<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COLUMBIA ENERGY GROUP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
May 19, 1999
================================================================================
Columbia Energy Group
You are cordially invited to attend the Annual Meeting of Stockholders of
Columbia Energy Group, a Delaware corporation, which will be held at the Windsor
Court Hotel, 300 Gravier Street, New Orleans, Louisiana, on Wednesday, May 19,
1999, at 9:00 a.m. (CDT), to consider and act upon the following proposals:
1. The election of four Directors, each to serve for a term of
three years.
2. Approval of the selection of ___________________ as
independent public accountants.
3. Approval of amendments to the Restated Certificate of
Incorporation to increase the authorized number of shares of
common stock from 100 million to 200 million, and to decrease
the par value of capital stock from $10 to $.01 per share.
4. Approval of amendments to the Columbia Energy Group 1996
Long-Term Incentive Plan.
5. The transaction of such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors fixed the close of business on March 22, 1999, as the
record date for determination of stockholders entitled to notice of and to vote
at the Annual Meeting or any adjournment thereof.
As a service to our stockholders, this year we are offering a new way to vote
your shares. In addition to the traditional paper proxy card, you may vote by
telephone by following the directions on your proxy card. PLEASE VOTE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY OR VOTE BY TELEPHONE EVEN IF YOU PRESENTLY
INTEND TO ATTEND THE ANNUAL MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES. ANY
STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY NEVERTHELESS VOTE PERSONALLY ON
ALL MATTERS WITH RESPECT TO WHICH SUCH STOCKHOLDER IS ENTITLED TO VOTE. More
information concerning voting is contained in the section of the Proxy Statement
entitled "Voting Securities Outstanding."
By order of the Board of Directors.
Carolyn McKinney Afshar
Secretary
Herndon, Virginia
April 2, 1999
Office of the Secretary
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
<PAGE> 3
PROXY STATEMENT
================================================================================
This statement is furnished in connection with the solicitation of proxies made
on behalf of the Board of Directors of Columbia Energy Group (the
"Corporation"), a Delaware corporation, to be used at the Annual Meeting of
Stockholders to be held on May 19, 1999. The approximate date that this Proxy
Statement and the enclosed form of proxy are first being sent to stockholders is
April 2, 1999.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expense of transmitting copies of the proxy material to the beneficial owners of
stock held in their names will be borne by the Corporation. In addition to the
solicitation by mail, proxies may be solicited in person or by telephone or
telegraph; such solicitation on behalf of the Board of Directors may be made by
Directors, officers and regular employees of the Corporation and its
subsidiaries and by representatives of Morrow & Company, a proxy solicitation
firm. The Corporation has agreed to pay Morrow & Company a fee of $10,500, plus
reasonable expenses, for its services in this regard. No additional
consideration will be paid to Directors, officers and regular employees for
solicitation activities.
A stockholder signing and giving a proxy has the power to revoke it at any time
before the exercise thereof.
ANNUAL REPORT
An Annual Report for the year ended December 31, 1998, containing financial and
other information about the Corporation and its subsidiaries, has been mailed to
all stockholders of record.
VOTING SECURITIES OUTSTANDING
At the close of business on March 22, 1999, the record date for the Annual
Meeting, the Corporation had approximately 83,444,828 outstanding shares of
common stock, each of which is entitled to one vote.
Presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of the common stock of the Corporation as of
the record date shall constitute a quorum. Votes cast at the Annual Meeting will
be tabulated by inspectors of election appointed by the Corporation. Shares of
stock represented by a properly signed and returned proxy will be treated as
present at the Annual Meeting for purposes of determining a quorum, without
regard to whether the proxy is marked as casting a vote or abstaining. Likewise,
where the record holder does not vote on a particular matter because it does not
have power to vote shares represented by the proxy ("a broker non-vote"), the
shares will be treated as present at the Annual Meeting for purposes of
determining a quorum.
You have the opportunity to vote by proxy card or by telephone by following the
instructions on your proxy card. The method in which you vote will not affect
your right to vote in person should you decide to attend the Annual Meeting.
Votes submitted by telephone must be received by 4:00 p.m. (EDT) on May 18,
1999.
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<PAGE> 4
For the election of Directors, each nominee must receive the affirmative vote of
a plurality of the votes cast by the shares of common stock present in person or
represented by proxy and entitled to vote. Abstentions will not affect the
election of candidates receiving a plurality of the votes.
The proposed amendments to the Corporation's Restated Certificate of
Incorporation require the affirmative vote of a majority of the outstanding
shares of common stock entitled to vote thereon. Abstentions and broker
non-votes will have the same effect as votes against this proposal.
The proposed amendments to the Long-Term Incentive Plan require the affirmative
vote of a majority of the shares of common stock present in person or
represented by proxy and entitled to vote thereon. Abstentions will have the
same effect as a vote against this proposal. Broker non-votes will be treated as
shares not entitled to vote, will not be included in the calculation of the
number of votes constituting a majority of shares present and entitled to vote,
and will have no effect on this proposal.
1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. Directors of only one
class are elected at each annual meeting. The regular term of only one class of
Directors will expire annually, and any particular Director stands for election
only once in each three-year period. In the event a vacancy occurs on the Board
of Directors, the remaining Directors are authorized to fill the vacancy for the
unexpired term.
To be elected, a nominee must receive the affirmative vote of a plurality of the
votes cast by the shares present and entitled to vote, in person or by proxy, at
the Annual Meeting. Accordingly, abstentions as to the election of Directors
will not affect the election of the candidates receiving a plurality of the
votes.
Four Directors are to be elected at the 1999 Annual Meeting.
CUMULATIVE VOTING FOR DIRECTORS entitles each stockholder to votes equal to the
number of shares of stock the stockholder owns multiplied by the number of
Directors to be elected--in this case four. All votes can be cast for one
nominee or divided among more than one. A vote marked "withheld" from a
nominee(s) on the proxy will not be treated as an indication of an intention to
vote cumulatively. To vote cumulatively, the stockholder should line through the
names of the nominees from whom votes are withheld and write "cumulate" or "vote
all shares for other nominees" on the proxy card. In a case where a proxy is
signed but not marked, the proxies will not be voted cumulatively; shares will
be voted for all nominees. If you wish to vote cumulatively, you should vote by
proxy card rather than by telephone. It is the intention of the Proxies named in
the enclosed form of proxy to vote all duly-executed proxies at this meeting,
unless authority is withheld, for the election of the following four nominees:
Robert H. Beeby, Malcolm T. Hopkins, William E. Lavery, and Oliver G. Richard
III. If, at the time of the meeting, any of the nominees named is not available
to serve as a Director, the proxies may be voted for a substitute nominee
designated by the Board, or the Board may reduce the number of Directors as
authorized under the By-Laws.
INFORMATION REGARDING THE DIRECTORS
Names of Directors, Principal Occupation and Other Information:
================================================================================
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE FOLLOWING NOMINEES.
2
<PAGE> 5
Nominees for Director for a new term to expire in 2002 are:
================================================================================
ROBERT H. BEEBY
Director since 1993
===============================================================
Age 67. Former Chairman of the Board of Service America
Corporation, a vending and food service company, 1992 to 1996.
President and Chief Executive Officer of Frito-Lay, Inc., 1989
to 1991 and Pepsi-Cola International, 1984 to 1988. Director of
Church & Dwight Co., Inc.; and ACNielsen Corporation.
MALCOLM T. HOPKINS
Director since 1982
===============================================================
Age 71. Private investor since 1984. Retired Vice Chairman,
Chief Financial Officer and Director of the former St. Regis
Corporation. Director of Metropolitan Series Fund, Inc.;
Gemini Air Cargo, Inc.; Great Lakes Pulp & Fibre Company; and
U.S. Home Corporation; Trustee, State Street Research &
Management Company.
WILLIAM E. LAVERY
Director since 1985
===============================================================
Age 68. President Emeritus, Virginia Polytechnic Institute and
State University; President, 1975 to 1988. Director of First
Union Bank of Virginia/D.C./Maryland and Shenandoah Life
Insurance Company.
OLIVER G. RICHARD III
Director since 1995
===============================================================
Age 46. Chairman, Chief Executive Officer and President of
Columbia Energy Group since April 28, 1995. Chairman, New
Jersey Resources Corporation, 1992 to 1995; President and Chief
Executive Officer, 1991 to 1995. President and Chief Executive
Officer of Northern Natural Gas Company, 1989 to 1991.
Executive Vice President and Senior Vice President, Enron Gas
Pipeline Group, 1987 to 1988. Vice President and General
Counsel of Tenngasco, a subsidiary of Tenneco Corporation, 1985
to 1987. Federal Energy Regulatory Commission member, 1982 to
1985. Chairman, Interstate Natural Gas Association of America;
Director, American Gas Association; member, National Petroleum
Council, Virginia Business Council, Battelle Energy Industry
Advisory Committee, and President's Commission on Critical
Infrastructure Protection.*
Current Director who, due to retirement, is not standing for re-election when
his term expires in 1999 is:
================================================================================
WILLIAM R. WILSON
Director since 1987
===============================================================
Age 71. Private investor since 1992. Retired Chairman of the
Board and Chief Executive Officer of Lukens, Inc.,
manufacturer of steel and industrial products. Director of
Acme Metals Incorporated and L.F. Driscoll Co.
3
<PAGE> 6
Current Directors who are not standing for re-election because their terms do
not expire until 2000 are:
================================================================================
WILSON K. CADMAN
Director since 1993
===============================================================
Age 71. Private investor since 1992. Former Chairman,
President and Chief Executive Officer, Kansas Gas & Electric
Company. Retired Vice Chairman of Western Resources, Inc.
Director, El Paso Electric Co., Inc. and Clark/Bardes
Companies.
J. BENNETT JOHNSTON
Director since 1997
===============================================================
Age 66. Chairman and Chief Executive Officer, Johnston and
Associates, a government and business consulting firm in
Washington, D.C. Served in the United States Senate for 24
years until he retired in January 1997. Former Chairman, U.S.
Senate Committee on Energy and Natural Resources; former
member, U.S. Senate committees on the budget, appropriations,
defense, aging and intelligence. Director, Chevron Corp. and
Freeport McMoRan Copper & Gold, Inc.
JAMES P. HEFFERNAN
Director since 1993
===============================================================
Age 53. Investor and investment banker since 1996. Managing
Director of Whitman Heffernan Rhein & Co., Inc., investment
advisory and merchant banking firm, 1987 to 1996; Chief
Financial Officer and Director of Danielson Holding
Corporation, 1990 to 1996, and Director of its subsidiary,
Danielson Trust Company, 1993 to 1996; Chairman, Herman's
Holdings, Inc., 1993 to 1996; and Chairman, 1995 to 1996, of
its subsidiary, Herman's Sporting Goods, Inc. Director,
Herman's Holdings, Inc. and Herman's Sporting Goods, Inc.;
Trustee, New York Racing Association.
KAREN L. HENDRICKS
Director since November 1997
===============================================================
Age 51. Chairman, Chief Executive Officer and President of The
Baldwin Piano & Organ Company since January 1997; President and
Chief Executive Officer, November 1994 to January 1997.
Executive Vice President and General Manager, The Dial
Corporation, May 1992 to September 1994. Director, ACNielsen
Corporation and The Baldwin Piano & Organ Company.
Current Directors who are not standing for re-election because their terms do
not expire until 2001 are:
================================================================================
RICHARD F. ALBOSTA
Director since 1995
===============================================================
Age 62. Independent consultant since October 1994. Chairman,
President and Chief Executive Officer of Enserch Environmental
Corporation, an environmental services and remediation firm,
January 1994 to October 1994. President and Chief Executive
Officer, 1986 to 1994 and Chairman, 1990 to 1994 of Ebasco
Services, Inc., an international consulting, engineering,
construction and environmental services firm.
4
<PAGE> 7
MALCOLM JOZOFF
Director since 1995
===============================================================
Age 59. Chairman, President & Chief Executive Officer of The
Dial Corporation since May 1996. Chairman and Chief Executive
Officer of Lenox, Inc., a manufacturer of consumer durables,
1993 to 1995. Previously President, Health Care Products and
Corporate Group Vice President, The Procter and Gamble Company,
Inc. Director, The Dial Corporation; Grocery Manufacturers of
America; and The Cosmetic, Toiletry, and Fragrance Association.
DOUGLAS E. OLESEN
Director since 1995
===============================================================
Age 60. President and Chief Executive Officer of Battelle
Memorial Institute, an international technology organization,
since 1987. Director, The BFGoodrich Company; Scientific
Advances, Inc.; and Capital Club.
