlier of April 17, 2005 or Mr. Adik’s death. Under this agreement, Mr. Adik would be entitled to receive 34,754 shares of the Company’s common stock in the event that certain change in control events occur within a specified period of time following his date of retirement. As compensation for his accrued and unused vacation days, Mr. Adik received a payment of $80,769 under this retirement agreement.
The Company also has an arrangement with Mr. Miller that, in the event that his employment is terminated as a result of a change in control of the Company prior to September 1, 2004, he would receive a payment equal to one year of his base pay, target bonus and the pro-rata value of the grants made to Mr. Miller under the Company’s Long-term Incentive Plan through the date of termination.
In the event of a change in control, all stock options, restricted stock awards and contingent stock awards which have been granted to each of the Named Officers (including the Chief Executive Officer) under the Company’s Long-term Incentive Plan will immediately vest.
Certain Relationships and Related Transactions Peter V. Fazio, Jr., an executive officer of the Company, is a partner in Schiff Hardin LLP, a law firm. The Company pays Schiff Hardin LLP a retainer fee of $60,000 per month for Mr. Fazio’s services as Executive Vice President and General Counsel of the Company. Unlike other executive officers, Mr. Fazio is not an employee of the Company, and he is not eligible to participate in or receive awards under any of the Company’s bonus, long-term incentive, pension, health insurance or other benefit plans.
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PROPOSAL II — RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the board of directors appointed Deloitte & Touche LLP, Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, Illinois 60601, as independent auditors to examine the Company’s accounts for the fiscal year ending December 31,
2004.2005, and the board of directors approved the appointment. A representative of Deloitte & Touche LLP will be present at the meeting, will be given an opportunity to make a statement if he so desires and will be available to respond to appropriate questions.
The board of directors and its Audit Committee consider Deloitte & Touche LLP well qualified to serve as the Company’s independent public accountants. The Audit Committee recommends ratification of such selection by the stockholders.
Although action by stockholders for this matter is not required, the board of directors and the Audit Committee believe that it is appropriate to seek stockholder ratification of this appointment in order to provide stockholders a means of communicating the stockholders’ level of satisfaction with the performance of the independent public accountants and their level of independence from management. If the proposal is not approved and the appointment of Deloitte & Touche LLP is not ratified by the stockholders, the Audit Committee will take this into consideration and will reconsider the appointment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2005.
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PROPOSAL III — APPROVAL OF THE AMENDMENTS TO THE COMPANY’S LONG TERM INCENTIVE PLAN
Background
At the annual meeting of stockholders held on April 13, 1994, the stockholders of the Company approved an amendment and restatement of the NIPSCO Industries, Inc. 1994 Long-Term Incentive Plan (as amended, the “Plan”). The stockholders of the Company approved additional amendments to the plan at the annual meetings of stockholders on April 14, 1999 and June 1, 2000. At the June 1, 2000 annual meeting, the stockholders approved the Amended and Restated Long-Term Incentive Plan, effective January 1, 2000. The Company subsequently amended the Plan as of January 1, 2001, October 1, 2001, January 1, 2002, March 1, 2003, and August 25, 2003, and amended and restated as of January 1, 2004.
Proposed Amendments
At a meeting on March 14, 2005 and November 29, 2004, the Officer Nomination and Compensation Committee of the Company’s board of directors approved certain amendments to the plan which would (i) increase the total number of shares of common stock or other awards available for issuance under the plan and (ii) extend the duration of the Plan to May 10, 2015. Under the proposed amendments, the maximum number of the Company’s shares of common stock that may be subject to awards would increase from 21,000,000 shares of common stock to 43,000,000 shares of common stock. In addition, under the proposed amendments, the Plan would be extended until all awards under the Plan have been satisfied by the issuance of the Company’s common stock or the payment of cash, but no award shall be granted after May 10, 2015. Currently, no awards may be granted after April 24, 2006.
Description of the Plan
General. The plan is a stock-based compensation plan, currently providing for the grant of:
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| • | Incentive stock options within the meaning of section 422 of the Internal Revenue Code, |
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| • | Options not intended to be incentive stock options (nonqualified stock options), |
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| • | Stock appreciation rights |
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| • | Restricted and contingent stock |
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| • | Performance units and |
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| • | Dividend equivalents payable on grants of contingent stock |
to officers and other key executives of the Company who are in a position in which their decisions, actions and counsel significantly impact profitability. The plan is intended to recognize the contributions made to the Company by officers and other key executives who make substantial contributions through their loyalty, ability, industry and invention, and to improve the ability of the Company to secure, retain and motivate such employees upon whom the Company’s future earnings depend, by providing them with an opportunity either to acquire or increase their proprietary interest in the Company or to receive additional compensation based upon the performance of the Company’s common stock.
Shares Subject to Award. Under the proposed amendments, the maximum number of the Company’s shares of common stock that may be subject to awards shall be increased from 21,000,000 shares of common stock to 43,000,000 shares of common stock. All awards and common stock available under the plan are subject to adjustment in the event of a merger, recapitalization, stock dividend, stock split or other similar change affecting the number of outstanding shares of common stock of the Company. Unpurchased shares of common stock subject to an option or stock appreciation right that lapses or terminates without exercise or restricted and contingent shares that have been forfeited are available for future awards. Shares of common stock delivered in lieu of cash payments or withheld by the Company to satisfy income and withholding
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obligations are considered to have been used by the plan and are not available for further awards or such delivery.
Information relating to awards which have been granted to the executive officers named in the Summary Compensation Table is presented in the various tables located in the portion of this proxy concerning the election of directors under the caption “Executive Compensation.” As of December 31, 2004, 2,424,965 options had been granted under the plan to all executive officers as a group at exercise prices ranging from $16.21 to $29.22; 420,643 options had been granted to all current directors who are not executive officers as a group at exercise prices ranging from $18.43 to $29.22; 281,479 options had been granted to all nominees for election as a director at exercise prices ranging from $19.84 to $25.94 and, 9,161,035 options had been granted to all employees as a group at exercise prices from $16.22 to $29.22. Future awards to be made are within the discretion of the Officer Nomination and Compensation Committee.
Administration. The plan is administered by the Officer Nomination and Compensation Committee, which must be composed of two or more directors who are “nonemployee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act and are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code.
The Officer Nomination and Compensation Committee has the sole power to administer the plan and to make rules with regard to how the plan is implemented. Subject to the provisions of the plan, the committee’s powers include determining the officers and employees of the Company and its subsidiaries to whom awards shall be granted, and fixing the size, terms, conditions and timing of all awards. The committee is, however, limited in the number of shares of common stock subject to awards that may be granted to certain executives of the Company.
Eligibility. The Officer Nomination and Compensation Committee may select to be a participant in the plan any executive and managerial employee of the Company and its subsidiaries who is in a position in which the employee’s decisions, actions and counsel significantly impact profitability. A director who is not an employee is not eligible to receive awards under the plan. The determination of who is eligible to participate and the awards to be granted is made on a year-to-year basis. Approximately 400 employees were eligible to participate in the plan in 2004.
