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. )
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National Fuel Gas Company
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(Name of Registrant as Specified in Its Charter)
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NATIONAL FUEL GAS COMPANY
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
FEBRUARY 21, 2002
NATIONAL FUEL GAS COMPANY
10 LAFAYETTE SQUARE
BUFFALO, NEW YORK 14203
January 10, 2002
Dear Stockholder:
We are pleased to invite you to join us at the Annual Meeting of
Stockholders of National Fuel Gas Company. The meeting will be held at 10:00
A.M. local time on Thursday, February 21, 2002, at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place-South Tower, 711 Louisiana
Street, Houston, Texas 77002. The matters on the agenda for the meeting are
outlined in the enclosed Notice of Meeting and Proxy Statement.
So that you may elect Company directors and secure the representation of
your interests at the Annual Meeting, we urge you to vote your shares. The
preferred method of voting is by telephone as described on the proxy card. This
method is both convenient for you and reduces the expense of soliciting proxies
for the Company. If you prefer not to vote by telephone, please complete, sign
and date your proxy card and mail it in the envelope provided. The Proxies are
committed by law to vote your proxy as you designate.
If you plan to be present at the Annual Meeting, please respond to the
question if you vote by telephone, or check the "WILL ATTEND MEETING" box on the
proxy card. Whether or not you plan to attend, please vote your shares by
telephone or complete, sign, date and promptly return your proxy card so that
your vote may be counted. If you do attend and wish to vote in person, you can
revoke your proxy by giving written notice to the Secretary of the meeting
and/or the Trustees (as described on the first page of this Proxy Statement),
and/or by casting your ballot at the meeting.
Coffee will be served at 9:30 A.M. and I look forward to meeting you at
that time.
Please review the proxy statement and take advantage of your right to vote.
Sincerely yours,
PHILIP C. ACKERMAN
Chairman of the Board of Directors,
Chief Executive Officer and
President
NATIONAL FUEL GAS COMPANY
10 LAFAYETTE SQUARE
BUFFALO, NEW YORK 14203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 21, 2002
To the Stockholders of National Fuel Gas Company:
Notice is hereby given that the Annual Meeting of Stockholders of National
Fuel Gas Company will be held at 10:00 A.M. local time on Thursday, February 21,
2002, at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil
Place-South Tower, 711 Louisiana Street, Houston, Texas 77002. At the meeting,
action will be taken with respect to:
(1) the election of directors;
(2) the appointment of independent accountants;
(3) approval of the amended and restated Annual At Risk Compensation
Incentive Program;
(4) adoption of, if presented at the meeting, a shareholder proposal which
the Board of Directors OPPOSES;
(5) adoption of, if presented at the meeting, another shareholder proposal
which the Board of Directors OPPOSES;
and such other business as may properly come before the meeting or any
adjournment thereof.
Stockholders of record at the close of business on December 24, 2001, will
be entitled to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
ANNA MARIE CELLINO
Secretary
January 10, 2002
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, AND WHATEVER THE NUMBER OF SHARES
YOU OWN, PLEASE VOTE YOUR SHARES BY TELEPHONE AS DESCRIBED ON THE PROXY/ VOTING
INSTRUCTION CARD AND REDUCE NATIONAL FUEL GAS COMPANY'S EXPENSE IN SOLICITING
PROXIES. ALTERNATIVELY, YOU MAY COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY/VOTING INSTRUCTION CARD. PLEASE USE THE ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
NATIONAL FUEL GAS COMPANY
10 LAFAYETTE SQUARE
BUFFALO, NEW YORK 14203
PROXY STATEMENT
This proxy statement is furnished to the holders of National Fuel Gas
Company ("Company") common stock ("Common Stock") in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company for
use at the Annual Meeting of Stockholders to be held on February 21, 2002, or
any adjournment thereof. This proxy statement and the accompanying proxy/voting
instruction card are first being mailed to stockholders on or about January 10,
2002.
All costs of soliciting proxies will be borne by the Company. Morrow & Co.,
Inc., 445 Park Avenue, New York, New York 10022, has been retained to assist in
the solicitation of proxies and will be compensated in the estimated amount of
$6,500 plus reasonable out-of-pocket expenses. In addition to solicitation by
that firm and by mail, a number of regular employees of the Company and its
subsidiaries may solicit proxies in person, by telephone or by other methods.
Only stockholders of record at the close of business on December 24, 2001,
will be eligible to vote at this meeting. As of that date, 79,498,105 shares of
Common Stock were issued and outstanding.
Each share of Common Stock entitles the holder thereof to one vote with
respect to each matter that is subject to a vote at the meeting. All shares that
are represented by effective proxies received by the Company in time to be voted
will be voted at the meeting or any adjournment thereof. Where stockholders
direct how their votes shall be cast, shares will be voted in accordance with
such directions. Proxies submitted with abstentions and broker non-votes will be
included in determining whether or not a quorum is present. Abstentions shall be
counted in the number of shares represented and voting, and shall have the same
effect as a vote against the proposal.
The proxy also confers discretionary authority to vote on all matters that
may properly come before the Annual Meeting of Stockholders, or any adjournment
thereof, respecting (i) matters of which the Board is not currently aware but
that may be presented at the meeting, (ii) any shareholder proposal omitted from
this proxy statement pursuant to Rule 14a-8 or 14a-9 of the Securities and
Exchange Commission's proxy rules, and (iii) all matters incident to the conduct
of the meeting.
Any stockholder giving a proxy may revoke it at any time prior to the
voting thereof by mailing a revocation or a subsequent proxy to Anna Marie
Cellino at the above address, by filing written revocation at the meeting with
Mrs. Cellino, Secretary of the meeting, or by casting a ballot.
If you are a participant in the Company's Employee Stock Ownership Plans,
Employees' Thrift Plan or Tax-Deferred Savings Plans, and the accounts are
registered in the same name, the proxy card will also serve as a voting
instruction for the Trustees of those Plans. Shares in these Plans are not voted
unless voting instructions are received. If this card is returned signed but
without directions marked for one or more items, regarding the unmarked items
you are instructing the Trustee(s) and the Proxies to vote FOR items 1, 2 and 3
and vote AGAINST items 4 and 5. Participants in the Plan(s) may also provide
those voting instructions by telephone. These instructions may be revoked by
written notice to J.P. Morgan Chase & Co., Trustee for the Company's Employee
Stock Ownership Plans and the Employees' Thrift Plan, or Vanguard Fiduciary
Trust Company, Trustee for the Company's Tax-Deferred Savings Plans, on or
before February 18, 2002. Addresses are as follows:
J.P. Morgan Chase & Co. Vanguard Fiduciary Trust Company
c/o Computershare Investor c/o Computershare Investor Services, LLC
Services, LLC Attn: Proxy Unit
Attn: Proxy Unit 2 North LaSalle -- 2nd Floor
2 North LaSalle -- 2nd Floor Chicago, IL 60602
Chicago, IL 60602
Enclosed is a copy of the Company's Annual Report for the fiscal year ended
September 30, 2001, which includes financial statements.
1. ELECTION OF DIRECTORS
Three directors are to be elected at this Annual Meeting, to serve for
terms of three years or until their successors are duly elected and qualified.
The nominees for the three directorships are: Robert T. Brady, William J. Hill
and Bernard J. Kennedy. Each of the nominees is currently a director of the
Company.
The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes, and that these three classes
shall be as nearly equal in number as possible. (A class of directors is the
group of directors whose terms expire at the same annual meeting of
stockholders.)
Messrs. Brady, Hill and Kennedy have each been nominated to serve for a
term of three years until the 2005 Annual Meeting and until their successors is
duly elected and qualified. However, the service of Messrs. Kennedy and Hill
will likely not extend past the 2004 Annual Meeting and the 2003 Annual Meeting
respectively given that it is the policy of the Board that no person be
designated or elected for a term as Director that would extend beyond such
person's 72nd birthday, except that a person less than 72 years of age may be
designated or elected with the specific understanding that such person will
resign from the Board, or not serve beyond the first Annual Meeting following
such person's 72nd birthday. Mr. Kennedy will be age 72 on August 16, 2003. Mr.
Hill will be age 72 on May 17, 2002.
It is intended that the Proxies will vote for the election of Messrs.
Brady, Hill and Kennedy as directors, unless they are otherwise directed by the
stockholders. Although the Board of Directors has no reason to believe that any
of the nominees will be unavailable for election or service, stockholders'
proxies confer discretionary authority upon the Proxies to vote for the election
of another nominee for director in the event any nominee is unable to serve or
for good cause will not serve. Messrs. Brady, Hill and Kennedy have consented to
being named in this proxy statement and to serve if elected.
The affirmative vote of a plurality of the votes cast by the holders of
shares of Common Stock entitled to vote is required to elect each of the
nominees for director.
Pages 3 through 5 contain information concerning the three nominees for
election and the six directors of the Company whose terms will continue after
the 2002 Annual Meeting, including information with respect to their principal
occupations during the five years ended September 30, 2001, and certain other
positions held by them.
2
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
MESSRS. BRADY, HILL AND KENNEDY
NAME AND YEAR
BECAME A DIRECTOR
OF THE COMPANY AGE(1) PRINCIPAL OCCUPATION
----------------- ------ --------------------
NOMINEES FOR ELECTION AS DIRECTORS
FOR THREE-YEAR TERMS TO EXPIRE IN 2005
ROBERT T. BRADY...................... 61 Chairman of Moog Inc., a manufacturer of motion
1995 control systems and components, since February 1996.
President and Chief Executive Officer since 1988 and
Director since 1981 of Moog Inc. Director of Acme
Electric Corporation, Astronics Corporation, M&T
Bank Corporation, M&T Bank and Seneca Foods
Corporation.
WILLIAM J. HILL...................... 71 President of National Fuel Gas Distribution
1995 Corporation(2) from June 1989 until his retirement
in October 1995. Director of National Fuel Gas
Distribution Corporation(2) and Reed Manufacturing
Company.
Bernard J. Kennedy................... 70 Chairman of the Board of the Company from March 1989
1978 to January 2, 2002. Chief Executive Officer from
August 1988 to October 2001, President from January
1987 until July 1999. Chairman of the Board of
Associated Electric & Gas Insurance Services
Limited. Director of the Gas Technology Institute,
Interstate Natural Gas Association of America and
Merchants Mutual Insurance Company.
---------------
(1) As of February 21, 2002.
(2) Wholly owned subsidiary of the Company.
3
NAME AND YEAR
BECAME A DIRECTOR
OF THE COMPANY AGE(1) PRINCIPAL OCCUPATION
----------------- ------ --------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2003
EUGENE T. MANN....................... 71 Executive Vice President of Fleet Financial Group, a
1993 diversified financial services company, from 1986
until his retirement in August 1990.
GEORGE L. MAZANEC.................... 65 Former Vice Chairman, from 1989 until October 1996,
1996 of PanEnergy Corporation, a diversified energy
company (now part of Duke Energy). Board member
since October 1996. Director of TEPPCO, LP from 1992
until December 1997, and Director of Northern Border
Pipeline Company Partnership from 1993 until August
1998. Director of the Northern Trust Bank of Texas,
NA, Westcoast Energy Inc. and Associated Electric
and Gas Insurance Services, Ltd. Former Chairman of
the Management Committee of Maritimes & Northeast
Pipeline, L.L.C.
JOHN F. RIORDAN...................... 66 President and CEO since April, 2000 of the Gas
2000 Technology Institute, a not-for-profit research and
educational institution, Des Plaines, Illinois. Vice
Chairman of KN Energy, Inc. from February, 1998 to
February, 1999. President and CEO of MIDCON
Corporation from October, 1988 to January, 1998.
Director of Nicor, Inc., Niagara University and the
Oral and Maxillofacial Surgery Foundation.
---------------
(1) As of February 21, 2002.
4
NAME AND YEAR
BECAME A DIRECTOR
OF THE COMPANY AGE(1) PRINCIPAL OCCUPATION
----------------- ------ --------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2004
PHILIP C. ACKERMAN................... 58 Chief Executive Officer of the Company since October
1994 2001. Appointed as Chairman of the Board effective
January 3, 2002. President of the Company since July
1999. Senior Vice President of the Company from June
1989 until July 1999 and Vice President from 1980 to
1989. President of National Fuel Gas Distribution
Corporation(2) from October 1995 until July 1999 and
Executive Vice President from June 1989 to October
1995. Executive Vice President of National Fuel Gas
Supply Corporation(2) since October 1994. President
of Seneca Resources Corporation(2) from June 1989 to
October 1996. President of Horizon Energy
Development, Inc.(2) since September 1995 and
certain other nonregulated subsidiaries of the
Company since prior to 1992.
