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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential,
for Use of the Commission Only
/x/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Columbia Gas System, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
The Columbia Gas System, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(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.:
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(3) Filing party:
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(4) Date filed:
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(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 26, 1996
You are cordially invited to attend the Annual Meeting of Stockholders of The
Columbia Gas System, Inc., a Delaware corporation, which will be held at the
Delaware Art Museum, 2301 Kentmere Parkway, Wilmington, Delaware, on Friday,
April 26, 1996, at 1 p.m. (EDT), to consider and act upon the following
proposals:
1. The election of five Directors, each to serve for a term of
three years.
2. The election of Arthur Andersen LLP as independent public
accountants.
3. The approval of a Long-Term Incentive Plan.
4. The approval of a Phantom Stock Plan for Outside Directors in
lieu of retirement benefits.
5. The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors fixed the close of business on February 26, 1996 as the
record date for determination of stockholders entitled to notice of and to vote
at the Annual Meeting or any adjournment thereof.
PLEASE VOTE, SIGN, DATE AND MAIL THE ENCLOSED PROXY EVEN IF YOU PRESENTLY
INTEND TO ATTEND THE ANNUAL MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
ANY STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY NEVERTHELESS VOTE PERSONALLY
ON ALL MATTERS WITH RESPECT TO WHICH SUCH STOCKHOLDER IS ENTITLED TO VOTE.
By order of the Board of Directors.
Carolyn McKinney Afshar
Secretary
Wilmington, Delaware
March 13, 1996
The Columbia Gas System, Inc.
20 Montchanin Road, P.O. Box 4020
Wilmington, Delaware 19807-0020
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PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies made
on behalf of the Board of Directors of The Columbia Gas System, Inc., a
Delaware corporation (the "Corporation"), to be used at the Annual Meeting of
Stockholders to be held on April 26, 1996. The approximate date that this
Proxy Statement and the enclosed form of Proxy are first being sent to
stockholders is March 13, 1996.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and
clerical expense of transmitting copies of the proxy material to the beneficial
owners of stock held in their names will be borne by the Corporation. In
addition to the solicitation by mail, proxies may be solicited in person or by
telephone or telegraph; such solicitation on behalf of the Board of Directors
may be made by Directors, officers and regular employees of the Corporation and
by representatives of Kissel-Blake Inc., a proxy solicitation firm. The
Corporation has agreed to pay Kissel-Blake Inc. a fee of $15,000, plus
reasonable expenses, for its services in this regard. No additional
consideration will be paid to Directors, officers and regular employees for
solicitation activities.
A stockholder signing and returning a proxy has the power to revoke it at any
time before the exercise thereof.
ANNUAL REPORT
An Annual Report for the year ended December 31, 1995, containing financial and
other information about the Corporation and its subsidiaries, has been mailed
to all stockholders of record.
VOTING SECURITIES OUTSTANDING
At the close of business on February 26, 1996, the record date for the Annual
Meeting, the Corporation had 50,638,000 outstanding shares of common stock,
each of which is entitled to one vote.
Presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares as of the record date shall constitute a
quorum. Votes cast at the Annual Meeting will be tabulated by inspectors of
election appointed by the Corporation. Shares of stock represented by a
properly signed and returned proxy will be treated as present at the Annual
Meeting for purposes of determining a quorum, without regard as to whether the
proxy is marked as casting a vote or abstaining. Likewise, where the record
holder has indicated on the proxy card or has otherwise notified the
Corporation that it does not have power to vote shares represented by the proxy
("a broker non-vote"), the shares will be treated as present at the Annual
Meeting for purposes of determining a quorum.
Other than with respect to the election of Directors discussed below, all other
matters that come before the Annual Meeting require an approval of the majority
of the shares of stock present and entitled to vote thereon. Therefore,
abstentions as to particular proposals will have the same effect as votes
against such proposals. Broker non-votes will be treated as shares not
entitled to vote and will not be included in the calculation of the number of
votes constituting a majority of shares present and entitled to vote.
1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. Directors of only one
class are elected at each annual meeting so that the regular term of only one
class of Directors will expire annually and any particular Director stands for
election only once in each three-year period. In the event a vacancy occurs on
the Board of Directors, the remaining Directors are authorized to fill the
vacancy for the unexpired term.
To be elected, a nominee must receive the affirmative vote of a plurality of
the votes cast by the shares present and entitled to vote, in person or by
proxy, at the Annual Meeting. Accordingly, abstentions or broker non-votes as
to the election of Directors will not affect the election of the candidates
receiving a plurality of the votes.
Five Directors are to be elected at the 1996 Annual Meeting.
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CUMULATIVE VOTING FOR DIRECTORS entitles each stockholder to votes equal to the
number of shares of stock the stockholder owns multiplied by the number of
Directors to be elected -- in this case five. All votes can be cast for one
nominee or divided among more than one. A vote marked "withheld" from a
nominee(s) on the proxy will not be treated as an indication of an intention to
vote cumulatively. To vote cumulatively, the stockholder should line through
the names of the nominees from whom votes are withheld and write "cumulate" or
"vote all shares for other nominees" on the proxy card. In a case where a
proxy is signed but not marked, the proxies will not be voted cumulatively;
shares will be voted for all nominees.
NOMINEES. It is the intention of the Proxies named in the enclosed form of
proxy to vote all duly-executed proxies at this meeting, unless authority is
withheld, for the election of the following five nominees: Robert H. Beeby,
Malcolm T. Hopkins, William E. Lavery, Oliver G. Richard III and William R.
Wilson. If, at the time of the meeting, any of the nominees named is not
available to serve as a Director, the proxies may be voted for a substitute
nominee designated by the Board, or the Board may reduce the number of
Directors as authorized under the By-Laws.
INFORMATION REGARDING THE DIRECTORS
NAMES OF DIRECTORS, PRINCIPAL OCCUPATION
AND OTHER INFORMATION:
----------------------------------------
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE FOLLOWING NOMINEES.
NOMINEES FOR DIRECTOR FOR A NEW TERM TO
EXPIRE IN 1999 ARE:
[Picture] ROBERT H. BEEBY DIRECTOR SINCE 1993
Age 64. Chairman of the Board of Service America Corporation, a vending and food service company,
since 1992.(1) President and Chief Executive Officer of Frito-Lay, Inc. from 1989 through 1991 and
Pepsi-Cola International from 1984 to 1988. Director of Church & Dwight Co., Inc.; Marketing Corp. of
America; and Applied Extrusion Technologies, Inc.
[Picture] MALCOLM T. HOPKINS DIRECTOR SINCE 1982
Age 67. Private investor since 1984. Retired Vice Chairman, Chief Financial Officer and Director of
the former St. Regis Corporation. Director of Metropolitan Series Fund, Inc.; State Street Research
Portfolios, Inc.; MAPCO, Inc.; KinderCare Learning Centers, Inc.; EMCOR Group, Inc.; Phar-Mor, Inc.;
and U.S. Home Corporation.
[Picture] WILLIAM E. LAVERY DIRECTOR SINCE 1985
Age 65. President Emeritus and Professor, Virginia Polytechnic Institute and State University since
1988; President from 1975 to 1988. Director of First Union Bank of Virginia and Shenandoah Life
Insurance Company.
[Picture] OLIVER G. RICHARD III DIRECTOR SINCE 1995
Age 43. Chairman, Chief Executive Officer and President of The Columbia Gas System, Inc. (effective
April 28, 1995). Chairman of New Jersey Resources Corporation from 1992 to 1995; President and Chief
Executive Officer from 1991 to 1995. President and Chief Executive Officer of Northern Natural Gas
Company from 1989 to 1991. Senior Vice President and
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subsequently Executive Vice President of Enron Gas Pipeline Group from 1987 to 1989. Vice President
and General Counsel of Tenngasco, a subsidiary of Tenneco Corporation, from 1985 to 1987. Federal
Energy Regulatory Commission Commissioner from 1982 to 1985. Director of Natwest Bank USA and
Interstate Natural Gas Association of America.
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[Picture] WILLIAM R. WILSON DIRECTOR SINCE 1987
Age 68. Private investor since 1992. Retired Chairman of the Board and Chief Executive Officer of
Lukens Inc., manufacturer of steel and industrial products. Director of Acme Metals Incorporated;
Provident Mutual Life Insurance Company; and L.F. Driscoll Co.
CURRENT DIRECTORS WHO ARE NOT STANDING
FOR RE-ELECTION BECAUSE THEIR TERMS DO
NOT EXPIRE UNTIL 1997 ARE:
[Picture] WILSON K. CADMAN DIRECTOR SINCE 1993
Age 68. Private investor since 1992. Former Chairman, President and Chief Executive Officer, Kansas
Gas & Electric Company. Retired Vice Chairman of Western Resources, Inc. Director, El Paso Electric
Co., Inc. and Clark/Bardes Companies.
[Picture] JAMES P. HEFFERNAN DIRECTOR SINCE 1993
Age 50. Managing Director of Whitman Heffernan Rhein & Co., Inc., investment advisory and merchant
banking firm, since 1987. Chief Operating Officer and Director of Danielson Holding Corporation
since 1990 and Director of its subsidiary, Danielson Trust Company, since 1993. Chairman, President
and Chief Executive Officer of Herman's Holdings, Inc. since 1993 and Chairman of its subsidiary,
Herman's Sporting Goods, Inc., since 1995 and Director since 1993.
[Picture] ERNESTA G. PROCOPE DIRECTOR SINCE 1979
Age 67. President and Chief Executive Officer, E. G. Bowman Co., Inc., commercial insurance
brokerage firm, since 1953.
[Picture] JAMES R. THOMAS, II DIRECTOR SINCE 1990
Age 70. Private investor since 1983. Retired President and Chief Executive Officer of Carbon
Industries, Inc. Director of One Valley Bank, N.A.; Camcare, Inc.; and Shoney's, Inc.
CURRENT DIRECTORS WHO ARE NOT
STANDING FOR RE-ELECTION BECAUSE
THEIR TERMS DO NOT EXPIRE UNTIL 1998 ARE:
[Picture] RICHARD F. ALBOSTA DIRECTOR SINCE 1995
Age 59. Independent consultant since October 1994. Chairman, President and Chief Executive Officer
of Enserch Environmental Corporation, an environmental services and remediation firm, from January
1994 to October 1994. President and Chief Executive Officer from 1986 to 1994 and Chairman from 1990
to 1994 of Ebasco Services, Inc., an international consulting, engineering, construction and
environmental services firm.
[Picture] DONALD P. HODEL DIRECTOR SINCE 1995
Age 60. Managing Director of Summit Group International, Ltd., an energy consulting firm, since
1990. Secretary of the U.S. Department of the Interior from 1985 to 1989. Secretary of the U.S.
Department of Energy from 1982 to 1985.
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Director of MAPCO, Inc.; Clean Air Transit, Inc.; Energy Investors Acquisition Corporation; Taylor
Energy Company; Hart Publishing, Inc.; Eagle Publishing, Inc.; Mercury Treatment Alternatives, Inc.;
and Conserve Resources, Inc.
[Picture] MALCOLM JOZOFF DIRECTOR SINCE 1995
Age 56. Consultant on marketing and strategic planning since September 1995. Chairman and Chief
Executive Officer of Lenox, Incorporated, a manufacturer of consumer durables, from 1993 to 1995.
Previously President, Health Care Products; Corporate Group Vice President, The Procter & Gamble
Company. Director, Chemtrak, Inc.(2)
[Picture] GERALD E. MAYO DIRECTOR SINCE 1994
Age 63. Private investor since 1995. Chairman of the Board and President of Midland Life Insurance
Company (formerly Midland Mutual Life Insurance Company) from 1980 to 1995. President, Midland
Financial Services from 1994 to 1995. Director, HBO & Co. of Atlanta; Huntington Bancshares Inc.;
Borror Corporation; Midland Financial Services; and Midland Life Insurance Company.
[Picture] DOUGLAS E. OLESEN DIRECTOR SINCE 1995
Age 57. President and Chief Executive Officer of Battelle Memorial Institute, an international
technology organization, since 1987.
(1) In 1992, when Mr. Beeby had been with Service America Corporation for
two months, Service America Corporation filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
(2) In 1993, in connection with a civil proceeding brought by the U.S.
Securities and Exchange Commission, Mr. Jozoff consented, without
admitting or denying the allegations, to the entry of an order
enjoining him from violating Section 10(b) of the Securities Exchange
Act of 1934.
DIRECTOR AND OFFICER SECURITIES REPORTS
The federal securities laws require the Corporation's Directors and officers,
and persons who own more than ten percent of a registered class of the
Corporation's equity securities, to file with the Securities and Exchange
Commission and The New York Stock Exchange initial reports of ownership and
reports of changes in ownership of any securities of the Corporation.