Stock Options. An incentive stock option or a nonqualified option is the right to purchase, in the future, shares of the Company’s common stock at a set price. Under the plan, the purchase price of shares subject to any option, which can be either an incentive stock option or a nonqualified option, must be at least 100% of the fair market value of the shares on the day the option is granted, as determined by the Committee. Fair market value is defined as the average of the high and low prices of the Company’s common stock on the New York Stock Exchange Composite Transactions Tape on the date of the grant, or any other applicable date. On March 1, 2005, the closing price of the Company’s common stock on the New York Stock Exchange was $22.73.
Each option terminates on the earliest of (1) the expiration of the term, which may not be less than 6 months and may not exceed ten years from the date of grant; (2) 30 days after the date the option holder’s employment terminates for any reason other than disability, death or retirement, or during such other period determined by the Officer Nomination and Compensation Committee; or (3) the expiration of three years from the date an option holder’s employment terminates by reason of such option holder’s disability, death or retirement, or during such other period determined by the Officer Nomination and Compensation Committee.
An option holder may pay the exercise price for an option (1) in cash, (2) in cash received from a broker-dealer to whom the holder has submitted an exercise notice consisting of a fully endorsed option (however, in the case of a holder subject to Section 16 of the Securities Exchange Act, this payment option shall only be available to the extent such holder complies with Regulation T issued by the Federal Reserve Board), (3) by delivering shares of common stock owned by the optionee for at least six months prior to the
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date of exercise having an aggregate fair market value on the date of exercise equal to the exercise price, (4) by such other medium of payment as the Officer Nomination and Compensation Committee, in its discretion, shall authorize at the time of grant, or (5) by any combination of these methods.
Restricted Stock Awards. A restricted stock award is the grant of restricted shares of common stock of the Company, restricted as to transfer and subject to possible forfeiture in the event certain criteria or conditions are not met. These criteria or conditions may or may not be performance based. Shares of common stock awarded may not be transferred or encumbered until the restrictions established by the Officer Nomination and Compensation Committee lapse. In the event of a participant’s termination of employment (other than due to death, disability or retirement) prior to the lapse of applicable restrictions, all shares as to which there still remain unlapsed restrictions shall be forfeited. The Officer Nomination and Compensation Committee has the authority to permit an acceleration of the expiration of the applicable restriction period with respect to any part or all of a restricted stock award.
Stock Appreciation Rights. A stock appreciation right is a right to receive, in the future, in cash or common stock, all or a portion of the excess of the fair market value of the Company’s common stock, at the time the stock appreciation right is exercised, over a specified price not less than the fair market value of the common stock of the Company at the date of the grant. Stock appreciation rights may be granted in tandem with a previously or contemporaneously granted stock option, or separately from the grant of a stock option. Stock appreciation rights granted under the plan may not be granted for a period of less than one year and more than ten years and will be exercisable in whole or in part, at such time or times and as determined by the Officer Nomination and Compensation Committee at the time of the grant, which period may not commence any earlier than six months after the date of grant.
Performance Units. A performance unit is a right to a future payment, either in cash or common stock, based upon the achievement of pre-established long-term performance objectives. The Officer Nomination and Compensation Committee may establish performance periods of not less than two, nor more than five years, and maximum and minimum performance targets during the period. The level of achievement of targets will determine what portion of value of a unit is awarded. In the event a participant holding a performance unit ceases to be employed prior to the end of the applicable performance period by reason of death, disability or retirement, such participant’s units, to the extent earned, shall be payable at the end of the performance period in proportion to the active service of the participant during the performance period. Upon any other termination of employment, participation will terminate and all outstanding performance units will be canceled.
Contingent Stock Awards. A contingent stock award is a contingent right to receive stock in the future, subject to the satisfaction of certain vesting requirements or performance targets as specified by the Officer Nomination and Compensation Committee. Contingent stock awards may be granted either alone or in tandem with restricted stock awards. The Compensation Committee may establish performance periods and maximum and minimum performance targets during the period. The Officer Nomination and Compensation Committee has the authority to permit an acceleration of the expiration of the applicable restriction period with respect to any part or all of a contingent stock award. In the event of a participant’s termination of employment (other than due to death, disability or retirement) prior to the lapse of applicable restrictions, all shares as to which there still remain unlapsed restrictions shall be forfeited.
Business Criteria. The Officer Nomination and Compensation Committee can choose among the following business criteria if the committee desires to make a restricted stock grant performance based or if the committee desires to define the performance targets with respect to grants of performance units or contingent stock awards:
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| • | Growth in gross revenue; |
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| • | Earnings per share; |
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| • | Ratios of earnings relative to stockholder’s equity or to total assets; |
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| • | Dividend payments; |
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| • | Total stockholder return. |
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Duration Of The Plan. Under the proposed amendments, the Company’s ability to grant awards under the Plan will be extended from December 31, 2005 to May 10, 2015.
Termination, Suspension or Amendment. The board of directors or the Officer Nomination and Compensation Committee may terminate, suspend or amend the plan without the authorization of stockholders to the extent allowed by law or the rules of the New York Stock Exchange, including any rules issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act, as long as stockholder approval is not required for the plan to continue to satisfy the requirements of Rule 16b-3. No termination, suspension or amendment of the plan shall adversely affect any right acquired by any participant under an award granted before the date of the termination, suspension or amendment, unless the participant consents. It shall be conclusively presumed that any adjustment for changes in capitalization as provided in the plan does not adversely affect any right. The plan will apply to grants made under the plan at any time.
Tax Aspects with Respect to Grants Under the Plan. The following discussion summarizes the general principles of Federal income tax law applicable to awards granted under the plan. A recipient of an incentive stock option will not recognize taxable income upon either the grant or exercise of the incentive stock option. The option holder will recognize long-term capital gain or loss on a disposition of the common stock acquired upon exercise of an incentive stock option, provided the option holder does not dispose of those shares of common stock within two years from the date the incentive stock option was granted or within one year after the shares of common stock were transferred to the option holder. If the option holder satisfies both of the foregoing holding periods, then the Company will not be allowed a deduction by reason of the grant or exercise of an incentive stock option.
As a general rule, if the option holder disposes of the shares of common stock in a manner different than described above, the gain recognized will be taxed as ordinary income to the extent of the difference between (1) the lesser of the fair market value of the shares of common stock on the date of exercise or the amount received for the shares of common stock, and (2) the adjusted basis of the common stock (which adjusted basis ordinarily is the fair market value of the common stock subject to the option on the date the option was exercised). Under these circumstances, the Company will be entitled to a deduction in an equal amount. Any gain in excess of the amount recognized as ordinary income on such disposition will be long-term or short-term capital gain, depending on the length of time the option holder held the shares of common stock prior to the disposition.
The amount by which the fair market value of a share of common stock at the time of exercise of any incentive stock option exceeds the exercise price will be included in the computation of such option holder’s “alternative minimum taxable income” in the year the option holder exercises the incentive stock option. If an option holder pays alternative minimum tax with respect to the exercise of an incentive stock option, the amount of tax paid will be allowed as a credit against regular tax liability in subsequent years. The option holder’s basis in the common stock for purposes of the alternative minimum tax will be adjusted when income is included in alternative minimum taxable income.