JAMES V. GLYNN....................... 67 Chairman of Maid of the Mist Corporation, which
1997 offers scenic boat tours of the American and
Canadian waterfalls, Niagara Falls, New York since
November 2001. Former President since 1971 to
November 2001. Director of M&T Bank Corporation, M&T
Bank, and Chairman of Niagara University Board of
Trustees.
BERNARD S. LEE, PH.D................. 67 Former President, from prior to 1992 until December
1994 31, 1999, of the Institute of Gas Technology, a
not-for-profit research and educational institution,
Des Plaines, Illinois. Presently a director of NUI
Corporation and Peerless Manufacturing Company.
---------------
(1) As of February 21, 2002.
(2) Wholly owned subsidiary of the Company.
5
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
During the Company's fiscal year ended September 30, 2001 ("fiscal 2001"),
there were six meetings of the Board of Directors. In addition, certain
directors attended meetings of standing or pro tempore committees. The entire
Board of Directors acts as a nominating committee. Three standing committees are
described below.
Audit Committee. The Audit Committee held four meetings during fiscal 2001
in order to review the scope and results of the annual audit, to receive reports
of the Company's independent public accountants and chief internal auditor, and
to prepare a report of the committee's findings and recommendations to the Board
of Directors. The committee consists of Messrs. Hill, Glynn, Lee, and Riordan.
Compensation Committee. The Compensation Committee, all of the members of
which are non-employee independent directors, held twelve meetings during fiscal
2001 in order to review and determine the compensation of Company officers, to
review reports and to award stock options, stock appreciation rights, restricted
stock and At Risk Program awards. The committee administers the Company's 1983
Incentive Stock Option Plan, 1984 Stock Plan, 1993 Award and Option Plan, 1997
Award and Option Plan, and Annual At Risk Compensation Incentive Program. The
committee consists of Messrs. Brady, Mann, and Mazanec.
Executive Committee. The Executive Committee held three meetings during
fiscal 2001. The committee has and may exercise the authority of the full Board
except as prohibited by New Jersey corporate law (N.J.S.A. sec.14A:6-9). The
committee, throughout fiscal 2001, consisted of Messrs. Brady, Hill, Kennedy,
Mann and Mazanec. Effective December, 2001, Mr. Ackerman replaced Mr. Kennedy as
Chairman of the committee. The Executive Committee now consists of Messrs.
Brady, Hill, Ackerman, Mann and Mazanec.
During fiscal 2001, all incumbent directors attended at least 75% of the
aggregate of meetings of the Board and of the committees of the Board on which
they served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no "Compensation Committee interlocks" or "insider participation"
which Securities and Exchange Commission (SEC) regulations would require to be
disclosed in this proxy statement.
DIRECTORS' COMPENSATION
The Retainer Policy for Non-Employee Directors (the "Retainer Policy")
which replaced the Board's preexisting retainer policy and the Retirement Plan
for Non-Employee Directors (the "Directors' Retirement Plan"), was approved at
the 1997 Annual Meeting of Stockholders. Directors who are not Company employees
or retired employees do not participate in any of the Company's employee benefit
or compensation plans. Directors who are current employees receive no
compensation for serving as directors. Only non-employee directors are covered
by the Retainer Policy.
Under the current Retainer Policy, adopted on June 15, 2000, non-employee
directors are paid an annual retainer of $14,000 and 480 shares of Common Stock
(which doubled to 960 shares with the implementation of the two-for-one stock
split on September 7, 2001). Common Stock issued to non-employee directors under
the Retainer Policy will be nontransferable until the latter of two years from
issuance or six months after the recipient's cessation of service as a director
of the Company.
Non-employee directors are paid a fee of $1,200 for each Board meeting and
$800 for each Committee meeting attended ($500 if participating by telephone).
Non-employee directors are paid an additional annual retainer fee of $3,000 if
appointed as Chairman of any committee; accordingly, Messrs. Brady, Lee and
Mazanec each received an additional annual retainer fee of $3,000 during fiscal
2001. Non-employee directors are also paid $600 for each special consultation as
director that is with or at the request of the Company's chief executive
officer. In fiscal 2001 Messrs. Brady, Mann, Mazanec and Riordan received
payments of $3,600, $4,800, $9,600 and $2,400, respectively, for additional
consultations.
6
Benefit accruals under the Directors' Retirement Plan ceased for each
current non-employee director on December 31, 1996. All such directors who were
eligible vested in their Directors' Retirement Plan benefits at that time, and
will receive their accrued Directors' Retirement Plan benefits under its terms
(normally at age 72). People who first become directors after February 1997 are
not eligible to receive benefits under the Directors' Retirement Plan.
INDEPENDENT AUDITOR'S FEES
In addition to retaining PricewaterhouseCoopers LLP to report upon the
annual consolidated financial statements of the Company for 2001, the Company
retained PricewaterhouseCoopers LLP to provide various non-audit services in
2001. The aggregate fees billed for professional services by
PricewaterhouseCoopers LLP in 2001 for these various services were: Audit
Fees -- $438,028 for services rendered for the annual audit of the Company's
consolidated financial statements for 2001 and the quarterly reviews of the
financial statements included in the Company's Forms 10-Q; Financial Information
Systems Design and Implementation Fees -- $0; and All Other Fees -- $509,628.
AUDIT COMMITTEE REPORT
The Company's Board of Directors has adopted a written charter for the
Audit Committee of the Board of Directors. A copy of that charter was included
as an appendix to the proxy statement for last year's annual meeting. All of the
Audit Committee members are independent, as independence is defined in Sections
303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing standards, as
applicable.
The Audit Committee has reviewed and discussed the Company's audited
financial statements for fiscal 2001 with management. The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
SAS 61 (Codification of Statements on Auditing Standards, AU 380), as amended or
supplemented. The Audit Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as modified or supplemented, and has
discussed with the independent auditors the independent auditor's independence.
The Audit Committee also has considered whether the independent auditor's
provision of non-audit services to the Company and its affiliates is compatible
with the independent auditor's independence.
Based on the review, discussions and considerations referred to in the
preceding paragraph, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual Report
on Form 10-K (17 CFR 249.310) for the last fiscal year for filing with the
Securities and Exchange Commission.
AUDIT COMMITTEE
BERNARD S. LEE, PH.D., CHAIRMAN
JAMES V. GLYNN
WILLIAM J. HILL
JOHN F. RIORDAN
7
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth for each current director, each nominee for
director, each of the executive officers named in the Summary Compensation
Table, and for all directors and officers as a group, information concerning
beneficial ownership of Common Stock. Unless otherwise stated, to the best of
the Company's knowledge, each person has sole voting and investment power with
respect to the shares listed. All share amounts have been adjusted to reflect
the two-for-one stock split implemented on September 7, 2001.
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF
BENEFICIALLY OWNED COMMON
AS OF SEPTEMBER 30, STOCK
NAME 2001 OWNED
---- ------------------- ----------
Philip C. Ackerman (1)(2)(3)(4)............................. 2,124,949 2.68%
James A. Beck (1)(2)(3)..................................... 270,968 *
Robert T. Brady............................................. 4,200 *
James V. Glynn.............................................. 3,646 *
William J. Hill............................................. 70,280 *
Bernard J. Kennedy (2)(3)(5)(6)(7).......................... 3,802,398 4.79%
Bernard S. Lee.............................................. 6,400 *
Eugene T. Mann.............................................. 5,700 *
George L. Mazanec (8)....................................... 5,000 *
John F. Riordan............................................. 3,200 *
Dennis J. Seeley (1)(2)(3)(9)............................... 331,963 *
David F. Smith (1)(2)(3).................................... 325,314 *
Directors and Officers as a Group (16 individuals)
(10)(11).................................................. 8,253,151 10.40%
---------------
* Represents beneficial ownership of less than 1% of issued and outstanding
Common Stock on September 30, 2001.
(1) Includes shares held in the Company's Thrift Plan, Employee Stock Ownership
Plan for Supervisory Employees ("ESOP") and Tax-Deferred Savings Plan for
Non-Union Employees ("TDSP"), respectively, as follows: Philip C. Ackerman,
8,306, 10,993 and 11,170 shares; Dennis J. Seeley, 8,552, 4,165 and 6,406
shares; David F. Smith, 0, 1,682 and 7,406 shares; James A. Beck, 246, 0,
and 2,246 shares; and all current directors and officers as a group (16
individuals), 26,834, 41,809 and 61,187 shares. The beneficial owners of
the shares have sole voting power with respect to shares held in the Thrift
Plan, ESOP and TDSP, but do not have investment power respecting those
shares until they are distributed.
(2) Includes shares with respect to which each of the named individuals, and
all current directors and officers as a group (16 individuals), have the
right to acquire beneficial ownership within 60 days of September 30, 2001,
through the exercise of stock options granted under the 1983 Incentive
Stock Option Plan, the 1984 Stock Plan, the 1993 Award and Option Plan, and
the 1997 Award and Option Plan as follows: 3,095,570 shares for Mr.
Kennedy, 1,901,076 shares for Mr. Ackerman, 276,000 shares for Mr. Seeley,
264,000 shares for Mr. Smith, 241,698 shares for Mr. Beck, and 6,837,436
shares for all current directors and officers as a group (16 individuals).
Because the required "mark-to-market" quarterly accounting entries for
outstanding SARs were contributing to volatility of the Company's earnings,
and making those earnings less predictable, the Committee recommended that
the 1993 and 1997 Plans be amended to allow SARs to be converted to
non-qualified stock options having the same exercise price and term as the
converted SARs. These amendments were adopted by the Board, and were
approved by the stockholders at a special meeting of stockholders which
concluded early in fiscal 2002. On November 20, 2001, all of the
convertible SARs held by Mr. Kennedy and Mr. Ackerman were converted into
non-qualified stock options at the request of the Committee and with
8
their consent. The converted SARs, now NQSO's are included in the above
numbers for Mr. Kennedy and Mr. Ackerman.
(3) Includes shares of restricted stock, certain restrictions on which had not
lapsed as of September 30, 2001, as follows: 19,010 shares for Mr. Kennedy,
1,328 shares for Mr. Ackerman, 10,000 shares for Mr. Seeley, 10,000 shares
for Mr. Smith, 18,000 shares for Mr. Beck, and 78,338 shares for all
current directors and officers as a group (16 individuals). Owners of
restricted stock have power to vote the shares, but have no investment
power with respect to the shares until the restrictions lapse.
(4) Includes 1,000 shares held by Mr. Ackerman's wife in trust for her mother,
as to which shares Mr. Ackerman does not admit beneficial ownership, and
440 shares with respect to which Mr. Ackerman shares voting and investment
power with his wife.
(5) Includes 76,766 shares owned by Mr. Kennedy's wife as to which Mr. Kennedy
shares voting and investment power.
(6) Includes 8,200 shares held by the Kennedy Family Foundation, a New York
not-for-profit corporation, of which Mr. Kennedy, his wife and son are
directors. Mr. Kennedy disclaims beneficial ownership of these shares.
(7) Includes 50,000 pre-split shares of stock awarded to Mr. Kennedy pursuant
to the Retirement and Consulting Agreement, which were transferred to him
in fiscal 2002. See Employment Contracts and Termination of Employment and
Change-in-Control Agreements on Page 17 for additional information.
(8) Includes 600 shares owned by Mr. Mazanec's wife as to which Mr. Mazanec
shares voting and investment power.
(9) Includes 23,264 shares held jointly with his wife, with whom Mr. Seeley
shares voting and investment power.
(10) See notes (1) through (8) above.
(11) Includes 5,200 shares with respect to which one or another of the officers
of the Company, not including the executive officers named in the Summary
Compensation Table, shares voting and investment power with his wife.
As of September 30, 2001, the Company knows of no one who beneficially owns
in excess of 5% of a class of the Company's common stock except as set forth in
the table below. Share amounts have been adjusted to reflect the two-for-one
stock split implemented on September 7, 2001.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------- ------------------- -------------------- --------
Common stock......... Massachusetts Financial Services Company 6,818,937(1) 8.59
500 Boylston Street, 15th Floor
Boston, MA 02116
---------------
(1) According to its Form 13F filed with the Securities and Exchange Commission
for the quarter ended September 30, 2001, Massachusetts Financial Services
Company had sole dispositive power with respect to 6,418,657 shares, shared
dispositive power with non-managers with respect to 400,280 shares; sole
voting power with respect to 6,292,957 shares, and no voting power with
respect to 525,980 shares.