To the Corporation's knowledge, based solely on review of the copies of such
reports furnished to the Corporation and written representations that no other
reports were required, there are no greater than ten percent beneficial owners
and all of the Corporation's officers and Directors made all required filings
during the fiscal year ended December 31, 1995 on a timely basis, except that
Mr. James R. Thomas, II inadvertently did not file a Form 4 Statement of
Changes in Beneficial Ownership. The filing was made on January 5, 1996, 27
days late.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth the beneficial ownership of common stock
by stockholders who own greater than 5 percent of the outstanding shares
as of January 31, 1996, by Directors, by those of the five most
highly-compensated executive officers who are not Directors (and two who
retired during the year) and by all Directors and executive officers of
the Corporation as a group. Except as otherwise noted, the persons
named in the table below have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
===================================================================================================================================
(1) (2) (3) (4)
Title of Name and Address Amount and Nature of Percent of
Class Beneficial Ownership (1) Class
=====================================================================-------------
Shared Sole Shared Sole
Voting Voting Investment Investment Total
Power Power Power Power Owned
======================================================================================================================-------------
5% Common Prudential Insurance 2,594,000 68,920 2,670,400 68,920 2,897.716 5.7
Corporation of America
H Prudential Plaza
o Newark, NJ 07102-3777
l ---------------------------------------------------------------------------------------------------------------------------
d Common The Capital Group - 0 - 1,847,700 - 0 - 2,862,800 2,862,800 5.7
e Companies, Inc.
r 333 South Hope Street
s Los Angeles, CA 90071
--------------------------------------------------------------------------------------------------------------------------
Common Putnam Investment - 0 - 26,250 - 0 - 2,627,000 2,653,250 5.3
Management
One Post Office Square
Boston, MA 02109
==================================================================================================================================
Common R. F. Albosta - 0 - *
D --------------------------------------------------------------------------------------------------------------------------
Common R. H. Beeby 1,000 *
i --------------------------------------------------------------------------------------------------------------------------
Common W. K. Cadman - 0 - *
r --------------------------------------------------------------------------------------------------------------------------
Common J. P. Heffernan 1,500 *
e --------------------------------------------------------------------------------------------------------------------------
Common D. P. Hodel 500 *
c --------------------------------------------------------------------------------------------------------------------------
Common M. T. Hopkins 5,512 *
t --------------------------------------------------------------------------------------------------------------------------
Common M. Jozoff 1,000 *
o --------------------------------------------------------------------------------------------------------------------------
Common W. E. Lavery 1,100 *
r --------------------------------------------------------------------------------------------------------------------------
Common G. E. Mayo 1,500 *
s --------------------------------------------------------------------------------------------------------------------------
Common D. E. Olesen 47 *
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Common E. G. Procope 1,161 *
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Common O. G. Richard III 15,000 *
--------------------------------------------------------------------------------------------------------------------------
Common J. R. Thomas, II 1,500 *
--------------------------------------------------------------------------------------------------------------------------
Common W. R. Wilson 6,000 *
==================================================================================================================================
O
Common D. L. Bell, Jr. 12,162 *
f --------------------------------------------------------------------------------------------------------------------------
Common J. H. Croom 34,713 *
f --------------------------------------------------------------------------------------------------------------------------
Common J. P. Holland 3,010 *
i --------------------------------------------------------------------------------------------------------------------------
Common M. W. O'Donnell 3,766 *
c --------------------------------------------------------------------------------------------------------------------------
Common P. M. Schwolsky 2,500 *
e --------------------------------------------------------------------------------------------------------------------------
Common C. R. Tilley 7,520 *
r --------------------------------------------------------------------------------------------------------------------------
Common L. W. Wallingford 6,778 *
s
==========================================================================================================================
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==========================================================================================================================
All Executive Officers &
Common Directors (21 Persons)
as a Group 106,269 *
==================================================================================================================================
(1) Includes an allocation of shares held by the Trustee of the Employees'
Thrift Plan of Columbia Gas System. Does not include shares of common
stock covered by exercisable options. This information is shown on the
stock option table on page __.
* Aggregate stock ownership (including exercisable options) as a
percentage of class is less than 1 percent.
STANDING COMMITTEES OF THE BOARD
AUDIT COMMITTEE--The Audit Committee recommends to the Board of Directors the
independent public accountants who are to examine the financial statements for
the ensuing year; meets periodically with the independent public accountants to
review the scope of their audits, the internal accounting controls, the
operation of the internal Audit Department and significant financial reporting
matters; reviews management's plans for engaging the Corporation's independent
public accountants for management advisory services; meets periodically with
the Vice President and General Auditor of the Columbia Gas System Service
Corporation to review the internal Audit Department charter, the annual program
of audits and the Corporation's internal controls; and reviews issues with the
independent public accountants, management and/or the Vice President and
General Auditor which could have material impacts on the Corporation's
financial position.
COMPENSATION COMMITTEE--The Compensation Committee periodically reviews and
approves a general compensation policy and salary structure for management and
professional personnel; approves all changes in base salaries of officers of
the Corporation and its subsidiaries who are in a position to exercise
discretionary judgment which can substantively influence the affairs of the
Corporation; oversees and administers incentive compensation programs in a
manner consistent with the terms of such plans as approved by the Board of
Directors; reviews and makes recommendations on changes in major benefit
programs of the Corporation's subsidiaries; consults with and advises senior
management on major policies affecting human resources; and monitors plans for
management development and succession planning for the Corporation and its
subsidiaries.
EXECUTIVE COMMITTEE--The Executive Committee has the authority to act in the
intervals between the meetings of the Board of Directors upon most matters
requiring Board approval.
FINANCE COMMITTEE--The Finance Committee reviews and monitors the annual
capital expenditure program, reviews financial plans and dividend policy and
reviews the management of investments of the Corporation's benefit plans.
CORPORATE GOVERNANCE COMMITTEE--The Corporate Governance Committee was
established by the Board in June 1993 to provide counsel to the Board in regard
to Board organization, membership and function. The Committee is responsible
to the Board for the review and recommendation of Director candidates; the
recommendation of a class of Directors for election at the Annual Meeting of
Stockholders; recommendations regarding Director retirement age, tenure and
removal for cause; review of all Board committee charters and recommendations
regarding their number, structure, membership and function; and recommendations
involving succession planning for the Chairman of the Board, the Chief
Executive Officer and other members of senior executive management.
Stockholders wishing to submit names of candidates for consideration by the
Committee should contact Carolyn McKinney Afshar, Secretary, for a copy of the
procedures to be followed.
AD HOC COMMITTEES
AD HOC BANKRUPTCY COMMITTEE -- On July 31, 1991, the Corporation and its
wholly-owned subsidiary, Columbia Gas Transmission Corporation ("Columbia
Transmission"), filed separate petitions seeking protection under Chapter 11 of
the United States Bankruptcy Code. An Ad Hoc Committee was established in 1991
to work with management in connection with the bankruptcy proceedings. On
November 28, 1995, the Order Confirming the Third Amended Plan of
Reorganization of The Columbia Gas System, Inc., dated July 27, 1995, became
effective and both the Corporation and Columbia Transmission emerged from
Chapter 11 protection. The Committee has therefore fulfilled its mandate from
the Board of Directors and has ceased to function.
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AD HOC SEARCH COMMITTEE -- At a meeting of the Board on December 15, 1993, an
Ad Hoc Search Committee was established to search for a candidate for the
position of Chairman and Chief Executive Officer. With the recommendation of
Mr. Richard for the position, this Committee fulfilled its mandate from the
Board of Directors and has ceased to function.
AD HOC SPECIAL LITIGATION COMMITTEE -- An Ad Hoc Committee was established by
the Board on March 15, 1995 to determine whether it was in the best interests
of the Corporation to pursue or abandon the claims asserted in the derivative
litigation then pending. On July 17, 1995 the Committee made its recommendation
to the Board, fulfilling its mandate.
BOARD AND BOARD COMMITTEES
MEMBERSHIP AND MEETINGS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
NAME BOARD AUDIT COMPENSATION EXECUTIVE FINANCE CORPORATE BANKRUPTCY SEARCH SPECIAL
GOVERNANCE LITIGATION
- ------------------------------------------------------------------------------------------------------------------------------------
MEETINGS HELD 11 3 8 1 3 4 5 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
R.F. ALBOSTA X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
R.H. BEEBY X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
W.K. CADMAN X X* X X
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. HEFFERNAN X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
D.P. HODEL X
- ------------------------------------------------------------------------------------------------------------------------------------
M.T. HOPKINS X X* X X* X
- ------------------------------------------------------------------------------------------------------------------------------------
M. JOZOFF X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
W.E. LAVERY X X X X X*
- ------------------------------------------------------------------------------------------------------------------------------------
G.E. MAYO X X X X*
- ------------------------------------------------------------------------------------------------------------------------------------
D.E. OLESEN X X X
- ------------------------------------------------------------------------------------------------------------------------------------
E.G. PROCOPE X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
O.G. RICHARD III X* X*
- ------------------------------------------------------------------------------------------------------------------------------------
J.R. THOMAS, II X X X* X
- ------------------------------------------------------------------------------------------------------------------------------------
W.R. WILSON X X X X X* X* X
- ------------------------------------------------------------------------------------------------------------------------------------
*Denotes Chairperson
Each incumbent Director attended at least 75 percent of the total number of
meetings of the Board and Board committees on which he or she served held
during the period of his/her service, except Mr. Beeby, who attended 65 percent
of such meetings.
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STANDARD DIRECTORS' COMPENSATION
====================================================================================================
1995 Directors' Compensation for Board and Committee Meetings:
====================================================================================================
Retainer Meeting Fee Chairman's Fee
$ $ $
- ----------------------------------------------------------------------------------------------------
Board 25,000 1,000 -
- ----------------------------------------------------------------------------------------------------
Audit - 1,000 3,000
- ----------------------------------------------------------------------------------------------------
Compensation - 1,000 3,000
- ----------------------------------------------------------------------------------------------------
Executive 6,000 800 -
- ----------------------------------------------------------------------------------------------------
Finance - 1,000 3,000
- ----------------------------------------------------------------------------------------------------
Corporate Governance - 1,000 3,000
- ----------------------------------------------------------------------------------------------------
Ad Hoc Committees* - 1,000 -
====================================================================================================
*In addition to the meeting fee, members of the Ad Hoc Special Litigation
Committee were entitled to receive, pursuant to Board authorization, an hourly
fee for work outside of Committee meetings. Mr. Mayo, Chairman of the
Committee, received a total of $13,675 in hourly fees. In addition, members
of the Ad Hoc Search Committee received a payment equivalent to a meeting fee
for attendance at interviews with candidates. Each member of the Committee
attended interviews as follows: Mr. Cadman- 3; Mr. Heffernan- 3; Mr. Hopkins-
2; Dr. Lavery- 3; Mr. Thomas- 3; and Mr. Wilson- 4.
No officer received any compensation for services as a Director while also
serving as an officer of the Corporation.
The Corporation offers medical coverage to nonemployee Directors and pays the
premium associated with their participation. The Corporation also reimburses
them for the cost of Medicare Part B, if applicable. Nonemployee Directors may
elect to defer compensation for distribution at a later date. Deferred amounts
will accrue interest at the rate for six-month U.S. Treasury bills and may be
paid in a lump sum or in annual installments over ten years. Deferred amounts
will be automatically paid in a lump sum following certain specified changes in
control of the Corporation.
Each nonemployee Director as of the date hereof with a minimum of five years'
service on the Board who retires after attaining age 70 or becomes disabled
will receive annual retirement payments equal to the amount of the annual
retainer for Board service at the time of retirement unless the new Phantom
Stock Plan for Outside Directors proposed for stockholder approval at this
meeting (see page ___ ) is approved by stockholders and such current Director
elects to waive coverage under the retirement plan and receive shares of
equivalent value under the Phantom Stock Plan for Outside Directors. Payments
under the current retirement plan would cease at the death of the Director
unless the Director elected an actuarial equivalent option. In the event of
certain specified changes in control of the Corporation, a Director (regardless
of years of service on the Board) could elect a lump-sum payment equal to the
present value of the retainer at the time of the election times the number of
years of Board service, with a minimum of ten years. Assuming the Phantom
Stock Plan for Outside Directors is approved by the stockholders, the
retirement plan will not be available for nonemployee Directors assuming office
in the future.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION REPORT TO STOCKHOLDERS
1996 EXECUTIVE COMPENSATION PLAN CHANGES
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Following the Corporation's emergence from Chapter 11 protection, the
Compensation Committee (the "Committee") of the Corporation's Board of
Directors approved a new total compensation program for the executive group,
effective in 1996. The Committee felt strongly that a more aggressive PAY FOR
PERFORMANCE compensation program was needed to focus management's attention on
the Corporation's NEW strategic business initiatives and financial performance
objectives. The Committee believes that the design and execution of the new
executive compensation program is critical to the Corporation's future success
and wants to emphasize several key concepts going forward into 1996.
- - Greater amounts of the executives' pay packages will be PLACED AT RISK
and will be based upon CREATING LONG-TERM VALUE FOR THE STOCKHOLDERS.
- - The new program will TIE COMPENSATION MORE CLOSELY TO THE FORTUNES OF
THE STOCKHOLDERS through the use of a combination of cash and
STOCK-BASED INCENTIVE COMPENSATION PLANS.
- - Emphasis will be placed on the achievement of both short- and
longer-term internal VALUE ADDED PERFORMANCE MEASURES as well as
STOCKHOLDER RETURN EXPECTATIONS in relationship to peers.
- - The program will provide highly competitive financial rewards for
meeting or exceeding financial targets.
In order to accomplish these objectives and to FOCUS MANAGEMENT'S ATTENTION on
the new competitive business environment, the Committee has decided that awards
for the most senior executives under the 1996 program will be based on the
newly installed COLUMBIA VALUE ADDED FINANCIAL PERFORMANCE MEASURES. Value
added measures determine the real value of particular investments by the extent
the return on that investment exceeds the cost of the investment, including the
cost of capital.
The new executive compensation program also includes a component to bring
special attention to the important area of STOCKHOLDER RETURN. The
Corporation's Total Shareholder Return performance (stock price appreciation
plus dividend accruals) will be compared to the S&P Natural Gas Utility Index
as included in this Annual Proxy Statement. It is, generally, the intent of
the Committee to provide awards of options when the Corporation's Total
Shareholder Return exceeds the median of companies which comprise this peer
group. Consequently, any potential value to participants will come only when
the stock price appreciates and the stockholders likewise benefit from
increased market appreciation. Contingent or restricted stock may also be
awarded in very limited applications.
1995 EXECUTIVE COMPENSATION PROGRAM
The compensation philosophy described below is the basis for the 1995
compensation program. Any compensation decisions described or listed in the
enclosed tables were made relevant to that plan year. The executive
compensation program and respective philosophic concepts will be changed as
described above, under the 1996 program, to reflect the Board of Directors'
newly expressed position on pay for performance.
GENERAL - Through the Committee, the Board of Directors has developed an
executive compensation philosophy and programs to implement that philosophy.
These programs combine to form the basis of the total compensation plan for
senior management of the Corporation and its subsidiaries (the "System").
COMPENSATION PHILOSOPHY - The Board of Directors believes that total
compensation is not only payment for services rendered to the System, but also
a means to provide a strong motivational vehicle for the achievement of key
financial and strategic goals. The System provides executives with the
opportunity to increase their total compensation above base salary through
annual and longer-term incentive compensation programs. Incentive compensation
goals are established such that their achievement will result in added value to
the System over reasonable periods of time. This is how compensation is linked
to corporate performance. The System's executive compensation program is
designed to:
- 11 -
13
- provide annual cash compensation and benefit levels that target
the median of the marketplace in similar-sized utility and
industrial companies;
- maintain equitable relationships among the compensation levels
established for all jobs within the System;
- provide for the recognition of performance delivered
year-to-year and over the long term; and
- ensure that appropriate controls are in place for compensation
to be fully earned.