A recipient of a nonqualified stock option will not recognize taxable income at the time of grant, and the Company will not be allowed a deduction by reason of the grant. The option holder will recognize ordinary income in the taxable year in which the option holder exercises the nonqualified stock option, in an amount equal to the excess of the fair market value of the shares of common stock received at the time of exercise of such an option over the exercise price of the option, and the Company will be allowed a deduction in that amount. Upon disposition of the common stock subject to the option, an option holder will recognize long-term or short-term capital gain or loss, depending upon the length of time the common shares were held prior to disposition, equal to the difference between the amount realized on disposition and the option holder’s adjusted basis of the common stock subject to the option (which adjusted basis ordinarily is the fair market value of the common stock subject to the option on the date the option was exercised.)
At the date of grant, the holder of a stock appreciation right will not be deemed to receive income, and the Company will not be entitled to a deduction. On the date of exercise, the holder of a stock appreciation right will realize ordinary income equal to the amount of cash or the fair market value of the shares of common stock received on exercise. The Company will be entitled to a corresponding deduction with respect
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to ordinary income realized by the holder of a stock appreciation right. Upon the vesting of restricted stock awards or contingent stock awards, the holder will realize ordinary income in an amount equal to the fair market value of the unrestricted shares at that time and the Company will receive a corresponding deduction. The holder of a restricted stock award can elect to recognize ordinary income on the date of grant equal to the fair market value of the stock. In such event, any further appreciation in the value of the stock will be taxed at capital gains rates when the stock is disposed of. Upon receipt of payment of a performance unit, the recipient will realize ordinary income equal to the amount paid and the Company will receive a corresponding deduction.
Votes Required
Approval of the amendments to the Long-Term Incentive Plan requires the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote.
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDMENTS TO THE COMPANY’S LONG-TERM INCENTIVE PLAN.
PROPOSAL IV — APPROVAL OF AMENDMENTS TO THE COMPANY’S
EMPLOYEE STOCK PURCHASE PLAN
Background
The Company maintains the NiSource Inc. Employee Stock Purchase Plan, as amended and restated effective December 1, 2003 (the “ESPP”). The ESPP, or a predecessor plan, has been maintained by the Company and its predecessors since 1964.
Proposed Amendments
The proposed amendments would increase the maximum number of shares of common stock that may be purchased in the future under the ESPP from 126,231 shares of common stock to 526,231 shares of common stock.
Description of the ESPP
General. The ESPP provides eligible employees with the opportunity to purchase the Company’s common stock at a discount from market value through payroll deductions. The primary purposes of the ESPP are to provide employees of the Company and certain of its subsidiaries an additional means of saving a portion of their earnings and to encourage employee ownership of Company common stock.
Shares Subject to Award. Under the proposed amendments, the maximum number of shares of common stock that may be purchased in the future under the ESPP will be increased from 126,231 shares of common stock to 526,231 shares of common stock. This number may increase in the future with stockholder approval. This number may also increase or decrease proportionately, as appropriate, in the event of a future stock dividend, stock split or combination of the Company’s common stock, spin-off, reorganization or recapitalization. If the number of shares remaining available for purchase under the ESPP is not sufficient to satisfy all then outstanding purchase rights, the available shares will be apportioned among all participants on an equitable basis. The closing sales price of our common stock on March 1, 2005 was $22.73.
Administration. The ESPP is administered by the Company’s Corporate Secretary. The ESPP Administrator has the right to interpret the provisions of the ESPP and to determine any questions arising under the ESPP.
Eligibility. The ESPP is open to each employee of the Company and its participating subsidiaries who (1) has at least one year of service with the Company or any of its subsidiaries and (2) either (a) customarily works for the Company or any subsidiary more than 20 hours per week for more than five months in any
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calendar year; or (b) is customarily employed by the Company or a participating subsidiary for at least six months in any calendar year. However, no employee is eligible to participate in the ESPP if, immediately after participating, the employee would own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of the Company’s stock, including any stock which the employee may purchase under outstanding rights and options. In addition, no employee may accrue the right to purchase shares under the ESPP and any other employee stock purchase plan of the Company and its affiliates with a fair market of more than $25,000 for each calendar year.
Participation. The ESPP provides for four savings periods during each calendar year. Savings accumulated by an employee through payroll deductions will be used at the end of each savings period to purchase as many full and fractional shares of the Company’s common stock as possible at the purchase price determined for that savings period. Savings periods are the three-month periods from January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1 to December 31. Each savings period includes all paydays within that period.
The purchase price per share assigned to the Company’s common stock for any savings period will be 90% of the closing price of the Company’s common stock on the New York Stock Exchange (“NYSE”) on the last trading day of the savings period. Shares of the Company’s common stock purchased under the ESPP will come from treasury shares, authorized but unissued shares or open market purchases of Company’s stock. The shares purchased will be credited and outstanding to an employee as of the close of business on the last day of each savings period.
An employee is eligible to participate in the ESPP on the first day of the month in which such employee first meets the eligibility criteria, and employees can enroll and start purchasing stock as of the first day of the following month by giving the Company a signed payroll deduction authorization form. Deductions begin in the first payroll period after the authorization form is processed by the Company’s payroll department. Payroll deductions can be in any full dollar amounts, not less than $10 per regular pay period, and not more than $25,000 per calendar year. An employee may increase, decrease or stop payroll deduction at any time. An Employee’s death, retirement or termination of employment with the Company or its affiliates will be considered an automatic termination from participation in the ESPP.
Any shares of stock held in an employee’s account can be sold through the ESPP or a participating employee can request to have a certificate issued to them, and once a certificate is issued, the employee can sell those shares through a stockbroker. If stock is sold through the plan, the proceeds from the sale of such stock will be determined by the average price of all shares sold from the Plan on the day of sale. Any fractional share equivalent will be converted to cash at the same average sale price.
Employees do not pay any brokerage commissions, fees or service charges in connection with purchases of stock under the ESPP. These costs are paid by the Company. Employees are responsible for all costs incurred in the sale of shares, including a $15 service fee, which may change from time to time, and any associated broker commissions.
To terminate participation in the ESPP, an employee must give the Company written notice at least seven business days prior to the purchase date on which the employee wishes to terminate participation. Upon termination of participate (and upon the death, retirement, termination of employment or cessation of eligibility of a participating employee), an employee will receive (1) a certificate for all full shares of common stock held in the employee’s account, and (2) a check for the cash in the employee’s account and the cash value of any fractional share held in the employee’s account (the cash value of the fractional share will be the average price of all shares sold from the Plan on the day of sale multiplied by the fractional share). An employee can elect to receive a check for the cash value of all full and fractional shares held in the employee’s account (the cash value of the shares will be the average price of all shares sold from the Plan on the day of sale multiplied by the number of shares sold). If the employee selects this option, the employee will pay all fees associated with the sale of the common stock held in the employee’s account.
Duration, Termination and Amendment. Unless earlier terminated by the Company’s board of directors, the ESPP will terminate when the maximum number of shares of the Company’s common stock
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available for sale under the ESPP have been purchased. The Company reserves the right to modify, suspend or terminate the ESPP, by action of the board of directors or the Officer Nomination and Compensation Committee of the board of directors, as of the beginning of any savings period. Notice of suspension, modification or termination will be given to all participants. Upon termination of the ESPP for any reason, the cash then credited to an employee’s account, if any, a certificate for all full shares of common stock held in an employee’s account, and the cash value of any fractional share shall be distributed promptly to each participating employee.