9
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
General
The Compensation Committee (the "Committee") sets the base salaries and
bonuses (if any) of the Company's executive officers, makes awards and sets
goals for certain executive officers under the Annual At Risk Compensation
Incentive Program (the "At Risk Program"), and makes awards to executive
officers and others under various compensation plans as described below. The
Committee consists exclusively of non-employee independent directors, appointed
by resolution of the entire Board of Directors. No member of the Committee is
permitted to receive any award under any plan administered by the Committee.
The Committee's objective is to set executive compensation at levels which
(i) are fair and reasonable to the stockholders, (ii) link executive
compensation to long-term and short-term interests of the stockholders, and
(iii) are sufficient to attract, motivate, and retain outstanding individuals
for executive positions. The executive officers' compensation is linked to the
interests of the stockholders by making a significant part of each executive
officer's potential compensation depend on the price of the Company's Common
Stock on the open market, the Company's earnings per share, and the officer's
own performance. The retention of officers is encouraged by making a substantial
portion of the compensation package in the form of awards which either increase
in value, or only have value, if the executive officer remains with the Company
for specified periods of time.
Specific components of executive officers' compensation earned or paid in
fiscal 2001 are discussed below. The Company's five most highly compensated
executive officers are identified on the Summary Compensation Table on page 13,
and are sometimes referred to as the "named executive officers."
Base Salary
The Committee annually reviews base salaries for the Company's officers and
adjusts them on a calendar year basis and as promotions occur. The Committee
generally uses a range of the 50th percentile to the 75th percentile of its
survey data as the starting point. The Committee also takes into account an
individual's specific responsibilities, experience and effectiveness.
As part of the Committee's effort to emphasize the at-risk and incentive
portions of executive officer compensation, the base salary of Mr. Kennedy has
remained the same since calendar 1996. The fiscal 2001 base salaries of the
named executive officers are shown on the Summary Compensation Table on page 13
in the "Base Salary" column.
Annual At Risk Incentive and Bonus
Under the At Risk Program, the Committee makes At Risk Awards which grant
for certain named executive officers the opportunity to earn cash payments
depending on the achievement of goals set within the first quarter of each
fiscal year. Performance goals are both financial (for example, Company earnings
per share or subsidiary earnings) and non-financial (for example, customer
service).
The Summary Compensation Table on page 13 includes in the "LTIP (Long-Term
Incentive Plan) Payouts" column the amounts earned by Messrs. Kennedy and
Ackerman in fiscal 2001 under the At Risk Program. These payments are considered
by the SEC to be "long-term" incentives because payments are based on the
rolling average of performance during the two fiscal years most recently
completed. The range of potential At Risk Program awards for fiscal 2001 for
Messrs. Kennedy and Ackerman is set out in the Long-Term Incentive Plan Table on
page 16.
At Risk Program goals for Mr. Kennedy, as Chief Executive Officer, were a
specified level of Company earnings per share (weighted as 75% of the formula)
and customer service/other goals (weighted as 25% of the formula). Company
earnings per share (exclusive of non-cash asset write downs, non-cash cumulative
effect of changes in accounting methods, and certain
10
other special items) must reach a pre-determined target to trigger the maximum
annual incentive award to Mr. Kennedy.
In furtherance of the Committee's goal of emphasizing incentive-based
compensation for the Company's executive officers, most of the executive
officers, including Messrs. Beck, Seeley and Smith were paid amounts as bonuses
in December 2001 (for performance in fiscal 2001). These awards were based on
the performance of their respective subsidiaries and/or their effectiveness in
performing their respective responsibilities. Messrs. Kennedy and Ackerman made
recommendations for fiscal 2001 bonuses for the Company's executive officers and
other officers which were accepted by the Committee. The Summary Compensation
Table on page 13 includes in the "Bonus" column the amount earned by the named
executive officers in fiscal 2001 as bonuses. These awards are considered by the
SEC to be bonuses because they are based on performance during a single fiscal
year. As shown on that table, the Committee awarded to Mr. Kennedy a
performance-based bonus of $848,150. It did so in recognition of the Company's
excellent performance under Mr. Kennedy's leadership in fiscal 2001 as well as
his more than 40 years of service during which he transformed the Company from a
regional utility into a diversified energy company of national and international
scope, and his impending retirement as an officer of the Company.
Stock Options, SARs and Restricted Stock
Stock options, stock appreciation rights (SARs) and restricted stock
represent the longer-term incentive and retention component of the executive
compensation package. In fiscal 2001, the Committee awarded stock options to 96
employees, including the named executive officers. These awards are intended to
focus attention on managing the Company from a long-term investor's perspective
and encourage officers and other managers to have a significant, personal
investment in the Company through stock ownership. Employees are encouraged to
retain their stock for long-term investment, rather than sell option shares
after receiving them. Awards are made under plans such as the 1997 Award and
Option Plan which allow the Committee broad flexibility to use a wide range of
stock-based performance awards.
The Committee annually awards SARs and stock options to buy Company Common
Stock, both of which have value only to the extent the market price of the
Company's Common Stock increases after the date of an award. The Committee also
from time to time awards restricted stock, which increases or decreases in value
to the same extent as the Company's Common Stock. Dividends are paid on
restricted stock and on the shares held for employees (including executive
officers) in various employee benefit plans, so executive officers benefit
directly from dividends paid on the Company's Common Stock.
During fiscal 2001, the Committee awarded to each named executive officer
options to buy stock in the future at the market price on the award date. The
Committee also awarded to Mr. Kennedy and Mr. Ackerman an equal number of SARs
with the same exercise price. None of the options or SARs awarded can normally
be exercised for at least one year after the award date, and all of them expire
no later than 10 years after the award date. Awards to the named executive
officers are shown on the Option/SAR Grants in Fiscal 2001 table on page 14.
As a general rule, the Committee uses the prior year's grant as the
starting point for determining each subsequent year's grant. The Committee
changes the size of grants as (1) participants are promoted to new positions,
(2) surveys indicate that stock options should be adjusted, or (3) depending on
the Committee's perception of individual and Company performance.
Because the required "mark-to-market" quarterly accounting entries for
outstanding SARs were contributing to volatility of the Company's earnings, and
making those earnings less predictable, the Committee recommended that the 1993
and 1997 Plans be amended to allow SARs to be converted to non-qualified stock
options having the same exercise price and term as the converted SARs. These
amendments were adopted by the Board, and were approved by the stockholders at a
special meeting of stockholders which concluded early in fiscal 2002. On
November 20, 2001, all of the convertible SARs held by Mr. Kennedy and Mr.
Ackerman were
11
converted into non-qualified stock options at the request of the Committee and
with their consent.
Also in fiscal 2002, and consistent with its established practice, the
Committee awarded Mr. Kennedy the same number of options (on a split-adjusted
basis) as the options and SARs awarded to him in fiscal 2001. It did so in
recognition of the Company's excellent performance under Mr. Kennedy's
leadership in fiscal 2001 as well as his more than 40 years of service during
which he transformed the Company from a regional utility into a diversified
energy company of national and international scope, and his impending retirement
as an officer of the Company. Given Mr. Kennedy's retirement as an officer of
the Company in January 2002, he will not be eligible to receive further stock
options under the 1993 or 1997 Award and Option Plans.
Benefits Based on Retirement, Death, or Change in Control
Benefits based on retirement, death, or change in control are payable under
various arrangements which are applicable to the named executive officers (as
well as other core employees). The Committee is not generally authorized to
amend such arrangements, but makes recommendations to the Board of Directors to
amend such plans.
Neither the Company nor the Committee made any material changes in any of
the plans described in this section, except that the Company and Mr. Kennedy
entered into the arrangements discussed at page 17 under the heading Employment
Contracts and Termination of Employment and Change-in-Control Agreements.
Neither the Company nor the Committee made any material changes in any of the
"miscellaneous minor perquisites and personal benefits" discussed in footnote
(1) of the Summary Compensation Table on page 13.
Compensation of Chief Executive Officer
The bases for Mr. Kennedy's fiscal 2001 base salary and At Risk Program
award, and performance-based bonus, including the Committee's goals and
methodology, are discussed earlier in this report under the headings Base Salary
and Annual At Risk Incentive and Bonus. The bases for Mr. Kennedy's other fiscal
2001 longer-term incentive awards are discussed earlier in this report under the
heading Stock Options, SARs and Restricted Stock. The bases for arrangements in
connection with Mr. Kennedy's fiscal 2002 retirement are discussed at page 17
under the heading Employment Contracts and Termination of Employment and
Change-in-Control Agreements
Policy With Respect to Qualifying Compensation Paid to Executive Officers For
Deductibility Under Section 162(m) of the Internal Revenue Code
The Committee intends that, whenever reasonably possible, compensation paid
to its managers, including its executive officers, should be deductible for
federal income tax purposes. Compensation paid under the At Risk Program
qualifies as performance-based compensation under Section 162(m) of the Internal
Revenue Code. The Committee may vote to award compensation, especially to a
chief executive officer, that is not fully deductible, if the Committee
determines that such award is consistent with its philosophy and is in the best
interests of the Company and its stockholders.
COMPENSATION COMMITTEE
GEORGE L. MAZANEC, CHAIRMAN
ROBERT T. BRADY
EUGENE T. MANN
12
EXECUTIVE COMPENSATION SUMMARY TABLE
The following table sets forth information with respect to compensation
paid by the Company and its subsidiaries for services rendered during the last
three fiscal years to the Chief Executive Officer and each of the four other
most highly compensated executive officers for the fiscal year ended September
30, 2001 (the "named executive officers").
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- --------------------------------------
AWARDS PAYOUTS
------------------------- ----------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL BASE COMPENSA- STOCK OPTIONS/ LTIP COMPENSA-
POSITION YEAR SALARY($) BONUS($) TION($)(1) AWARDS($)(2) SARS(#)(3) PAYOUTS($) TION($)(4)
------------------ ------ --------- -------- ------------ ------------ ---------- ---------- ----------
Bernard J. Kennedy.......... 2001 848,150 848,150 0 0 600,000 848,150 3,063,051(5)
Chairman of the Board 2000 848,150 802,890 0 0 600,000 848,150 308,621
of Directors 1999 848,150 0 0 241,017 480,000 424,000 226,326
Philip C. Ackerman.......... 2001 630,000 0 0 0 500,000 535,500 145,248
Chief Executive Officer and 2000 570,000 0 0 0 440,000 530,100 156,463
President of the Company 1999 495,000 0 0 32,495 320,000 247,500 118,677
David F. Smith.............. 2001 360,000 125,000 0 0 90,000 0 68,979
President of National 2000 300,000 100,000 0 0 90,000 0 66,041
Fuel Gas Distribution 1999 250,750 75,000 0 0 50,000 0 61,196
Corporation
Dennis J. Seeley............ 2001 360,000 125,000 0 0 90,000 0 61,700
President of National 2000 281,500 100,000 0 0 80,000 0 55,463
Fuel Gas Supply 1999 238,500 80,000 0 0 50,000 0 51,666
Corporation
James A. Beck............... 2001 360,769 25,000 0 0 70,000 0 23,191
President of Seneca 2000 277,500 100,000 0 111,190 50,000 0 4,120
Resources Corporation 1999 245,250 0 0 97,875 50,000 0 5,028
---------------
(1) Excludes perquisites or personal benefits because, for each named executive
officer, the cost to the Company of all such items was less than $50,000 and
less than 10% of that executive's base salary and bonus, if any, for each
fiscal year listed.
(2) The dollar values shown in the Restricted Stock Awards column are based on
the fair market value of the Company's Common Stock on the date of the
restricted stock award. Restricted shares may not be transferred or pledged,
but such Company-imposed restrictions lapse with the passage of time and
continued employment with the Company.
As of September 30, 2001, the aggregate number of unvested shares
(post-split) of restricted stock held by each named executive officer and
the aggregate fair market value of such shares using a closing market price
as of September 30, 2001 of $23.03 are as follows: for Mr. Kennedy, 19,010
shares ($437,800); Mr. Ackerman, 1,328 shares ($30,584); Mr. Smith, 10,000
shares ($230,300); Mr. Seeley, 10,000 shares ($230,300); and Mr. Beck,
18,000 shares ($414,540). Dividends are paid on all shares of restricted
stock.