Because of the System's size and integrated nature, a number of well-known
utility and industrial executive compensation surveys are utilized to determine
competitive remuneration for executives. Most of the companies in the S&P
Natural Gas Utility Index are included in one or more of these surveys.
However, no single executive compensation survey covers all of the companies in
the S&P Natural Gas Utility Index.
IMPLEMENTATION OF PHILOSOPHY - The System's executive compensation program is
administered by the Committee. The Committee is composed of six independent,
non-employee Directors. As of December 31, 1995, the System's executive total
compensation program consisted of the following:
1. Base Salary Program
2. Annual Incentive Compensation Plan
3. Long-Term Incentive Plan
4. Benefit Plans
5. Other Arrangements
1. Base Salary Program - A base salary range is established for each
executive position based on a comparison of compensation levels of
similar positions in the external market. Competitive base salary
levels are needed to attract and retain competent executives.
Individual performance reviews are conducted at least annually and are
used, along with the relative position of the individual's salary
within the salary range, to determine if any increase to base salary is
warranted. Increases are based on individual performance and are not
automatic. Based on the utility and industrial compensation surveys
referred to above, the base salary levels for the named executive
officers as a group approximate the median for similar executives with
corporations of similar size and complexity. A range of merit
opportunities is preestablished on a uniform basis and the level of an
increase within that range is based on an assessment of an individual's
management skills and achievement against a variety of preestablished
corporate and operating company goals. Through December 31, 1995,
these goals included specific Return on Invested Capital (ROIC)
performance measures as well as other organizational goals pertaining
to an executive's individual business unit. Each of the goals is
weighted and assigned to each individual according to its importance
and impact on the business unit. The achievement of financial measures
is given high priority, but the percentage will vary based on the
individual's position within the organization.
2. Annual Incentive Compensation Plan - This plan, which was adopted in
1987, provided the opportunity for payment of cash awards to key
employees for attainment of specific goals which contributed directly
to the present and future financial health of the System. The plan was
suspended in mid-1991 and continued in suspension through 1995. The
plan has been amended and restated and will be implemented, effective
January 1, 1996. Awards for 1996 performances will not be made until
1997 after financial results for 1996 are final.
- 12 -
14
An interim cash performance award program was authorized by the
Committee in 1992. Eligibility for consideration in the Interim Cash
Performance Award Program was based on the individual's level of
responsibility within the organization and ability to contribute to the
financial performance of the company. The award opportunities for 1994
ranged from zero to 20 percent of an individual's annual salary based
on performance against pre-set goals. In 1995 the maximum was
increased to 35 percent. The higher the achievement and contribution
to the Corporation, the larger the potential award could be.
Performance measures included specific ROIC financial targets as
reflected in the Corporation's strategic business plan and other
organizational goals which can contribute to the success of the
company. The award for 1994 performance was made in 1995 and, for the
executive officers named in the Summary Compensation Table, is shown in
that table. The award for 1995 performance will not be determined or
awarded until later in 1996. This interim program will end with the
implementation of the revised program referred to above, effective
January 1, 1996.
3. Long-Term Incentive Plan - The Long-Term Incentive Plan, which was
adopted in 1986, provided additional incentives to officers and other
key employees of System companies through the granting of incentive
stock options, non-qualified stock options, stock appreciation rights
and/or contingent stock awards. The plan was administered by the
Committee, no member of which was eligible to participate in the plan.
The Committee considered both organizational level and individual
performance in determining eligibility and the number of shares to be
awarded. This plan was suspended in mid-1991 and continued in
suspension through 1994. The Committee at its December 20, 1994
meeting decided that it would be appropriate to resume this plan during
1995 and made awards at its March 1995 meeting which are reported in
the Options Table of this Proxy Statement. The plan terminated by its
terms on September 18, 1995. Subject to stockholder approval, the
System is planning to adopt a new Long-Term Incentive Plan as described
elsewhere in this Proxy Statement.
4. Benefit Plans - The System maintains savings, retirement, medical,
dental, long-term disability, life insurance and other benefit plans of
general applicability. Federal regulations establish limits on the
benefits which may be paid under savings and retirement plans qualified
under the Internal Revenue Code ("IRC"). To maintain compliance, the
System caps benefits under the qualified plans at the required levels.
To provide comparable benefits to more highly compensated employees,
the System has established a Thrift Restoration Plan and a Pension
Restoration Plan, both of which are non- qualified and unfunded.
However, the Pension Restoration Plan may be funded through a trust
arrangement at the election of the beneficiary once a threshold
liability of $100,000 has been reached. The Committee views these
supplemental plans as part of base compensation.
5. Other Arrangements - When circumstances warrant, the Corporation and
other companies in the System can enter into agreements seeking to
retain the services of experienced management during periods of
financial uncertainty. Such agreements were entered into in July 1991
and expired in 1993. In order to retain experienced management, the
Committee authorized the execution of new agreements upon approval by
the Bankruptcy Court. These employment agreements have been terminated
and are no longer in effect; however, payments were made pursuant to
these agreements in 1995 as described elsewhere in this Proxy Statement
under "Employment Agreements" and as shown on the Summary Compensation
Table. Mr. Richard, the new Chairman, CEO, and President of the
Corporation, and Mr. Schwolsky, a Senior Vice President and Chief Legal
Officer of the Corporation, were granted employment agreements upon
hire. For a more detailed description of the agreements, please see
"Employment Agreements" elsewhere in this Proxy Statement.
DEDUCTIBILITY OF COMPENSATION - The Committee has reviewed the potential impact
on the System of Section 162(m) of the IRC which imposes a limit on tax
deductions that the System may claim for annual compensation in excess of one
million dollars paid to any of the CEO and the four other most highly
compensated executive officers. The Committee has determined that under
current compensation arrangements, the impact of Section 162(m) on the System
would be limited, if applicable at all, and, therefore, has decided not to take
any action at this time to meet the requirements for an exemption for
"performance based compensation" for the Annual Incentive Compensation Plan.
However, it is contemplated that such a deduction will be pursued where
available for the proposed Long-Term Incentive Plan.
- 13 -
15
EVALUATION PROCESS - Each year, the Board of Directors of the Corporation
reviews and approves strategic business and financial plans for the Corporation
and each of its subsidiaries. In addition to various business strategies,
these plans include specific financial targets such as ROIC or other measures
to evaluate whether stockholder value has increased.
The goals set forth in these strategic plans are the bases for evaluating the
performance of the CEO of the Corporation and other senior executives whose
compensation falls under the direct purview of the Committee. Attainment of
meaningful strategic objectives over reasonable time periods increases value to
stockholders, and the increased compensation opportunities for executives are
directly linked to the attainment of these objectives.
1995 CHIEF EXECUTIVE OFFICER'S PAY
Base Salary - At its March 14, 1995 meeting the Committee decided that Mr.
Croom's base salary should be increased to $740,000 (a 6.9 percent increase to
be effective April 1, 1995). This merit increase was made within the
guidelines established under the System's executive compensation program as
described above. This compensation action competitively positioned Mr. Croom's
base pay within the established salary range and reflected the salary movement
of similar positions in the Corporation's peer group comparisons.
Effective as of the close of business on April 28, 1995, Oliver G. Richard III
was elected Chairman, CEO and President of the Corporation. John H. Croom
retired effective May 1, 1995.
To attract an executive of this caliber, the Corporation entered into an
employment agreement with Mr. Richard that provides a base salary of $750,000
per year, subject to such increases as may be approved by the Board. The
agreement provides for contingent stock grants of 10,000 shares of the
Corporation's common stock upon Mr. Richard's commencement of employment with
the Corporation, and 5,000 shares per year on December 31 of each of the years
1995, 1996 and 1997, if he is employed by the Corporation on those dates. In
addition, subject to the receipt of necessary approvals, on the thirtieth day
after the Corporation's discharge from bankruptcy, Mr. Richard was to receive a
grant of options to purchase, at the then prevailing market price, 100,000
shares of the Corporation's common stock. Since the options could not be
issued as of the thirtieth day following the Corporation's discharge from
bankruptcy as the Long-Term Incentive Plan was no longer in effect and no
successor plan had been approved by the stockholders, Mr. Richard, in addition
to receiving the options when issued, will receive a cash payment equal to the
excess, if any, of the actual grant price over the fair market value of the
shares on the thirtieth day following discharge from bankruptcy.
Under the terms of the employment agreement, the Corporation compensated Mr.
Richard for certain items that he forfeited as a result of his terminating
employment with New Jersey Resources Corporation. This compensation is
reflected in the "All Other Compensation" column of the Summary Compensation
Table. Besides being eligible to participate in all incentive compensation
plans and employee benefit programs provided to other senior executives of the
System, Mr. Richard may receive, upon retirement, supplemental pension payments
to make up the difference, if any, between the System's pension benefits and
those Mr. Richard would have received from his previous employer. In the
opinion of two outside consulting firms, the compensation offered to Mr.
Richard was reasonable and necessary in order to attract an outsider to assume
the responsibilities of CEO. Based thereon, the Committee approved the
employment agreement.
ANNUAL INCENTIVE PLAN - Under the provisions of the Interim Annual Incentive
Plan as described above, on March 14, 1995, the Committee approved a cash award
for Mr. Croom of $400,000 to recognize the attainment during 1994 of
predetermined financial performance targets based primarily on corporate and
operating company ROIC goals and because of his extraordinary leadership in
bankruptcy reorganization which created the framework for a resolution to the
bankruptcy. This award was granted in accordance with the Corporation's "Pay
for Performance" compensation philosophy for its executives. An award, if any,
for Mr. Richard for 1995 will not be determined until later in 1996.
LONG-TERM INCENTIVE PLAN - As noted above, Mr. Richard will receive awards of
stock options pursuant to his employment agreement to be issued under the new
Long-Term Incentive Plan, which, subject to approval by stockholders and
regulatory agencies, will be effective February 21, 1996. In addition, subject
to the
- 14 -
16
Corporation's receipt of such approvals for the plan, Mr. Richard will receive
restricted stock as compensation for performance based upon his contributions
and the increase in stock price from April 28, 1995 to December 28, 1995, the
thirtieth day after the Corporation's emergence from bankruptcy. To provide
an additional incentive to Mr. Richard to continue his employment with the
Corporation, only 20 percent of the restricted stock would be vested each year,
with the first 20 percent being vested January 2, 1997, and an additional 20
percent being vested on the first business day of each succeeding calendar
year. Because the issuance of the restricted stock is subject to stockholder
and regulatory approval of the new Long-Term Incentive Plan, Mr. Richard's
employment agreement has been amended not only to provide for the issuance of
restricted stock, but also to provide a cash bonus in lieu of the restricted
stock if such aforesaid approval is not obtained. In addition, Mr. Richard may
receive an award under the proposed new Long-Term Incentive Plan.
By the Compensation Committee:
Wilson K. Cadman, Chairman James P. Heffernan
Robert H. Beeby James R. Thomas, II
William E. Lavery William R. Wilson
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, listed above, all served on the
Committee for the entire 1995 fiscal year, except for Mr. Wilson who was
appointed to the Committee at the organizational meeting of the Board of
Directors following the Annual Meeting of Stockholders on April 28, 1995.
Messrs. George P. MacNichol and William R. Wilson served on the Compensation
Committee from January 1, 1995 until the organizational meeting of the Board of
Directors. None of the members of the Compensation Committee has served as an
officer or employee of the Corporation or any of its subsidiaries.
EMPLOYMENT AND RETENTION AGREEMENTS
Employment agreements, which were effective July 19, 1991, for J. H. Croom, D.
L. Bell, Jr., C. R. Tilley and J. P. Holland, expired on July 18, 1993. The
Compensation Committee, in order to retain incumbent management through the
ongoing bankruptcy process, authorized the execution of modified employment
agreements with the aforementioned four executives effective July 19, 1993.
These contracts were approved by the Bankruptcy Court on October 20, 1993.
The employment agreements, executed in 1993 between the Corporation and J. H.
Croom and D. L. Bell, Jr., each provided for retention payments equivalent to
one year's base salary if the individual remained employed at the date of
confirmation of the Corporation's reorganization plan by the Bankruptcy Court.
The employment agreement with J. P. Holland provided for retention payments
equivalent to one year's base salary if the individual was still in the employ
of Columbia Gas Transmission Corporation or the Corporation at the date of
confirmation by the Bankruptcy Court of a plan of reorganization for Columbia
Gas Transmission Corporation. The employment agreement for C. R. Tilley,
Chairman and CEO of the distribution companies, was a two-year agreement which
expired July 19, 1995 and provided for the payment of an amount equivalent to
one year's base pay on July 19, 1994.
Each employment agreement also stated that the employee might treat his
employment as terminated without cause if one of the following were to occur:
1. a reduction in the employee's fixed salary or other benefits to which
such employee was entitled (other than a reduction affecting all
employees generally);
2. a liquidation, dissolution, consolidation or merger, or transfer of all
or substantially all of the Corporation's assets (other than a
transaction in which the successor corporation had a net worth equal to
or greater than that of the Corporation and assumes the agreement and
all its obligations and undertakings); or
- 15 -
17
3. a change in control of the Corporation (as defined in the agreement) or
a material reduction of the employee's rank or responsibilities.
In the event of such an election by an employee to treat the agreement as
terminated or in the event of a termination by the Corporation not permitted by
the agreement, the employee would be entitled to continue to receive his fixed
salary and specified fringe benefits for a period of 12 months but would not be
entitled to a retention award. If such a termination occurred during the
180-day period immediately following a change in control, the employee was
entitled to receive, in lieu of the retention payments just described, a
lump-sum termination payment equal to the present value of all amounts
otherwise payable under the agreement (except certain fringe benefits),
discounted by the interest rate specified in the agreement. In addition, if
employment were terminated other than for cause, J. P. Holland would have been
entitled to receive supplemental income payments and medical/dental benefits
from the first anniversary of the termination to the attainment of age 55, the
earliest date under which he could qualify for retirement benefits under the
Corporation's retirement program. These supplemental income payments
approximate 60 percent of the annual pension income earned as of the date of
execution of the employment agreement and payable at age 55.