The board or the Committee may also amend the ESPP from time to time to meet changes in legal requirements or for any other reason. In no event, however, may the board or the Committee amend the ESPP to (i) materially adversely affect any rights outstanding under the ESPP during the savings period in which such amendment is to be effected, (ii) increase the maximum number of shares of common stock which may be purchased under the Plan, (iii) decrease the purchase price of the common stock below 90% of the fair market value of the closing price of the Company’s common stock on the NYSE on the last trading day of the savings period, or (iv) adversely affect the qualification of the Plan under Section 423 of the Internal Revenue Code.
Certain Federal Income Tax Consequences. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. An employee will not realize taxable income at the time he or she purchases shares of common stock under the ESPP. Employees will be taxed on dividends on shares as they are paid. The length of time an employee holds shares of common stock before disposing of them is an important variable in determining federal income tax consequences. A holding period starts the day after the day shares are purchased (i.e., the last day the common stock was traded on the NYSE in the applicable savings period).
For an employee who sells or otherwise disposes of shares of common stock purchased under the ESPP, federal income tax considerations will differ, depending upon how long he or she has held the shares. Under present law, if the employee holds the shares at least one year before disposing of them, (1) any profit up to the 10% discount will be taxable as ordinary income, (2) any further profit will be taxable as a capital gain, and (3) any loss will be treated as a capital loss. Under present law, if the employee holds shares less than one year before disposing of them (1) the full 10% discount will be taxable as ordinary income, (2) any further profit also will be taxable as ordinary income, and (3) any loss, after considering the full 10% discount as income, will be treated as capital loss. Under present law, upon the death of an employee, whenever it occurs, there shall be included in the employee’s ordinary taxable income, in the year in which death occurs, the amount by which the market price at date of death exceeds the amount paid for the shares; however, this amount shall not exceed the original 10% discount.
An employee does not have any tax consequences so long as he or she retains the shares. Under present law, if an employee holds shares less than one year before disposing of them, the Company will be allowed a deduction in the year of disposal equal to the excess of the fair market value of the shares at the date of purchase reduced by the purchase price and the 10% discount in computing its taxable income. If an employee disposes of his or her shares other than by selling them at market value, different U.S. tax considerations may apply. State and local income tax considerations may also apply.
Specific Benefits. The benefits that will be received by or allocated to persons eligible to participate in the Employee Stock Purchase Plan in the future cannot be determined at this time because the amount of contributions set aside to purchase shares of our common stock under the Employee Stock Purchase Plan (subject to the limits of the plan) are entirely within the discretion of each participant.
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Votes Required
Approval of the amendments to the Company’s Employee Stock Purchase Plan requires the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote.
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDMENTS TO COMPANY’S EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL V — STOCKHOLDER PROPOSAL TO ELECT DIRECTORS ANNUALLY
The Ray T. Chevedden and Veronica G Chevedden Family Trust (the “Trust”), through its proxy, Mr. John Chevedden, 2215 Nelson Avenue, No. 2, Redondo Beach California 90278, has requested that the Company include the following proposal and supporting statement in this proxy statement for the Company’s 2005 Annual Meeting. The Trust is the beneficial owner of 1,000 shares of the Company’s common stock. The board of directors of the Company is not in favor of the adoption of the proposal and asks that you read through the Company’s response, which follows the Trust’s proposal and supporting statement.
The proposal and supporting statement, in the form that each was submitted to the Company by the Trust, are set forth below:
Elect Each Directors Annually
RESOLVED: Elect Each Director Annually. Shareholders request that our Directors take the necessary steps, in the most expeditious manner possible, to adopt and implement annual election of each director.
I hope that this proposal can be implemented promptly with each director elected to a one-year term starting in 2006. This would be in a manner similar to the Safeway Inc. 2004 definitive proxy example.
Ray T. Chevedden, 5965 S. Citrus Ave., Los Angeles, Calif. 90278 submitted this proposal.
70% Yes-Vote
Thirty-five (35) shareholder proposals on this topic achieved an impressive 70% average yes vote in 2004. The council of Institutional Investorswww.cii.org, whose members have $3 trillion invested, recommends adoption of this proposal topic.
Annual vote on Each Audit Committee Member
Annual election of each director would also enable shareholders to vote annually on each member of our key Audit Committee. This is particularly important because poor auditing played a key role in the $200 billion-plus combined market-value loss at Enron, Tyco, WorldCom, Qwest and Global Crossing. And our Audit Committee was chaired by a director with 26-years director tenure — independence concern.
Progress Begins with a First Step
The reason to take the above RESOLVED step is reinforced by viewing our overall corporate governance vulnerability. For instance in 2004 it was reported:
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| • | Richard Thompson, a new director in 2004, was designated a “problem director” by The Corporate Library (TCL), an independent investment research firm in Portland, Maine. Reason: Mr. Thompson chaired the committee that sets executive compensation at Lennox International, which received a CEO Compensation grade of “F” by TCL. |
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| • | Hopefully Mr. Richard Thompson will not have future service on any of our key board committees. |
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| • | An awesome 80% shareholder vote was required to make certain key governance changes — entrenchment concern. |
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| • | Our directors were protected by a poison pill. |
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| • | Our Lead Director had 26-years tenure — independence concern. |
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| • | Both our Audit Committee and Compensation Committee allowed a director with 26-years director tenure to serve as Chairman — independence concern. |
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| • | Our key Compensation Committee allowed a director with 18-years director tenure to serve as Chairman — independence concern. |
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| • | Our directors had special protection from a requirement of our overwhelming 80%-vote to oust any director for good cause. |
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| • | Our Directors still had a $250,000 Charitable Award program — independence concern. |
The above condition of our corporate governance reinforces the reason to adopt the one RESOLVED statement at the beginning of this proposal. Our company has a corporate governance vulnerability to shareholders who could submit shareholder proposals on key governance topics which would likely obtain substantial support.
Best for the Investor
Arthur Levitt, Chairman of the Securities and Exchange Commission, 1993-2001 said: In my view it’s best for the investor if the entire board is elected once a year. Without annual election of each director shareholders have far less control over who represents them.
“Take on the Street” by Arthur Levitt
Elect Each Director Annually
Yes on V
Statement of the Company Against the Proposal to Elect Directors Annually:
The classified board of directors of the Company (or its corporate predecessor) has been in place since April 12, 1950. Under our certificate of incorporation and bylaws, the board of directors is divided into three classes with approximately one-third of the directors elected each year to serve a term of three years. As a result of the staggered terms, the entire board of directors could be replaced over the course of three annual meetings, which would be held within approximately two years of each other. We believe the Company benefits from the classified board through increased stability, improved long-term planning and the enhanced ability to resist unfair and abusive takeover tactics. In addition, we note that numerous other U.S. corporations have classified boards, including a majority of the S&P 500 companies.