Mr. Kennedy's restricted stock awards reported in the table may vest, in
whole or in part, in under three years from the date of grant, together with
their vesting schedule, as follows: For fiscal 1999, 4,925 (9,850
post-split) restricted shares were granted on December 9, 1999 for
performance in fiscal 1999. For fiscal 1998, 4,580 (9,160 post-split)
restricted shares were granted on December 10, 1998 for performance in
fiscal 1998. Vesting restrictions on Mr. Kennedy's fiscal 1999 and fiscal
1998 awards lapsed on January 3, 2002, which represents a one-year
acceleration of the original lapse date.
Mr. Ackerman was awarded 664 (1,328 post-split) shares of restricted stock
on December 9, 1999 for performance in fiscal 1999. Vesting restrictions
lapse on the first January 15 which occurs after the year in which Mr.
Ackerman retires as an officer of the Company. These shares do not vest if
both his employment and Directorship with the Company and its subsidiaries
terminate for any reason prior to the expiration of vesting restrictions,
unless such termination is on account of death, disability or retirement.
13
On December 7, 2000, Mr. Beck was awarded 2,000 (4,000 post-split) shares of
restricted stock for performance in fiscal 2000. He was also awarded 2,000
(4,000 post-split) shares of restricted stock on December 9, 1999 for
performance in fiscal 1999. Vesting restrictions lapse on December 7, 2006
and December 9, 2005, respectively. These shares do not vest if Mr. Beck's
employment with the Company and its subsidiaries terminates for any reason
except death or prior to the expiration of the vesting restrictions.
(3) The numbers of shares underlying options/SARs are adjusted to reflect the
two-for-one stock split which was implemented on September 7, 2001.
(4) In fiscal 2001, the Company paid, contributed or accrued for Messrs.
Kennedy, Ackerman, Smith, Seeley and Beck $0, $10,200, $10,200, $10,200 and
$5,383, respectively, under the Tax-Deferred Savings Plan; $129,840,
$52,085, $15,223, $15,223 and $4,252, respectively, under the Tophat Plan
which pays all participants a sum intended to replace amounts which they
will not receive as Company-matching contributions under the Tax-Deferred
Savings Plan as a result of tax law limits or other tax considerations; $0,
$5,450, $722, $1,940 and $0, respectively, under a program that passes
through to employees the Company's tax savings associated with payment of
dividends on Employee Stock Ownership Plan shares; $55,897, $21,057, $4,706,
$9,577 and $0, respectively, as above-market interest under the Deferred
Compensation Plan (which amount, in the case of Mr. Smith, could be
forfeited); and $126,351, $56,456, $38,128, $24,760 and $13,556
respectively, as the dollar value of split-dollar or other life insurance
benefits paid for by the Company.
(5) In fiscal 2001, the Company entered into a Retirement and Consulting
Agreement with Mr. Kennedy in connection with his retirement in fiscal 2002.
Under that agreement, the Company agreed to transfer to Mr. Kennedy 50,000
shares (pre-split) of Company common stock in fiscal 2002. The market value
of those shares at the end of fiscal 2001 was $2,303,000. In that same
agreement, the Company agreed to pay Mr. Kennedy in fiscal 2002 a bonus
equal to approximately one-fourth of his recent AARCIP award payouts, in
three monthly payments of $149,321 in the first three months of fiscal 2002.
See Employment Contracts and Termination of Employment and Change-in-Control
Agreements on page 17 for additional information regarding this agreement.
STOCK OPTION GRANT TABLE
The following table sets forth information with respect to options to
purchase shares of Common Stock and Stock Appreciation Rights ("SARs") awarded
during fiscal 2001 to the named executive officers pursuant to plans approved by
the Company's stockholders.
OPTION/SAR GRANTS IN FISCAL 2001(1)
--------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS/SARS EXERCISE
SECURITIES GRANTED TO OR BASE
UNDERLYING EMPLOYEES PRICE PER GRANT DATE
OPTIONS/SARS IN FISCAL SHARE EXPIRATION PRESENT
NAME GRANTED(#) YEAR ($/SH) DATE VALUE($)(2)
---- --------------- ---------------- --------- ---------- -------------
Bernard J. Kennedy..... 300,000 options 12.8% $27.7975 12/2010 $1,590,000
300,000 SARs 12.8% 27.7975 12/2010 1,590,000
Philip C. Ackerman..... 250,000 options 10.7% 27.7975 12/2010 1,325,000
250,000 SARs 10.7% 27.7975 12/2010 1,325,000
David F. Smith......... 90,000 options 3.9% 27.7975 12/2010 477,000
Dennis J. Seeley....... 90,000 options 3.9% 27.7975 12/2010 477,000
James A. Beck.......... 70,000 options 3.0% 27.7975 12/2010 371,000
---------------
(1) The options and SARs shown on this table were granted under the 1993 and
1997 Award and Option Plans and can be exercised at any time during the nine
years preceding the expiration date if the holder remains with the Company.
These options and SARs terminate
14
within three months of termination of employment, except that upon termination
of employment for any reason other than discharge for cause or voluntary
resignation prior to age 60, most of such options and SARs may be exercised
within five years after termination of employment. Payment of the exercise
price may be in cash or by tendering shares of Company Common Stock. The
number of options and SARs awarded have been adjusted to reflect the
two-for-one stock split which was implemented on September 7, 2001. On
November 20, 2001, all the SARs shown on this table were converted into
non-qualified stock options having the same exercise price and term as the
converted SARs.
(2) This column shows the hypothetical value of these options and SARs according
to a binomial option pricing model. The assumptions used in this model for
the options granted in fiscal 2001 were: quarterly dividend yield of 0.87%,
an annual standard deviation (volatility) of 20.51%, a risk-free rate of
5.26%, and an expected term before exercise of 5.0 years. Whether the
assumptions used will prove accurate cannot be known at the date of grant.
The model produces a value based on freely tradable securities, which the
options and SARs are not. The holder can derive a benefit only to the extent
the market value of Company Common Stock is higher than the exercise price
at the date of actual exercise.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUE TABLE
The following table sets forth as to each named executive officer
information with respect to stock option and SAR exercises during fiscal 2001
and the number and value of unexercised options and SARs at September 30, 2001.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2001
AND OPTION/SAR VALUES ON SEPTEMBER 30, 2001
--------------------------------------------------------------------------------
NUMBER OF NUMBER OF SECURITIES
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
OPTIONS/SAR FISCAL YEAR-END(#)(3) AT FISCAL YEAR-END($)(4)
EXERCISED VALUE --------------------------- ---------------------------
NAME (#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
Bernard J. Kennedy............. 135,788 1,712,994 3,153,054 600,000 11,466,226 0
Philip C. Ackerman............. 5,442 71,603 1,989,728 500,000 6,778,331 0
David F. Smith................. 14,916 181,153 264,000 90,000 419,076 0
Dennis J. Seeley............... 0 0 276,000 90,000 581,405 0
James A. Beck.................. 9,144 89,781 241,698 70,000 460,215 0
---------------
(1) The number of securities shown in this column have been adjusted to reflect
the two-for-one stock split which was implemented on September 7, 2001. The
two-for-one stock split would not affect the "Value Realized" column.
(2) Market value of stock at exercise less exercise price or base price.
(3) The number of securities in these two columns have been adjusted to reflect
the two-for-one stock split which was implemented on September 7, 2001. This
adjustment does not affect the Value of Unexercised In-the-money
Options/SARs columns. On November 20, 2001, 3,097,172 SARs were converted
into non-qualified stock options. The numbers in this table include 146,136
SARs issued from the 1984 stock plan that are still outstanding and
exercisable.
(4) Market value of stock at fiscal year-end less exercise price or base price.
15
LONG-TERM INCENTIVE PLAN AWARD TABLE
The following table sets forth information with respect to long-term
incentive plan awards made during fiscal 2001 to the named executive officers
pursuant to the At Risk Program.
LONG-TERM INCENTIVE PLAN -- AWARDS IN FISCAL 2001
--------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS(1)
PERFORMANCE PERIOD -------------------------------------
NAME UNTIL MATURATION THRESHOLD($) TARGET($) MAXIMUM($)
---- --------------------- ------------ --------- ----------
Bernard J. Kennedy.............. 2 years ended 9/30/01 0 848,150 848,150
Philip C. Ackerman.............. 2 years ended 9/30/01 0 315,000 630,000
---------------
(1) This table describes the sole At Risk Program opportunity which was made to
executive officers in fiscal 2001 based on the rolling two-year average of
performance in fiscal 2000 and fiscal 2001. The actual amounts awarded and
paid for fiscal 2001 under the At Risk Program are shown in the Summary
Compensation Table on page 13 in the LTIP Payouts column.
REPORT ON REPRICING OF OPTIONS/SARS
The Company did not reprice any stock options or SARs in fiscal 2001. Under
the 1997 Award and Option Plan, from which 99% of the current grants are issued,
options and SARs can not be repriced after they have been granted.
CORPORATE PERFORMANCE GRAPH
The following graph compares the yearly cumulative stockholder return on
the Company's Common Stock against the cumulative total return of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500") and the Standard & Poor's
Utilities Index ("S&P Utilities") for a period of five years commencing
September 30, 1996, and ended September 30, 2001.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS*
FISCAL YEARS 1996-2001
COMPARISON CHART
NATIONAL FUEL S&P 500 S&P UTILITIES
------------- ------- -------------
1996 100.00 100.00 100.00
1997 125.00 140.00 114.00
1998 138.00 153.00 149.00
1999 145.00 196.00 147.00
2000 179.00 222.00 212.00
2001 152.00 163.00 160.00
* Assumes $100 invested on September 30, 1996, and reinvestment of
dividends.
16
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS
Mr. Kennedy entered into an employment agreement with the Company on
September 17, 1981, which was most recently extended as of September 1, 1999.
That employment agreement preserved, as a minimum level of compensation, monthly
compensation levels as are in effect from time to time. In September 2001, the
Company and Mr. Kennedy entered into arrangements under which its existing
employment agreement with Mr. Kennedy concluded on January 2, 2002. Until the
conclusion of that employment agreement, Mr. Kennedy's cash compensation
continued at the then-current level.
On September 19, 2001, the Company announced the election of Philip C.
Ackerman as Chief Executive Officer to succeed Mr. Kennedy, effective October 1,
2001. Mr. Kennedy, who joined the Company in 1958 and has been Chief Executive
Officer since 1988, remained Chairman until January 2, 2002 and continued to
serve as a Director. Mr. Kennedy also agreed to serve as a consultant to the
Company for 30 months commencing January 2, 2002 at a monthly retainer of
$20,833. In addition, Mr. Kennedy will continue to be entitled to a lifetime
monthly retirement benefit of $10,120 (50% Joint & Survivor Annuity) under the
Company's qualified Retirement Plan. In recognition of his long and
distinguished service to the Company, and in consideration of his waiver of the
balance of his existing employment agreement, his undertaking to be bound
permanently by comprehensive confidentiality and non-disclosure arrangements,
and his agreement to a broad, three-year, non-compete covenant, the Company
agreed to award Mr. Kennedy, effective October 1, 2001, 50,000 shares
(pre-split) of the Company's common stock (which shares were purchased by the
Company on the open market) and to settle Mr. Kennedy's pension entitlements in
accordance with the Company's Executive Retirement Plan, as amended to
accommodate similarly situated executives and reflect prior actions of the
Company's Board of Directors. Pursuant to that settlement, Mr. Kennedy is
entitled to a lifetime monthly retirement benefit of $183,745, which translates
into a one-time cash out option, if elected, of $23,000,000 as of January 1,
2004, which amount would be payable as a death benefit, in the event of Mr.
Kennedy's death prior to January 1, 2004. This cash out would eliminate the
Company's liability for any future annuity payments under the Executive
Retirement Plan.