After Mr. Richard assumed office on April 28, 1995, Mr. Croom retired effective
May 1, 1995 and payments pursuant to his employment agreement are shown in the
"All Other Compensation" column of the Summary Compensation Table.
Effective as of the close of business on August 25, 1995, Peter M. Schwolsky
was elected Chief Legal Officer of the Corporation. Daniel L. Bell, Jr.
retired effective September 1, 1995, and payments pursuant to his agreement are
shown in the "All Other Compensation" column of the Summary Compensation Table.
The Corporation and Columbia Gas Transmission Corporation received confirmation
by the Bankruptcy Court of plans of reorganization on November 15, 1995, and
James P. Holland received payment pursuant to his agreement. Mr. Holland's
payment is also shown in the "All Other Compensation" column of the Summary
Compensation Table.
In addition to salary, options, bonus, restricted stock and other matters
discussed in the Report of the Compensation Committee, Mr. Richard's
employment agreement provides that, if required regulatory or shareholder
approval is not obtained to permit the effective issuance of the stock options
to be granted to Mr. Richard for 100,000 shares of the Corporation's common
stock, a bonus would be paid to Mr. Richard. Such bonus would be paid on each
of the first and second anniversary of the Corporation's discharge from
bankruptcy (assuming that Mr. Richard is employed on each such anniversary
date) in an amount equal to the product of 50,000 times the difference, if
positive, between the fair market value of a share of the Corporation's common
stock on each such anniversary date and the fair market value thereof on the
30th day after said discharge from bankruptcy. Mr. Richard's employment
agreement further provides for severance benefits to be paid to Mr. Richard in
the event his employment is terminated without cause. The severance benefits
would include payment of Mr. Richard's annual base salary, incentive
compensation and fringe benefits for a period of 24 months. If his employment
is terminated before the first anniversary of the signing of the agreement, Mr.
Richard would receive his annual base salary, incentive compensation and fringe
benefits for the remainder of the first year, in addition to the 24-month
salary, incentive compensation and fringe benefits. If Mr. Richard's
employment is terminated due to a change in control of the Corporation (as
defined in the agreement), the period of severance benefits is extended from 24
to 36 months, but the amount that may be paid to Mr. Richard, which would
constitute "parachute payments" under the IRC, will be limited to the extent
necessary to avoid the imposition of an excise tax under the IRC.
Mr. Schwolsky and the Corporation have entered into an employment agreement
that provides a base salary of $285,000 per year, subject to such increases as
may be approved by the Board. Mr. Schwolsky received a grant of 2,500 shares
of the Corporation's common stock on September 5, 1995 pursuant to his
employment agreement. In addition, upon employment, Mr. Schwolsky received a
grant of options to purchase, at the then prevailing market price, 5,000 shares
of the Corporation's common stock.
Besides being eligible to participate in all incentive compensation plans and
employee benefit programs provided to other senior executives of the System,
Mr. Schwolsky may receive, upon retirement, supplemental pension
- 16 -
18
payments to make up the difference, if any, between the System's pension
benefits and those Mr. Schwolsky would have received from his previous
employer.
The employment agreement further provides for severance benefits to be paid to
Mr. Schwolsky in the event his employment is terminated without cause. The
severance benefits would include payment of Mr. Schwolsky's annual base salary,
incentive compensation and fringe benefits for a period of 24 months. If his
employment is terminated before the first anniversary of the signing of the
agreement, Mr. Schwolsky would receive his annual base salary, incentive
compensation and fringe benefits for the remainder of the first year, in
addition to the 24-month salary, incentive compensation and fringe benefits.
If Mr. Schwolsky's employment is terminated due to a change in control of the
Corporation (as defined in the agreement), the period of severance benefits is
extended from 24 to 36 months, but the amount that may be paid to Mr.
Schwolsky, which would constitute "parachute payments" under the IRC, will be
limited to the extent necessary to avoid the imposition of an excise tax under
the IRC.
- 17 -
19
===============================================================================================================================
OPTION/SAR GRANTS IN LAST FISCAL YEAR
===============================================================================================================================
Potential Realizable
Value at Assumed Annual
Individual Grants Rates of Stock Price
Appreciation
for Option Term
===============================================================================================================================
(a) (b) (c) (d) (e) (f) (g)
===============================================================================================================================
Name Number of % of Total Options/SARs Exercise or Expiration 5% ($) 10% ($)
Securities Granted to Employees in Base Price Date
Underlying Fiscal Year ($/Sh)
Options/SARs
Granted
- -------------------------------------------------------------------------------------------------------------------------------
O. G. Richard III
Chairman, CEO & President
0 0.0% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
J. P. Holland
Chairman & CEO of
Corporation's Gas
Transmission Segment 5,000 5.4% $28.99 5/17/05 $80,858 $231,013
- -------------------------------------------------------------------------------------------------------------------------------
M. W. O'Donnell
Senior Vice President &
Chief Financial Officer
5,000 5.4% $28.99 5/17/05 $80,858 $231,013
- -------------------------------------------------------------------------------------------------------------------------------
P. M. Schwolsky
Senior Vice President &
Chief Legal Officer
5,000 5.4% $31.05 6/05/05 $97,636 $247,429
- -------------------------------------------------------------------------------------------------------------------------------
C. R. Tilley
Chairman & CEO of
Corporation's Gas
Distribution Segment 5,000 5.4% $28.99 5/17/05 $80,858 $231,013
- -------------------------------------------------------------------------------------------------------------------------------
L. W. Wallingford
Senior Vice President of
Columbia Gas System
Service Corporation
5,000 5.4% $28.99 5/17/05 $80,858 $231,013
- -------------------------------------------------------------------------------------------------------------------------------
J. H. Croom
former Chairman, CEO &
President 0 0.0% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
D. L. Bell, Jr.
former Senior Vice
President, Chief Legal
Officer & Secretary 5,000 5.4% $28.99 5/17/05 $80,858 $231,013
===============================================================================================================================
- 18 -
20
===========================================================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
===========================================================================================================================
(a) (b) (c) (d) (e)
===========================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at at Year-End ($)
Year-End
===========================================================================================================================
Number of Value Exercisable/ Exercisable/
Name Shares Acquired Realized Unexercisable Unexercisable (1)
on Exercise ($) (1)
===========================================================================================================================
O. G. Richard III -0- $0 0/0 $0
- ---------------------------------------------------------------------------------------------------------------------------
J. P. Holland -0- $0 15,960/0 $74,425/0
- ---------------------------------------------------------------------------------------------------------------------------
M. W. O'Donnell -0- $0 12,990/0 $74,425/0
- ---------------------------------------------------------------------------------------------------------------------------
P. M. Schwolsky -0- $0 5,000/0 $64,125/0
- ---------------------------------------------------------------------------------------------------------------------------
C. R. Tilley -0- $0 21,500/0 $108,687/0
- ---------------------------------------------------------------------------------------------------------------------------
L. W. Wallingford 450 $1,154 19,040/0 $116,117/0
- ---------------------------------------------------------------------------------------------------------------------------
J. H. Croom 12,600 $26,868 83,000/0 $251,268/0
- ---------------------------------------------------------------------------------------------------------------------------
D. L. Bell, Jr. 4,000 $10,509 24,400/0 $139,822/0
- ---------------------------------------------------------------------------------------------------------------------------
(1) Market value of underlying securities at exercise or year-end, minus the
exercise or base price.
- 19 -
21
The compensation for services in all capacities paid during the year
1995 to the executive officers of the Corporation was as follows:
S U M M A R Y C O M P E N S A T I O N T A B L E
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
ANNUAL COMPENSATION ----------------------------------------------
Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (f) (g) (h) (i)
- -----------------------------------------------------------------------------------------------------------------------------------
Name and Securities
Principal Restricted Underlying LTIP All Other
Position (1) Year Salary Bonus Stock Awards Options - Payouts Comp. (2)
SARs
- -----------------------------------------------------------------------------------------------------------------------------------
$ $ $ # $ $
- -----------------------------------------------------------------------------------------------------------------------------------
O. G. RICHARD III 1995 528,125(3) -0-(4) 516,875(5) -0- -0- 75,673(16)
1994 N/A
Chairman, CEO & 1993 N/A
President
- -----------------------------------------------------------------------------------------------------------------------------------
J. P. HOLLAND 1995 320,450 -0- (4) -0- 5,000(12) -0- 340,829(10)
-------------------------------------------------------------------------------------------------------------
Chairman & CEO of 1994 295,020 54,414(6) -0- -0- -0- 13,167
Corporation's Gas -------------------------------------------------------------------------------------------------------------
Transmission 1993 273,180 32,782(7) -0- -0- -0- 12,271
Segment
- -----------------------------------------------------------------------------------------------------------------------------------
M. W. O'DONNELL 1995 310,150 163,000(9) -0- 5,000(12) -0- 13,879
-------------------------------------------------------------------------------------------------------------
Senior Vice 1994 286,025 132,336(6)(8) -0- -0- -0- 12,741
President & Chief -------------------------------------------------------------------------------------------------------------
Financial Officer 1993 210,879 26,000(7) -0- -0- -0- 9,135
- -----------------------------------------------------------------------------------------------------------------------------------
P. M. SCHWOLSKY 1995 164,091(3) 65,000(4)(9) 91,400(11) 5,000(13) -0- 13,503(17)
Senior Vice 1994 N/A
President
& Chief Legal 1993 N/A
Officer
- -----------------------------------------------------------------------------------------------------------------------------------
C. R. TILLEY 1995 362,725 -0- (4) -0- 5,000(12) -0- 42,548(18)
-------------------------------------------------------------------------------------------------------------
Chairman & CEO of 1994 345,175 49,340(6) -0- -0- -0- 370,222(10)
Corporation's Gas -------------------------------------------------------------------------------------------------------------
Distribution 1993 331,900 30,000(7) -0- -0- -0- 19,882
Segment
- -----------------------------------------------------------------------------------------------------------------------------------
L. W. WALLINGFORD 1995 281,325 -0- (4) -0- 5,000(12) 1,154(14) 12,589
-------------------------------------------------------------------------------------------------------------
Senior Vice 1994 260,150 135,540(6)(8) -0- -0- -0- 11,600
President of -------------------------------------------------------------------------------------------------------------
Columbia Gas 1993 238,700 28,644(7) -0- -0- -0- 10,733
System Service
Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
J. H. CROOM 1995 346,828(3) -0- (4) -0- -0- 26,868(15) 445,507(19)
-------------------------------------------------------------------------------------------------------------
former Chairman, 1994 682,000 400,000(6) -0- -0- -0- 40,720
CEO & President -------------------------------------------------------------------------------------------------------------
1993 652,000 50,000(7) -0- -0- -0- 39,432
- -----------------------------------------------------------------------------------------------------------------------------------
D. L. BELL, JR. 1995 227,068(3) -0- (4) -0- 5,000(12) -0- 99,836(19)(20)
-------------------------------------------------------------------------------------------------------------
former Senior Vice 1994 299,200 42,196(6) -0- -0- -0- 17,908
President, Chief -------------------------------------------------------------------------------------------------------------
Legal Officer & 1993 292,600 29,260(7) -0- -0- -0- 17,584
Secretary
===================================================================================================================================
- 20 -
22
(1) Includes Chief Executive Officer and five other most highly-compensated
executives whose salary and bonus exceed $100,000 ("Named Executive
Officers") and two who would have been among the most highly-compensated
had they been employed at year-end.
(2) Reflects company contributions to the Employees' Thrift Plan of Columbia
Gas System, which is qualified under the Internal Revenue Code, and the
Thrift Restoration Plan, a nonqualified plan. Mr. Richard and Mr.
Schwolsky were not yet participants in the Employees' Thrift Plan or
Thrift Restoration Plan as of December 31, 1995.
(3) Partial year salary.
(4) Amounts, if any, earned with respect to 1995 performance under the Interim
Cash Performance Award Program were not determined prior to the printing
of this Proxy Statement and will be reported in the Proxy Statement for
the 1997 Annual Meeting.
(5) On April 28, 1995, Mr. Richard was granted contingent stock awards
aggregating 25,000 shares of common stock (a) 10,000 of which were vested
on May 1, 1995 and (b) 5,000 per year of which were contingent upon his
continued employment through December 31, 1995, December 31, 1996 and
December 31, 1997, respectively. On May 1, 1995 10,000 shares were issued
to Mr. Richard at a price of $29.75 and on December 31, 1995, 5,000 shares
were issued to him at a price of $43.875. No dividends are associated
with this award.
(6) Bonus paid in 1995 with respect to 1994 performance under Interim Cash
Performance Award Program.
(7) Bonus paid in 1994 with respect to 1993 performance under Interim Cash
Performance Award Program.
(8) Payment provided pursuant to Retention Agreement as described under
"Employment and Retention Agreements."
(9) Payment for recognition of contributions during bankruptcy proceedings.
(10) Payment provided pursuant to employment agreement as described under
"Employment and Retention Agreements" in the amount of $349,600 for Mr.
Tilley and $326,500 for Mr. Holland.
(11) On June 5, 1995 Mr. Schwolsky was granted 2,500 shares of common stock to
be issued to him on September 5, 1995 contingent upon his employment
through that date. On September 5, 1995, Mr. Schwolsky received 2,500
shares at $36.56 per share.
(12) Options to purchase shares granted to top 31 executives on May 17, 1995 at
a price of $28.99, to vest 100% six months from the date of grant, on
November 17, 1995.
(13) Options to purchase shares granted to Mr. Schwolsky upon his employment on
June 5, 1995 at a price of $31.05, to vest 100% six months from the date
of grant, on December 5, 1995.
(14) On November 17, 1995 Mr. Wallingford exercised the option to purchase 450
shares of stock granted to him under the Long-Term Incentive Plan. The
gain was based on the fair market value of $40.875 on that date.
(15) On November 15, 1995 Mr. Croom exercised the option to purchase 12,600
shares of stock granted to him under the Long-Term Incentive Plan. The
gain was based on the fair market value of $40.4375 on that date.