The classified board of directors ensures that, at all times, a majority of the Company’s directors have experience as directors of the Company and have a solid understanding of the Company, its industry, business philosophy and strategy. Experienced and knowledgeable directors are a valuable resource and are better positioned to make fundamental decisions that are in the best interests of the Company and its stockholders. Electing directors to staggered three-year terms also enhances a Company’s ability to engage in long-term strategic planning. In addition, it helps the Company attract and retain qualified individuals who are willing to make a long-term commitment to the Company and take on the responsibilities that service as a director entails.
Directors elected to three-year terms are just as accountable to stockholders as directors elected annually, since all directors are required to uphold their fiduciary duties to the Company and its stockholders, regardless of the length of their term of office. Stockholders elect approximately one-third of the directors annually, providing all stockholders with an orderly means to effect change and communicate their views on the performance of the Company and its directors. In fact, a classified board may enhance the independence of non-management directors because it permits the directors to act independently and on behalf of the stockholders without worrying whether they will be re-nominated by the other members of the board each year — we believe this freedom to focus on the long-term interests of the Company instead of the re-nomination process leads to greater independence and better governance.
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A classified board structure enhances the board of directors’ ability to negotiate the best results for stockholders in a potential takeover situation because it encourages a person seeking to obtain control of the Company to negotiate with the board. By requiring at least two annual meetings to effect a change in control of the board, the classified structure gives the incumbent directors additional time and leverage to evaluate the adequacy and fairness of any takeover proposal, negotiate on behalf of all stockholders and weigh alternative methods of maximizing stockholder value. It is important to note, however, that although the classified board is intended to cause a person seeking to obtain control of the Company to negotiate with the Board, the existence of a classified board will not, in fact, prevent a person from acquiring control of a board or accomplishing a hostile acquisition.
Adoption of this proposal will not automatically eliminate the classified board structure. To do so would require further action to amend the Company’s certificate of incorporation. Under Delaware law, any proposed amendment would require the approval and recommendation of the board of directors. While the board of directors would consider such an amendment if requested by a significant majority of the stockholders, it would do so consistent with its fiduciary duty to act in a manner it believes to be in the best interest of the Company and all of its stockholders. In addition, any proposed amendment recommended by the board of directors would require approval of a majority of the outstanding shares of common stock of the Company at a future meeting.
Accordingly, the board of directors recommends a vote “against” the proposal.
Votes Required
Approval of the Proposal to Elect Directors Annually requires the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote.
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THE PROPOSAL TO ELECT DIRECTORS ANNUALLY.
PROPOSAL VI — STOCKHOLDER PROPOSAL TO ELECT DIRECTORS BY MAJORITY VOTE
The Massachusetts Laborer’s Pension Fund (the “Fund”), 14 New England Executive Park, Suite 200, P.O. Box 4000, Burlington, Massachusetts 01803-0900, has requested that the Company include the following proposal and supporting statement in this proxy statement for the Company’s 2005 Annual Meeting. The Fund is the beneficial owner of approximately 2,333 shares of the Company’s common stock. The board of directors of the Company is not in favor of the adoption of the proposal and asks that you read through the Company’s response, which follows the Fund’s proposal and supporting statement.
The proposal and supporting statement, in the form that each was submitted to the Company by the Fund, are set forth below:
Resolved:
That the shareholders of NiSource, Inc. (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.
Supporting Statement:
Our Company is incorporated in Delaware. Among other issues, Delaware corporate law addresses the issue of voting support necessary for a specific action, such as the election of corporate directors. Delaware law provides that a company’s certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). Further, the law provides that if the level of voting support necessary for a specific action is not specified in the certificate of incorporation or bylaws of the corporation, directors “shall
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be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.”
Our Company presently uses the plurality vote standard for the election of directors. We feel that it is appropriate and timely for the Board to initiate a change in the company’s director election vote standard. Specifically, this shareholder proposal urges that the Board of Directors initiate a change to the director election vote standard to provide that in director elections a majority vote standard will be used in lieu of the company’s current plurality vote standard. Specifically, the new standard should provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
Under the Company’s current plurality vote standard, a director nominee in a director election can be elected or re-elected with as little as a single affirmative vote, even while a substantial majority of the votes case are “withheld” from that director nominee. So even if 99.99% of the shares “withhold” authority to vote for a candidate or all the candidates, a 0.01% “for” vote results in the candidate’s election or re-election to the board. The proposed majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
It is our contention that the proposed majority vote standard for corporate board elections is a fair standard that will strengthen the Company’s governance and the Board. Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent directors who fail to receive a majority vote when standard or whether a plurality director election standard is appropriate in contested elections.
We urge your support of this important director election reform.
Statement of the Company Against the Proposal to Elect Directors By Majority Vote:
As a Delaware corporation, our Company is governed by the Delaware General Corporation Law which provides that, absent a specific provision in a corporation’s certificate of incorporation or bylaws to the contrary, “[d]irectors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors”. Election of directors by plurality vote has long been the accepted system among companies comparable to the Company. Accordingly, the rules governing plurality voting are well established and understood.
The Company has a history of electing, by a plurality vote, strong and independent boards of directors, consisting mostly of directors who have been “independent” within the meaning of criteria of the New York Stock Exchange, the Securities and Exchange Commission, independent rating agencies and corporate governance watchdogs. In addition, during the past ten years, every director nominee has received the affirmative vote of more than 93% percent of the shares of stock entitled to vote and present in person or by proxy at the annual meeting of stockholders. During that same time period, no more than 6.8% percent of the shares of stock entitled to vote and present in person or by proxy at the annual meeting of stockholders were withheld for the election of any one director nominee. Consequently, changing from the Company’s plurality voting requirement to the voting requirement that has been proposed would not have had any effect on the outcome of our election process and therefore is not necessary to improve the Company’s independence or corporate governance processes.
While conceptually the proposed approach seems simple, implementation of the proposal would establish a potentially disruptive vote requirement that we do not believe is necessary or reasonable. The majority voting system proposed by the proponent presents complex legal and practical issues that the proposal does not address. For example, under this methodology, it would be possible for an entire slate of candidates to fail to receive the requisite vote. Under Delaware law and the Company’s bylaws, the occurrence of this event would permit the prior director(s) to remain in office until a successor is elected and qualified. As a result, an individual who no longer wished to remain on the board, or an individual the board desired to replace, would be permitted to remain in office. If the individual chose to resign, Delaware law and the Company’s bylaws would permit the remaining board members to fill the vacancy. Similarly, the proposal could prove impractical and especially disruptive in a situation in which a competing slate of directors is nominated for election,
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because of the possibility that the division of votes could result in no candidate from either slate receiving the requisite vote.
These alternatives would not reflect the views of stockholders who have chosen to exercise their right to vote for the directors of their choice at the annual meeting. Adoption of the proposed majority vote standard could result in a less democratic process than the election of directors by plurality vote.
Additionally, the proposal may have the unintended consequence of unnecessarily increasing the cost of soliciting stockholder votes. The Company may need to implement aggressive telephone solicitation, a second mailing, or other vote-getting strategy to obtain the required vote. The end result may be increased spending by the Company in routine elections. We do not believe this would be a good use of stockholder assets.