GERALD E. MAYO
Director since 1994
===============================================================
Age 66. Private investor since 1995. Former Chairman of the
Board, Midland Life Insurance Company (formerly Midland Mutual
Life Insurance Company)(Chairman and President, 1980 to 1995);
former Chairman, Midland Financial Services (Chairman and
President, 1994 to 1995). Director, McKesson HBOC and Dominion
Homes Corp. of Columbus, OH.
* In 1997, in connection with an administrative proceeding by the
SEC, Mr. Richard consented, without admitting or denying the
issues identified in the order, to the entry of a cease-and-desist
order by which he agreed to settle issues related to reports filed
with the SEC concerning certain gas sale and purchase contracts
executed in 1992 when he was chairman and chief executive officer
of New Jersey Resources Corporation.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
The following table sets forth the beneficial ownership of common stock by
stockholders, if any, who own greater than 5 percent of the outstanding shares
as of January 31, 1999, by Directors, by each of the executive officers whose
compensation is disclosed in the Summary Compensation Table, and by all
Directors and such executive officers as a group. Except as otherwise noted, the
persons named in the table below have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
OFFICERS DIRECTORS 5% HOLDERS
(1) (2) (3) (4)
Title of Class Name and Amount and Nature Percent
Address of Beneficial Ownership** of Class
=======================================================================================================================
Shared Sole Shared Sole
Voting Voting Investment Investment Total
Power Power Power Power Owned
<S> <C> <C> <C> <C> <C> <C> <C>
N/A N/A -0-
Common R. F. Albosta 15,500 *
Common R. H. Beeby 15,500 (1) *
Common W. K. Cadman 15,500 *
Common J. P. Heffernan 18,500 *
Common K. L. Hendricks 15,500 *
Common M. T. Hopkins 22,299.327 *
Common J. B. Johnston 15,533.907 *
Common M. Jozoff 15,500 *
Common W. E. Lavery 15,650 *
Common G. E. Mayo 17,000 *
Common D. E. Olesen 15,531.721 *
Common O. G. Richard III 341,821.272 (2) *
Common W. R. Wilson 23,000 *
Common C. G. Abbott 48,181.559 (3) *
Common R. R. Kaskel 128.874 *
Common M. W. O'Donnell 69,615.918 (4) *
Common P. M. Schwolsky 56,498.704 (5) *
=======================================================================================================================
Common All Executive Officers & Directors xxx (6) *
(18 Persons) as a Group
</TABLE>
* Aggregate stock ownership (including exercisable options) as a
percentage of class is less than 1 percent.
** Holdings reflect the June 1998 3-for-2 stock split in the form of a
dividend ("Stock Split"). Includes an allocation of shares held by the
Trustee of the Employees' Thrift Plan of Columbia Energy Group for the
executive officers as of 12/31/98. Also includes currently exercisable
options and those exercisable within 60 days. All holdings of the
Directors, except Messrs. Johnston, Wilson and Richard and Ms.
Hendricks, include beneficial ownership of 14,000 shares which may be
acquired pursuant to stock options awarded under Long-Term
6
<PAGE> 9
Incentive Plan (LTIP). The holdings of Mr. Johnston and Ms. Hendricks
include beneficial ownership of 5,000 shares, and of Mr. Wilson, 8,000
shares, which may be acquired pursuant to stock options awarded under
the LTIP.
(1) Includes beneficial ownership of 1,500 shares with shared investment
power.
(2) Includes beneficial ownership of 278,935 shares which may be acquired
pursuant to stock options awarded under LTIP.
(3) Includes beneficial ownership of 300 shares with shared voting and
investment power. Includes beneficial ownership of 45,000 shares which
may be acquired pursuant to stock options awarded under LTIP.
(4) Includes beneficial ownership of 62,160 shares which may be acquired
pursuant to stock options awarded under LTIP.
(5) Includes beneficial ownership of 52,500 shares which may be acquired
pursuant to stock options awarded under LTIP.
(6) Includes beneficial ownership of xxx shares which may be acquired
pursuant to stock options awarded under LTIP.
STANDING COMMITTEES OF THE BOARD
AUDIT COMMITTEE -- The Audit Committee recommends to the Board of Directors the
independent public accountants who are to examine the financial statements for
the ensuing year; meets periodically with the independent public accountants to
review the scope of their audits, the internal accounting controls, the
operation of the internal Audit Department and significant financial reporting
matters; reviews management's plans for engaging the Corporation's independent
public accountants for management advisory services; meets periodically with the
Vice President and General Auditor of the Columbia Energy Group Service
Corporation to review the internal Audit Department charter, the annual program
of audits and the Corporation's internal controls; and reviews issues with the
independent public accountants, management and/or the Vice President and General
Auditor which could have material impacts on the Corporation's financial
position.
COMPENSATION COMMITTEE -- The Compensation Committee periodically reviews and
approves a general compensation policy and salary structure for management and
professional personnel; approves all changes in base salaries of officers of the
Corporation and its subsidiaries who are in a position to exercise discretionary
judgment which can substantively influence the affairs of the Corporation;
oversees and administers incentive compensation programs in a manner consistent
with the terms of such plans as approved by the Board of Directors; reviews and
makes recommendations on changes in major benefit programs of the Corporation's
subsidiaries; consults with and advises senior management on major policies
affecting human resources; and monitors plans for management development and
succession planning for the Corporation and its subsidiaries.
EXECUTIVE COMMITTEE -- The Executive Committee has the authority to act in the
intervals between the meetings of the Board of Directors upon most matters
requiring Board approval.
FINANCE COMMITTEE -- The Finance Committee reviews and monitors the annual
capital expenditure program, reviews financial plans and dividend policy, and
reviews the management of investments of the Corporation's benefit plans.
CORPORATE GOVERNANCE COMMITTEE -- The Corporate Governance Committee provides
counsel to the Board in regard to Board organization, membership and function.
The Committee is responsible to the Board for the review and recommendation of
Director candidates; the recommendation of a class of Directors for election at
the Annual Meeting of Stockholders; recommendations regarding Director
retirement age, tenure and removal for cause; review of all Board committee
charters and recommendations regarding their number, structure, membership and
function; and evaluation of the Chief Executive Officer. Stockholders wishing to
submit names of Director candidates for consideration by the Committee should
contact Carolyn McKinney Afshar, Secretary.
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<PAGE> 10
BOARD AND BOARD COMMITTEES MEMBERSHIP AND MEETINGS HELD - 1998
<TABLE>
<CAPTION>
BOARD AUDIT COMPENSATION EXECUTIVE FINANCE CORPORATE
GOVERNANCE
<S> <C> <C> <C> <C> <C> <C>
MEETINGS HELD 5 3 4 3 3
R. F. Albosta X X* X
R. H. Beeby X X X
W. K. Cadman X X X
J. P. Heffernan X X X*
K. L. Hendricks X X X
M. T. Hopkins X X X X X
J. B. Johnston X X X
M. Jozoff X X X X
W. E. Lavery X X X X*
G. E. Mayo X X* X
D. E. Olesen X X X
O. G. Richard III X* X*
W. R. Wilson X X X X
===================================================================================================================
</TABLE>
* Denotes Chairperson
Each incumbent Director attended at least 75 percent of the total number of
meetings of the Board and Board committees on which he or she served during the
period of his/her service.
STANDARD DIRECTORS' COMPENSATION*
1998 DIRECTORS' COMPENSATION FOR BOARD AND COMMITTEE MEETINGS:
<TABLE>
<CAPTION>
Retainer Meeting Fee Chairman's Retainer
($) ($) ($)
<S> <C> <C> <C>
Board 27,250 1,250 --
Audit -- 1,000 3,000
Compensation -- 1,000 3,000
Executive 6,000 800 --
Finance -- 1,000 3,000
Corporate Governance -- 1,000 3,000
===================================================================================================================
</TABLE>
* The nonemployee Directors are also eligible to receive nonqualified
stock options pursuant to the Corporation's Long-Term Incentive Plan.
If the Corporation's Total Shareholder Return performance, compared
with its peers, is at the third quartile (above median), then
nonemployee Directors receive options for 3,000 shares of common stock;
at the fourth (top) quartile, options for 6,000 shares. The options
vest one-third upon grant, one-third one year after grant, and
one-third two years after grant, and they have a ten-year term. For
1998 performance, the Directors will receive options for 6,000 shares,
granted and priced as of March 31, 1999. See the section entitled "1998
Executive Compensation Plan" for a discussion of the terms of the
option grants.
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<PAGE> 11
No officer received any compensation for services as a Director while also
serving as an officer of the Corporation.
The Corporation offers medical coverage to nonemployee Directors and pays the
premium associated with their participation. The Corporation also reimburses
them for the cost of Medicare Part B, if applicable. In addition, nonemployee
Directors may elect to defer compensation for distribution at a later date.
Deferred amounts will accrue interest at the prime rate or may be deferred into
the Phantom Stock Plan for Outside Directors. Deferrals may be paid in a lump
sum or in installments but will be automatically paid in a lump sum following
certain specified changes in control of the Corporation.
Following its approval by the stockholders at the 1996 Annual Meeting, the
Phantom Stock Plan for Outside Directors was established. All of the Directors
except two (one of whom has since retired) elected to participate in the plan in
lieu of participating in the Retirement Plan for Outside Directors.
Participating directors received phantom shares of equivalent actuarial value
under the Phantom Stock Plan for Outside Directors. The Retirement Plan for
Outside Directors is not available for nonemployee Directors assuming office
after April 1996; rather, they participate in the Phantom Stock Plan for Outside
Directors, under which they receive 3,000 phantom shares upon being elected to
the Board. Payment of cash benefits will commence upon termination of Board
service or upon specified changes in control of the Corporation.
For the Director(s) remaining in the Retirement Plan, each nonemployee Director
with a minimum of five years' service on the Board who retires after attaining
age 65 or becoming disabled could receive annual retirement payments equal to
the amount of the annual retainer for Board service at the time of retirement.
Payments under the Retirement Plan will cease at the death of the Director
unless the Director elected an actuarial equivalent option or, if death occurs
before retirement but after eligibility is established, at the death of the
surviving spouse. In the event of certain specified changes in control of the
Corporation, a Director (regardless of years of service on the Board) could
elect a lump sum payment equal to the present value of the retainer at the time
of the election times the number of years of Board service, with a minimum of
ten years.
1998 EXECUTIVE COMPENSATION PLAN
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION REPORT TO STOCKHOLDERS
GENERAL - Through the Compensation Committee (the "Committee") of the
Corporation's Board of Directors, the Board of Directors has developed an
aggressive "PAY FOR PERFORMANCE" executive compensation philosophy and programs
to implement that philosophy. Effective since 1996, these programs combine to
form the basis of the total compensation plan for senior management of the
Corporation and its subsidiaries (the "Group"), which is designed to focus
management's attention on the Corporation's strategic business initiatives and
financial performance objectives. The Committee believes that the design and
execution of the executive compensation program implemented in 1996 continue to
be critical to the Corporation's future success by FOCUSING MANAGEMENT'S
ATTENTION on the competitive business environment through compensation awards
largely based on COLUMBIA VALUE ADDED ("CVA") FINANCIAL PERFORMANCE MEASURES and
SHAREHOLDER RETURN. CVA performance measures determine the real value of a
particular investment by the extent the return on that investment exceeds the
cost of the investment, including the cost of capital. COMPENSATION PHILOSOPHY -
The Board of Directors believes that total compensation is not only payment for
services rendered to the Group, but also a means to provide a strong
motivational vehicle for the achievement of key financial and strategic goals.
The Group provides executives with the opportunity to increase their total
compensation above base salary through annual and longer-term incentive
compensation programs. Goals and objectives within the executive compensation
program are established such that their achievement will result in added value
to the Group over appropriate periods of time. This is how compensation is
linked to corporate
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<PAGE> 12
performance. To implement the pay for performance philosophy that the Group
instituted in 1996, its executive compensation program is designed to:
-PLACE AT RISK significant amounts of the executives' total
compensation.
-Base greater amounts of the executives' total compensation upon
CREATING LONG-TERM VALUE FOR THE STOCKHOLDERS.
-TIE COMPENSATION MORE CLOSELY TO THE FORTUNES OF THE STOCKHOLDERS
through the use of a combination of cash and STOCK-BASED INCENTIVE
COMPENSATION PLANS.
-Emphasize the achievement of both short- and longer-term internal
VALUE ADDED PERFORMANCE MEASURES as well as STOCKHOLDER RETURN
EXPECTATIONS in relationship to peer companies.
-Provide total compensation rewards to executives in relation to the
overall financial performance of the Corporation.