Messrs. Ackerman, Beck, Smith and Seeley entered into Employment
Continuation and Noncompetition Agreements with the Company dated December 11,
1998 that are to become effective in the event of a defined change of control of
the Company. They preserve as a minimum, for the three years following such
change of control, the annual salary levels and employee benefits as are then in
effect for these executives and provide that, in the event of certain
terminations of employment, these executives shall receive severance payments up
to 1.99 times their respective annual base salaries and annual bonuses prior to
termination. Unless an executive elects not to be bound by the Noncompetition
part of the agreement, an additional payment of 1.00 times salary and annual
bonus prior to termination will be made. In addition, executives shall receive
continuation of certain employee benefits for three years or receipt of the
value of such benefits.
Also, in the event of a defined change in control, these executives shall
receive the above-market rate interest on certain deferrals under the Deferred
Compensation Plan, which otherwise could have been forfeited. At September 30,
2001, the above-market rate interest account balance for each of the named
executive officers were as follows: $317,866 for Mr. Kennedy, $127,672 for Mr.
Ackerman, $44,906 for Mr. Smith, $0 for Mr. Beck and $59,521 for Mr. Seeley.
17
RETIREMENT BENEFITS
The following table shows annual 50% joint and survivor life annuity total
benefits payable under the Retirement Plan plus the Executive Retirement Plan to
eligible officers retiring on the later of the normal retirement age of 65 or
their current age with a spouse of the same age. Forms of benefit payment other
than the 50% joint and survivor life annuity, or retirement at an age earlier
than 65, would result in different annual benefits to eligible officers.
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR YEARS OF BENEFIT SERVICE CREDITED(1)
REMUNERATION ------------------------------------------------------------
(2) (3) 20 25 30 35 40
-------------------------- -------- ---------- ---------- ---------- ----------
$ 300,000................ $ 99,436 $ 124,294 $ 149,153 $ 165,501 $ 181,848
700,000................ 237,020 296,275 355,531 394,925 434,319
1,100,000................ 374,605 468,256 561,908 624,349 686,791
1,500,000................ 512,190 640,237 768,285 853,774 938,723
1,900,000................ 649,775 812,218 974,662 1,083,198 1,191,195
---------------------
(1) The service credited for retirement benefit purposes to the officers
named in the Summary Compensation Table, as of September 30, 2001,
except for Mr. Kennedy is as follows: Mr. Ackerman, 33 years, 2
months; Mr. Smith, 23 years, 2 months; Mr. Seeley, 36 years, 3 months;
Mr. Beck, 12 years, 4 months.
(2) Compensation covered for retirement benefit purposes differs from the
amounts appearing in the three "annual compensation" columns of the
Summary Compensation Table on page 13, because the retirement benefits
are based on the average of the "annual cash compensation" (including
At Risk Awards, other performance-related lump-sum compensation and
certain other restricted stock) payable for the 60 consecutive month
period during the last ten years before retiring which produces the
highest average. Accordingly, the current compensation covered by the
plans (meaning the average "annual cash compensation" for the 60
months ending September 2001) for the above named executive officers
except for Mr. Kennedy was: Mr. Ackerman, $886,119; Mr. Smith,
$355,467; Mr. Seeley, $351,317; and Mr. Beck, $300,674. See paragraph
following this table for details of Mr. Kennedy's Retirement benefits.
(3) Benefits described in this table reflect a partial offset for Social
Security benefits.
An officer eligible to receive benefits under the Retirement Plan plus the
Executive Retirement Plan can be credited with a maximum of 40 years of service
for retirement benefit purposes unless such officer qualifies as a "Qualifying
Member" under the Executive Retirement Plan. Currently, Mr. Kennedy is the only
officer who qualifies as a "Qualifying Member." The Executive Retirement Plan
provides that, with respect to a "Qualifying Member" whose retirement occurs
prior to the end of the term of his employment agreement, the Compensation
Committee shall determine in its reasonable discretion the Annual Cash
Compensation relating to the interval between the Qualifying Member's retirement
date and the end of the term of his employment agreement. In addition, that same
interval is included in a Qualifying Member's years of service. Accordingly, Mr.
Kennedy is credited with 44 years and 1 month of service under the Executive
Retirement Plan. However, no determination of Mr. Kennedy's annual cash
compensation was made for the interval referred to above. Rather, the Company
and Mr. Kennedy entered into a settlement of Mr. Kennedy's pension entitlements
as discussed at page 17 under the heading "Employment Contracts and Termination
of Employment and Change-in-Control Agreements." Pursuant to that settlement,
Mr. Kennedy is entitled to a lifetime monthly Executive Retirement Plan benefit
of $183,745. In addition he is entitled to a lifetime annual 50% joint and
survivor life annuity of $10,120 under the Company's qualified Retirement Plan
based on 40 years of benefit service and his Final Average Pay, as defined in
the qualified Retirement Plan, as limited by Internal Revenue Service
regulations. Mr. Kennedy's annual Executive Retirement Plan benefit plus his
annual Retirement Plan benefit is $2,326,380.
18
2. APPOINTMENT OF INDEPENDENT ACCOUNTANTS
At the 2002 Annual Meeting, stockholders will be asked to appoint
PricewaterhouseCoopers LLP independent accountants for the Company's fiscal year
ending September 30, 2002 ("fiscal 2002"). If appointed, PricewaterhouseCoopers
LLP will examine the financial statements of the Company and its subsidiaries
and report upon the annual consolidated financial statements for fiscal 2002.
Representatives of that firm will not be attending this year's annual
meeting. Therefore, no representative will be available to answer questions or
make a statement.
The affirmative vote of a majority of the votes cast with respect to the
appointment of independent accountants by the holders of shares of Common Stock
entitled to vote is required for the appointment of PricewaterhouseCoopers LLP
as independent accountants.
If the necessary votes are not received, or if PricewaterhouseCoopers LLP
declines to accept or otherwise becomes incapable of accepting or exercising the
appointment, or its services are otherwise discontinued, the Board of Directors
will appoint other independent accountants. Unless they are otherwise directed
by the stockholders, the Proxies intend to vote for the appointment of
PricewaterhouseCoopers LLP as independent accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS APPOINTMENT.
3. APPROVAL OF THE AMENDED AND RESTATED ANNUAL AT RISK
COMPENSATION INCENTIVE PROGRAM
Since 1993, a key component of the Company's executive compensation package
has been the performance-based compensation paid in accordance with the
Company's Annual At Risk Compensation Incentive Program ("AARCIP"). The Company
is now seeking the stockholder approval necessary to receive the maximum tax
benefit of continuing to pay performance-based compensation under the AARCIP as
proposed to be amended at the 2002 Annual Meeting of Stockholders. The proposed
Amended AARCIP accompanies this Proxy Statement as Exhibit A.
BACKGROUND.
The AARCIP is described in the "Administrative Rules With Respect to At
Risk Awards Under the 1993 Award and Option Plan," which the stockholders
approved at the 1995 Annual Meeting, and in the "Administrative Rules With
Respect to At Risk Awards Under the 1997 Award and Option Plan," which the
stockholders approved at the 2000 Annual Meeting. Under the AARCIP, cash is
payable to eligible employees based on the extent of attainment over a
Performance Period of Performance Goals, all as specified and judged by the
Compensation Committee in its discretion ("At Risk Awards"). An At Risk Award is
one of the several types of awards which the Compensation Committee can make
under the authority of either the 1993 Award and Option Plan (the "1993 Plan"),
which the stockholders approved at the 1993 Annual Meeting, or the 1997 Award
and Option Plan (the "1997 Plan"), which the stockholders approved at the 1997
Annual Meeting. The purposes of both the 1993 Plan and the 1997 Plan are (i) to
provide incentives to certain employees of the Company whose contributions are
important to the continued success of the Company, and (ii) to enhance the
Company's ability to attract and retain highly qualified persons for the
successful conduct of its businesses.
The Company is now asking for approval by the stockholders, at the 2002
Annual Meeting, of amended and restated Administrative Rules with respect to At
Risk Awards under the 1997 Plan (the "Amended AARCIP", attached as Exhibit A).
Under the Amended AARCIP, cash would continue to be payable to executives based
on the extent of attainment over a Performance Period of Performance Goals, all
as specified and judged by the Compensation Committee in its discretion. The
only amendment to the AARCIP being proposed is to increase the maximum award
available to an individual. The proposed maximum award would be the lesser of
(i) 200% of that individual's base salary, or (ii) two million dollars. This is
double the current maximum award.
19
The Company has historically paid a substantial portion of its executive
compensation in the form of stock options under the 1993 and 1997 Plans, in
order to align the executives' interests with the stockholders. A stock option
has value only to the extent the market price of the Company's common stock
increases after the option is awarded, so stock options provide a direct
economic incentive to the recipient to do things that increase the market value
of the Company's common stock. Based on the Company's historical levels of
granting options, the options available to be granted would be exhausted within
the next fiscal year or two. With fewer options available to be awarded in the
future, the Company wishes to maintain the tie between executive compensation
and Company performance by increasing the maximum amount a successful executive
may earn by meeting his or her Performance Goals under the AARCIP.
The Company could simply pay cash bonuses to its executives based on their
performance, without having the bonus program approved by the stockholders.
However, for the Company to receive the maximum tax benefit from compensation
paid to its executives, stockholder approval of the Amended AARCIP is necessary.
Section 162(m) of the Internal Revenue Code limits the amount of individual
compensation that may be deducted by an employer for tax purposes in any one
fiscal year to $1 million per person. However, that section also creates an
exception to the $1 million limit for compensation which constitutes
"performance-based compensation", paid as a result of the attainment of
pre-established, objective performance criteria. Among other conditions, in
order to be "performance-based compensation", the material terms of a
performance-based plan like the AARCIP or the Amended AARCIP must be approved by
the Company's stockholders (and reapproved at least every five years).
Consequently, some future executive compensation may not be deductible by the
Company unless the Amended AARCIP is approved by stockholders at the 2002 Annual
Meeting.
Therefore, in order to ensure that as much as possible of the Company's
future executive compensation will constitute "performance-based compensation,"
and thus will be fully deductible to the Company on its federal income tax
returns, stockholder approval of the Amended AARCIP is being sought at this
time. The Board of Directors of the Company has determined that approval of the
Amended AARCIP by the stockholders is in the best interests of the Company and
the stockholders. The affirmative vote of a majority of the shares of Common
Stock present and voting at the meeting is required for approval of the Amended
AARCIP.
SUMMARY OF THE AMENDED AARCIP.
The following is a summary of the Amended AARCIP and the Administrative
Rules implementing the Amended AARCIP ("Rules"). A copy of the Rules accompanies
this Proxy Statement as Exhibit A. The following summary is qualified in its
entirety by reference to Exhibit A.
At Risk Awards
Under the Amended AARCIP, At Risk Awards granted by the Committee under the
1997 Plan entitle each recipient to a cash payment based upon the extent to
which Performance Goals have been attained for a specified Performance Period.
No Eligible Employee may receive more than one At Risk Award in any fiscal year.
An At Risk Award may be granted singly, in combination or in the alternative
with other Awards granted under the 1997 Plan or awards under other Company
benefit plans.
Administration
The Amended AARCIP provides for administration by the Compensation
Committee of the Board, or such other committee designated by the Board
("Committee"). The Committee must consist of at least two members, each of whom
is an "outside director" as defined by Section 162(m) of the Internal Revenue
Code and the rules, regulations and interpretations promulgated thereunder as
amended from time to time ("Code").
With respect to At Risk Awards, the Committee has full authority to:
interpret the 1997 Plan and Section 162(m) of the Code to the extent not
addressed by regulation, proposed
20
regulation or publicly available interpretation of the Internal Revenue Service;
determine and select Eligible Employees to receive At Risk Awards; determine the
terms and conditions of an At Risk Award, including the time of making the At
Risk Award, the Performance Period, Performance Goals, and levels of At Risk
Awards to be earned in relation to levels of achievement of the Performance
Goals; determine whether At Risk Awards are to be granted singly, in combination
or in the alternative with other Awards under the 1997 Plan or awards under
other Company benefit plans; grant waivers of 1997 Plan terms and conditions,
provided that such waivers are not inconsistent with Section 162(m) of the Code;
and accelerate the vesting, exercise or payment of any At Risk Award or the
Performance Period of an At Risk Award when such action would not cause
compensation paid or payable under such At Risk Award to cease to be deductible
by the Company for federal income tax purposes. The Committee will also have the
authority to grant At Risk Awards in replacement of Awards previously granted
under the 1997 Plan or awards under any other executive compensation or stock
option plan of the Company or a Subsidiary.