(16) Transfer expenses and compensation for benefits forfeited upon termination
of prior employment.
(17) Transfer expenses.
(18) Includes perquisites consisting of personal use of company aircraft,
country club dues and financial planning aggregating $11,416.
(19) Includes payments upon termination pursuant to an employment agreement
totalling $431,667 for Mr. Croom and $77,600 for Mr. Bell.
(20) Includes perquisites consisting of financial planning aggregating $10,000.
- 21 -
23
RETIREMENT INCOME PLAN - A noncontributory defined benefit pension plan is
maintained for all employees of the Corporation's participating subsidiaries
who are at least 21 years of age. The annual benefit under the pension plan is
based upon final average annual compensation and years of credited service.
Final average annual compensation is calculated using base compensation (shown
in the "Summary Compensation Table" as "Salary") paid to the employee for the
highest 36 months of the last 60 months prior to retirement.
Estimated annual benefits payable upon retirement are as follows with respect
to the specified remuneration and years of credited service.
Estimated Annual Benefits as of January 1, 1996 from Retirement Income Plan(A)
Representative Years of Credited Service (B)
15 20 25 30 35 40
Final Average -- -- -- -- -- --
Annual Compensation $ $ $ $ $ $
250,000 54,604 72,805 91,007 109,208 115,458 121,708
300,000 65,854 87,805 109,757 131,708 139,208 146,708
400,000 88,354 117,805 147,257 176,708 186,708 196,708
500,000 110,854 147,805 184,757 221,708 234,208 246,708
600,000 133,354 177,805 222,257 266,708 281,708 296,708
800,000 178,354 237,805 297,257 356,708 376,708 396,708
1,000,000 223,354 297,805 372,257 446,708 471,708 496,708
1,200,000 268,354 357,805 447,257 536,708 566,708 596,708
(A) Estimates are based upon a straight-life annuity and the assumptions that
(a) the Corporation's present retirement plan will be maintained and (b)
retirement will not occur before age 65. These benefits are not subject
to deduction for social security or other charges. Should an annual
benefit exceed limitations imposed by federal law, the excess will be
paid by the participating subsidiary as a supplemental pension under the
Pension Restoration Plan. If the supplemental pension liability exceeds
$100,000, then this liability may be funded through a trust arrangement
at the option of the individual. The following executive officers have
elected to have their accrued supplemental pension funded through a trust
arrangement and contributions made in 1995 were as follows: Mr. Croom -
$189,200; Mr. Tilley - $122,200; Mr. Bell - $19,400; and Mr. Wallingford
- $65,500. The liabilities of Messrs. Richard, Schwolsky, Holland and
O'Donnell had not yet reached $100,000 so no contributions were made in
1995 on their behalf. Such supplemental pensions are not available to
these executives until retirement or termination of employment.
(B) As of January 1, 1996 (or upon termination of employment), the credited
years of service for the individuals named in the Summary Compensation
Table were as follows: Mr. Richard, 0 years; Mr. Holland, 20 years; Mr.
O'Donnell, 24 years; Mr. Schwolsky, 0 years; Mr. Tilley, 38 years; Mr.
Wallingford, 40 years; Mr. Croom, 41 years; and Mr. Bell, 37 years.
PERFORMANCE GRAPH
The following graph demonstrates a five-year comparison of cumulative total
returns for the Corporation, the S&P 500, and the S&P Natural Gas Utility
Index.
- 22 -
24
FIVE-YEAR COMPARISON OF CUMULATIVE TOTAL RETURN(A)
CHART
===================================================================
1990 1991 1992 1993 1994 1995
$ $ $ $ $ $
- --------------------------------------------------------------------------------------------
Columbia Gas 100 37.83 41.94 49.06 51.53 96.21
- --------------------------------------------------------------------------------------------
S&P 500 Index 100 130.47 140.41 154.56 156.60 214.86
- --------------------------------------------------------------------------------------------
S&P Natural Gas 100 86.93 96.03 114.02 108.77 153.84
Utility Index
============================================================================================
(A) Assumes $100 invested on December 31, 1990 and reinvestment of dividends.
2. ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS.
At the Annual Meeting, independent public accountants to examine the financial
statements of the Corporation and its subsidiaries which will be included in
the Annual Report to Stockholders for the year 1996 will also be elected.
Arthur Andersen LLP has been recommended as such independent public accountants
by the Board of Directors of the Corporation.
Representatives of Arthur Andersen LLP will be present at the Annual Meeting.
They will have an opportunity to make a statement if they desire and be
available to respond to appropriate questions by stockholders.
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL TWO.
3. ADOPTION OF A LONG-TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE LONG-TERM INCENTIVE PLAN IS
IN THE BEST INTERESTS OF THE CORPORATION AND ALL ITS STOCKHOLDERS AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL THREE.
On February 21, 1996, the Board of Directors approved the Long-Term Incentive
Plan ("LTIP") attached hereto as Exhibit A, subject to the approval of
stockholders and the U.S. Securities and Exchange Commission ("SEC") pursuant
to the Public Utility Holding Company Act of 1935. The purpose of the LTIP is
to provide long-term incentives to those officers and key employees
("Employees") who, in the opinion of the Compensation Committee of the Board
(the "Committee"), make, or may make, substantial contributions to the
Corporation through their ability and efforts, and to members of the Board who
are not employees ("Outside Directors"). The LTIP will be effective as of
February 21, 1996, upon approval by a vote of the holders of a majority of the
common stock of the Corporation present or represented and entitled to vote at
the Annual Meeting and SEC approval, and will terminate on February 20, 2006.
The following general description of the LTIP is qualified in its entirety by
reference to Exhibit A, annexed hereto, which consists of a copy of the LTIP.
A total of 3,000,000 shares of the Corporation's common stock will be made
available for issuance under the LTIP, subject to adjustment to prevent
dilution or enlargement of rights under the LTIP, and no participant may be
awarded more than 20 percent of that total. Based on the criteria set forth
below, with respect to option grants for Outside Directors, approximately
390,000 shares are expected to be issued to Outside Directors over the life of
the LTIP. The term of the LTIP is ten years; hence, no award may be granted
more than ten years after the effective date. Although
- 23 -
25
the Committee will determine which positions have the potential to make a
substantial contribution to the Corporation, it is currently contemplated that
approximately 170 Employees will be considered eligible under the LTIP. Awards
may take several forms: incentive stock options, nonqualified stock options,
stock appreciation rights, contingent stock awards, restricted stock awards or
any award in other forms that the Committee may in its discretion deem
appropriate, but in any event which are consistent with the LTIP's purpose,
including any combination of the foregoing. Employees would be eligible to
receive any form of award permitted under the LTIP. Outside Directors would be
eligible only for options which do not qualify as incentive stock options under
Section 422 of the IRC (nonqualified stock options hereinafter called "NQOs")
according to the formula set forth in the LTIP, as described below.
PLAN ADMINISTRATION
With respect to Employees, the LTIP will be administered by the Committee,
which consists of Directors who qualify both as "disinterested persons" under
Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and "Outside Directors" under Section 162(m) of
the IRC and the regulations promulgated thereunder. The Board of Directors may
suspend, terminate or amend the LTIP at any time but may not adopt any
amendment that would (i) materially increase the benefits accruing to
participants, (ii) materially increase the maximum number of shares issued
under the LTIP, subject to equitable adjustment as described below, or (iii)
materially modify the LTIP's eligibility requirements. In the event of any
change affecting the number of outstanding shares of the Corporation, by reason
of any stock dividend, recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the Committee shall make an
equitable adjustment in the aggregate number of shares or awards issued under
the LTIP. The termination or any modification or amendment of the LTIP may
not, without a participant's consent, affect rights under an award previously
granted. Nevertheless, the Corporation may terminate the LTIP at any time
provided that full and equitable compensation is made to participants with
respect to awards previously granted.
With respect to Outside Directors, the LTIP is designed to be a "formula plan"
meeting the requirements of Exchange Act Rule 16b-3(c)(2) and, accordingly, is
intended to be self-governing. To this end, and except as specified therein
with respect to ministerial matters, the Committee has no discretionary
authority over any transaction under the LTIP with regard to Outside Directors.
Consistent with the limited discretion over the LTIP regarding the portions of
the plan governing awards to Outside Directors, the LTIP may not be amended
more that once every six months except as may be consistent with Exchange Act
Rule 16b-3(c)(ii)(B) and no amendment may change the basis on which awards are
made to Outside Directors.
OPTIONS
Options to purchase the Corporation's common stock may be awarded under the
LTIP as either incentive stock options ("ISOs"), which are qualified under
Section 422 of the IRC, or NQOs. The price at which shares of common stock may
be purchased upon exercise of an ISO shall be not less than 100 percent of the
fair market value of the stock on the date the option is granted. The initial
exercise price on a NQO will be 100 percent of the fair market value as of the
date the option is granted and the agreement reflecting the NQO shall provide
that the exercise price will be reduced by cumulative dividends paid on the
Corporation's common stock while the NQO is outstanding and unexercised. The
fair market value of shares under an individual's ISO first exercisable in any
one calendar year will not exceed $100,000.
Options cannot be exercisable earlier than six months from the date of grant
and must be exercised within ten years. The amount of awards to each
participant will be based upon the evaluation of his/her position and an
evaluation of the Corporation's Total Shareholder Return (defined as market
appreciation and dividends in a fiscal year) as compared to a group of peer
companies. Awards to Employees may be made for reasons other than Total
Shareholder Return performance subject to the discretion of the Committee.
Payment in full of the exercise price must be made upon the exercise of a stock
option.
NQO awards to Outside Directors shall be made if the Corporation's Total
Shareholder Return for a fiscal year exceeds the median of the Total
Shareholder Return for the group of peer companies utilized for comparison
purposes in the Corporation's Annual Proxy Statement. If the Corporation's
Total Shareholder Return falls in the third quartile of the peer group, then
options shall be granted to each Outside Director to purchase 3,000 shares of
common stock. If the Corporation's Total Shareholder Return falls in the
fourth quartile of the peer group, then options shall be granted to each
Outside Director to purchase 6,000 shares of common stock. No stock option
awards can be made to Outside Directors if the Total Shareholder Return is at
or below the median of the group for a calendar year.
NQOs for Outside Directors, if any, would be granted effective as of 90 days
after the close of the Corporation's fiscal year for Total Shareholder Return
performance for the preceding fiscal year. Grants to Outside Directors would
vest one-third upon the date of the grant, one-third upon the first anniversary
of the grant and one-third upon the second anniversary of the grant. The
purchase price per share of stock for Outside Directors' awards would be 100
percent of
- 24 -
26
the fair market value of the stock on the day the option is granted. For
awards to Outside Directors, "fair market value" means the average of the high
and low sales prices per share of the Corporation's common stock on The New
York Stock Exchange as reported in The Wall Street Journal for such date. The
agreement reflecting the Outside Director NQO will provide that this price will
be reduced by cumulative dividends paid on the Corporation's common stock while
the NQO is outstanding and unexercised.
Upon termination of employment due to death, disability or retirement, vested
options may be exercised within 24 months of such event except that ISOs
generally must be exercised within one year in the case of disability or three
months in the case of retirement. If termination occurs for any other reason,
all options must be exercised within three months after termination to the
extent such options are exercisable at termination. Upon a "change in control"
as defined in the LTIP, all options will automatically vest.
STOCK APPRECIATION RIGHTS
Under the LTIP, NQOs may, but need not, be accompanied by stock appreciation
rights ("SARs"). SARs entitle the recipient to elect to surrender the option
and receive shares of common stock, cash, or a combination thereof in an amount
equal in value to the excess of the aggregate fair market value of the shares
with respect to which the SAR is exercised, based on the closing price as of
the exercise date, over the grant price of such shares. The initial grant
price on a SAR will be 100 percent of the fair market value as of the date the
option is granted, but the agreement reflecting the SAR may provide that the
grant price may be reduced by cumulative dividends paid on the Corporation's
common stock while the SAR is outstanding and unexercised. A SAR is subject to
all other terms and conditions of the option to which it relates.
CONTINGENT OR RESTRICTED STOCK
The LTIP also provides for the award to Employees of the right to receive
shares of common stock, subject to certain restrictions or contingencies,
either in the form of a contingent stock award or a restricted stock award.
Shares awarded as a contingent stock award will not be issued in the name of
the recipient, and the recipient shall not have the rights of a stockholder
until all contingencies expire. Shares issued as a restricted stock award will
be issued in the name of the recipient, and the recipient shall have all the
rights of a stockholder for all such shares, although (1) either the recipient
shall not receive possession of the shares until all restrictions on such
shares lapse, or (2) if the recipient receives possession, the shares will
contain a legend as to their restricted status. The amounts, terms and
conditions of an individual award will vary in response to business objectives
as determined by the Committee. A recipient will forfeit his/her awards upon
termination of employment unless otherwise provided by the award agreement or
the Committee.
Provisions in the LTIP allow shares to be earned after termination if the
participant's salary is continued through an employment agreement, severance
program or comparable arrangement. Upon a "change in control" as defined in
the LTIP, contingent stock awards and restricted stock awards will
automatically vest, and all restrictions and contingencies will be assumed to
have been satisfied.
TRANSFERABILITY
Generally, all awards under the LTIP are non-transferable except by will or in
accordance with the laws of descent and distribution. During the life of the
participant, awards may be exercised only by such participant, and the
Committee may permit a participant to designate a beneficiary to exercise or
receive any rights that may exist upon the participant's death.
FEDERAL TAX CONSEQUENCES
Under present federal income tax law, the Corporation believes that the award
of a stock option or SAR generally creates no federal income tax consequences
for the recipient or the Corporation. In general, the optionee has no federal
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Corporation receives no deduction when an ISO is exercised.
Upon exercising a NQO, the recipient must recognize ordinary income equal to
the difference between the exercise price and the fair market value of the
stock on the date of exercise and the Corporation will generally be entitled to
a deduction for the same amount. Generally, there are no federal income tax
consequences to the Corporation in connection with a disposition of shares
acquired under an option except that the Corporation may be entitled to a
deduction in the case of a disposition of shares acquired under an ISO before
the applicable ISO holding period has been satisfied.