Adoption of this proposal will not automatically change the vote required to elect directors. To do so would require further action by the board of directors to amend the Company’s bylaws. While the board of directors would consider such an amendment if requested by a significant majority of the stockholders, it would do so consistent with its fiduciary duty to act in a manner it believes to be in the best interest of the Company and all of its stockholders.
For these reasons, we believe that this stockholder proposal is not necessary, would not improve the Company’s corporate governance and is not in the best interests of the Company’s stockholders.
Votes Required
Approval of the Proposal to Elect Directors By Majority Vote requires the affirmative vote of the majority of the shares present in person or represented by proxy at the meeting and entitled to vote.
THE COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THE PROPOSAL TO ELECT DIRECTORS BY MAJORITY VOTE.
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AUDIT COMMITTEE REPORT
The Company’s Audit Committee consists of Messrs. Rolland, Foster and
JohnRichard Thompson and Dr. Woo. Each of the members of the Audit Committee is independent as defined under the applicable NYSE rules and meets the additional independence standard set forth by the board of directors. Each of the members of the Audit Committee also is “financially literate” for purposes of applicable NYSE rules. The board of directors, after substantial deliberation and a careful review of the Securities and Exchange Commission rules, has designated Ian M. Rolland, the Chairman of the Audit Committee, as the “audit committee financial expert.”
The Audit Committee has reviewed and discussed the audited financial statements with management and has discussed with Deloitte & Touche, LLP, the Company’s independent auditor, the matters required to be discussed by Statement on Auditing Standards No. 61. The Audit Committee also has received the written disclosures and the letter from Deloitte & Touche, LLP required by Independence Standards Board Standard No. 1, and has discussed with Deloitte & Touche, LLP its independence. The Audit Committee has considered whether Deloitte & Touche, LLP’s provision of other non-audit services to the Company is compatible with maintaining Deloitte & Touche, LLP’s independence.
In reliance on the review and discussions referred to above, the Audit Committee recommended to the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2003.2004.
Upon recommendation of the Audit Committee, the Company has engaged Deloitte & Touche LLP to serve as the Company’s independent public accountants for the fiscal year ended December 31,
2004.2005.
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| Audit Committee |
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| Ian M. Rolland,Chairman |
| Dennis E. Foster |
| John W.Richard L. Thompson |
| Carolyn Y. Woo |
INFORMATION REGARDING CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
Effective May 21, 2002, upon recommendation of the Audit Committee, the board of directors of the Company dismissed Arthur Andersen LLP as the Company’s independent public accountants and engaged Deloitte & Touche LLP to serve as the Company’s independent public accountants for the year 2002. Deloitte & Touche LLP served as the Company’s independent public accountants for the second, third and fourth quarters of the Company’s fiscal year which ended on December 31, 2002 and for the full fiscal year 2002 results.
Arthur Andersen LLP’s reports on the financial statements for the Company for the fiscal years ended December 31, 2000 and December 31, 2001 did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company’s two fiscal years ended December 31, 2000 and December 31, 2001 and through May 21, 2002, prior to engaging Deloitte & Touche LLP, there were no disagreements between the Company and Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures which, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused them to make reference to the subject matter of the disagreement(s) in connection with its report. During the Company’s two fiscal years ended December 31, 2000 and December 31, 2001 and through May 21, 2002, there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
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During the Company’s two fiscal years ended December 31, 2000 and December 31, 2001 and through May 21, 2002, prior to engaging Deloitte & Touche LLP, the Company did not consult Deloitte & Touche LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed; or with respect to the type of audit opinion that might be rendered on the Company’s consolidated financial statements; or with respect to any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Company provided Arthur Andersen LLP with a copy of the foregoing disclosures. A copy of Arthur Andersen LLP’s letter dated May 21, 2002, stating its agreement with these statements was filed as an exhibit to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on May 21, 2002.
INDEPENDENT AUDITOR FEES
The following table represents the aggregate fees for professional audit services rendered by Arthur Andersen LLP, the Company’s former independent auditor, and Deloitte & Touche LLP, the Company’s current independent auditor, for the audit of the Company’s annual financial statements for the years ended December 31, 20022003 and 2003,2004, and fees billed for other services rendered by Arthur Andersen LLP and Deloitte & Touche LLP during those periods. Certain amounts for 2002 have been reclassified to conform to the 2003 presentation.
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| | 2002 | | 2003 | | 2003 | | | 2004 | |
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| | Arthur Andersen LLP | | Deloitte & Touche LLP | | Deloitte & Touche LLP | | Deloitte & Touche LLP | | | Deloitte & Touche LLP | |
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Audit Fees(1) | | $ | 264,000 | | $ | 4,809,500 | | $ | 3,385,080 | | | $ | 3,385,080 | | $ | 4,431,638 | |
Audit-Related Fees(2) | | 74,016 | | 620,000 | | 991,652 | | | | 991,652 | | | 407,480 | |
Tax Fees(3) | | 23,829 | | 137,030 | | 110,704 | | | | 110,704 | | | 121,332 | |
All Other Fees(4) | | 25,000 | | 0 | | 23,508 | | | | 23,508 | | | 0 | |
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(1) | Audit Fees — These are fees for professional services performed by Deloitte & Touche LLP for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s 10-Q filings, and services that are normally provided in connection with statutory and regulatory filings or engagements. The amounts shown for Deloitte & Touche LLP for 2002 include $2,600,000 in fees related to the re-auditing of years 2000 and 2001 which had been previously audited by Arthur Andersen LLP. |
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(2) | Audit-Related Fees — These are fees for the assurance and related services performed by Deloitte & Touche LLP that are reasonably related to the performance of the audit or review of the Company’s financial statements. |
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(3) | Tax Fees — These are fees for professional services performed by Deloitte & Touche LLP with respect to tax compliance, tax advice and tax planning. |
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(4) | All Other Fees — These are fees for permissible work performed by Deloitte that does not meet the above categories. |
Pre-Approval Policies and Procedures. During fiscal year 2003,2004, the Audit Committee approved all audit, audit related and non-audit services provided to the Company by Deloitte & Touche LLP prior to management engaging the auditor for those purposes. The Audit Committee’s current practice is to consider for pre-approval annually all audit, audit related and non-audit services proposed to be provided by our independent auditors for the fiscal year. Additional fees for other proposed audit-related or non-audit services which have been properly presented to the Pre-Approval Subcommittee of the Audit Committee (consisting of Ian M. Rolland) by the Vice President and Controller of the Company (not within the scope of the approved audit engagement) may be considered and, if appropriate, approved by the Pre-Approval Subcommittee of the Audit Committee, subject to later ratification by the full Audit Committee. In no event, however, will (i) any non-audit related service be presented or approved that would result in the independent auditor no longer being considered independent under the applicable Securities and Exchange Commission rules or (ii) any service be presented or approved by the Pre-Approval Subcommittee the fees for which are26
estimated to exceed $100,000. In making its recommendation to appoint Deloitte & Touche LLP as the Company’s independent auditor, the Audit Committee has considered whether the provision of the non-audit services rendered by Deloitte & Touche LLP is compatible with maintaining that firm’s independence.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information for all equity compensation plans and individual compensation arrangements (whether with employees or non-employees, such as directors), in effect as of December 31, 2003.2004.