Under the Amended AARCIP, all determinations of the Committee will be made
by a majority of its members, and its determinations will be final, binding and
conclusive. The Amended AARCIP authorizes the Committee, in its discretion, to
delegate its authority and duties under the 1997 Plan with respect to At Risk
Awards to the Company's Chief Executive Officer or to other senior officers of
the Company, but only to the extent, if any, permitted by Section 162(m) of the
Code.
Eligibility for Participation
Eligible Employees are those employees of the Company or its Subsidiaries
who are expected to constitute "covered employees" within the meaning of Section
162(m) of the Code, and any other Core Employee to whom an At Risk Award has
been granted by the Committee. Presently, there are approximately four Eligible
Employees.
Effective Date
Upon approval of the Amended AARCIP by the stockholders of the Company at
the 2002 Annual Meeting, the Amended AARCIP will become effective as of December
13, 2001.
Objective Performance Goals
The Performance Goals of the Amended AARCIP are established with reference
to earnings per share, subsidiary net income and customer service/other goals,
and are established by the Committee for each Eligible Employee who receives an
At Risk Award.
For example, for fiscal 2002, the Committee has granted an At Risk Award
pursuant to which Mr. Ackerman would have the opportunity to earn annual at risk
incentive compensation equal to specified percentages of base salary, by
achieving specific target Performance Goals constituting median and maximum
performance. Mr. Ackerman, as Chief Executive Officer, would receive payment
based upon attainment of specified levels of Company earnings per share
(weighted as a specified percentage of the overall formula) and specified levels
of satisfaction of customer service/other goals (weighted as a specified
percentage of the overall formula). The "customer service/other goals" could
include, but are not necessarily limited to: reliability, system integrity and
synergism, management preparedness, profitability, meeting of budgets,
nonregulated acquisitions, hedging, improving efficiency and human resources
projects.
Virtually all the At Risk Awards ever made by the Company have been based
on the recipient's performance over a Performance Period of two fiscal years.
The At Risk Award payments to Mr. Ackerman and Mr. Kennedy in 1999-2001 were
each based on two-year Performance Periods, and are shown in the Summary
Compensation Table on page 13 in the column headed "LTIP Payouts." When the
Compensation Committee sets the Performance Goals for a specific At Risk Award,
it also sets the Performance Period over which performance will be measured,
which could be any time period permitted by Section 162(m) of the Internal
Revenue Code.
The Amended AARCIP provides that the maximum aggregate value of any At Risk
Award to any Eligible Employee in any fiscal year will not exceed the lower of
(i) twice that employee's base salary for that fiscal year, or (ii) two million
dollars. Under the AARCIP, such awards to
21
an Eligible Employee were limited to the lower of (i) that employee's base
salary for that fiscal year, or (ii) one million dollars.
The Committee may revise the target and maximum Performance Goals and the
percentages and weightings, from time to time, provided that it is not intended
that such revisions would in the aggregate make future At Risk Awards more
valuable or more easily achievable than those described here.
Grant of At Risk Awards
The Amended AARCIP provides that At Risk Awards may be made for each of the
fiscal years of the Company commencing with fiscal 2002. The At Risk Awards for
a fiscal year may be made only within the time allowed under Section 162(m) of
the Code.
Payment of At Risk Awards
Under the Amended AARCIP, each At Risk Award granted to an Eligible
Employee will entitle such Eligible Employee to receive a cash payment based on
the extent to which the Performance Goals for a particular Performance Period
are attained, as specified by the Committee in the Award Notice and certified in
writing by the Committee (for example, in approved Committee minutes). Cash
payment will be made promptly after such certification.
Termination of Employment, Retirement, or Death of Participant
The 1997 Plan provides that if an Eligible Employee's employment with the
Company or Subsidiary terminates for a reason other than death, disability,
retirement, or any other approved reason, all unearned or unpaid At Risk Awards
will be canceled or forfeited, unless otherwise provided in the Award Notice or
the Rules.
The Rules provide that if the Eligible Employee became disabled, retired or
was terminated for an approved reason during a Performance Period, his
participation would continue to the end of the Performance Period, and he would
be paid a percentage of the amount earned proportionate to his period of active
service during that Performance Period.
If the Eligible Employee died during a Performance Period, the designated
beneficiary or estate would be paid an amount proportionate to the period of
active service during the Performance Period, based upon the maximum Award
amount.
Amendments to At Risk Awards
The Amended AARCIP provides that the Committee may at any time unilaterally
amend any unearned or unpaid At Risk Award, including At Risk Awards earned but
not yet paid, to the extent it deems appropriate. However, any such amendment
which is adverse to the Eligible Employee requires the Eligible Employee's
consent. The Committee has no authority to make any amendment which would cause
compensation paid or payable under the At Risk Award to cease to be deductible
by the Company for federal income tax purposes.
Amendments to Rules
Subject to the stockholder approval requirements of Section 162(m), the
Committee may, from time to time, amend the Rules in any manner.
Change in Control and Change in Ownership
The 1997 Plan defines a "Change in Control" as occurring when (i) a
"person" becomes the beneficial owner of 20% or more of voting control of the
Company, (ii) the stockholders approve either a merger that substantially
changes the stockholders' proportionate ownership of the surviving company or a
transfer of substantially all of the Company's assets, or (iii) members of the
"incumbent board" (including directors approved by at least 3/4 of the incumbent
board) cease to constitute a majority of the Board. The 1997 Plan also defines a
"Change in Ownership" as a change which results directly or indirectly in the
Company's Common Stock ceasing to be actively traded on a national securities
exchange or the National Association of Securities Dealers Automated Quotation
System.
22
If an Eligible Employee holding an At Risk Award is eligible for treatment
under the Change in Control and Change in Ownership provisions of the 1997 Plan,
the Rules determine the manner in which such At Risk Award will be paid to him.
For purposes of making such payment, each "current Performance Period," which is
a Performance Period that has commenced but has not yet ended, will be treated
as terminating upon the Acceleration Date, and for each such "current
Performance Period" and each "completed Performance Period," which is a
Performance Period which has ended but for which the Committee has not, on the
Acceleration Date, made a determination as to whether and to what degree the
Performance Goals for such period have been attained, it will be assumed that
the Performance Goals have been attained at a level of 100% of each target or
the equivalent thereof. If the Eligible Employee is participating in one or more
"current Performance Periods," he will be considered to have earned and,
therefore, to be entitled to receive, a prorated portion of the At Risk Awards
previously granted to him for each such Performance Period. Such prorated
portion will be determined by multiplying 100% of the At Risk Award to the
Eligible Employee by a fraction, the numerator of which is the total number of
whole and partial years, with each partial year being treated as a whole year,
that have elapsed since the beginning of the Performance Period, and the
denominator of which is the total number of years in such Performance Period. An
Eligible Employee in one or more "completed Performance Periods" will be
considered to have earned and, therefore, to be entitled to receive, 100% of the
At Risk Awards previously granted to him during each Performance Period.
Savings Provision
The Rules are intended to comply with all the applicable conditions of
Section 162(m) of the Code, so that compensation paid or payable as an At Risk
Award will constitute qualified "performance-based compensation." To the extent
any provision of the Rules or any action by the Committee fails to comply, such
provision or action will be deemed null and void, to the extent permitted by
law.
23
NEW PLAN BENEFITS TABLE
For each of the named executive officers and the various indicated groups,
the following table shows the amount of performance-based compensation paid
under the AARCIP in 2002 for the 2000-2001 performance period (Payments in 2003
for 2001-2002 performance are not yet determinable). All years on the table are
fiscal years ending September 30.
NEW PLAN BENEFITS
--------------------------------------------------------------------------------
AARCIP MAXIMUM
PERFORMANCE- PERFORMANCE-
BASED BASED
COMPENSATION COMPENSATION
NAME AND POSITION PAID FOR 2001(1) POSSIBLE FOR 2001(2)
----------------- ---------------- --------------------
Bernard J. Kennedy...................................... $ 848,150 $1,696,300
Chairman of the Board
Philip C. Ackerman...................................... $ 535,500 $1,260,000
Chief Executive Officer
David F. Smith.......................................... 0 0
President of National Fuel Gas
Distribution Corporation
Dennis J. Seeley........................................ 0 0
President of National Fuel Gas
Supply Corporation
James A. Beck........................................... 0 0
President of Seneca
Resources Corporation
All current executive officers as a group (9 persons)... $1,383,650 $2,956,300
All non-employee directors as a group (7 persons) as of
December 31, 2001..................................... $0 $0
All employees, including all current officers who are
not executive officers, as a group.................... $0 $0
---------------
(1) At Risk Awards under the AARCIP represent cash payments actually made in
2002 for the 2000-2001 Performance Period. Payments for the 2001-2002
Performance Period under the AARCIP are not yet determinable.
(2) The maximum At Risk Award Payment which could have been made under the
Amended AARCIP to all persons who received At Risk Awards based on a
Performance Period including 2001, if the Amended AARCIP had been in effect.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
4. FIRST SHAREHOLDER PROPOSAL
A shareholder (the "Proponent") has indicated that he or she will present
the proposal set forth below for consideration by the shareholders at the Annual
Meeting. The name, address and stock ownership of the Proponent will be provided
by the Company's Secretary to any shareholder promptly upon receipt of any oral
or written request.
"The stockholders recommend that the Board limit all Company executive
compensation plans ("Plans") so that actual and potential share dilution
attributable to awards to executive officers does not exceed 1% of outstanding
shares per year. Consequently, if there were 80,000,000 shares outstanding
(approximately the current number), no more than 800,000 stock options, shares
of restricted stock and similar securities could be awarded under the Plans to
executive officers."
24
SHAREHOLDER'S SUPPORTING STATEMENT:
"The Company's latest proxy statement concedes that Company common stock
underperformed the Standard & Poors 500 Composite Stock Price Index ("Stock
Index") by 28% (over 5% per year) over the 5 Company fiscal year period ended
September 30, 2000. The Stock Index is a broad and widely-accepted benchmark
against which to measure the performance of American common stocks.
The price of Company common stock has increased by 59% over the
approximately 6 year period from the beginning of fiscal 1996 through September
21, 2001. (I, [name of Proponent omitted], use this date as I have issued this
proposal on September 22, 2001, shortly before the Company's deadline.) However,
the Stock Index has increased by more -- by 65% -- over the same period.
Consequently, the performance of Company common stock has been mediocre
when compared to American stocks generally.
Executives responsible for mediocre performance should not enjoy
compensation bonanzas. Yet executive compensation at the Company has exploded.
The Company has increased the total compensation package of Bernard Kennedy (its
CEO, who just announced his retirement effective 11 months prior to the
expiration of his employment agreement) from $2,165,306 (fiscal 1996) to
$5,234,811 (fiscal 2000). This is a 142% increase over a mere 5 years, far, far
beyond what stockholders received.
Furthermore, during fiscal years 1999 and 2000, the Company awarded stock
options and stock appreciation rights (SAR's) that the Company valued at
approximately $16,000,000. And the value of just the unexercised awards of stock
options and SAR's under the Plans, to just the top five Company executives, as
disclosed in the Company's latest proxy statement, was approximately $52,000,000
at September 30, 2000!
Moreover, the Company awarded stock options, SAR's and restricted stock
relating to approximately 3% of outstanding Company common stock respecting
fiscal 2000, up substantially from approximately 1.3% in fiscal 1996. The 5 year
total (approximately 11%) represents an enormous potential dilution of Company
common stock. The Company is being given away to its executives!
These millstones will depress future returns to stockholders.
Commentators have criticized stock options for their hidden costs,
excessiveness, and dilutive effect, because they mortgage future earnings, etc.
See Fortune, June 25, 2001, "CEO Pay Heist".
In addition, the Company has, in its latest proxy statement, admitted that
it made expensive mistakes concerning executive compensation, which have
reduced, and made highly volatile, the Company's earnings.
The Company has committed massive waste. Limiting the Plans as recommended
will save stockholders millions of dollars.
Therefore, the Plans should be limited as recommended."
STATEMENT OF THE BOARD IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
Your Board of Directors recommends that you vote "AGAINST" this proposal.
All of the stock options about which the Proponent complains were
authorized by the Company's shareholders at various annual meetings over the
years, presumably with the expectation that those options would be issued. The
whole idea of an option program is to compensate employees in a way that aligns
their economic interests with the economic interests of the Company's
shareholders. There are currently 115 individuals who hold options issued under
the Company's compensation plans.