With respect to a contingent stock award, a participant will be taxable on
cash, stock or other property when it is actually paid or made available and
the Corporation will be entitled to a deduction at such time. With respect to
a restricted stock
- 25 -
27
award, the participant must recognize ordinary income equal to the fair market
value of the shares or other property received at the time the shares or other
property become transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier, over the amount (if any) paid by the
participant. The Corporation will be entitled to a deduction for the same
amount at that time except as limited by Section 162(m) of the IRC. Different
federal income tax rules may apply with respect to participants who are subject
to Exchange Act Section 16. With respect to restricted stock awards, a
participant may make a special election under Section 83(b) of the IRC to be
taxed immediately.
The preceding discussion is only a general summary of certain federal income
tax consequences arising from participation in the LTIP and should not be used
for a determination of an individual's unique tax situation. It is suggested
that the individual consult with a tax advisor regarding the applicability of
federal, state and local tax laws to his/her particular situation.
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL THREE.
4. ADOPTION OF PHANTOM STOCK PLAN FOR OUTSIDE DIRECTORS IN LIEU OF RETIREMENT
BENEFITS
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE PHANTOM STOCK PLAN FOR
OUTSIDE DIRECTORS IS IN THE BEST INTERESTS OF THE CORPORATION AND ALL ITS
STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL FOUR.
The Columbia Gas System, Inc. Phantom Stock Plan for Outside Directors (the
"Phantom Stock Plan" or the "Plan") was approved by the Board on February 21,
1996, subject to approval by the stockholders of the Corporation. This Plan
will replace the Retirement Plan for Outside Directors, for those current
Directors so electing to participate and all subsequently elected Directors,
thereby creating a strong economic alignment between the interests of the
Outside Directors and the stockholders of the Corporation. Each Outside
Director will be eligible to participate in the Phantom Stock Plan. The
following general description of the Phantom Stock Plan is qualified in its
entirety by reference to Exhibit B, annexed hereto, which consists of a copy of
the Phantom Stock Plan.
The benefits granted under the Plan are designated for convenience as "Phantom
Shares," as neither actual shares nor other securities will be issued; but
accounting will be maintained on a share basis directly correlated to the fair
market value of the Corporation's common stock. The Plan is designed to be
exempt from the registration and reporting requirements of the federal
securities laws.
The Phantom Stock Plan will provide two types of benefits: grants and
deferrals. One-time grants of a minimum of 3,000 Phantom Shares will be made
to all current Outside Directors who elect to participate in the Phantom Stock
Plan at the time of approval of the Phantom Stock Plan, and to all subsequently
elected Outside Directors. Current Outside Directors who elect to receive the
grant and whose present value of projected retirement benefits is in excess of
the value of 3,000 shares on the effective date will be issued Phantom Shares
equal in value to those retirement benefits. Grants shall be priced as of the
date of stockholder approval of the Phantom Stock Plan, or, for subsequently
elected Outside Directors, the date of election to the Board based on the
average of the high and low prices of the Corporation's common stock on that
date.
In addition, Outside Directors may elect to defer part or all of any
compensation received for annual retainers and meeting fees, including
committee and stockholder meetings, into the Phantom Stock Plan. Any such
deferral shall purchase Phantom Shares at the average of the high and low
prices of the Corporation's common stock on the date such compensation would
normally be paid.
Additional Phantom Shares and/or fractional shares will be issued to each
Outside Director on a dividend payment date with a value equal to the dividends
paid on a share of common stock of the Corporation, multiplied by the number of
Phantom Shares held as of the record date of such dividend, divided by the fair
market value of the Corporation's common stock on such dividend payment date.
All deferrals and dividends are fully vested when credited to each Outside
Director's account. Twenty percent of the one-time grants shall vest at the
end of each 12-month anniversary of each Outside Director's service on the
Board, with recognition for Board service prior to the effective date of the
Plan. Thus, Outside Directors with at least five years of service will be
fully vested on the effective date. Notwithstanding the foregoing, individual
grants shall become fully vested upon (i) the death, disability or mandatory
retirement of an Outside Director, or (ii) a "change in control" as defined in
the Phantom Stock Plan. Account balances shall become due and payable for cash
upon the termination of an Outside Director's service. An Outside Director
shall have no rights to payment under the Phantom Stock Plan other
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28
than those of a general creditor. At the time of becoming a Phantom Stock Plan
participant, each Outside Director shall irrevocably elect either to (i)
receive payment of vested account balances in a lump sum or (ii) have such
payment made commencing on the date of Board termination in stipulated annual
installments in accordance with a formula adopted by the Plan Administrator and
in effect at the time of the election.
The Phantom Stock Plan shall be administered by the Compensation Committee,
which will issue reports, at least annually, to each Outside Director regarding
his/her account. The Board may amend, suspend or terminate the Phantom Stock
Plan, although without the written consent of a participant, vested benefits
shall not be adversely affected.
The Corporation believes recipients of Phantom Shares will not recognize any
income for federal income tax purposes until they receive payment. The
Corporation will not be entitled to any deduction at the time Phantom Shares
are granted or credited to the accounts of the recipients, but upon receipt of
benefits by the recipient, the Corporation will be entitled to a deduction and
the recipient will be subject to ordinary income taxes on the amount received.
The preceding discussion is only a general summary of certain federal income
tax consequences arising from participation in the Plan and should not be used
for a determination of an individual's unique tax situation. It is suggested
that the individual consult with a tax advisor regarding the applicability of
federal, state and local tax laws to his/her particular situation.
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL FOUR.
5. OTHER MATTERS
The Board of Directors knows of no business constituting a proper subject for
action by the stockholders which will be presented for consideration at the
meeting other than that shown above. However, if any other business shall come
before the meeting, the persons named in the enclosed form of proxy or their
substitutes will vote said proxy with respect to any such business in
accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS FOR THE 1997 ANNUAL MEETING
Proposals of stockholders of record to be presented for a vote at the 1997
Annual Meeting of Stockholders must be received at the principal executive
office of the Corporation, 20 Montchanin Road, Wilmington, Delaware 19807-0020,
no later than November 15, 1996.
--------------------------------------
CAROLYN MCKINNEY AFSHAR
SECRETARY
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29
EXHIBIT A
THE COLUMBIA GAS SYSTEM, INC.
LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of The Columbia Gas System, Inc.
Long-Term Incentive Plan ("Plan") is to provide incentives to
specified individuals to continuously add value to The
Columbia Gas System, Inc. (the "Corporation"). Plan
participants consist of: (i) those officers and key employees
of the Corporation and its subsidiary companies (the
"Employees") who, in the opinion of the Compensation Committee
of the Board of Directors of the Corporation (the
"Committee"), are making or are in a position to make
substantial contributions to the Corporation by their ability
and efforts; and (ii) members of the Board of Directors of the
Corporation who are not employees ("Outside Directors"). The
Corporation also believes that the Plan will facilitate
attracting, retaining and motivating Employees and directors
of high caliber and potential.
2. Effective Date. This Plan is to be effective February 21,
1996, subject to shareholder and regulatory approvals.
3. Administration. The Plan shall be administered by the
Committee. As applied to Employees, the Committee shall have
full and final authority in its discretion to conclusively
interpret the provisions of the Plan and to decide all
questions of fact arising in its application; to determine the
individuals to whom awards shall be made under the Plan; to
determine the type of award to be made to such Employees and
the amount, size and terms of each such award; to determine
the time when awards will be granted to Employees; and to make
all other determinations necessary or advisable for the
administration of this Plan.
The Committee shall have no discretion with respect to the
amount, price and timing of awards to Outside Directors. In
this regard, the portions of the Plan applicable to Outside
Directors are designed to meet the requirements of Rule
16b-3(c)(2)(ii) promulgated by the U.S. Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and accordingly are intended
to be self-governing and to operate automatically. With
respect to ministerial matters regarding the portions of the
Plan applicable to Outside Directors, the Plan will be
administered by the Committee.
4. Shares Subject to Plan. The shares that may be issued under
the Plan pursuant to Paragraph 7 shall not exceed in the
aggregate 3,000,000 shares of the Corporation's common stock.
Such shares may be authorized and unissued shares or treasury
shares. The maximum number of shares that may be awarded
pursuant to the contingent or restricted stock award
provisions of Paragraphs 10 and 11 shall be 20 percent of the
total shares authorized for issuance under the Plan. Except as
otherwise provided herein, any
1
30
shares subject to an option or right which for any reason
expires or is terminated unexercised as to such shares shall
again be available under the Plan.
5. Participants. Persons eligible to participate shall be
limited to (1) with regard to any awards permitted pursuant to
Paragraph 7, the Employees; and (2) with regard to stock
options permitted pursuant to Paragraph 8, the Outside
Directors.
6. Outside Directors. Outside Directors shall be eligible under
this Plan only for nonqualified stock option awards.
Consistent with Exchange Act Rule 16b-3(c)(2)(ii)'s criteria,
such stock option awards shall be made if the Corporation's
Total Shareholder Return (defined as market appreciation and
dividends declared in a year) for a fiscal year exceeds the
median of the Total Shareholder Return for the group of peer
companies utilized for comparison purposes in the
Corporation's Annual Proxy Statement. If the Corporation's
Total Shareholder Return falls in the third quartile of the
peer group, then options shall be granted to each Outside
Director to purchase 3,000 shares of common stock. If the
Corporation's Total Shareholder Return falls in the fourth
quartile of the peer group, then options shall be granted to
each Outside Director to purchase 6,000 shares of common
stock. No stock option awards shall be made to Outside
Directors if Total Shareholder Return is at or below the
median of the group for a fiscal year.
Stock option awards for Outside Directors, if any, shall be
granted effective as of 90 days after the close of the
Corporation's fiscal year for Total Shareholder Return
performance for the preceding fiscal year. Grants to Outside
Directors shall vest one-third upon the date of the grant,
two-thirds upon the first anniversary of the grant, and 100
percent upon the second anniversary of the grant.
Additional terms of stock option awards to Outside Director
shall be governed by Paragraph 8, as may be supplemented by
Paragraphs 12(b) and 13-24.
7. Awards under the Plan. Subject to the limitations provided
under Paragraph 6 for awards to Outside Directors, awards
under the Plan may be in the form of stock options (both
nonqualified stock options and incentive stock options under
Section 422 of the Internal Revenue Code or any amendment
thereof or substitute therefor), contingent stock, restricted
stock and stock appreciation rights, or such other forms as
the Committee may in its discretion deem appropriate but in
any event which are consistent with the Plan's purpose,
including any combination of the above. The maximum number of
shares that may be awarded to any
2
31
one person during the life of the Plan shall be 20 percent of
the total shares authorized for issuance under the Plan.
8. Stock Options. Options shall be evidenced by stock option
agreements in such form, not inconsistent with this Plan or
Exchange Act Rule 16b-3(c), as the Committee shall approve
from time to time, which agreements shall contain in substance
the following terms and conditions.
(a) Option Price. The purchase price per share of stock
deliverable upon the exercise of an incentive stock
option shall be 100 percent of the fair market value
of the stock on the day the option is granted, as
determined by the Committee. The purchase price per
share of stock deliverable upon the exercise of a
nonqualified stock option shall be 100 percent of the
fair market value of the stock on the day the option
is granted, as determined by the Committee. "Fair
market value" for awards to Outside Directors shall
be the average of the high and low sales prices per
share of the Corporation's common stock on The New
York Stock Exchange as reported in The Wall Street
Journal for such date. The option agreement for
nonqualified options shall provide for a reduction of
the purchase price by dividends paid on a share of
common stock of the Corporation as long as the option
is outstanding and not exercised, but in no event
shall this price be less than the par value of such
stock.
(b) Exercise of Option. Each stock option agreement
shall state the period or periods of time, as may be
determined by the Committee, within which the option
may be exercised by the participant, in whole or in
part, provided that the option period shall not
commence earlier than six months after the date of
the grant of the option or end later than ten years
after the date of the grant of the option. The
Committee shall have the power to permit in its
discretion an acceleration of the previously
determined exercise terms, subject to the terms of
this Plan, to the extent permitted by Exchange Act
Rule 16b-3(c), and under such circumstances and upon
such terms and conditions as deemed appropriate and
which are not inconsistent with Exchange Act Rule
16b-3(c)(1).
(c) Payment for Shares. Stock purchased pursuant to an
option agreement shall be paid for in full at the
time of purchase, either in the form of cash, common
stock of the Corporation at fair market value, or in
a combination thereof, as the Committee may
determine.
(d) Rights upon Termination of Employment or Board
Service. In the event that an optionee ceases to be
employed by the Corporation or its subsidiaries or
ceases to serve as an Outside Director of the
Corporation for any cause other than death,
disability, retirement, or a Change in Control as
defined in Paragraph 12(b), the optionee shall have
the right, subject to the requirements of Exchange
Act Rule 16b-3(c)(1), to exercise the option during
its term within a period of three months after such
termination to the extent that the option was
exercisable at the date of such termination, or
during such other period and subject to such terms as
may be determined by the Committee. In the event
that an optionee is terminated due to death,
retirement, disability or a Change in Control, prior
to termination of his option without having fully
exercised his option, the optionee or his successor
may have the right, subject to the requirements of
Exchange Act Rule 16b-3(c)(1), to exercise the option
during its term within a period of 24 months after
the date
3
32
of such termination due to death, disability,
retirement, or a Change in Control to the extent that
the option was exercisable at the date of such
termination, or during such other period and subject
to such terms as may be determined by the Committee.
(e) Individual Limitations.
(i) Notwithstanding anything herein to the
contrary, the aggregate fair market value
(determined as of the time the option is
granted) of incentive stock options for any
Employee which may become first exercisable
in any calendar year shall not exceed
$100,000.
(ii) Notwithstanding anything herein to the
contrary, no incentive stock option shall be
granted to any individual if, at the time the
option is to be granted, the individual owns
stock possessing more than ten percent of the
total combined voting power of all classes of
stock of the Corporation unless at the time
such option is granted the option price is at
least 110 percent of the fair market value of
the stock subject to option and such option
by its terms is not exercisable after the
expiration of five years from the date such
option is granted.