As a general matter, the executive compensation program is designed to provide
base salary compensation levels that target the median of the marketplace in
similar-sized energy and industrial companies; maintain equitable relationships
among the compensation levels established for jobs within the Group; provide for
the recognition of performance delivered year-to-year and over the long term;
and ensure that appropriate controls are in place for compensation to be fully
earned. Because of the Group's size and integrated nature, a number of
well-known energy and general industry executive compensation surveys are
utilized to determine competitive remuneration for executives. Most of the
companies in the S&P Natural Gas Utility Index, which comprises the peer group
as shown elsewhere in this Annual Proxy Statement, are included in one or more
of these surveys. However, no single authoritative executive compensation survey
currently covers all of the companies in the S&P Natural Gas Utility Index. The
Committee uses independent compensation consulting firms to assist it in
determining the competitiveness of the Group's compensation plans and programs.
In 1998, two such firms, Hewitt Associates, LLC, and Towers Perrin were
principally used.
IMPLEMENTATION OF PHILOSOPHY - The Group's executive compensation program is
administered by the Committee. The Committee is composed of six independent,
non-employee Directors. As of December 31, 1998, the Group's executive total
compensation program consisted of the following:
1. Base Salary Program
2. Annual Incentive Compensation Plan
3. Long-Term Incentive Plan
4. Other Arrangements
1. BASE SALARY PROGRAM - A base salary is established for each
executive position based on a comparison of compensation levels of
similar positions in the external market. Competitive base salary
levels are needed to attract and retain competent executives. Based
on the energy and general industry compensation surveys referred to
above, the base salary levels for the approximately 185 individuals
comprising the executive and key employee group presently approximate
the median for similar groups with corporations of similar size and
complexity. At the minimum opportunity levels for earning Annual
Incentive Compensation Plan and Long-Term Incentive Plan awards, the
executive compensation program is designed to deliver 40 to 54
percent of total compensation in the form of base pay, dependent upon
the executive's level in the executive compensation program. At the
maximum opportunity levels, base pay
10
<PAGE> 13
represents 28 to 43 percent of an executive's compensation. In keeping
with the philosophy of placing more compensation at risk and of
targeting base salary at market levels, increases to base salary
generally are made only in cases of promotions or marketplace equity
adjustments, if individual performance warrants. The Corporation is
currently working with an outside consultant to examine the
compensation levels of all positions in the executive compensation
program.
2. ANNUAL INCENTIVE COMPENSATION PLAN - This plan, which was amended,
restated and re-implemented effective January 1, 1996, provides the
opportunity for payment of cash awards to key employees for attainment
of specific goals which contribute directly to the present and future
financial health of the Group. Awards for 1998 performance, granted in
1999 after financial results for 1998 were final, are reflected in the
Summary Compensation Table and in the Executive Compensation Report
subsection entitled "1998 Chief Executive Officer's Pay." The award
opportunities for 1998 ranged from zero to 75 percent of an
individual's annual base salary at target level performance, which
depends upon the achievement of CVA financial goals and the
individual's level of responsibility within the organization, along
with an assessment of the individual's ability to contribute directly
to the financial performance of the Group. Additional amounts can be
awarded should financial performance exceed the target level and, in
certain circumstances, should the individual exceed his or her personal
performance goals.
On February XX, 1999, in accordance with the Corporation's "pay for
performance" philosophy, the Committee awarded cash awards in
recognition of the Corporation's exceeding threshold CVA goals,
financial performance compared to peer companies and for meeting
specific business unit targets and based on 1998 individual employee
performance. Awards were granted at the XXXX level. The average award
represented XX% of the average base salary of all executives receiving
Annual Incentive Compensation Plan awards, excluding Mr. Richard, the
Chairman, CEO and President of the Corporation.
3. LONG-TERM INCENTIVE PLAN - The executive compensation program also
includes a component to bring special attention to the important area
of stockholder return. The Long-Term Incentive Plan provides long-term
incentives to officers and other key employees of Group companies
through the granting of incentive stock options, non-qualified stock
options, stock appreciation rights, contingent stock awards, restricted
stock awards, and/or any award in other forms that the Committee may
deem appropriate, consistent with the plan's purpose. For most option
awards, the Corporation's Total Shareholder Return performance (stock
price appreciation plus dividend accruals) has been compared to the
peer group of companies included in the S&P Natural Gas Utility Index
as included elsewhere in this Annual Proxy Statement. For most option
awards for 1998, the Committee provided awards as a result of the
Corporation's Total Shareholder Return exceeding the median Total
Shareholder Return of the companies which comprise this peer group
(excluding the Corporation). Dependent upon each employee's position,
individual performance, and the Corporation's Total Shareholder Return,
options for 3,000 to 40,000 shares may be awarded for performance at
the third quartile (target, or above median), while options for 6,000
to 60,000 shares may be awarded for performance at the fourth quartile
(stretch, or top quartile). Additional amounts can be awarded should an
individual exceed his or her personal performance goals or if
circumstances otherwise warrant. Option awards to key employees may be
made for reasons other than Total Shareholder Return, subject to the
discretion of the Committee. The purchase price per share of stock
deliverable upon the exercise of a non-qualified stock option is 100
percent of the fair market value of the stock on the date of grant. The
price of options issued under the plan is credited with dividend
equivalents. Such credits may be made directly through a reduction in
the purchase price of stock subject to options. Alternatively, at the
discretion of the Committee, dividend equivalent credits may be
provided indirectly, for example through the establishment of an
unsecured, unfunded bookkeeping "account" that would track dividends
declared on the stock subject to options and that would be paid in cash
to an optionee upon the exercise of an option or, in certain
circumstances, upon expiration of the option. The amount of dividend
equivalent credits may not exceed the option purchase price less par
value. The Long-Term Incentive Plan was approved by the stockholders of
the Corporation on April 26, 1996, and the plan
11
<PAGE> 14
became effective as of February 21, 1996. The plan was amended and
restated, subject to shareholder approval, on November 18, 1998. Awards
made in 1999 for 1998 performance are reflected in the Options Table
elsewhere in this Proxy Statement as well as the subsection of this
report entitled "1998 Chief Executive Officer's Pay."
On February xx, 1999, the Committee awarded options for XXXXX shares
(excluding Mr. Richard) of the Corporation's stock in the form of
non-qualified stock options for 1998 Total Shareholder Return
performance at the stretch level, with individual performance bearing
on the number delivered to employees. Key employees who were granted
non-qualified stock options received an average of XXXX shares.
4. OTHER ARRANGEMENTS - Mr. Richard, Mr. Schwolsky, Senior Vice
President and Chief Legal Officer of the Corporation, Ms. Abbott, Chief
Executive Officer and President of Columbia Gas Transmission
Corporation and Chief Executive Officer of Columbia Gulf Transmission
Company, and Mr. Kaskel, Senior Vice President of the Columbia Energy
Group Service Corporation, were granted employment agreements upon
hire. For a more detailed description of the agreements, please see
"Employment Agreements" elsewhere in this Proxy Statement.
DEDUCTIBILITY OF COMPENSATION - The Committee has reviewed the potential impact
on the Group of Section 162(m) of the IRC, which imposes a limit on tax
deductions that the Group may claim for annual compensation in excess of one
million dollars paid to any of the CEO and the four other most highly
compensated executive officers. The Committee has determined that under current
compensation arrangements, the impact of Section 162(m) on the Group would be
limited and, therefore, has decided not to take any action at this time to meet
the requirements for a deduction.
EVALUATION PROCESS - Each year, the Board of Directors of the Corporation
reviews and approves strategic business and financial plans for the Corporation
and each of its subsidiaries. In addition to various business strategies, these
plans include specific financial goals such as CVA or other measures to evaluate
whether stockholder value has increased. The goals set forth in these strategic
plans are the bases for evaluating the performance of the CEO of the Corporation
and other senior executives whose compensation falls under the direct purview of
the Committee. Attainment of meaningful strategic goals over reasonable time
periods increases value to stockholders, and the increased compensation
opportunities for executives are directly linked to the attainment of these
goals.
1998 CHIEF EXECUTIVE OFFICER'S PAY
BASE SALARY - When Mr. Richard was hired as CEO in 1995, the Corporation entered
into an employment agreement with Mr. Richard that provides a base salary of
$750,000 per year, subject to such increases as may be approved by the Board. As
noted above, in keeping with the philosophy of placing more compensation at risk
and of targeting base salary at market levels, increases to base salary for the
executive group generally are made only in cases of promotions or marketplace
equity adjustments. For those reasons, the Board approved no increases to Mr.
Richard's base salary in 1998 or 1997.
ANNUAL INCENTIVE COMPENSATION PLAN - On February xx, 1999, in accordance with
the Corporation's "pay for performance" compensation philosophy, the Committee
approved a cash award for Mr. Richard of $_______ under the Annual Incentive
Compensation Plan in recognition __________________________________.
LONG-TERM INCENTIVE PLAN - On May 20, 1996, Mr. Richard received a grant of
29,785 shares (44,677 post-stock split shares) of restricted stock under his
amended employment agreement. To provide an additional incentive to Mr. Richard
to continue his employment with the Corporation, the amended employment
agreement provides that only 20 percent of such restricted stock vests each
year, with the second 20 percent having vested on January 4, 1998. On February
xx, 1999, based on 1998 Total Shareholder Return performance at the fourth
(top) quartile
12
<PAGE> 15
and individual performance, the Committee awarded Mr. Richard, under the
Long-Term Incentive Plan, a grant of non-qualified stock options to purchase
XX,XXX shares of common stock at a price of $________ per share, with one-third
vesting on the first anniversary of grant, one-third on the second anniversary
of grant, and one-third on the third anniversary of grant. The awards are
included in the Options Table.
BY THE COMPENSATION COMMITTEE:
Gerald E. Mayo, Chairman James P. Heffernan
Robert H. Beeby Malcolm T. Hopkins
Wilson K. Cadman Malcolm Jozoff
EMPLOYMENT AGREEMENTS
As discussed in the Executive Compensation Report of the Compensation Committee
elsewhere in this Proxy, in order to secure his services, the Corporation
entered into an employment agreement in 1995 (amended in 1996) with Mr. Richard
for the position of Chairman, Chief Executive Officer and President of the
Corporation. In addition to salary, bonus, awards of options, contingent stock
and restricted stock and other matters, Mr. Richard's amended employment
agreement provides for severance benefits to be paid to Mr. Richard in the event
his employment is terminated without cause. The severance benefits would include
payment of Mr. Richard's annual base salary, incentive compensation and fringe
benefits for a period of 24 months. If Mr. Richard's employment is terminated
due to a change in control of the Corporation (as defined in the agreement), the
period of severance benefits is extended from 24 to 36 months, but the amount
that may be paid to Mr. Richard, which would constitute "parachute payments"
under the IRC, will be limited to the extent necessary to avoid the imposition
of an excise tax under the IRC.
The Corporation also entered into an employment agreement with Mr. Schwolsky in
1995 to secure his services as Senior Vice President and Chief Legal Officer of
the Corporation. In addition to stock-based grants that were made in 1995, the
employment agreement with Mr. Schwolsky provides a base salary of $285,000 per
year, subject to such increases as may be approved by the Board. Besides being
eligible to participate in all incentive compensation plans and employee benefit
programs provided to other senior executives of the Group, upon retirement Mr.
Schwolsky may receive supplemental pension payments to make up the difference,
if any, between the Group's pension benefits and those Mr. Schwolsky would have
received from his previous employer. The employment agreement further provides
for severance benefits to be paid to Mr. Schwolsky in the event his employment
is terminated without cause. The severance benefits would include payment of Mr.
Schwolsky's annual base salary, incentive compensation and fringe benefits for a
period of 24 months. If Mr. Schwolsky's employment is terminated due to a change
in control of the Corporation (as defined in the agreement), the period of
severance benefits is extended from 24 to 36 months, but the amount that may be
paid to Mr. Schwolsky, which would constitute "parachute payments" under the
IRC, will be limited to the extent necessary to avoid the imposition of an
excise tax under the IRC.
The Corporation entered into an employment agreement in 1996 with Ms. Abbott to
secure her services as Chief Executive Officer of its transmission subsidiaries.
In addition to a grant of stock made in 1996, the employment agreement with Ms.
Abbott provides for a base salary of $325,000 per year, subject to such
increases as may be approved by the Board. The agreement also provides that Ms.