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| | | | | | Number of Securities | | | | | | Number of Securities | |
| | | | | | Remaining Available for | | | | | | Remaining Available for | |
| | | | | | Future Issuance Under | | | | | | Future Issuance Under | |
| | Number of Securities to | | Weighted-Average | | Equity Compensation | | Number of Securities to | | | Weighted-Average | | | Equity Compensation | |
| | be Issued Upon Exercise | | Exercise Price of | | Plans (Excluding | | be Issued Upon Exercise | | | Exercise Price of | | | Plans (Excluding | |
| | of Outstanding Options, | | Outstanding Options, | | Securities Reflected in | | of Outstanding Options, | | | Outstanding Options, | | | Securities Reflected in | |
Plan Category | | Warrants and Rights | | Warrants and Rights | | Column (a)) | | Warrants and Rights | | | Warrants and Rights | | | Column (a)) | |
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| | (a) | | (b) | | (c) | | (a) | | | (b) | | | (c) | |
Equity compensation plans approved by security holders(1) | | 8,877,078 | | 22.03 | (2) | | 8,685,041 | | | | 10,125,766 | | | 22.1799 | | | 6,312,734 | |
Equity compensation plans not approved by security holders | | 0 | | 0 | | 0 | | | | 0 | | | 0 | | | 0 | |
Total | | 8,877,078 | | 22.03 | | 8,685,041 | | | | 10,125,766 | | | 22.1799 | | | 6,312,734 | |
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(1) | Stockholder Approved Plans.This Plan category includes the following plans: The 1988 Long Term Incentive Plan, as amended and restated effective as of April 14, 1999 (No shares remain available for issuance under the plan), The 1994 Long Term Incentive Plan, as amended and restated effective as of January 1, 2004 (8,101,539(5,896,485 shares remain available for issuance under the plan), The Nonemployee Director Stock Incentive Plan, amended and restated effective as of January 1, 2004 (471,030(338,957 shares remain available for issuance under the plan), and the NiSource Inc. Employee Stock Purchase Plan, last amended on December 1, 2003 (112,472(77,292 shares remain available for purchase under the plan). |
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(2) | In calculating the weighted-average exercise price of outstanding options, warrants and rights shown in column (b), stock units and contingent stock which can convert into shares of common stock upon maturity have been excluded. Stock units and contingent stock are payable at no cost to the grantee on a one-for-one basis. |
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STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 20052006 ANNUAL MEETING
Any holder of common stock who wishes to bring any business before the
20052006 annual meeting must file a notice of the holder’s intent to do so no earlier than January
17, 20059, 2006 and no later than February
16, 2005.8, 2006. The notice must include a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made. Any holder of common stock who wishes to submit a proposal to be included in the Company’s proxy materials in connection with the
20052006 annual meeting must submit the proposal to the
Corporate Secretary of the Company by December
6, 2004.5, 2005. The holder submitting the proposal must have owned common stock having a market value of at least $2,000 for at least one year prior to submitting the proposal and represent to the Company that the holder intends to hold those shares of common stock through the date of the
20052006 annual meeting.
��
Any holder of common stock who wishes to nominate a director at the
20052006 annual meeting must file a notice of the nomination no earlier than January
17, 20059, 2006 and no later than February
16, 2005.8, 2006. The Company’s by-laws require that a notice to nominate an individual as a director must include the name of each nominee proposed, the number and class of shares of each class of stock of the Company beneficially owned by the nominee, such other information concerning the nominee as would be required under the rules of the Securities and Exchange Commission in a proxy statement soliciting proxies for the election of the
27
nominee, the nominee’s signed consent to serve as a director of the Company if elected, the nominating stockholder’s name and address, and the number and class of shares of each class of stock beneficially owned by the nominating stockholder.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely upon its review of the Forms 3, 4 and 5 furnished to the Company pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company believes that all of its directors, officers and beneficial owners of more than 10% of its common stock filed all such reports on a timely basis during 2003,2004, except as follows: Mr. O’DonnellAdik filed two late reports on Form 4 with respect to two transactions relating to the sale of Company stock in connection with the exercise of non-qualified stock options and Mr. Vajda filed one late report on Form 4 with respect to one transaction on January 3, 2003 (relatingrelating to a nonqualified stock option grant to his spouse, who is also an employee of the automatic reinvestment of dividends under his phantom stock agreement); and, each of Drs. Beering and Woo and Messrs. Decio, Foster, Rolland, Thompson, Welsh and Young filed one late Form 4 with respect to one transaction on November 20, 2003 (relating to the reinvestment of dividends in respect of restricted stock units held by such directors pursuant to the Company’s Non-Employee Director Stock Incentive Plan).Company.
ANNUAL REPORT AND FINANCIAL STATEMENTS Attention is directed to the financial statements contained in the Company’s Annual Report for the year ended December 31, 2003.2004. A copy of the Annual Report has been sent, or is concurrently being sent, to all stockholders of record as of March 16, 2004.15, 2005.
AVAILABILITY OF FORM 10-K A copy of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003,2004, including the financial statements and the financial statement schedules, but without exhibits, is contained within the Company’s Annual Report which has been sent, or is concurrently being sent, to you and will be provided without charge to any stockholder or beneficial owner of the Company’s shares upon written request to Gary W. Pottorff, Corporate Secretary, NiSource Inc., 801 E. 86th Avenue, Merrillville, Indiana 46410 and is also available at the Company’s website at www.nisource.com.
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The board of directors does not intend to bring any other matters before the Annual Meeting and does not know of any matters that will be brought before the meeting by others. If any matters properly come before the meeting it is the intention of the persons named in the enclosed form of proxy to vote the proxy in accordance with their judgment on such matters.
Please vote your shares by telephone, through the internet or by promptly marking, dating, signing and returning the enclosed proxy card.
| |
| BY ORDER OF THE BOARD OF DIRECTORSBy Order of the Board of Directors |
|
| ![(-s- Gary W. Pottorff)](https://capedge.com/proxy/DEF 14A/0000950137-05-004063/c93243dpottorg.gif) |
| Gary W. Pottorff |
| Corporate Secretary |
Dated: April 5, 20044, 2005
2839
NiSource Inc.
| |
| 801 E. 86th Avenue |
| Merrillville, Indiana 46410 |
![(NISOURCE LOGO)](https://capedge.com/proxy/DEF 14A/0000950137-05-004063/c93243dnisourc2.gif)
| |
| Officers |
| Gary L. Neale |
| Chairman President and Chief Executive Officer |
| Robert C. Skaggs, Jr. |
| President |
| Samuel W. Miller, Jr. |
| Executive Vice President Chief Operating Officer |
| Robert C. Skaggs, Jr.Michael W. O’Donnell |
| Executive Vice President Regulated Revenueand Chief Financial Officer |
| S. LaNette Zimmerman |
| Executive Vice President, Human Resources and Communications |
| Peter V. Fazio, Jr. |
| Executive Vice President and General Counsel |
| Michael W. O’Donnell |
| Executive Vice President and Chief Financial Officer |
| S. LaNette Zimmerman |
| Executive Vice President, Human Resources and Communications |
| Arthur E. Smith, Jr. |
| Senior Vice President and Environmental Counsel |
| Mark D. Wyckoff |
| Senior Vice President |
| Jeffrey W. Grossman |
| Vice President and Controller |
| Barbara S. McKay |
| Vice President, Communications |
| Arthur A. PaquinLarry J. Francisco |
| Vice President, Audit |
| Dennis E. Senchak |
| Vice President, Investor Relations, Assistant Treasurer & Assistant Secretary |
| David J. Vajda |
| Vice President and Treasurer |
| Gary W. Pottorff |
| Corporate Secretary |
| | | | |
PROXY | | ![(NISOURCE LOGO)](https://capedge.com/proxy/DEF 14A/0000950137-04-002532/c83816dc8381677.gif) ![(NISOURCE LOGO)](https://capedge.com/proxy/DEF 14A/0000950137-05-004063/c93243dc9324310eo1.gif) | | PROXY |
This Proxy is Solicited on Behalf of the Board of Directors of NiSource Inc.