If the market price of the Company's stock goes up after an option is
issued, the optionholder will likely exercise that option by paying the Company
the exercise price (either in
25
cash or by turning in shares to be canceled), and receive a share of Company
common stock. Dividends are not paid on unexercised options. Of course, if the
market price did not increase after an option was issued, the option would be
worthless to the holder, would not be exercised, would not dilute earnings and
would cost the Company nothing. An option's "grant date value" (which is
required to be shown in all proxy statements and is used by the Proponent as the
"value" of the Company's past option grants) is only a prediction of future
value generated by a mathematical model. That prediction may or may not come
true. High-tech companies in the 1990's issued a lot of options that had high
"grant date values" but have proved over time to be worthless.
In other words, stock options (when and if exercised) generally increase
the number of shares outstanding, although not on a one-for-one basis. This
means that, as options are exercised, the Company's earnings are effectively
spread across more outstanding shares.
When the Company reports its earnings every quarter, it reports both "basic
earnings" per share and "diluted earnings" per share. Basic earnings per share
divide the Company's earnings (the Company's "income available for common
stock") by the weighted average number of common shares outstanding for the
period. Diluted earnings per share are calculated by dividing those same
earnings by the sum of weighted average shares outstanding plus the number of
shares that would be issued if all unexercised "in the money" stock options were
exercised for cash. The Company's discussions with analysts in our publicly
accessible conference calls, and the Company's publicly announced earnings
projections, all focus on diluted earnings per share, reflecting the potential
dilution of earnings if those options were exercised.
The Company's diluted earnings per share for fiscal 2001 were one cent per
share ($0.01/share) less than its basic earnings per share. In the previous four
fiscal years, this difference ranged between zero and two cents per share.
This is far short of the "massive waste" the Proponent alleges. The media
article cited by the Proponent focuses on some truly massive option awards in a
few highly publicized situations.
The Proponent misleadingly alleges that the Company's latest (August 2001)
proxy statement concedes that the Company's stock underperformed the S&P 500
over a five-year period by 28%. In fact, the Corporate Performance Graph in that
proxy statement indicates that the Cumulative Total Return (stock price plus
dividends reinvested) on $100 invested in the S&P 500 over that time would have
been $267, while $100 invested in Company stock would have yielded a Cumulative
Total Return of $239. That is a $28 difference, not a 28% difference; $28 is
only 10.5% of the $267 Total Cumulative Return on the S&P 500. More importantly,
the Company's stock actually outperformed the other (and more comparable) index
tracked on that graph, the S&P Utilities Index, by $11.
The Proponent also misleadingly alleges that the Company's common stock
underperformed the S&P 500 Index over a six year period selected by the
Proponent, completely ignoring the dividends paid by the Company and by S&P 500
companies over that time. When dividends are taken into account for both the
Company and the S&P 500 (so as to calculate the Cumulative Total Return that SEC
regulations require in all proxy statements), your Company's stock actually
outperformed the S&P 500 over the six-year period cited by the shareholder.
Taking dividends into account, the Total Cumulative Return on $100 invested in
Company stock over the Proponent's six-year period was $199.93. This was $18.34
better than the S&P 500 Total Cumulative Return of $181.59, and $22.28 better
than the S&P Utilities Total Cumulative Return of $177.65, over the six-year
period selected by the Proponent.
The Company does not promise that our stock will always outperform the S&P
500 or the S&P Utilities Index, and can not promise to continue its long and
proud streak of continually increasing dividends. The Company does promise our
best efforts in generating earnings and dividends for our shareholders, and in
designing compensation programs that align its executives' personal economic
interests with the economic interests of our shareholders.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL.
26
5. SECOND SHAREHOLDER PROPOSAL
A shareholder (the "Proponent") has indicated that he or she will present
the proposal set forth below for consideration by the shareholders at the Annual
Meeting. The name, address and stock ownership of the Proponent will be provided
by the Company's Secretary to any shareholder promptly upon receipt of any oral
or written request.
"The stockholders recommend that the Board of Directors (1) create and
appoint a committee comprised principally of unaffiliated and independent
members of the public, including members of minority groups (2) direct, empower
and enable members of this committee to issue a plan to eliminate the impact of
discrimination in employment at the Company and its subsidiaries ("NFG"), by
increasing minority employment to reflect the demographic makeup of the
customers, populations and places of business that NFG serves, and (3) describe
the problem, and the plan to correct it, in the Company's proxy statement or
annual report of December 2002 or January 2003, and describe its implementation
in the following proxy statement or annual report."
SHAREHOLDER'S SUPPORTING STATEMENT:
"NFG has never had a nonwhite executive officer. NFG also has refused to
disclose to its stockholders in recent years the percentage of its entire
American workforce that is nonwhite, and how that breaks down by pay and
employment grade.
Why does this suggest that NFG has discriminated against nonwhites in it
employment practices?
NFG's principal business historically has been its utility business. Most
of the utility's customers reside in Erie and Niagara Counties, New York and
Erie County, Pennsylvania. The population of these three counties is,
respectively, 17.8%, 9.3% and 9.1% nonwhite. The weighted average is
approximately 15% nonwhite, since the population of the first county is about
two times the population of the other two combined. The vast majority of the
American employees of NFG work for the utility.
Many NFG employees work in Houston, Texas (Harris County). 41.3% of the
population of this county is nonwhite.
The 2000 United States census provides these county population statistics.
On January 14, 2000, the proxy statement published by NFG, at page 30,
indicated that the nonwhite percentage of the full-time employees of NFG was
"less than 3%". NFG refused to specifically rebut this figure, and otherwise
shies away from public disclosure of the demographics of its employees. Given
these evasions, one can only guess that NFG is embarrassed by the truth.
Why take resolution of this problem away from NFG management? The answer is
obvious -- NFG's disgraceful statistics and evasions suggest that management
cannot be trusted to act unless externally motivated. Management has not solved
the problem despite decades of opportunity.
The federal Civil Rights Act of 1964 was enacted more than 37 years ago.
There are many other laws concerning employment discrimination. Shouldn't the
spirit of these laws, and simple notions of fairness and equal opportunity, play
a more prominent role at NFG? Should not NFG take a more proactive role before
the government takes action, or litigation occurs? Should not NFG secure the
good will of politicians, regulators and the community in general, in part
because NFG is heavily regulated, faces a more competitive future, and has other
problems (such as a declining stock price this year, community anger over high
gas prices last winter, and outrageous executive compensation)?
Therefore, shareholders should approve this proposal."
27
STATEMENT OF THE BOARD IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
Your Board of Directors recommends that you vote "AGAINST" this proposal.
The Company is committed to operating our business in full compliance with
the law, including the laws relating to equal employment opportunity. We have a
long-standing and widely disseminated policy which requires that our hiring
process be free from discrimination based on race, color, gender, national
origin, age, disability or veteran status. The Company believes that creating
and maintaining a diverse workforce makes good business sense and is a critical
component to our continued success in the competitive deregulated environment.
Recruiting and retaining a diverse workforce is a priority for the Company. We
have an extensive outreach program designed to ensure that the applicants
reflect talent from all segments of the American workforce, including those in
the many communities we serve.
The Proponent's supporting statement makes the following materially false
and misleading statement as the principal reason why his or her proposal should
be adopted:
On January 14, 2000, the proxy statement published by NFG, at page 30,
indicated that the nonwhite percentage of the full-time employees of NFG
was "less than 3%".
This statement is clearly intended to mislead the reader into believing
that the Company has indicated that the "nonwhite percentage of its full-time
employees" was "less than 3%," and that the "less than 3%" figure is in fact
accurate. The Company has never indicated any such thing, because it is not
true. The false "less than 3%" allegation was part of a shareholder's supporting
statement for a previous shareholder proposal that was substantively identical
to the Proponent's proposal. That previous shareholder proposal was included in
the Company's 2000 proxy statement and overwhelmingly rejected by the Company's
shareholders. The Company's response to the 2000 shareholder proposal denied the
false "less than 3%" allegation. Both the 2000 shareholder proposal and the
Proponent's present proposal materially understate the "nonwhite" representation
in the Company's U.S. full-time regular work force.
We continue to strive to make sure that (i) minority individuals and
organizations become aware of our employment opportunities, and (ii) all
applicants have an equal opportunity, regardless of race or ethnic origin, to
apply for employment and be evaluated objectively. We believe that the
additional committee, procedures, plan and report suggested in the proposal are
unnecessary.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS PROPOSAL.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. Directors, officers and
greater-than-10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on review
of information furnished to the Company, reports filed through the Company and
written representations that no Forms 5 were required, the Company believes that
all Section 16(a) filing requirements applicable to its directors, officers and
greater-than-10% beneficial owners were complied with during fiscal 2001.
OTHER BUSINESS
The Board of Directors does not know of any business that will be presented
for consideration at the meeting except as set forth above. However, if any
other business is properly brought before the meeting, or any adjournment
thereof, the Proxies will vote in regard thereto according to their discretion.
28
PROPOSALS OF SECURITY HOLDERS
Proposals that security holders intend to present at the 2003 Annual
Meeting of Stockholders must be received by the Secretary at the principal
offices of the Company no later than September 12, 2002, in order to be
considered for inclusion in the Company's proxy statement and proxy for that
meeting. Notice of a shareholder proposal submitted outside the processes of SEC
Rule 14a-8 under the Securities Exchange Act, for consideration at the 2003
Annual Meeting of Stockholders, shall be considered untimely unless received by
the Secretary at the Company's principal office no later than September 23,
2002.
BY ORDER OF THE BOARD OF DIRECTORS
ANNA MARIE CELLINO
Secretary
January 10, 2002
29
EXHIBIT A
ADMINISTRATIVE RULES WITH RESPECT TO
AT RISK AWARDS UNDER THE 1997 AWARD AND OPTION PLAN
(AMENDED AND RESTATED AS OF DECEMBER 13, 2001)
1. DEFINITIONS
As used with respect to At Risk Awards, the following terms shall have the
following meanings:
(a) "At Risk Award" means an award granted by the Committee to a
Participant under the 1997 Plan, and entitling the Participant to a cash
payment based upon the extent to which specified Performance Goals are
attained for a specified Performance Period, pursuant to such terms and
conditions as the Committee may establish in an Award Notice. No Eligible
Employee may receive more than one At Risk Award under the 1997 Plan in any
fiscal year. In no event will the maximum value of any At Risk Award to any
Eligible Employee in any fiscal year exceed the lower of (i) twice that
employee's base salary for that fiscal year, or (ii) two million dollars.
An At Risk Award may be granted singly, in combination or in the
alternative with other Awards granted under the 1997 Plan or other Company
benefit plans.
(b) "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board as authorized to administer the
1997 Plan with respect to At Risk Awards. The Committee shall consist of
not less than two members, each of whom shall be "outside directors" as
defined by Section 162(m) of the Code and the rules, regulations and
interpretations promulgated thereunder, as amended from time to time.
(c) "Eligible Employee" means those employees of the Company or its
Subsidiaries who are expected to constitute "covered employees" within the
meaning of Section 162(m) of the Code for the applicable fiscal year(s),
and any other Key Management Employee to whom an At Risk Award has been
granted by the Committee.
(d) "Performance Period" means the period established by the Committee
in the Award Notice, for measurement of the extent to which a Performance
Goal has been satisfied.
(e) "Performance Goal" means the performance objectives of earnings
per share, Subsidiary net income and customer service/other goals,
established by the Committee for each Eligible Employee who receives an At
Risk Award.
(f) "1997 Plan" means the National Fuel Gas Company 1997 Award and
Option Plan as approved by the stockholders at the 1997 Annual Meeting of
Stockholders, as amended from time to time.
2. ADMINISTRATION
Within the limits of the 1997 Plan, with respect to At Risk Awards the
Committee is given full authority to (a) make reasonable, good faith
interpretations of the Plan and of Section 162(m) of the Code, to the extent not
addressed by regulation, proposed regulation or publicly available
interpretation of the Internal Revenue Service; (b) determine who shall be
Eligible Employees and select Eligible Employees to receive At Risk Awards; (c)
determine all the other terms and conditions of an At Risk Award, including the
time or times of making At Risk Awards to Eligible Employees, the Performance
Period, Performance Goals, and levels of At Risk Awards to be earned in relation
to levels of achievement of the Performance Goals, and such other measures as
may be necessary or desirable to achieve the purposes of the 1997 Plan; (d)
determine whether At Risk Awards are to be granted singly, in combination or in
the alternative with other Awards under the 1997 Plan or awards under other
Company benefit plans; (e) grant waivers of 1997 Plan terms and conditions,
provided that any such waiver shall not be inconsistent with Section 162(m) of
the Code and the rules, regulations and interpretations promulgated thereunder,
as amended from time to time; and (f) accelerate the vesting, exercise or
payment of any At Risk Award or the Performance Period of an At Risk Award when
A-1
any such action would not cause compensation paid or payable under such At Risk
Award to cease to be deductible by the Company for federal income tax purposes.