Abbott is eligible to participate in all employee benefit programs provided to
other transmission company executives and in all incentive compensation programs
of the transmission companies appropriate for her status. The employment
agreement further provides for severance benefits to be paid to Ms. Abbott in
the event her employment is terminated without cause. The severance benefits
would include payment of Ms. Abbott's annual base salary, incentive compensation
and fringe benefits for a period of 24 months. If Ms. Abbott's employment is
terminated due to a change in control of the Corporation (as defined in the
agreement), the period of severance benefits is extended from 24 to 36 months,
but the amount that may be paid to Ms. Abbott, which would constitute "parachute
payments" under the IRC, will be limited to the extent necessary to avoid the
imposition of an excise tax under the IRC.
13
<PAGE> 16
On March 31, 1997, the Corporation entered into an employment agreement with Mr.
Kaskel to secure his services as Senior Vice President of the Columbia Energy
Group Service Corporation. The agreement provided for a base salary of $280,000
per year and a signing bonus of $75,000 payable at the end of the first year of
employment. The agreement also provided that Mr. Kaskel was eligible to
participate in benefits programs and all incentive compensation programs
provided to other company executives. In addition, Mr. Kaskel was participating
in a performance share award compensation feature under the Long-Term Incentive
Plan. This offered the opportunity for Mr. Kaskel to earn an award of up to
20,000 shares of the Corporation's common stock, depending on the level of
achievement at the end of a five-year performance period. The predetermined
performance measures to be used were Total Operating Income and Total Return On
Invested Capital for all subsidiaries for which he had profit and loss
responsibility. No award was to be paid for performance falling below the
threshold level during the five-year performance period. An early payout of the
entire 20,000 shares could occur if, as measured at the end of any fiscal year
prior to the end of the five-year period, the stretch performance levels were
achieved for both measures. The agreement also provided that should Mr. Kaskel's
employment be terminated for any reason prior to the end of the five-year
performance period, an assessment would be made of his actual achievements to
date of termination in relationship to the financial measures governing the
performance share feature, and he may have received a pro-rata award. Mr. Kaskel
resigned from his employment effective August 31, 1998, and no shares of common
stock were granted under the performance share feature.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation All Other Comp.(1)
Awards Payouts
(a) (b) (c) (d) (f) (g) (h) (i)
===================================================================================================================
Name and Year Salary Bonus Restricted Securities LTIP
Principal Stock Underlying Payouts
Position Awards Options-SARs
($) ($) ($) (#) ($) ($)
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
O. G. RICHARD III 1998 787,500 xxx -0- xxx (3) -0- 23,625
Chairman, CEO & President 1997 787,500 725,000 -0- 90,000(5) -0- 26,770 (13)
1996 778,125 710,000 1,459,465(9) 240,000(6) -0- 746,596 (8)
(7) (13)
===================================================================================================================
M. W. O'DONNELL 1998 325,000 xxx -0- xxx (3) -0- 19,500
Senior Vice President
& Chief Financial Officer 1997 325,000 230,000 -0- 22,500(5) -0- 19,500
1996 322,575 210,000 -0- 37,500(6) -0- 84,233 (13)
===================================================================================================================
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
P. M. SCHWOLSKY 1998 325,000 xxx -0- xxx (3) -0- 9,750
Senior Vice President
& Chief Legal Officer 1997 325,000 241,000 -0- 22,500(5) -0- 13,206
1996 321,250 234,000 -0- 37,500(6) -0- 130,804 (13)
===================================================================================================================
C. G. ABBOTT 1998 325,000 xxx -0- xxx (3) -0- 9,750
CEO of Corporation's
Gas Transmission Segment 1997 325,000 275,000 -0- 22,500(5) -0- 11,026
1996 310,870(2) 234,000 73,219 (11 37,500(6) -0- 88,689 (13)
===================================================================================================================
R. R. KASKEL 1998 186,667(2) 75,000(4) -0- -0- -0- 2,800
Senior Vice President, 1997 210,000(2) 155,000 -0- 7,000(5) -0- 84,233 (15)
Columbia Energy Group 1996 N/A
Service Corporation
===================================================================================================================
</TABLE>
* Adjusted for 3-for-2 stock split in the form of a dividend paid in June
1998 ("Stock Split").
(1) Reflects employer contributions, if any, to the Employees' Thrift Plan
of Columbia Energy Group, which is qualified under the Internal Revenue
Code, and the Thrift Restoration Plan, a nonqualified plan.
(2) Partial year salary.
(3) Options to purchase shares granted to executive group on February xx,
1999, for 1998 performance at a price of $________ per share, which
options vest one-third upon the first anniversary of grant, one-third
upon the second anniversary, and one-third upon the third anniversary.
(4) Pursuant to Mr. Kaskel's employment agreement dated March 31, 1997, a
signing bonus of $75,000 was paid following the completion of his first
year of employment.
(5) Options to purchase shares granted to executive group on February 17,
1998 for 1997 performance at a price of $50.77083 per share, which
options vest one-third upon the first anniversary of grant, one-third
upon the second anniversary, and one-third upon the third anniversary.
(6) Options to purchase shares granted to executive group on February 18,
1997 for 1996 performance at a price of $42.4583 per share, which
options vest one-third upon grant, exercisable in six months, one-third
upon the first anniversary of grant, and one-third upon the second
anniversary.
(7) Pursuant to Mr. Richard's employment agreement dated March 15, 1995,
and amended January 17, 1996, on May 20, 1996, Mr. Richard was granted
a nonqualified stock option for 150,000 shares of common stock, 75,000
of which were vested on November 28, 1996, and the remaining 75,000 of
which were vested on November 28, 1997.
(8) Pursuant to Mr. Richard's amended employment agreement, on May 21,
1996, Mr. Richard received a $481,250 cash payment, less taxes,
representing the excess of the grant price of the options for 100,000
shares of common stock issued the previous date over the fair market
value of the shares on the date the options would have been issued had
the Corporation been able to issue the options following its discharge
from bankruptcy. The common stock increased in value during this period
from $43.875 to $48.6875 per share.
(9) Pursuant to Mr. Richard's amended employment agreement, on May 20,
1996, Mr. Richard was granted a restricted stock award for 44,677
(29,785 pre-Stock Split) shares of common stock at a value of
$1,459,465, as based on the closing price of $49.00 per share on May
20, 1996. The shares vest annually in five equal installments
commencing January 2, 1997. Mr. Richard receives dividends on the
restricted stock as dividends
15
<PAGE> 18
are declared on shares of common stock. At December 31, 1998, Mr.
Richard held 26,806 shares of restricted stock, at an aggregate value
of $1,548,047.
(10) Intentionally left blank.
(11) Pursuant to Ms. Abbott's employment agreement dated January 17, 1996,
on January 17, 1996, Ms. Abbott was granted a contingent stock award
for 2,250 shares of common stock, which vested on May 17, 1996.
(12) Intentionally left blank.
(13) Includes transfer expenses associated with the move of the corporate
office from Delaware to Northern Virginia totalling $235,738 for Mr.
Richard, $66,090 for Mr. O'Donnell, $126,304 for Mr. Schwolsky, and
$87,014 for Ms. Abbott.
(14) Intentionally left blank.
(15) Reflects transfer expenses.
16
<PAGE> 19
OPTION/SAR GRANTS IN LAST FISCAL YEAR**
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value at
Assumed Annual Rates
of Stock Price
Appreciation for Option Term
(a) (b) (c) (d) (e) (f) (g)
===================================================================================================================
Name Number of % of Total Exercise or Expiration 5% 10%
Securities Options/SARs Base Price Date ($) ($)
Underlying Granted to ($/Sh)
Options/SARs Employees in
Granted (#) Fiscal Year
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
O. G. RICHARD III Data Not Yet Available 2/17/09
Chairman, CEO
& President
===================================================================================================================
M. W. O'DONNELL 2/17/09
Senior Vice President &
Chief Financial Officer
===================================================================================================================
P. M. SCHWOLSKY 2/17/09
Senior Vice President
& Chief Legal Officer
===================================================================================================================
C. G. ABBOTT 2/17/09
CEO of Corporation's Gas
Transmission Segment
===================================================================================================================
R. R. KASKEL 0 0 N/A N/A N/A N/A
Senior Vice President,
Columbia Energy Group
Service Corporation
</TABLE>
* Because dividend equivalents are associated with this award, the
potential realizable value shall increase as dividends are paid on
stock subject to options. In no event may dividend equivalents exceed
the grant price less the par value of the underlying stock.
** Granted as of February 17, 1999 for 1998 performance, the options vest
one-third upon the first anniversary of grant, one-third on the second
anniversary of grant, and the final third on the third anniversary of
grant.
17
<PAGE> 20
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
===================================================================================================================
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at Year-End ($)
at Year-End (#)
===================================================================================================================
Name Shares Acquired Value Realized Exercisable/ Exercisable/
on Exercise (#) ($)* Unexercisable Unexercisable*
<S> <C> <C> <C> <C>
O. G. Richard III -0- -0- 210,000/120,000 4,711,250/1,086,875
M. W. O'Donnell -0- -0- 42,160/35,000 934,808/348,177
P. M. Schwolsky -0- -0- 32,500/35,000 660,167/348,177
C. G. Abbott -0- -0- 25,000/35,000 382,292/348,177
R. R. Kaskel -0- -0- 0/0 -0-
===================================================================================================================
</TABLE>
* Market value of underlying securities at exercise or FY-end, minus the
exercise or base price.
18
<PAGE> 21
RETIREMENT INCOME PLAN
A noncontributory defined benefit pension plan is maintained for all employees
of the Corporation's participating subsidiaries who are at least 21 years of
age. The annual benefit under the pension plan is based upon final average
annual compensation and years of credited service. Final average annual
compensation is calculated using base compensation (shown in the "Summary
Compensation Table" as "Salary") paid to the employee for the highest 36 months
of the last 60 months prior to retirement.
Estimated annual benefits payable upon retirement are as follows with respect to
the specified remuneration and years of credited service.
ESTIMATED ANNUAL BENEFITS AS OF JANUARY 1, 1999, FROM RETIREMENT INCOME
PLAN*
<TABLE>
<CAPTION>
Final Average Representative Years of Credited Service**
===================================================================================================================
Annual Compensation
15 20 25 30 35 40
$ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
250,000 54,344 72,459 90,574 108,689 114,939 120,464
300,000 65,594 87,459 109,324 131,189 138,689 145,464
400,000 88,094 117,459 146,824 176,189 186,189 194,464
500,000 110,594 147,459 184,324 221,189 233,689 245,464
600,000 133,094 177,459 221,824 266,189 281,189 295,464
800,000 178,094 237,459 296,824 356,189 376,189 395,464
1,000,000 223,094 297,459 371,824 446,189 471,189 495,464
1,200,000 268,094 357,459 446,824 536,189 566,189 596,464
===================================================================================================================
</TABLE>
* Estimates are based upon a straight-life annuity and the assumptions
that (a) the Corporation's present retirement plan will be maintained
and (b) retirement will not occur before age 65. These benefits are not
subject to deduction for social security or other charges. Should an
annual benefit exceed limitations imposed by federal law, the excess
will be paid by the participating subsidiary as a supplemental pension
under the Pension Restoration Plan. If the supplemental pension
liability exceeds $100,000, then this liability may be funded through a
trust arrangement at the option of the individual. The liabilities of
Messrs. Richard, Schwolsky and O'Donnell have reached $100,000, but to
date they have not elected to fund their accrued pension. The
liabilities of Ms. Abbott and Mr. Kaskel had not yet reached $100,000,
so no contributions were made in 1998 on their behalf. Such
supplemental pensions are not available to these executives until
retirement or termination of employment.
** As of January 1, 1999, the credited years of service for retirement
benefits for the individuals named in the Summary Compensation Table
were as follows: Mr. Richard, 7 years; Mr. O'Donnell, 28 years; Mr.
Schwolsky, 7 years; and Ms. Abbott, 2 years. Mr. Kaskel resigned his
employment with the Columbia Energy Group Service Corporation effective
August 31, 1998, at which time he was not eligible for retirement
benefits.
19
<PAGE> 22
PERFORMANCE GRAPH
The following graph demonstrates a five-year comparison of cumulative total
returns for the Corporation, the S&P 500, and the S&P Natural Gas Utility Index.
FIVE-YEAR COMPARISON OF CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
$ $ $ $ $ $
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Columbia Energy
(formerly Columbia Gas) 100.00 105.03 196.09 287.63 360.04 402.73
S & P 500 Index 100.00 101.32 139.40 171.40 228.59 293.91
S & P Natural Gas Utility Index 100.00 95.40 134.93 179.31 211.56 232.15
===================================================================================================================
</TABLE>
* Assumes $100 invested on December 31, 1993, and reinvestment of
dividends.
2. APPROVAL OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE SELECTION OF
AS INDEPENDENT PUBLIC ACCOUNTANTS.