(f) Other Terms. Each incentive stock option agreement
shall contain such other terms, conditions and
provisions as the Committee may determine to be
necessary or desirable in order to qualify such
option as a tax-favored option within the meaning of
Section 422 of the Internal Revenue Code, or any
amendment thereof, substitute therefor, or regulation
thereunder. Subject to the limitations of Paragraph
20, and without limiting any other provisions hereof,
the Committee shall have the power without further
approval to amend the terms of any option for
Employees.
9. Stock Appreciation Rights. Stock appreciation rights ("SARs")
shall be evidenced by SAR agreements in such form, and not
inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1),
as the Committee shall approve from time to time, which
agreements shall contain in substance the following terms and
conditions:
(a) Award. A SAR may be granted in connection with an
option and shall entitle the grantee, subject to such
terms and conditions determined by the Committee, to
receive, upon surrender of the option, all or a
portion of the excess of (i) the fair market value
of a specified number of shares of common stock of
the Corporation at the time of the surrender, as
determined by the Committee, over (ii) 100 percent of
the fair market value of the stock at the time the
option was granted less any dividends paid while the
option was outstanding but unexercised.
4
33
(b) Term. SARs shall be granted for a period of not less
than six months nor more than ten years, and shall be
exercisable in whole or in part, at such time or
times and subject to such other terms and conditions
as shall be prescribed by the Committee at the time
of grant, subject to the following:
(i) No SAR shall be exercisable, in whole or in
part, during the six- month period starting
with the date of grant; and
(ii) SARs will be exercisable only during a
grantee's employment by the Corporation or
its subsidiaries, except that in the
discretion of the Committee a SAR may be made
exercisable for up to three months after the
grantee's employment is terminated for any
reason other than death, retirement or
disability. In the event that a grantee's
employment is terminated as a result of
death, retirement or disability without
having fully exercised his SARs, the grantee
or his successor may have the right to
exercise the SARs during their term within a
period of 24 months after the date of such
termination to the extent that the right was
exercisable at the date of such termination,
or during such other period and subject to
such terms as may be determined by the
Committee. The Committee in its sole
discretion may reserve the right to
accelerate previously determined exercise
terms, within the terms of the Plan, under
such circumstances and upon such terms and
conditions as it deems appropriate.
(iii) The Committee shall establish such additional
terms and conditions, without limiting the
foregoing, as it determines to be necessary
or desirable to avoid "short-swing" trading
liability in connection with a SAR under
Section 16(b) of the Exchange Act.
(c) Payment. Upon exercise of a SAR, payment shall be
made in the form of common stock of the Corporation
(at fair market value on the date of exercise), cash,
or a combination thereof, as the Committee may
determine.
10. Contingent Stock Awards. Contingent stock awards under the
Plan shall be evidenced by contingent stock agreements in such
form and not inconsistent with this Plan as the Committee
shall approve from time to time, which agreements shall
contain in substance the following terms and conditions:
(a) Award. The Committee shall determine the amount of a
contingent stock award to be granted to an Employee
based on the expected impact the Employee can have on
the financial well-being of the Corporation and other
factors deemed by the Committee to be appropriate.
5
34
(b) Restriction Period. Contingent stock awards made
pursuant to this Plan shall be subject to such terms,
conditions, and restrictions, including without
limitation, substantial risks of forfeiture and/or
attainment of performance objectives, and for such
period or periods (in excess of six months) as shall
be determined by the Committee at the time of grant.
The Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of the
applicable restriction period (so long as the minimum
six-month period is retained) with respect to any
part or all of the award to any participant.
(c) Lapse of Restrictions. The agreement shall specify
the terms and conditions upon which any restrictions
on the right to receive shares representing
contingent stock awarded under the Plan shall lapse,
as determined by the Committee. Upon the lapse of
such restrictions, shares of common stock shall be
issued to the participant or his legal
representative.
(d) Termination Prior to Lapse of Restrictions. In the
event of a participant's termination of employment
for any reason prior to the lapse of restrictions
applicable to a contingent stock award made to such
participant and unless otherwise provided for herein
by this Plan or as provided for in the contingent
stock agreement, all rights to shares as to which
there still remain unlapsed restrictions shall be
forfeited by such participant to the Corporation
without payment or any consideration by the
Corporation, and neither the participant nor any
successors, heirs, assigns or personal
representatives of such participant shall thereafter
have any further rights or interest in such shares.
11. Restricted Stock Award. Restricted stock awards under the
Plan shall be evidenced by restricted stock agreements in such
form, and not inconsistent with this Plan, as the Committee
shall approve from time to time, which agreements shall
contain in substance the following terms and conditions:
(a) Award. The Committee shall determine the amount of a
restricted stock award to be granted to an Employee
based on the past or expected impact the Employee has
had or can have on the financial well-being of the
Corporation and other factors deemed by the Committee
to be appropriate.
(b) Restriction Period. Restricted stock awards made
pursuant to this Plan shall be subject to such terms,
conditions, and restrictions, including without
limitation, substantial risks of forfeiture and/or
attainment of performance objectives, and for such
period or periods (in excess of six months) as shall
be determined by the Committee at the time of grant.
The Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of the
applicable restriction period (so long as the minimum
six-month period is retained) with respect to any
part or all of the award to any participant. Upon
issuance of a restricted stock award,
6
35
shares will be issued in the name of the recipient.
During the restriction period, recipients shall have
the rights of a shareholder for all such shares of
restricted stock, including the right to vote and the
right to receive dividends thereon as paid.
(c) Restrictive Legend and Stock Power. Each certificate
evidencing stock subject to restricted stock awards
shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such
award. Any attempt to dispose of stock in
contravention of such terms, conditions and
restrictions shall be ineffective. The Committee may
adopt rules which provide that the certificates
evidencing such shares may be held in custody by a
bank or other institution, or that the Corporation
may itself hold such shares in custody, until the
restrictions thereon shall have lapsed and may
require as a condition of any award that the
recipient shall have delivered a stock power endorsed
in blank relating to the stock covered by such award.
(d) Lapse of Restrictions. The restricted stock
agreement shall specify the terms and conditions upon
which any restrictions on the right to receive shares
representing restricted stock awarded under the Plan
shall lapse, as determined by the Committee. Upon
the lapse of such restrictions, shares of common
stock which have not been delivered to the
participant or his legal representative shall be
delivered to such participant or his legal
representative.
(e) Termination Prior to Lapse of Restrictions. In the
event of a participant's termination of employment
for any reason prior to the lapse of restrictions
applicable to a restricted stock award made to such
participant and unless otherwise provided for herein
by this Plan or as provided for in the restricted
stock agreement, all rights to shares as to which
there still remain unlapsed restrictions shall be
forfeited by such participant to the Corporation
without payment or any consideration by the
Corporation, and neither the participant nor any
successors, heirs, assigns or personal
representatives of such participant shall thereafter
have any further rights or interest in such shares.
12. Other Provisions Relating to Contingent and Restricted Stock
Awards and Stock Options. Notwithstanding any other provision
to the contrary in Paragraphs 6, 8, 10 or 11 or elsewhere in
this Plan, the following additional provisions shall apply to
contingent and restricted stock awards and stock option awards
(except that Paragraph 12(a) shall only apply to contingent
and restricted stock awards):
(a) Effect of Salary Continuation on Termination Prior to
Lapse of Restrictions. If a recipient of a
contingent or restricted stock award has his
employment terminated and his salary continued
through an employment agreement, severance program or
any other comparable arrangement, then any
contingencies and restrictions
7
36
which are satisfied or which could have been
satisfied during the period for which the recipient's
salary is to be continued, irrespective of form, will
be deemed to have been satisfied, and such shares of
contingent and/or restricted stock will be issued and
delivered to the recipient or his legal
representative no later than the expiration of the
salary continuation program.
(b) Change in Control. Upon a "Change in Control" as
defined below, all options (including any
accompanying SARs), contingent stock awards and
restricted stock awards will automatically vest as of
that date, and all restrictions or contingencies will
be deemed to have been satisfied. The term "Change
in Control" means the occurrence of any of the
following events:
(i) the acquisition by any party or parties of
the beneficial ownership of 25 percent or
more of the voting shares of the Corporation;
(ii) the occurrence of a transaction requiring
shareholders' approval for the acquisition of
the Corporation through purchase or exchange
of stock or assets, or by merger, or
otherwise; or
(iii) the election during a period of 24 months, or
less, of 30 percent or more of the members of
the Board, without the approval of a majority
of the Board as constituted at the beginning
of the period.
13. General Restrictions. The Plan and each award under the Plan
shall be subject to the requirement that, if at any time the
Committee shall determine that (i) the listing, registration
or qualification of the shares of common stock subject or
related thereto upon any securities exchange or under any
state or federal law, (ii) the consent or approval of any
government regulatory body, or (iii) an agreement by the
recipient of an award with respect to the disposition of
shares of common stock, is necessary or desirable as a
condition of, or in connection with the Plan or the granting
of such award or the issue or purchase of shares of common
stock thereunder, the Plan will not be effective and/or the
award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
14. Rights of a Shareholder. The recipient of any award under the
Plan shall have no rights as a shareholder with respect
thereto unless and until certificates for shares of common
stock are issued to him, except for the rights provided for in
Paragraph 11 of this Plan as it pertains to restricted stock
awards.
15. Rights to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon
any participant the right to continue in the employment or
Board service of the Corporation or its subsidiary companies
or affect any
8
37
right which the Corporation or its subsidiary companies may
have to terminate the employment or Board service of such
participant.
16. Withholding of Taxes. Whenever the Corporation proposes or is
required to issue or transfer shares of common stock under the
Plan, the Corporation shall have the right to require the
recipient to remit to the Corporation an amount sufficient to
satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan
payments are to be made in cash, such payments shall be net of
an amount sufficient to satisfy any federal, state and/or
local withholding tax requirements.
17. Nonassignability. No award or benefit under the Plan shall be
assignable or transferable by the recipient thereof except by
will or by the laws of descent and distribution. During the
life of the recipient, such award shall be exercisable only by
such person or by such person's guardian or legal
representative.
18. Non-Uniform Determinations. The Committee's determinations
under the Plan (including, without limitation, determinations
of the persons to receive awards, the form, amount and timing
of such awards, the terms and provisions of such awards and
the agreements evidencing same, and the establishment of
values and performance targets) need not be uniform and may be
made by the Committee selectively among persons who receive,
or are eligible to receive, awards under the Plan, whether or
not such persons are similarly situated.
19. Adjustments. In the event of any change in the outstanding
common stock of the Corporation by reason of a stock dividend,
recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the Committee
shall adjust the number of shares of common stock which may be
issued under the Plan and shall provide for an equitable
adjustment of any outstanding award or shares issuable
pursuant to an outstanding award under this Plan.
20. Amendment. Subject to U.S. Securities and Exchange Commission
approval, if required, the Board of Directors of the
Corporation may amend the Plan at any time, except that
without shareholder approval, the Board may not (i) materially
increase the benefits accruing to participants, (ii)
materially increase the maximum number of shares which may be
issued under the Plan (other than equitable adjustment
pursuant to Paragraph 19 hereof), (iii) materially modify the
Plan's eligibility requirements, or (iv) change the basis on
which awards are granted to Outside Directors. With respect
to Outside Directors, this Plan may not be amended more than
once every six months except as may be consistent with
Exchange Act Rule 16b-3(c)(2)(ii)(B). The termination or any
modification or amendment of the Plan shall not, without the
consent of a participant, affect a participant's rights under
an award previously granted. Notwithstanding the foregoing,
9
38
however, the Corporation reserves the right to terminate the
Plan in whole or in part, at any time and for any reason,
provided that full and equitable compensation is made to
participants with respect to awards previously granted.
21. Effect on Other Plan. Participation in this Plan shall not
affect a participant's eligibility to participate in any other
benefit or incentive plan of the Corporation, and any awards
made pursuant to this Plan shall not be used in determining
the benefits provided under any other plan of the Corporation
unless specifically provided.
22. Duration of the Plan. The Plan shall remain in effect until
all awards under the Plan have been satisfied by the issuance
of shares or the payment of cash, but no award shall be
granted more than ten years after the date the Plan is adopted
by the Corporation.
23. Funding of the Plan. This Plan shall be unfunded. The
Corporation shall not be required to establish any special or
separate fund or to make any other segregation of assets to
assure the payment of any award under this Plan, and payment
of awards shall be on the same basis as the claims of the
Corporation's general creditors. In no event shall interest
be paid or accrued on any award, including unpaid installments
of awards.
24. Governing Law. The laws of the State of Delaware shall
govern, control and determine all questions arising with
respect to the Plan and the interpretation and validity of its
respective provisions.
Approved by the Board of
Directors of The Columbia
Gas System, Inc. at a
meeting held on
_______________________,
1996 and approved by the
shareholders of The Columbia
Gas System, Inc. on
________________.
(CORPORATE SEAL)
-----------------------------
Secretary
10
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Exhibit B
THE COLUMBIA GAS SYSTEM, INC.
Phantom Stock Plan for Outside Directors
- --------------------------------------------------------------------------------
1. PURPOSE: The purpose of The Columbia Gas System, Inc.
Phantom Stock Plan for Outside Directors (the "Plan") is to
create in favor of non-employee directors ("Outside
Directors") of The Columbia Gas System, Inc. (the
"Corporation") benefits tied to common stock performance, and
thereby to foster a strong economic alignment between the
interests of the Outside Directors and the interests of the
Corporation's shareholders. The benefits granted hereunder
are designated for convenience as "Phantom Shares," as neither
actual shares nor other securities will be issued; but
accounting will be maintained on a share basis directly
correlated to the market value of the Corporation's common
stock. The Plan is designed to be exempt from the
registration and reporting requirements of the federal
securities laws, and, in particular, Section 16 of the
Securities Exchange Act of 1934, as amended ("Exchange Act").
2. PRICING OF PHANTOM SHARES: The Phantom Shares shall be
priced at Fair Market Value as of the date of crediting to an
account of an Outside Director. "Fair Market Value" shall be
the average of the high and low sales prices per share of the
Corporation's common stock on The New York Stock Exchange as
reported in The Wall Street Journal for a given date.