The Committee shall also have the authority to grant At Risk Awards in
replacement of Awards previously granted under the 1997 Plan or awards under any
other executive compensation or stock option plan of the Company or a
Subsidiary.
All determinations of the Committee shall be made by a majority of its
members, and its determinations shall be final, binding and conclusive. The
Committee, in its discretion, may delegate its authority and duties under the
1997 Plan with respect to At Risk Awards to the Company's Chief Executive
Officer or to other senior officers of the Company, but only to the extent, if
any, permitted by Section 162(m) of the Code and notwithstanding any other
provision of the 1997 Plan or an Award Notice, under such conditions as the
Committee may establish.
3. GRANT OF AT RISK AWARDS
At Risk Awards may be made for each of the fiscal years of the Company
commencing with the 2000 fiscal year; provided, however, that At Risk Awards for
a fiscal year may only be made within the time allowed under Section 162(m) of
the Code and the rules, regulations and interpretations promulgated thereunder,
as amended from time to time, applicable to such fiscal year.
4. PAYMENT OF AT RISK AWARDS
Each At Risk Award granted to an Eligible Employee shall entitle such
Eligible Employee to receive a cash payment based upon the extent to which such
Eligible Employee's Performance Goals for a particular Performance Period are
attained, as specified by the Committee in the Award Notice and certified in
writing by the Committee that such Eligible Employee's Performance Goals have
been attained. Payment of earned At Risk Awards shall be made in cash promptly
after such certification.
5. TERMINATION OF EMPLOYMENT, RETIREMENT, OR DEATH OF PARTICIPANT
(a) General Rule. Subject to Section 16 of the 1997 Plan, if an Eligible
Employee's employment with the Company or a Subsidiary terminates for a reason
other than death, disability, retirement, or any approved reason, all unearned
or unpaid At Risk Awards shall be canceled or forfeited as the case may be,
unless otherwise provided in this Section or in the Eligible Employee's Award
Notice.
(b) In the event of the disability, retirement or termination for an
approved reason of an Eligible Employee during a Performance Period, his
participation shall be deemed to continue to the end of the Performance Period,
and he shall be paid a percentage of the amount earned, if any, according to the
terms of the At Risk Award, proportionate to his period of active service during
that Performance Period.
(c) In the event of the death of an Eligible Employee during a Performance
Period, the Eligible Employee's designated beneficiary (or if none, then the
Eligible Employee's estate) shall be paid an amount proportionate to the period
of active service during the Performance Period, based upon the maximum amount
which could have been earned under the At Risk Award.
6. AMENDMENTS TO AT RISK AWARDS
The Committee may, at any time, unilaterally amend any unearned or unpaid
At Risk Award, including At Risk Awards earned but not yet paid, to the extent
it deems appropriate; provided, however, that any such amendment which is
adverse to the Eligible Employee shall require the Eligible Employee's consent;
and provided further, however, that the Committee shall have no authority to
make any amendment which would cause compensation paid or payable under the At
Risk Award to cease to be deductible by the Company for federal income tax
purposes.
A-2
7. AMENDMENT TO RULES
Subject to the stockholder approval requirements of Section 162(m) of the
Code, the Committee may, from time to time, amend these Administrative Rules
with respect to At Risk Awards in any manner.
8. CHANGE IN CONTROL AND CHANGE IN OWNERSHIP
If an Eligible Employee holding an At Risk Award is eligible for treatment
under Section 25 of the 1997 Plan, the provisions of this paragraph shall
determine the manner in which such At Risk Award shall be paid to him. For
purposes of making such payment, each "current performance period" (defined to
mean a Performance Period which period has commenced but not yet ended), shall
be treated as terminating upon the Acceleration Date, and for each such "current
performance period" and each "completed performance period" (defined to mean a
Performance Period which has ended but for which the Committee has not, on the
Acceleration Date, made a determination as to whether and to what degree the
Performance Goals for such period have been attained), it shall be assumed that
the Performance Goals have been attained at a level of 100% or the equivalent
thereof. If the Eligible Employee is participating in one or more "current
performance periods," he shall be considered to have earned and, therefore, to
be entitled to receive, a prorated portion of the At Risk Awards previously
granted to him for each such Performance Period. Such prorated portion shall be
determined by multiplying 100% of the At Risk Award granted to the Eligible
Employee by a fraction, the numerator of which is the total number of whole and
partial years (with each partial year being treated as a whole year) that have
elapsed since the beginning of the Performance Period, and the denominator of
which is the total number of years in such Performance Period. An Eligible
Employee in one or more "completed performance periods" shall be considered to
have earned and, therefore, be entitled to receive 100% of the At Risk Awards
previously granted to him during each Performance Period.
9. SAVINGS PROVISION
These Administrative Rules with respect to At Risk Awards are intended to
comply with all the applicable conditions of Section 162(m) of the Code, so that
compensation paid or payable hereunder shall constitute qualified
"performance-based compensation" thereunder. To the extent any provision of
these Administrative Rules with respect to At Risk Awards or any action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law.
10. EFFECTIVE DATE
Upon approval by the stockholders of the Company as required by Section
162(m) of the Code, these Administrative Rules with respect to At Risk Awards
shall become effective as of December 8, 1999.
A-3
PROXY
NATIONAL FUEL GAS COMPANY
PROXY/VOTING INSTRUCTION CARD SOLICITED BY THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS, FEBRUARY 21, 2002
PLACE: AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., 1900 PENNZOIL PLACE-
SOUTH TOWER, 19TH FLOOR, 711 LOUISIANA STREET, HOUSTON, TX 77002
The undersigned on the other side of this card hereby appoints P. C. Ackerman
and A. M. Cellino, or either of them, Proxies with full power of substitution
and revocation in each, to vote all the shares of Common Stock held of record by
the undersigned on December 24, 2001 at the Annual Meeting of Stockholders of
National Fuel Gas Company or at any adjournment of the meeting, on each of the
items on the reverse side and in accordance with the directions given there,
and, in their discretion, on all other matters that may properly come before the
Annual Meeting or any adjournment thereof, respecting (i) matters of which the
Board is not currently aware, but that may be presented at the meeting, (ii) any
shareholder proposal omitted from this proxy statement pursuant to Rule 14a-8 or
14a-9 of the Securities and Exchange Commission's proxy rules, and (iii) all
matters incident to the conduct of the meeting. THIS PROXY MAY BE REVOKED WITH
THE SECRETARY OF THE MEETING AS DESCRIBED ON THE FIRST PAGE OF THE ENCLOSED
PROXY STATEMENT.
EMPLOYEE BENEFIT PLANS. This card also provides voting instructions for shares
held in the National Fuel Gas Company Employee Stock Ownership Plans, the
National Fuel Gas Company Employees' Thrift Plan, and the National Fuel Gas
Company Tax-Deferred Savings Plans. If you are a participant in any of these
plans and have shares of the Common Stock of the Company allocated to your
account under these plans, please read the following authorization to the
Trustees of those plans as to the voting of such shares.
TRUSTEES' AUTHORIZATION. The undersigned on the other side of this card
authorizes The Chase Manhattan Bank, N.A. as Trustee of the National Fuel Gas
Company Employee Stock Ownership Plans and the National Fuel Gas Company
Employees' Thrift Plan and/or authorizes Vanguard Fiduciary Trust Company as
Trustee of the National Fuel Gas Company Tax-Deferred Savings Plans to vote all
shares of the Common Stock of the Company allocated to the undersigned's account
under such plan(s) (as shown on the reverse side) at the Annual Meeting, or at
any adjournment thereof, in accordance with the instructions on the reverse
side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. SEE ABOVE AND BELOW FOR IMPORTANT PROVISIONS AND ADDITIONAL
INSTRUCTIONS.
INCOMPLETE DIRECTIONS AND INSTRUCTIONS. IF THIS CARD IS RETURNED SIGNED BUT
WITHOUT DIRECTIONS MARKED FOR ONE OR MORE ITEMS, REGARDING THE UNMARKED ITEMS,
YOU ARE INSTRUCTING THE TRUSTEE(S) AND GRANTING THE PROXIES DISCRETION TO VOTE
FOR ITEMS 1, 2 AND 3 AND AGAINST ITEMS 4 AND 5. YOU MAY REVOKE YOUR INSTRUCTIONS
BY NOTICE TO THE TRUSTEE(S) AS DESCRIBED ON THE FIRST PAGE OF THE ENCLOSED PROXY
STATEMENT.
THIS PROXY/VOTING INSTRUCTION CARD IS CONTINUED ON THE REVERSE SIDE.
PLEASE VOTE BY TELEPHONE, OR SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. MARK, SIGN AND DATE YOUR PROXY/VOTING CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
OR
**YOU CAN VOTE BY TELEPHONE - TOLL FREE! QUICK**EASY**IMMEDIATE**
Your telephone vote authorizes the named proxies/trustees to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
TO VOTE BY TELEPHONE
(WITHIN THE U.S. AND CANADA ONLY)
2. Call TOLL FREE 1-888-698-8077, anytime, from a touch-tone telephone. There
is NO CHARGE for this call. Have your proxy card and social security
number in hand when you call.
Enter the six-digit Control Number located below and then follow the
voting instructions.
Option 1: If you choose to vote as the Board of Directors recommends on
ALL proposals, press 1. When asked, please confirm your vote
by pressing 1 again.
Option 2: If you choose to vote on EACH proposal SEPARATELY, press 0 now
and you will hear these instructions: Proposal 1: TO VOTE FOR
ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9;
TO WITHHOLD FOR AN INDIVIDUAL nominee, press 0. If you press
0, enter the two-digit number that precedes the nominee(s) for
whom you withhold your vote.
Proposals 2-5: To vote FOR, press 1; AGAINST, press 9;
ABSTAIN, press 0.
Your votes will be repeated, please confirm your selections.
When prompted, please answer the following: Will you be attending the Annual
Meeting?
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY/VOTING INSTRUCTION CARD.
THANK YOU FOR VOTING.
CONTROL NUMBER
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NATIONAL FUEL GAS COMPANY
FEBRUARY 21, 2002
077LE
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[ ] Mark this box with an X if you have made changes CONTROL NUMBER
to your name or address details below.
A2701
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PROXY CARD
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Please mark vote in box X OR PLEASE REFER TO THE REVERSE SIDE
in the following manner FOR TELEPHONE VOTING INSTRUCTIONS.
using dark ink only.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED NOMINEES.
ITEM 1. ELECTION OF THE FOLLOWING NOMINEES AS FOR WITHHOLD
DIRECTORS FOR THREE-YEAR TERMS WHICH
EXPIRE IN 2005:
01. William J. Hill [ ] [ ]
02. B. J. Kennedy [ ] [ ]
03. Robert T. Brady [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 2 AND 3.
FOR AGAINST ABSTAIN
Item 2. Appointment of independent accountants. [ ] [ ] [ ]
Item 3. Approval of the amended and restated [ ] [ ] [ ]
Annual At Risk Compensation Incentive
Program.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 4 AND 5.
FOR AGAINST ABSTAIN
Item 4. Adoption of, if presented at the Meeting, [ ] [ ] [ ]
first shareholder proposal.
Item 5. Adoption of, if presented at the Meeting, [ ] [ ] [ ]
second shareholder proposal.
WILL ATTEND MEETING [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3
AND AGAINST ITEMS 4 AND 5.
**WE ENCOURAGE YOU TO VOTE BY TELEPHONE TOLL FREE
PLEASE READ THE INSTRUCTIONS ON THE REVERSE SIDE**
Please sign your name as it appears on this proxy/voting instruction card and
return the completed card in the enclosed envelope. When signing as an attorney,
executor, administrator, trustee, guardian or other representative, please give
title as such. If signer is a corporation, please sign full corporate name by
duly authorized officer and attach corporate seal. For joint accounts, each
joint owner should sign.
Signature Signature Date
/ /
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