At the Annual Meeting, approval of the selection of the independent public
accountants to examine the financial statements of the Corporation and its
subsidiaries, which will be included in the Annual Report to Stockholders for
the year 1999, will also be voted upon. has been recommended
as such independent public accountants by the Board of Directors of the
Corporation.
Representatives of will be present at the Annual Meeting.
They will have an opportunity to make a statement if they desire and be
available to respond to appropriate questions by stockholders.
20
<PAGE> 23
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL TWO.
3. APPROVAL OF CERTIFICATE OF INCORPORATION AMENDMENTS
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL THREE, WHICH IS THE
APPROVAL OF THE AMENDMENTS TO THE CORPORATION'S RESTATED CERTIFICATE OF
INCORPORATION (THE "CERTIFICATE OF INCORPORATION") INCREASING THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK FROM 100 MILLION TO 200 MILLION AND DECREASING
THE PAR VALUE OF CAPITAL STOCK FROM $10 TO $.01 PER SHARE. THE PROPOSED
AMENDMENTS TO THE CORPORATION'S RESTATED CERTIFICATE OF INCORPORATION REQUIRE
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK
ENTITLED TO VOTE THEREON. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME
EFFECT AS VOTES AGAINST THIS PROPOSAL.
The Corporation's Certificate of Incorporation, as currently in effect, provides
that the Corporation is authorized to issue two classes of stock, consisting of
100 million shares designated as common stock, $10 par value per share, and 40
million shares designated as preferred stock, $10 par value per share. On
November 18, 1998, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Certificate of Incorporation to increase the
authorized number of shares of common stock from 100 million shares to 200
million shares and to reduce the par value of the Corporation's common stock and
preferred stock from $10 to $.01 per share. Therefore, if the stockholders
approve the amendment, the aggregate number of authorized shares of capital
stock (including both common and preferred) would increase from 140 million to
240 million. The proposed amendment does not affect any terms or rights of the
Corporation's common stock (other than the reduction in par value). As proposed
to be amended, the first paragraph of Article IV of the Certificate of
Incorporation would read as follows:
Article IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Two hundred forty million
(240,000,000), of which Forty million (40,000,000) shares, of the par
value of One cent ($.01) each, are to be of a class designated
Preferred Stock and Two hundred million (200,000,000) shares, of the
par value of One cent ($.01) each, are to be of a class designated
Common Stock.
Of the 100 million shares of common stock currently authorized by the
Corporation's Certificate of Incorporation, after giving effect to the June 1998
3-for-2 stock split in the form of a dividend, approximately 83,444,828 were
issued and outstanding as of March 22, 1999, and an aggregate of approximately
1,401,347 were reserved under the Corporation's 1985 and 1996 Long-Term
Incentive Plans. The Corporation therefore has available for issuance only
approximately 15,153,825 shares of common stock. There are no shares of
preferred stock outstanding.
The Corporation's Board of Directors believes that the currently authorized
common stock remaining available is not sufficient to enable the Corporation to
pursue business opportunities and for other corporate transactions. While the
Corporation has no present plans for issuance of the additional shares of common
stock, the increase in authorized shares may be used in connection with future
stock splits in the form of stock dividends, acquisitions and other strategic
transactions, employee benefit plans, raising additional capital and other
corporate purposes. If the proposed amendment is approved by stockholders, the
authorized common stock will be available for issuance at such times and for
such purposes as the Board of Directors may deem advisable, and it is not
anticipated that further shareholder approval would be solicited prior to the
issuance of any additional shares of common stock, except as may be required by
applicable law, stock exchange rules or as the Board may otherwise find
desirable or appropriate.
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The increase in authorized common stock will not have any immediate effect on
the rights of the existing shareholders. Issuances of additional authorized
common stock in a stock dividend or distribution would reduce the value of
outstanding shares proportionately, and issuances of authorized common stock in
capital raising or other corporate or business transactions would dilute
existing shareholders' ownership interests in the Corporation. The Board has not
proposed the increase in authorized common stock with the intention of using the
additional shares for anti-takeover purposes, although in theory the Corporation
could use the additional shares to discourage an attempt to acquire control of
the Corporation. There are no preemptive rights relating to the Corporation's
common stock. The Corporation intends to apply to the New York Stock Exchange
for the listing of any additional shares of common stock if and when such shares
are to be issued.
The proposed reduction in the par value per share of the Corporation's capital
stock is intended to bring the Corporation in line with the practice of other
corporations that already have so-called "penny" par stock. The proposed
reduction in par value for the common stock would be effected by a reduction in
the capital stock account on the Corporation's balance sheet and a corresponding
increase in the additional paid-in (or surplus) capital account and thus would
have no impact on the Corporation's capital structure. The reduction in par
value would not reduce the ownership interests of stockholders, nor would it
have any other impact on the rights and privileges of the holders of common
stock (other than in the reduction of par value). The reduction in par value per
share reduces the amount required to be carried by the Corporation as capital,
thereby potentially increasing the Corporation's surplus capital available for
dividends and other distributions and for other corporate purposes.
The reduction in par value could also mitigate the effect on the Corporation's
retained earnings account in the event that the Corporation declares a future
stock split in the form of a stock dividend. This is important because the
Corporation currently is subject to an order by the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the Public Holding Company Act of 1935 (the
"1935 Act"), which effectively limits the Corporation's investments in certain
types of businesses to 50 percent of retained earnings. If the Corporation pays
a stock dividend from retained earnings, reducing the par value will result in a
much smaller amount ($.01 versus $10 per share) to be paid from the retained
earnings account, thereby leaving more retained earnings that the Corporation
could use to compete with other companies not subject to the 1935 Act limits on
investments.
The amendments to the Certificate of Incorporation, which are also subject to
the approval of the SEC pursuant to the 1935 Act, would be effective upon the
filing of a certificate of amendment with the Office of the Secretary of State
of the State of Delaware (the "Secretary of State"). Notwithstanding the
approval of the amendments to the Certificate of Incorporation by the
stockholders and the SEC, the Corporation's Board of Directors may abandon the
amendments at any time before they are filed with the Secretary of State.
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL THREE.
4. APPROVAL OF AMENDMENTS TO THE 1996 LONG-TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL FOUR,
WHICH IS APPROVAL OF AMENDMENTS TO THE 1996 LONG-TERM INCENTIVE PLAN THE
PROPOSED AMENDMENTS TO THE LONG-TERM INCENTIVE PLAN REQUIRE THE AFFIRMATIVE VOTE
OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT IN PERSON OR REPRESENTED BY
PROXY AND ENTITLED TO VOTE THEREON. ABSTENTIONS WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THIS PROPOSAL. BROKER NON-VOTES WILL BE TREATED AS SHARES NOT
ENTITLED TO VOTE, WILL NOT BE INCLUDED IN THE CALCULATION OF THE NUMBER OF VOTES
CONSTITUTING A MAJORITY OF SHARES PRESENT AND ENTITLED TO VOTE, AND WILL HAVE NO
EFFECT ON THIS PROPOSAL.
The 1996 Long-Term Incentive Plan (the "LTIP") was approved by the Corporation's
stockholders at the 1996 Annual Meeting of Stockholders. On November 18, 1998,
the Board of Directors approved amendments to the
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<PAGE> 25
LTIP, subject to the approval of the Corporation's stockholders. The amendments
to the LTIP would be effective as of February 1, 1999, upon approval by a vote
of the holders of a majority of the common stock of the Corporation present or
represented and entitled to vote at the Annual Meeting. The following general
description of the LTIP and the proposed amendments is qualified in its entirety
by reference to Exhibit A, annexed hereto, which consists of a copy of the
proposed amended and restated LTIP, incorporating the proposed amendments.
Key features of the proposed amendments include:
o A prohibition against the repricing of stock options;
o A reduction in contingent and restricted stock awards (currently 20
percent) and other types of awards not specifically identified in the
LTIP but permitted by Paragraph 7 thereof (currently unlimited as to
percentage) to five percent of the shares available under the LTIP;
o An increase of 3,785,000 shares (less than five percent of the
outstanding shares of the Corporation's common stock authorized for
awards under the LTIP);
o Revision to certain vesting and exercise provisions for options and
stock appreciation rights to prevent a forfeiture for participants
terminating service due to death, retirement or disability; and
o Removal of references to and requirements of the old Section 16 rules.
The purpose of the LTIP is to provide long-term incentives to those officers and
key employees ("Employees") who, in the opinion of the Compensation Committee of
the Board (the "Committee"), make, or may make, substantial contributions to the
Corporation through their ability and efforts, and to members of the Board who
are not employees ("Outside Directors"). A total of 3,000,000 shares of the
Corporation's common stock originally was authorized for issuance under the
LTIP, subject to adjustment to prevent dilution or enlargement of rights under
the LTIP. No participant may be awarded more than 20 percent of the total number
of shares authorized for issuance. No award may be granted more than ten years
after the original effective date, and the LTIP will terminate after all awards
have been satisfied. In addition, the Corporation may terminate the LTIP at any
time, provided that full and equitable compensation is made with respect to
outstanding awards. Although the Committee will determine which positions have
the potential to make a substantial contribution to the Corporation, it is
currently contemplated that approximately 180 Employees will be considered
eligible under the LTIP. Awards may take several forms: incentive stock options
("ISOs"), nonqualified stock options, stock appreciation rights, contingent
stock awards, restricted stock awards or any award in other forms that the
Committee may in its discretion deem appropriate, but in any event which are
consistent with the LTIP?s purpose, including any combination of the foregoing.
Employees would be eligible to receive any form of award permitted under the
LTIP. Outside Directors would be eligible only for options which do not qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "IRC") (stock options not qualifying as ISOs hereinafter
called ?NQOs?) according to the formula set forth in the LTIP, as described
below.
PLAN ADMINISTRATION
The LTIP is administered by the Committee. The Board of Directors may
suspend, terminate or amend the LTIP at any time but may not adopt any amendment
that would (i) materially increase the benefits accruing to participants, (ii)
materially increase the maximum number of shares issued under the LTIP, subject
to equitable adjustment as described below, (iii) materially modify the LTIP's
eligibility requirements, or (iv) change the basis on which awards are granted
to Outside Directors. In the event of any change affecting the number of
outstanding shares of the Corporation, by reason of any stock dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Committee shall make an equitable adjustment in the
aggregate number of shares or awards outstanding or that may be issued under the
LTIP. The termination or any modification or amendment of the LTIP may not,
without a participant's consent, affect rights under an award previously
granted. Nevertheless, the Corporation may terminate the LTIP at any time
provided that full and equitable compensation is made to participants with
respect to awards previously granted.
With respect to Outside Directors, the LTIP is intended to be self-governing. To
this end, and except as specified therein with respect to ministerial matters,
the Committee has no discretionary authority over any transaction under the LTIP
with regard to Outside Directors.
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OPTIONS
Options to purchase the Corporation's common stock may be awarded under the LTIP
as either ISOs or NQOs. The price at which shares of common stock may be
purchased upon exercise of an ISO shall be not less than 100 percent of the fair
market value of the stock on the date the option is granted. The exercise price
on an NQO will be 100 percent of the fair market value as of the date the option
is granted, to be reduced by cumulative dividends paid on the Corporation's
common stock while the NQO is outstanding and unexercised. Alternatively,
dividend equivalent credits may, at the discretion of the Committee, be provided
indirectly, for example through the establishment of an unsecured, unfunded
bookkeeping "account" that would track dividends declared on the stock subject
to options and that would be paid in cash to an optionee upon the exercise of an
option or, in certain circumstances, upon expiration of the option. The amount
of dividend equivalent credits may not exceed the option purchase price less par
value. The fair market value of shares under an individual's ISO first
exercisable in any one calendar year will not exceed $100,000.
Options must be exercised within ten years of grant. The amount of awards to
each participant will be based upon the evaluation of his/her position and an
evaluation of the Corporation's Total Shareholder Return (defined as market
appreciation and dividends in a fiscal year) as compared to a group of peer
companies. Awards to Employees may be made for reasons other than Total
Shareholder Return performance subject to the discretion of the Committee.
Payment in full of the exercise price must be made upon the exercise of a stock
option.
NQO awards to Outside Directors shall be made if the Corporation's Total
Shareholder Return for a fiscal year exceeds the median of the Total Shareholder
Return for the group of peer companies utilized for comparison purposes in the
Corporation's Annual Proxy Statement. If the Corporation's Total Shareholder
Return falls in the third (above median) quartile of the peer group, then
options shall be granted to each Outside Director to purchase 3,000 shares of
common stock. If the Corporation's Total Shareholder Return falls in the fourth
(top) quartile of the peer group, then options shall be granted to each Outside
Director to purchase 6,000 shares of common stock. No stock option awards can be
made to Outside Directors if the Total Shareholder Return is at or below the
median of the group for a calendar year.