3. ELIGIBILITY: Each Outside Director of the Corporation shall
be eligible to participate in this Plan.
4. BENEFITS: The Plan provides hereunder two forms of
benefits---grants and deferrals.
a. Grants: Each Outside Director who is in office on
the Effective Date, as defined in Paragraph 12 (a
"Current Director"), and who elects to terminate
participation in the Corporation's Retirement Plan
for Outside Directors (the "Retirement Plan") and to
initiate participation in this Plan, shall (1) forego
all benefits and future claims under the Retirement
Plan, and (2) receive a one-time grant of Phantom
Shares equivalent to the present value of his/her
benefits under the Retirement Plan on the Effective
Date within thirty (30) days after the Effective
Date. The foregoing election to terminate
participation in the Retirement Plan must be made
within thirty (30) days after the Effective Date.
The present value of the Current Director's
retirement benefit under the Retirement Plan shall be
determined as of the Effective Date by an actuarial
firm chosen by the Plan Administrator and using
customary and reasonable
1
40
actuarial assumptions as mutually agreed upon by the
actuary and Plan Administrator; provided, however,
that a minimum of 3,000 shares will be granted to
each such electing current Director. Each Outside
Director elected subsequent to the Effective Date
shall receive a one-time grant of 3,000 Phantom
Shares.
b. Deferrals: Each Outside Director may elect to defer
part or all of his/her Compensation by electing on an
annual basis to receive Phantom Shares, making such
election within thirty (30) days of the Effective
Date or, thereafter, as required under the Deferred
Compensation Plan for Outside Directors.
"Compensation" shall mean the annual retainer for
Outside Directors established from time to time plus
compensation for services rendered in connection
with: (1) any meeting of the Corporation's Board of
Directors (the "Board"), (2) service as a member of
any committee designated by the Board, and (3) the
annual meeting of shareholders, any special meeting
of the Board or special assignment; but exclusive of
reimbursements for expenses incurred in performance
of service as a director.
The number of Phantom Shares to be credited pursuant
to Paragraph 4.b shall be determined by dividing the
Compensation by the Fair Market Value on the date
payment of Compensation would normally be made, as
determined by the Plan Administrator.
5. DIVIDENDS: Each Outside Director's account shall be credited
with additional Phantom Shares (and/or fractions thereof) to
reflect dividends paid on the Corporation's common stock.
Such additional shares will be calculated by multiplying (x)
the number of Phantom Shares in each Outside Director's
account as of the record date for such dividend by (y) the
dividend then paid on a share of the Corporation's common
stock, and dividing that result by the Fair Market Value as of
the date the dividend is paid.
6. VESTING: All Phantom Shares representing deferrals and
dividends are fully vested as credited to each Outside
Director's account.
For the one-time grants made pursuant to Paragraph 4.a of the
Plan, 20 percent of a grant will vest at the end of each 12
months of Board service, with Board service prior to the
Effective Date recognized for vesting purposes.
Notwithstanding the foregoing, individual grants shall also
become fully vested upon (1) termination caused by the death,
disability, or mandatory retirement of an Outside Director, or
(2) a "Change in Control" as defined in Paragraph 9 hereunder.
2
41
7. PAYMENT: Consistent with Exchange Act Rule 16a-1(c), vested
account balances, valued as of the date of termination, shall
become due and payable in cash following termination of an
Outside Director's service on the Board. At the time of
becoming Plan Participants, Outside Directors shall
irrevocably elect either to (i) receive payment of vested
account balances in a lump sum or (ii) have such payment made
commencing on the date of Board termination in stipulated
annual installments in accordance with the formula Guidelines
for Annual Installment Distributions adopted by the Plan
Administrator in effect at the time of the election.
8. FUNDING POLICY: Outside Directors' accounts under this Plan
shall be, at all times, an unsecured contractual obligation of
the Corporation. No separate reserve shall be established in
connection herewith. Nothing contained in this Plan gives, or
shall be construed to give, any Outside Director or his/her
beneficiaries any security, interest, lien, or claim against
any specific asset of the Corporation. Neither an Outside
Director nor his/her beneficiaries have any rights other than
as a general creditor.
9. CHANGE IN CONTROL: For the purposes of this Plan, a "Change
in Control" means the occurrence of any of the following
events:
a. the acquisition by any party or parties of the
beneficial ownership of 25 percent or more of the
voting shares of the Corporation;
b. the occurrence of a transaction requiring
shareholders' approval for the acquisition of the
Corporation through purchase or exchange of stock or
assets, or by merger, or otherwise; or
c. the election during a period of 24 months, or less,
of 30 percent or more of the members of the Board,
without the approval of a majority of the Board as
constituted at the beginning of the period.
10. BENEFICIARY: Each Outside Director shall designate on a form
provided by the Plan Administrator a beneficiary to receive
his/her account balance in the event of termination due to
death or disability. Payment of the account balance will be
made as soon as practicable after such termination due to
death or disability.
11. ASSIGNMENT OR ALIENATION: No award or benefit under the Plan
shall be assignable or transferable by the recipient thereof
except by will or by the laws of descent and distribution.
During the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian
or legal representative.
3
42
12. EFFECTIVE DATE: This Plan shall be effective upon its
approval by the shareholders of the Corporation.
13. AMENDMENT: The Board shall have the right to amend, suspend,
or terminate this Plan at any time, but without the written
consent of a participant, no such amendments, suspension, or
termination shall affect benefits vested hereunder, and in any
event, no amendment, suspension, or termination shall operate
to change any previously established payment date.
14. ADMINISTRATION: The "Plan Administrator" means the
Compensation Committee of the Board. Subject to the express
provisions of the Plan and consistent with preserving the
availability of the exemption from reporting under Section 16
of the Exchange Act, the Plan Administrator shall have plenary
authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, to determine the
terms and provisions of the awards made pursuant to the Plan
and to make all other determinations necessary or advisable
for the administration of the Plan. The Plan Administrator's
determinations of the matters referred to in this Paragraph 14
shall be conclusive. The Plan Administrator is also
authorized to hire whatever experts may be required to
administer the Plan. The Plan Administrator will maintain
Plan accounts and issue reports, at least annually, to each
Outside Director regarding his/her account. The Plan
Administrator shall not be held liable for any action taken in
the administration of the Plan, unless such action involves
willful misconduct, and the Plan Administrator shall be
indemnified and held harmless by the Corporation for all
actions taken in the proper administration of the Plan.
15. ADJUSTMENTS: In the event of any change in the outstanding
common stock of the Corporation by reason of a stock dividend,
recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the number of
Phantom Shares in an Outside Director's account shall be
proportionately adjusted.
16. GOVERNING LAW: The laws of the State of Delaware shall
govern, control, and determine all questions arising with
respect to the Plan and the interpretation and validity of its
respective provisions.
Approved by the Board
of Directors of The Columbia
Gas System, Inc. at a
meeting held on
_________________ , 1996 and
approved by the shareholders
of The Columbia Gas System,
Inc. on ___________.
-----------------------------
Secretary
4
43
(CORPORATE SEAL)
5
44
TO COLUMBIA GAS STOCKHOLDERS:
Columbia's Annual Meeting of Stockholders will be held at 1 p.m. LOGO
(EDT) on Friday, April 26, 1996, in the DuPont Auditorium of the HERE
Delaware Art Museum, 2301 Kentmere Parkway, Wilmington, Delaware.
Attached is your proxy card. Please read both sides and then mark,
sign and date it. Please detach and return the card promptly in the
enclosed business reply envelope. No postage is required if it is
mailed in the United States.
Thank you for voting on these very important proxy issues.
Carolyn McKinney Afshar
Secretary
The Columbia Gas System, Inc.
Detach Here
- --------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO: FIDELITY MANAGEMENT TRUST COMPANY, N.A., TRUSTEE UNDER EMPLOYEES' THRIFT
PLAN OF COLUMBIA GAS SYSTEM
- --------------------------------------------------------------------------------
Proxy for April 26, 1996, Annual Meeting of Stockholders
- --------------------------------------------------------------------------------
(This Proxy is solicited on behalf of the Board of Directors)
Fidelity Management Trust Company is hereby instructed to vote the equivalent
number of shares of common stock of The Columbia Gas System, Inc., represented
by my units, as indicated on the reverse side of this card, in the Columbia Gas
System Stock Fund of the Employees' Thrift Plan at the Annual Meeting of
Stockholders of The Columbia Gas System, Inc., to be held at the Delaware Art
Museum, Wilmington, Delaware, on April 26, 1996, at 1 p.m. (EDT) and at any
adjournment thereof.
EVERY PROPERLY SIGNED VOTING INSTRUCTIONS FORM WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE ON THE REVERSE SIDE OF THE CARD. IF NOT OTHERWISE
SPECIFIED, THIS VOTING INSTRUCTIONS FORM WILL BE VOTED FOR ALL NOMINEES FOR
ELECTION AS DIRECTOR; FOR ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS; FOR THE ADOPTION OF A LONG-TERM INCENTIVE PLAN, FOR ADOPTION OF A
PHANTOM STOCK PLAN FOR OUTSIDE DIRECTORS; AND IN ACCORDANCE WITH THE DISCRETION
OF THE PROXIES AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
45
BULK RATE
U.S. POSTAGE
PAID
ROCHESTER, NY
PERMIT NO. 1122
Detach Here
- ------------------------------------------------------------------------------------------------------------------------------------
PROXY The Columbia Gas System, Inc. PROXY
Please mark vote in oval in the following manner using dark ink only 0
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL PROPOSALS.
1. ELECTION OF DIRECTORS: For All 3. ADOPTION OF THE LONG-TERM For Against Abstain
R. H. Beeby, M. T. Hopkins, W. E. Lavery, For Withheld Except INCENTIVE PLAN.
O. G. Richard III, W. R. Wilson 0 0 0 0 0 0
4. ADOPTION OF A PHANTOM STOCK
(NOTE: IF THIRD OVAL IS MARKED, CROSS PLAN FOR OUTSIDE DIRECTORS IN 0 0 0
THROUGH NAME(S) FOR WHOM VOTES ARE LIEU OF RETIREMENT BENEFITS.
WITHHELD.)
2. ELECTION OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS. For Against Abstain The Proxies are authorized to vote in
0 0 0 their discretion upon such other
business as may properly come before
the meeting.
Signed
_________________________________
_________________________________
If you receive more than one proxy card,
please vote, sign and return all cards in
the enclosed envelopes. Executors,
administrators, trustees, etc., should
give full title. For joint accounts, each
joint owner should sign.
Return to The Columbia Gas System, Inc., c/o Harris Trust Company of New York,
P.O. Box 830, Chicago, IL 60690-9972
46
TO COLUMBIA GAS STOCKHOLDERS:
Columbia's Annual Meeting of Stockholders will be held at 1 p.m. LOGO
(EDT) on Friday, April 26, 1996, in the DuPont Auditorium of the HERE
Delaware Art Museum, 2301 Kentmere Parkway, Wilmington, Delaware.
Attached is your proxy card. Please read both sides and then mark,
sign and date it. Please detach and return the card promptly in the
enclosed business reply envelope. No postage is required if it is
mailed in the United States.
Thank you for voting on these very important proxy issues.
Carolyn McKinney Afshar
Secretary
The Columbia Gas System, Inc.
Detach Here
- --------------------------------------------------------------------------------
THE COLUMBIA GAS SYSTEM, INC.
- --------------------------------------------------------------------------------
Proxy for April 26, 1996 Annual Meeting of Stockholders
- --------------------------------------------------------------------------------
(This Proxy is solicited on behalf of the Board of Directors)
The undersigned hereby appoints Richard F. Albosta, Donald P. Hodel and Oliver
G. Richard III and any of them, Proxies, with full power of substitution, to
vote on behalf of the undersigned at the Annual Meeting of Stockholders of The
Columbia Gas System, Inc., to be held at the Delaware Art Museum, Wilmington,
Delaware, on April 26, 1996, at 1 p.m. (EDT) and at any adjournment thereof or
on any business that may properly come before the meeting.
The shares represented hereby will be voted in accordance with the
specifications on the reverse side of this card. WHERE A VOTE IS NOT
SPECIFIED, THE PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY FOR ALL
NOMINEES FOR ELECTION AS DIRECTORS, FOR ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS; FOR THE ADOPTION OF A LONG-TERM INCENTIVE PLAN; FOR THE
ADOPTION OF A PHANTOM STOCK PLAN FOR OUTSIDE DIRECTORS; AND IN ACCORDANCE WITH
THE DISCRETION OF THE PROXIES AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
47
BULK RATE
U.S. POSTAGE
PAID
ROCHESTER, NY
PERMIT NO. 1122
Detach Here
- ------------------------------------------------------------------------------------------------------------------------------------
PROXY The Columbia Gas System, Inc. PROXY
Please mark vote in oval in the following manner using dark ink only 0
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL PROPOSALS.
1. ELECTION OF DIRECTORS: 3. ADOPTION OF THE LONG-TERM
R. H. Beeby; M. T. Hopkins; W. E. Lavery; For All INCENTIVE PLAN. For Against Abstain
O. G. Richard III; W. R. Wilson For Withheld Except 0 0 0
0 0 0 4. ADOPTION OF A PHANTOM STOCK
(NOTE: IF THIRD OVAL IS MARKED, CROSS PLAN FOR OUTSIDE DIRECTORS IN
THROUGH NAME(S) FOR WHOM VOTES ARE LIEU OF RETIREMENT BENEFITS. 0 0 0
WITHHELD.)
2. ELECTION OF ARTHUR ANDERSEN LLP AS The Proxies are authorized to vote in
INDEPENDENT PUBLIC ACCOUNTANTS. For Against Abstain their discretion upon such other
0 0 0 business as may properly come before
the meeting.
Signed
_________________________________
_________________________________
DATED: ___________________, 1996
If you receive more than one proxy card,
please vote, sign and return all cards in
the enclosed envelopes. Executors,
administrators, trustees, etc., should
give full title. For joint accounts, each
joint owner should sign. Corporations
should sign full corporation name by duly
authorized officer with the signature
attested by Corporate Secretary.
Return to The Columbia Gas System, Inc., c/o Harris Trust Company of New York,
P.O. Box 830, Chicago, IL 60690-9972