for its Annual Meeting of Stockholders, May 11, 200410, 2005
The undersigned hereby appoints Gary L. Neale and Michael W. O’Donnell, or either of them, the attorneys and proxies of the undersigned, with full power of substitution, for and in the name of the undersigned to represent and vote the shares of common stock of the undersigned at the Annual Meeting of Stockholders of the Company, to be held at the Griffin Gate Marriott Resort, 1800 Newtown Pike, Lexington, Kentucky,The Westin Convention Center Pittsburgh, 1000 Penn Avenue, Pittsburgh, Pennsylvania on Tuesday, May 11, 2004,10, 2005, at 10:00 a.m., local time, and at any adjournment or adjournments thereof.
Unless otherwise marked, this proxy will be votedvoted: “FOR” the nominees listed in Proposal 1, and “FOR” Ratification of the Independent Public Accountants in Proposal 2.2, “FOR” approval of the amendment to the Company’s Long-Term Incentive Plan in Proposal 3, “FOR” approval of the amendment to the Company’s Employee Stock Purchase Plan in Proposal 4, “AGAINST” the stockholder proposal to elect directors annually in Proposal 5, and “AGAINST” the stockholder proposal to elect directors by majority vote in Proposal 6.
The undersigned stockholder hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement relating to the Annual Meeting and hereby revokes any proxy or proxies previously given. The undersigned stockholder may revoke this proxy at any time before it is voted by filing with the Corporate Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date, by voting by telephone or through the Internet, or by attending the Annual Meeting and voting in person.
PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET, OR BY MARKING, SIGNING, DATING AND MAILING THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(IMPORTANT — Continued and to be signed on reverse side.)
Address Change/Comments (Mark the corresponding box on the reverse side)
é
/\FOLD AND DETACH HEREé
/\ChooseMLinksmfor fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on toInvestor ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment.
You can now access your NiSource Inc. account online.
Access your NiSource Inc. stockholder account online via Investor ServiceDirect®ServiceDirect®(ISD).
Mellon Investor Services LLC, Transfer Agent for NiSource Inc., now makes it easy and convenient to get current information on your shareholder account.
| | | |
• | View account status | • | • View payment history for dividends |
• | View certificate history | • | • Make address changes |
• | View book-entry information | • | • Obtain a duplicate 1099 tax form |
| | • | Establish/change your PIN |
Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
| |
| Please Mark
Here for
Address Changeo
or Comments
SEE REVERSE SIDE
|
| | |
| | Please o Mark Here for Address Change or Comments SEE REVERSE SIDE |
The Board of Directors recommends a vote “FOR” Proposals 1, 2, 3 and 4:
The Board of Directors recommends a vote “AGAINST” Proposals 5 and 6:
| |
Proposal 1. | To elect four directors to serve on the Board of Directors, recommendseach for a vote “FOR” Proposal 1.three-year term and until their respective successors are elected and qualified. |
| | The Board of Directors recommends a | | |
| | | | FOR all |
FOR | | WITHHELD | | except* |
o | | o | | o |
Nominees:
01 Steven R. McCracken
02 Ian M. Rolland
03 Robert C. Skaggs, Jr.
04 John W. Thompson
* | Instruction: To withhold authority to vote “FOR” Proposal 2.for any nominee, write that nominee’s name on the line below. |
| | | | | | | | |
Proposal 2. | | | |
Ratification of Independent Public Accountants. | | FOR o | | AGAINST o | | ABSTAIN o |
| | | | FOR | | AGAINST | | ABSTAIN |
Proposal 1.3. | | To elect four directorsApproval of the Amendments to serve on the Board of | | Proposal 2. | | Ratification of IndependentCompany’s Long-Term Incentive Plan | | o | | o | | o |
| | Directors, each for a three-year term and until | | | | Public Accountants. | | | | | | |
| | their respective successors are elected and | | | | | | | | | | |
Proposal 4. | | qualified.Approval of the Amendments to the Company’s Employee Stock Purchase Plan | | FOR o | | AGAINST o | | | | | | ABSTAIN o |
| | | | | | | | | | |
Proposal 5. | | Stockholder Proposal to Elect Directors Annually | | FOR o | | AGAINST o | | ABSTAIN o |
Proposal 6. | | In their discretion, the proxies are authorizedStockholder Proposal to vote upon such other |
Elect Directors by Majority Vote | | FOR o | | AGAINST o | | | | | | business as may properly come before the meeting or any adjournmentABSTAIN o |
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof.
| Nominees: | | | | | | | | thereof. |
| 01 | Steven C. Beering | | | | | | | | |
| 02 | Dennis E. Foster | | | | | | FORall | | Consenting to receive all future annual meeting materials and |
| 03 | Richard L. Thompson | | FOR | | WITHHELD | | except* | | shareholder communications electronically is simple and fast! Enroll |
| 04 | Carolyn Y. Woo | | o | | o | | o | | today at www.melloninvestor.com/ISD for secure online access to your |
| | | | | | | | | | proxy materials, statements, tax documents and other important shareholder correspondence. |
| | | | |
*Instruction: To withhold authority to vote for any nominee, write | | | | |
that nominee’s name on the line below. | | MARK HERE IF YOU PLAN | | |
| | TO ATTEND THE MEETING | o | |
| | | | o |
| | | | | | | | | | | | | | |
PLEASE RETURN THIS PROXY CARD PROMPTLY. | | | | | | |
Signature: | | | | Date: | | | | Signature: | | | | Date: | | |
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| | | |
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![(CORNER GIF)](https://capedge.com/proxy/DEF 14A/0000950137-05-004063/c93243dcorner.gif)
PLEASE RETURN THIS PROXY CARD PROMPTLY.
SignatureSignatureDate
(Please sign this proxy as your name appears on the Company’s corporate records. Joint owners should each sign personally. Trustees and others signing in a representative capacity should indicate the capacity in which they sign.)
/\Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PMEasternPM Eastern Time the day
prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner
as if you marked, signed and returned your proxy card.
| | | | | | | | |
Internet http://www.eproxy.com/pjcwww.proxyvoting.com/ni
Use the Internetinternet to vote your proxy. Have your proxy card in hand when you access the web site. | |
OR | | Telephone 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you access the web site. | | OR | | Telephone
1-800-435-6710
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. | |
OR | | Mail
Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. |
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internet at www.nisource.com