NQOs for Outside Directors, if any, would be granted effective as of 90 days
after the close of the Corporation's fiscal year for Total Shareholder Return
performance for the preceding fiscal year. Grants to Outside Directors would
vest one-third upon the date of the grant, one-third upon the first anniversary
of the grant and one-third upon the second anniversary of the grant. The
purchase price per share of stock for Outside Directors' awards would be 100
percent of the fair market value of the stock on the day the option is granted.
For awards to Outside Directors, "fair market value" means the average of the
high and low sales prices per share of the Corporation's common stock on The New
York Stock Exchange as reported in The Wall Street Journal for such date.
Currently, upon termination of employment due to death, disability or
retirement, vested options may be exercised within 24 months of such event
except that ISOs generally must be exercised within one year in the case of
disability or three months in the case of retirement. If termination occurs for
any other reason, all options must be exercised within three months after
termination to the extent such options are exercisable at termination. Upon a
"change in control" as defined in the LTIP, all options automatically vest.
STOCK APPRECIATION RIGHTS
Under the LTIP, NQOs may, but need not, be accompanied by stock appreciation
rights ("SARs"). SARs entitle the recipient to elect to surrender the option and
receive shares of common stock, cash, or a combination thereof in an amount
equal in value to the excess of the aggregate fair market value of the shares
with respect to which the SAR is exercised, based on the closing price as of the
exercise date, over the grant price of such shares. The initial grant price on a
SAR will be 100 percent of the fair market value as of the date the option is
granted, but the agreement reflecting the SAR may provide that the grant price
may be reduced by cumulative dividends paid on the Corporation's common
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<PAGE> 27
stock while the SAR is outstanding and unexercised. A SAR is subject to all
other terms and conditions of the option to which it relates.
CONTINGENT OR RESTRICTED STOCK
The LTIP also provides for the award to Employees of the right to receive shares
of common stock, subject to certain restrictions or contingencies, either in the
form of a contingent stock award or a restricted stock award. Shares awarded as
a contingent stock award will not be issued in the name of the recipient, and
the recipient shall not have the rights of a stockholder until all contingencies
expire. Shares issued as a restricted stock award will be issued in the name of
the recipient, and the recipient shall have all the rights of a stockholder for
all such shares, although (1) either the recipient shall not receive possession
of the shares until all restrictions on such shares lapse, or (2) if the
recipient receives possession, the shares will contain a legend as to their
restricted status. The amounts, terms and conditions of an individual award will
vary in response to business objectives as determined by the Committee. A
recipient will forfeit his/her awards upon termination of employment unless
otherwise provided by the award agreement or the Committee.
If a participant's salary is continued following termination of employment
through an employment agreement, severance program or comparable arrangement,
the restrictions or contingencies on any awards which could have lapsed during
such salary continuation period will be deemed to have lapsed, and such shares
of stock shall be delivered to the participant or his or her legal
representative no later than the expiration of the salary continuation period.
Upon a "change in control" as defined in the LTIP, contingent stock awards and
restricted stock awards will automatically vest, and all restrictions and
contingencies will be assumed to have been satisfied.
TRANSFERABILITY
Generally, awards to Employees under the LTIP are non-transferable except by
will or in accordance with the laws of descent and distribution; however, NQOs
granted to Outside Directors are transferable by gift to immediate family
members or to a trust for their benefit. In addition, the Committee has the
discretion to permit the same limited transfer for Employee NQOs. During the
life of the participant or transferee, awards may be exercised only by such
participant or transferee (as applicable), and the Committee may permit a
participant to designate a beneficiary to exercise or receive any rights that
may exist upon the participant's death.
FEDERAL TAX CONSEQUENCES
Under present federal income tax law, the Corporation believes that the award of
a stock option or SAR generally creates no federal income tax consequences for
the recipient or the Corporation. In general, the optionee has no federal
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Corporation receives no deduction when an ISO is exercised
(provided certain requirements applicable to ISOs are satisfied). Upon
exercising an NQO, the recipient must recognize ordinary income equal to the
difference between the exercise price and the fair market value of the stock on
the date of exercise, and the Corporation will generally be entitled to a
deduction for the same amount. Generally, there are no federal income tax
consequences to the Corporation in connection with a disposition of shares
acquired under an option except that the Corporation may be entitled to a
deduction in the case of a disposition of shares acquired under an ISO before
the applicable ISO holding period has been satisfied.
The preceding discussion is only a general summary of certain federal income tax
consequences arising from participation in the LTIP and should not be used for a
determination of an individual's unique tax situation. It is suggested that the
individual consult with a tax advisor regarding the applicability of federal,
state and local tax laws to his/her particular situation.
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<PAGE> 28
PROPOSED AMENDMENTS TO 1996 LTIP
Since the 1996 LTIP was adopted, the Corporation has consistently exceeded the
median of its peer group in terms of Total Shareholder Return performance so
that stock option awards have been made to key employees and Outside Directors
each year. As a result, the number of shares of common stock available for
awards under the LTIP needs to be increased so that the Corporation will be able
to continue to attract and retain competent executives who have been largely
responsible for the Corporation's success. The 1996 LTIP had 3,000,000 shares of
common stock available for awards. Pursuant to the terms of the LTIP, in
November 1998 the Board of Directors approved an increase of 300,000 in the
number of shares available for issuance under the LTIP in order to ensure that
there would be sufficient shares to make stock option awards in February 1999
for 1998 Total Shareholder Return performance. The LTIP currently has virtually
no shares remaining for issuance of awards. Therefore, the Board of Directors
recommends that the stockholders approve an additional 3,785,000 shares of
common stock, or less than five percent of the Corporation's outstanding shares,
to be available for issuance under the LTIP. If the amendment is approved, the
aggregate number of shares subject to the LTIP (issued and unissued) would be
8,585,000. (This aggregate number reflects equitable adjustments made pursuant
to the terms of the LTIP for the Corporation's June 1998 3-for-2 stock split in
the form of a dividend.)
Based on results of a survey of other companies' plans and in order to make the
LTIP competitive with other companies so as to be able to attract and retain
competent executives, the Board of Directors also recommends that the LTIP be
amended to provide immediate vesting of stock options and SARs in the event of a
participant's death and continued vesting on the normal schedule upon
termination due to retirement and disability. The Corporation's outside
compensation consultants surveyed other companies' stock option exercise
practices following a participant's termination due to retirement or disability.
Currently, the LTIP provides for a participant to exercise options for a period
of up to 24 months following such termination. The survey indicated that an
exercise period of up to 36 months would be more appropriate in such
circumstances. Therefore, the proposed amendments to the LTIP would provide for
an exercise period of up to 36 months for stock options and any associated SARs
following termination due to retirement or disability.
The Board of Directors recommends two additional amendments to the LTIP. First,
the proposed amendments would add a provision explicitly stating the
Corporation's practice to date against repricing stock options. Second, the
proposed amendments would reduce the available number of contingent, restricted
and other types of other awards not specifically identified in the LTIP (but
permitted by Paragraph 7) from 20 percent (which currently applies only to
contingent and restricted stock) to an aggregate of five percent for contingent
and restricted stock as well as other permissible types of awards not
specifically identified in the LTIP which may be awarded after the effective
date of the amendments.
Finally, the Board of Directors recommends that the LTIP be amended to remove
references to and requirements of the former Section 16 rules promulgated by the
U.S. Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, which rules were in place when the LTIP was established.
Because the rules have since been amended, the proposed amendments would update
the LTIP with respect to those rules, including removal of the requirement that
recipients of stock options and SARs hold their awards for six months before
exercising.
The market value of the stock as of [a recent date] was $________ [closing
price] per share of common stock.
Based on the LTIP's plan design, options for approximately 280,000 shares are
expected to be issued to Outside Directors over the remaining life of the LTIP.
For officers and key employees, while the benefits to be granted for 1999 and
future years have not yet been determined by the Compensation Committee, the
following table shows the benefits awarded for 1998 under the 1996 LTIP:
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<PAGE> 29
NEW PLAN BENEFITS
Amended and Restated Long-Term Incentive Plan
<TABLE>
<CAPTION>
Name and Position Dollar Value ($)(1) Number of Units(2)
<S> <C> <C>
O. G. Richard III
Chairman, CEO & President -- (To Be Determined)
M. W. O'Donnell
Senior Vice President &
Chief Financial Officer -- xxx
P. M. Schwolsky
Senior Vice President &
Chief Legal Officer -- xxx
C. G. Abbott
CEO of Corporation's Gas
Transmission Segment -- xxx
R. R. Kaskel
Senior Vice President,
Columbia Energy Group
Service Corporation -- -0-
Executive Group (6 persons including
those named above) -- xxx
Non-Executive Director Group -- xxx
Non-Executive Officer Employee
Group -- xxx
</TABLE>
(1) All options were granted at the fair market value of the Corporation's
common stock on the date of grant.
(2) All the awards under the LTIP granted for 1998 were nonqualified stock
options for shares of the Corporation's common stock.
While future awards of stock options are not determinable, to date options have
been awarded under the LTIP as follows: O. G. Richard III, Chairman, CEO &
President, xxx; M. W. O'Donnell, Senior Vice President & Chief Financial
Officer, xxx; P. M. Schwolsky, Senior Vice President & Chief Legal Officer, xxx;
C. A. Abbott, CEO of Corporation's Gas Transmission Segment, xxx; R. R. Kaskel,
Senior Vice President, Columbia Energy Group Service Corporation, xxx; all
current executive officers as a group, xxx; all current directors who are not
executive officers as a group, xxx; nominees for election as a director, namely
R. H. Beeby, xxx, M. T. Hopkins, xxx, W. E. Lavery, xxx, and O. G. Richard III,
xxx; and all employees, including all current officers who are not executive
officers, as a group, xxx. The options granted have a ten-year term; have an
exercise price of fair market value as of the date of grant; and vest one-third
upon the first anniversary of grant, and one-third on each of the second and
third anniversaries of grant (for employees), or one-third on the date of grant
and one-third upon the first and second anniversaries of grant (for Outside
Directors).
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<PAGE> 30
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL FOUR.
5. OTHER MATTERS
The Board of Directors knows of no business constituting a proper subject for
action by the stockholders that will be presented for consideration at the
meeting other than that shown above. However, if any other business shall come
before the meeting, the persons named in the enclosed form of proxy or their
substitutes will have discretion to vote on those matters and will vote said
proxy with respect to any such business in accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS FOR THE 2000 ANNUAL MEETING
Proposals of stockholders of record to be presented for a vote at the 2000
Annual Meeting of Stockholders must be received addressed to the Corporate
Secretary at the Corporation's Virginia address, 13880 Dulles Corner Lane,
Herndon, Virginia 20171-4600 on or before December 6, 1999.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows a
company to use discretionary voting authority to vote on matters coming before
an annual meeting of stockholders, if the company does not have notice of the
matter at least 45 days before the date corresponding to the date on which the
company first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an overriding advance notice provision in
the company's bylaws. The Corporation's bylaws do not contain such an advance
notice provision. Accordingly, for the Corporation's 2000 Annual Meeting of
Stockholders, stockholders must submit such written notice to the Corporate
Secretary on or before February 17, 2000.
Carolyn McKinney Afshar
Secretary
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<PAGE> 31
EXHIBIT A
AMENDED AND RESTATED
COLUMBIA ENERGY GROUP
LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of the Columbia Energy Group Long-Term Incentive
Plan (the "Plan") is to provide incentives to specified individuals to
continuously add value to Columbia Energy Group (the "Corporation").
Plan participants consist of: (i) those officers and key employees of
the Corporation and its subsidiary companies (the "Employees") who, in
the opinion of the Compensation Committee of the Board of Directors of
the Corporation (the "Committee"), are making or are in a position to
make substantial contributions to the Corporation by their ability and
efforts; and (ii) members of the Board of Directors of the Corporation
who are not employees ("Outside Directors"). The Corporation also
believes that the Plan will facilitate attracting, retaining and
motivating Employees and directors of high caliber and potential.
2. Effective Date. This Plan was initially effective February 21, 1996,
and as amended and restated, is to be effective February 1, 1999,
subject to shareholder and regulatory approvals.
3. Administration. The Plan shall be administered by the Committee. As
applied to Employees, the Committee shall have full and final authority
in its discretion to conclusively interpret the provisions of the Plan
and to decide all questions of fact arising in its application; to
determine the individuals to whom awards shall be made under the Plan;
to determine the type of award to be made to such Employees and the
amount, size and terms of each such award; to determine the time when
awards will be granted to Employees; and to make all other
determinations necessary or advisable for the administration of this
Plan.
The Committee shall have no discretion with respect to the amount,
price and timing of awards to Outside Directors. In this regard, the
portions of the Plan applicable to Outside Directors are intended to be
self-governing and to operate automatically. With respect to
ministerial matters regarding the portions of the Plan applicable to
Outside Directors, the Plan will be administered by the Committee.
4. Shares Subject to Plan. The shares that may be issued under the Plan
pursuant to Paragraph 7 shall not exceed in the aggregate 8,585,000
shares of the Corporation's common stock. Such shares may be authorized
and unissued shares or treasury shares. The maximum number of shares
that may be awarded pursuant to the contingent or restricted stock
award provisions of Paragraphs 10 and 11 and forms of awards not
specifically identified in the Plan but permitted pursuant to Paragraph
7 shall be five percent of the total shares authorized for issuance
after February 1, 1999 under the Plan, or an amount not to exceed
204,250. Except as otherwise provided herein, any shares subject to an
option or right which for any reason expires or is terminated
unexercised as to such shares shall again be available under the Plan.
5. Participants. Persons eligible to participate shall be limited to (1)
with regard to any awards permitted pursuant to Paragraph 7, the
Employees; and (2) with regard to stock options permitted pursuant to
Paragraph 8, the Outside Directors.
6. Outside Directors. Outside Directors shall be eligible under this Plan
only for nonqualified stock option awards. Such stock option awards
shall be made if the Corporation's Total Shareholder Return (defined as
market appreciation and dividends declared in a year) for a fiscal year
exceeds the median of the Total Shareholder Return for the group of
peer companies utilized for comparison purposes in the Corporation's
Annual Proxy Statement. If the Corporation's Total Shareholder Return
falls in the third quartile of the peer group, then options shall be
granted to each Outside Director to purchase 3,000 shares of common
stock. If the Corporation's Total Shareholder Return falls in the
fourth quartile of the peer group, then options shall be granted to
each Outside Director to purchase 6,000 shares of common stock. No
stock option awards shall be made to Outside Directors if Total
Shareholder Return is at or below the median of the group for a fiscal
year.
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<PAGE> 32
Stock option awards for Outside Directors, if any, shall be granted
effective as of 90 days after the close of the Corporation's fiscal
year for Total Shareholder Return performance for the preceding fiscal
year. Grants to Outside Directors shall vest one-third upon the date of
the grant, two-thirds upon the first anniversary of the grant, and 100
percent upon the second anniversary of the grant. The option period
shall not end later than ten years after the date of the grant of the
option.
Additional terms of stock option awards to Outside Director shall be
governed by Paragraph 8, as may be supplemented by Paragraphs 12(b) and
13-24.
7. Awards under the Plan. Subject to the limitations provided under
Paragraph 6 for awards to Outside Directors, awards under the Plan may
be in the form of stock options (both nonqualified stock options and
incentive stock options under Section 422 of the Internal Revenue Code
or any amendment thereof or substitute therefor), contingent stock,
restricted stock and stock appreciation rights, or such other forms as
the Committee may in its discretion deem appropriate but in any event
which are consistent with the Plan's purpose, including any combination
of the above. The maximum number of shares that may be awarded to any
one person during the life of the Plan shall be 20 percent of the total
shares authorized for issuance under the Plan.
8. Stock Options. Options shall be evidenced by stock option agreements in
such form, not inconsistent with this Plan, as the Committee shall
approve from time to time, which agreements shall contain in substance
the following terms and conditions.
(a) Option Price. The purchase price per share of stock
deliverable upon the exercise of an incentive stock option
shall be 100 percent of the fair market value of the stock on
the day the option is granted, as determined by the Committee.
The purchase price per share of stock deliverable upon the
exercise of a nonqualified stock option shall be 100 percent
of the fair market value of the stock on the day the option is
granted, as determined by the Committee. "Fair market value"
for awards to Outside Directors shall be the average of the
high and low sales prices per share of the Corporation's
common stock on The New York Stock Exchange as reported in The
Wall Street Journal for such date. The option agreement for
nonqualified options shall provide for a reduction of the
purchase price by dividends paid on a share of common stock of
the Corporation as long as the option is outstanding and not
exercised, but in no event shall this price be less than the
par value of such stock. Except in accordance with equitable
adjustments as provided in Paragraph 19 and without regard to
dividend equivalents, options shall not be repriced.
(b) Exercise of Option. Each stock option agreement shall state
the period or periods of time, as may be determined by the
Committee, within which the option may be exercised by the
participant, in whole or in part, provided that the option
period shall not end later than ten years after the date of
the grant of the option. The Committee shall have the power to
permit in its discretion an acceleration of the previously
determined exercise terms under such circumstances and upon
such terms and conditions as deemed appropriate by the
Committee.
(c) Payment for Shares. Stock purchased pursuant to an option
agreement shall be paid for in full at the time of purchase,
either in the form of cash, common stock of the Corporation at
fair market value, or in a combination thereof, as the
Committee may determine.
(d) Rights upon Termination of Employment or Board Service. In the
event that an optionee ceases to be employed by the
Corporation or its subsidiaries or ceases to serve as an
Outside Director of the Corporation for any cause other than
death, disability, retirement, or a Change in Control as
defined in Paragraph 12(b), the optionee shall have the right
to exercise the option during its term within a period of
three months after such termination to the extent that the
option was exercisable at the date of such termination, or
during such other period and subject to such terms as may be
determined by the Committee. In the event that an optionee
terminates employment or service due to death prior to
termination of his option without having fully exercised his
option, all unvested options shall vest as of the date of
death, and the optionee's successor may have the right to
exercise the option during its term within a period of 24
months after the date of death, or during such other period
and subject to such terms as may be determined by the
Committee. In the event that an optionee is terminated due to
a Change in Control prior to termination of his option without
having fully exercised his option, the optionee or his
successor may have the right to exercise the option during its
term within a period of 24 months after the date of such
termination due to a Change in Control or during such other
period and subject to such terms as may be determined
30
<PAGE> 33
by the Committee. In the event that an optionee is terminated
due to retirement or disability prior to termination of his
option without having fully exercised his option, the optionee
or his successor may have the right to exercise the option
during its term within a period of 36 months after the date of
such termination due to disability or retirement or during
such other period and subject to such terms as may be
determined by the Committee, and any unvested options will
continue to vest in accordance with the previously determined
vesting schedule during the exercise period following such
termination due to retirement or disability.
(e) Individual Limitations.
(i) Notwithstanding anything herein to the contrary, the
aggregate fair market value (determined as of the
time the option is granted) of incentive stock
options for any Employee which may become first
exercisable in any calendar year shall not exceed
$100,000.
(ii) Notwithstanding anything herein to the contrary, no
incentive stock option shall be granted to any
individual if, at the time the option is to be
granted, the individual owns stock possessing more
than ten percent of the total combined voting power
of all classes of stock of the Corporation unless at
the time such option is granted the option price is
at least 110 percent of the fair market value of the
stock subject to option and such option by its terms
is not exercisable after the expiration of five years
from the date such option is granted.
(f) Other Terms. Each incentive stock option agreement shall
contain such other terms, conditions and provisions as the
Committee may determine to be necessary or desirable in order
to qualify such option as a tax-favored option within the
meaning of Section 422 of the Internal Revenue Code, or any
amendment thereof, substitute therefor, or regulation
thereunder. Subject to the limitations of Paragraph 20, and
without limiting any other provisions hereof, the Committee
shall have the power without further approval to amend the
terms of any option for Employees.
9. Stock Appreciation Rights. Stock appreciation rights ("SARs") shall be
evidenced by SAR agreements in such form as the Committee shall approve
from time to time, which agreements shall contain in substance the
following terms and conditions:
(a) Award. A SAR may be granted in connection with an option and
shall entitle the grantee, subject to such terms and
conditions determined by the Committee, to receive, upon
surrender of the option, all or a portion of the excess of (i)
the fair market value of a specified number of shares of
common stock of the Corporation at the time of the surrender,
as determined by the Committee, over (ii) 100 percent of the
fair market value of the stock at the time the option was
granted less any dividends paid while the option was
outstanding but unexercised.
(b) Term. SARs shall be granted for a period of not more than ten
years, and shall be exercisable in whole or in part, at such
time or times and subject to such other terms and conditions
as shall be prescribed by the Committee at the time of grant,
subject to the following:
(i) In the event that a grantee ceases to be employed by
the Corporation or its subsidiaries or ceases to
serve as an Outside Director of the Corporation for
any cause other than death, disability, retirement,
or a Change in Control, as defined in Paragraph
12(b), the grantee shall have the right to exercise
the SAR during its term within a period of three
months after such termination to the extent that the
SAR was exercisable at the date of such termination,
or during such other period and subject to such terms
as may be determined by the Committee. In the event
that a grantee terminates employment or service due
to death prior to termination of his SAR without
having
31
<PAGE> 34
fully exercised his SAR, such SAR shall vest as of
the date of death, and the grantee's successor shall
have the right to exercise the SAR during its term
within a period of 24 months after the date of death,
or during such other period and subject to such terms
as may be determined by the Committee. In the event
that a grantee is terminated due to a Change in
Control prior to termination of his SAR without
having fully exercised his SAR, the grantee or his
successor shall have the right to exercise the SAR
during its term within a period of 24 months after
the date of such termination due to a Change in
Control or during such other period and subject to
such terms as may be determined by the Committee. In
the event that a grantee is terminated due to
retirement or disability prior to termination of his
SAR without having fully exercised his SAR, the
grantee or his successor shall have the right to
exercise the SAR during its term within a period of
36 months after the date of such termination due to
disability or retirement or during such other period
and subject to such terms as may be determined by the
Committee, and any unvested SARs will continue to
vest in accordance with the previously determined
vesting schedule during the exercise period following
such termination due to retirement or disability. The
Committee in its sole discretion may reserve the
right to accelerate previously determined exercise
terms, within the terms of the Plan, under such
circumstances and upon such terms and conditions as
it deems appropriate.
(c) Payment. Upon exercise of a SAR, payment shall be made in the
form of common stock of the Corporation (at fair market value
on the date of exercise), cash, or a combination thereof, as
the Committee may determine.
10. Contingent Stock Awards. Contingent stock awards under the Plan shall
be evidenced by contingent stock agreements in such form and not
inconsistent with this Plan as the Committee shall approve from time to
time, which agreements shall contain in substance the following terms
and conditions:
(a) Award. The Committee shall determine the amount of a
contingent stock award to be granted to an Employee based on
the expected impact the Employee can have on the financial
well-being of the Corporation and other factors deemed by the
Committee to be appropriate.
(b) Restriction Period. Contingent stock awards made pursuant to
this Plan shall be subject to such terms, conditions, and
restrictions, including without limitation, substantial risks
of forfeiture and/or attainment of performance objectives, and
for such period or periods as shall be determined by the
Committee at the time of grant. The Committee shall have the
power to permit, in its discretion, an acceleration of the
expiration of the applicable restriction period with respect
to any part or all of the award to any participant.
(c) Lapse of Restrictions. The agreement shall specify the terms
and conditions upon which any restrictions on the right to
receive shares representing contingent stock awarded under the
Plan shall lapse, as determined by the Committee. Upon the
lapse of such restrictions, shares of common stock shall be
issued to the participant or his legal representative.
(d) Termination Prior to Lapse of Restrictions. In the event of a
participant's termination of employment for any reason prior
to the lapse of restrictions applicable to a contingent stock
award made to such participant and unless otherwise provided
for herein by this Plan or as provided for in the contingent
stock agreement, all rights to shares as to which there still
remain unlapsed restrictions shall be forfeited by such
participant to the Corporation without payment or any
consideration by the Corporation, and neither the participant
nor any successors, heirs, assigns or personal representatives
of such participant shall thereafter have any further rights
or interest in such shares.
11. Restricted Stock Award. Restricted stock awards under the Plan shall be
evidenced by restricted stock agreements in such form, and not
inconsistent with this Plan, as the Committee shall approve from time
to time, which agreements shall contain in substance the following
terms and conditions:
32
<PAGE> 35
(a) Award. The Committee shall determine the amount of a
restricted stock award to be granted to an Employee based on
the past or expected impact the Employee has had or can have
on the financial well-being of the Corporation and other
factors deemed by the Committee to be appropriate.
(b) Restriction Period. Restricted stock awards made pursuant to
this Plan shall be subject to such terms, conditions, and
restrictions, including without limitation, substantial risks
of forfeiture and/or attainment of performance objectives, and
for such period or periods as shall be determined by the
Committee at the time of grant. The Committee shall have the
power to permit, in its discretion, an acceleration of the
expiration of the applicable restriction period with respect
to any part or all of the award to any participant. Upon
issuance of a restricted stock award, shares will be issued in
the name of the recipient. During the restriction period,
recipients shall have the rights of a shareholder for all such
shares of restricted stock, including the right to vote and
the right to receive dividends thereon as paid.
(c) Restrictive Legend and Stock Power. Each certificate
evidencing stock subject to restricted stock awards shall bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such award. Any attempt to dispose
of stock in contravention of such terms, conditions and
restrictions shall be ineffective. The Committee may adopt
rules which provide that the certificates evidencing such
shares may be held in custody by a bank or other institution,
or that the Corporation may itself hold such shares in
custody, until the restrictions thereon shall have lapsed and
may require as a condition of any award that the recipient
shall have delivered a stock power endorsed in blank relating
to the stock covered by such award.
(d) Lapse of Restrictions. The restricted stock agreement shall
specify the terms and conditions upon which any restrictions
on the right to receive shares representing restricted stock
awarded under the Plan shall lapse, as determined by the
Committee. Upon the lapse of such restrictions, shares of
common stock which have not been delivered to the participant
or his legal representative shall be delivered to such
participant or his legal representative.
(e) Termination Prior to Lapse of Restrictions. In the event of a
participant's termination of employment for any reason prior
to the lapse of restrictions applicable to a restricted stock
award made to such participant and unless otherwise provided
for herein by this Plan or as provided for in the restricted
stock agreement, all rights to shares as to which there still
remain unlapsed restrictions shall be forfeited by such
participant to the Corporation without payment or any
consideration by the Corporation, and neither the participant
nor any successors, heirs, assigns or personal representatives
of such participant shall thereafter have any further rights
or interest in such shares.
12. Other Provisions Relating to Contingent and Restricted Stock Awards and
Stock Options. Notwithstanding any other provision to the contrary in
Paragraphs 6, 8, 10 or 11 or elsewhere in this Plan, the following
additional provisions shall apply to contingent and restricted stock
awards and stock option awards (except that Paragraph 12(a) shall only
apply to contingent and restricted stock awards):
(a) Effect of Salary Continuation on Termination Prior to Lapse of
Restrictions. If a recipient of a contingent or restricted
stock award has his employment terminated and his salary
continued through an employment agreement, severance program
or any other comparable arrangement, then any contingencies
and restrictions which are satisfied or which could have been
satisfied during the period for which the recipient's salary
is to be continued, irrespective of form, will be deemed to
have been satisfied, and such shares of contingent and/or
restricted stock will be issued and delivered to the recipient
or his legal representative no later than the expiration of
the salary continuation program.
(b) Change in Control. Upon a "Change in Control" as defined
below, all options (including any accompanying SARs),
contingent stock awards and restricted stock awards will
automatically vest as of that date, and all restrictions or
contingencies will be deemed to have been satisfied. The term
"Change in Control" means the occurrence of any of the
following events:
33
<PAGE> 36
(i) the acquisition by any party or parties of the
beneficial ownership of 25 percent or more of the
voting shares of the Corporation;
(ii) the occurrence of a transaction requiring
shareholders' approval for the acquisition of the
Corporation through purchase or exchange of stock or
assets, or by merger, or otherwise; or
(iii) the election during a period of 24 months, or less,
of 30 percent or more of the members of the Board,
without the approval of a majority of the Board as
constituted at the beginning of the period.
13. General Restrictions. The Plan and each award under the Plan shall be
subject to the requirement that, if at any time the Committee shall
determine that (i) the listing, registration or qualification of the
shares of common stock subject or related thereto upon any securities
exchange or under any state or federal law, (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by
the recipient of an award with respect to the disposition of shares of
common stock, is necessary or desirable as a condition of, or in
connection with the Plan or the granting of such award or the issue or
purchase of shares of common stock thereunder, the Plan will not be
effective and/or the award may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions
not acceptable to the Committee.
14. Rights of a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect thereto unless and
until certificates for shares of common stock are issued to him, except
for the rights provided for in Paragraph 11 of this Plan as it pertains
to restricted stock awards.
15. Rights to Terminate Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the
right to continue in the employment or Board service of the Corporation
or its subsidiary companies or affect any right which the Corporation
or its subsidiary companies may have to terminate the employment or
Board service of such participant.
16. Withholding of Taxes. Whenever the Corporation proposes or is required
to issue or transfer shares of common stock under the Plan, the
Corporation shall have the right to require the recipient to remit to
the Corporation an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Whenever under the Plan
payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local
withholding tax requirements.
17. Nonassignability.
(a) Except as provided in Paragraph 17(b), no award or benefit
under the Plan shall be assignable or transferable by the
recipient thereof, except by will or by the laws of descent
and distribution. Also, except as provided in Paragraph 17(b),
during the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian
or legal representative.
(b) Each nonqualified stock option granted to an Employee to the
extent so provided in such Employee's individual option
agreement by the Committee, in its sole and absolute
discretion, and each stock option granted to an Outside
Director shall be transferable by gift to any member of the
recipient's immediate family or to a trust for the benefit of
such an immediate family member, and if so shall be
exercisable solely by the transferee in the case of such
transfer by gift.
18. Non-Uniform Determinations. The Committee's determinations under the
Plan (including, without limitation, determinations of the persons to
receive awards, the form, amount and timing of such awards, the terms
and provisions of such awards and the agreements evidencing same, and
the establishment of values and performance targets) need not be
uniform and may be made by the Committee selectively among persons who
receive, or are eligible to receive, awards under the Plan, whether or
not such persons are similarly situated.
34
<PAGE> 37
19. Adjustments. In the event of any change in the outstanding common stock
of the Corporation by reason of a stock dividend, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the
like, the Committee shall adjust the number of shares of common stock
which may be issued under the Plan and shall provide for an equitable
adjustment of any outstanding award or shares issuable pursuant to an
outstanding award under this Plan.
20. Amendment. Subject to U.S. Securities and Exchange Commission approval,
if required, the Board of Directors of the Corporation may amend the
Plan at any time, except that without shareholder approval, the Board
may not (i) materially increase the benefits accruing to participants,
(ii) materially increase the maximum number of shares which may be
issued under the Plan (other than equitable adjustment pursuant to
Paragraph 19 hereof), (iii) materially modify the Plan's eligibility
requirements, or (iv) change the basis on which awards are granted to
Outside Directors. The termination or any modification or amendment of
the Plan shall not, without the consent of a participant, affect a
participant's rights under an award previously granted. Notwithstanding
the foregoing, however, the Corporation reserves the right to terminate
the Plan in whole or in part, at any time and for any reason, provided
that full and equitable compensation is made to participants with
respect to awards previously granted.
21. Effect on Other Plan. Participation in this Plan shall not affect a
participant's eligibility to participate in any other benefit or
incentive plan of the Corporation, and any awards made pursuant to this
Plan shall not be used in determining the benefits provided under any
other plan of the Corporation unless specifically provided.
22. Duration of the Plan. The Plan shall remain in effect until all awards
under the Plan have been satisfied by the issuance of shares or the
payment of cash, but no award shall be granted more than ten years
after the date the Plan is adopted by the Corporation.
23. Funding of the Plan. This Plan shall be unfunded. The Corporation shall
not be required to establish any special or separate fund or to make
any other segregation of assets to assure the payment of any award
under this Plan, and payment of awards shall be on the same basis as
the claims of the Corporation?s general creditors. In no event shall
interest be paid or accrued on any award, including unpaid installments
of awards.
24. Governing Law. The laws of the State of Delaware shall govern, control
and determine all questions arising with respect to the Plan and the
interpretation and validity of its respective provisions.
Approved by the Board of Directors of Columbia Energy
Group at a meeting held on February 21, 1996 and
approved by the shareholders of Columbia Energy Group
on April 26, 1996. Amended as of August 20, 1997 by
the Board of Directors to amend Paragraph 17. Amended
as of January 16, 1998 to reflect the name change of
the Corporation to "Columbia Energy Group." Amended
May 20, 1998 to provide equitable adjustments in the
number of shares subject to the Plan (Paragraph 4) as
a result of a 3-for-2 stock split in the form of a
dividend issued on June 15, 1998. Amended by the
Board of Directors on November 18, 1998 to add
300,000 shares authorized for awards under the Plan.
Amended and restated by the Board of Directors on
November 18, 1998 to prohibit repricing of options,
reduce contingent and restricted stock and other
types of awards not specifically identified to five
percent, add 3,785,000 shares authorized for awards
under the Plan, revise vesting and exercise
provisions to prevent forfeitures of options and SARs
for termination due to death, retirement or
disability, and remove references to and requirements
of the old Section 16 rules, subject to the approval
of the Corporation's shareholders.
(CORPORATE SEAL)
------------------------
Secretary
35
<PAGE> 38
TO COLUMBIA ENERGY GROUP STOCKHOLDERS: LOGO
Columbia's Annual Meeting of Stockholders will be held at 9:00 a.m. (CDT) on
Wednesday, May 19, 1999 at the Windsor Court Hotel, 300 Gravier Street, New
Orleans, Louisiana.
Attached is your proxy card. Please read both sides and then mark, sign and date
it. Please detach and return the card promptly in the enclosed business reply
envelope. No postage is required if it is mailed in the United States. Or if you
prefer to vote by telephone, [telephone instructions]
Thank you for voting on these very important proxy issues.
Carolyn McKinney Afshar
Secretary
Columbia Energy Group
Detach Here
- --------------------------------------------------------------------------------
<PAGE> 39
COLUMBIA ENERGY GROUP
PROXY FOR MAY 19, 1999 ANNUAL MEETING OF STOCKHOLDERS
(THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints Karen L. Hendricks, William E. Lavery and Oliver
G. Richard III and any of them, Proxies, with full power of substitution, to
vote on behalf of the undersigned at the Annual Meeting of Stockholders of
Columbia Energy Group, to be held at the Windsor Court Hotel on May 19, 1999, at
9:00 a.m. (CDT) and at any adjournment thereof or on any business that may
properly come before the meeting.
The shares represented hereby will be voted in accordance with the
specifications on the reverse side of this card. WHERE A VOTE IS NOT SPECIFIED,
THE PROXIES WILL VOTE THE SHARES REPRESENTED BY THIS PROXY FOR ALL NOMINEES FOR
ELECTION AS DIRECTORS; FOR XXX AS INDEPENDENT PUBLIC ACCOUNTANTS; FOR THE
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION; FOR THE AMENDMENTS TO
THE COLUMBIA ENERGY GROUP 1996 LONG-TERM INCENTIVE PLAN; AND IN ACCORDANCE WITH
THE DISCRETION OF THE PROXIES AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN AND DATE ON REVERSE SIDE AND
RETURN PROMPTLY USING THE ENCLOSED ENVELOPE
OR FOLLOW THE TELEPHONE INSTRUCTIONS IF VOTING BY TELEPHONE
Detach Here
- -------------------------------------------------------------------------------
PROXY Columbia Energy Group PROXY
Please mark vote in oval in the following manner using dark ink only 0
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL PROPOSALS.
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: For All
Robert H. Beeby, Malcolm T. Hopkins, For Withheld Except
William E. Lavery, and Oliver G. Richard III 0 0 0
(NOTE: IF THIRD OVAL IS MARKED, CROSS
THROUGH NAME(S) FOR WHOM VOTES ARE
WITHHELD.)
2. SELECTION OF XXX For Against Abstain
AS INDEPENDENT PUBLIC ACCOUNTANTS. 0 0 0
3. AMENDMENTS TO THE RESTATED CERTIFICATE OF For Against Abstain
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER 0 0 0
OF SHARES OF COMMON STOCK FROM 100 MILLION
TO 200 MILLION, AND TO DECREASE THE PAR OF
CAPITAL STOCK FROM $10 TO $.01 PER SHARE.
4. AMENDMENTS TO THE COLUMBIA ENERGY GROUP For Against Abstain
LONG-TERM INCENTIVE PLAN. 0 0 0
For Against Abstain
The Proxies are authorized to vote in 0 0 0
their discretion upon such other
business as may properly come before
the meeting.
</TABLE>
Signed
----------------------------------------
----------------------------------------
----------------------------------------
DATED: , 1999
--------------
If you receive more than one proxy card, please vote, sign and return all cards
in the enclosed envelopes. Executors, administrators, trustees, etc., should
give full title. For joint accounts, each joint owner should sign. Corporations
should sign full corporation name by duly authorized officer with the signature
attested by Corporate Secretary.
Return to Columbia Energy Group, c/o Harris Trust Company of New York,
P.O. Box 830, Chicago, IL 60690-9972
