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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
COLUMBIA ENERGY GROUP
(Name of Subject Company)
COLUMBIA ENERGY GROUP
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01
(Title of Class of Securities)
197648108
(CUSIP Number of Class of Securities)
MICHAEL W. O'DONNELL
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
COLUMBIA ENERGY GROUP
13880 DULLES CORNER LANE
HERNDON, VIRGINIA 20171
(703) 561-6000
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing statement)
COPY TO:
NEIL T. ANDERSON, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Columbia Energy Group, a Delaware
corporation (the "Company"). The principal executive offices of the Company are
located at 13880 Dulles Corner Lane, Herndon, Virginia 20171. The class of
equity securities to which this statement relates is the Common Stock, par value
$0.01 per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated June 25, 1999 (the "Schedule 14D-1"), of the
bidder, NiSource Inc., an Indiana corporation ("NiSource"), to, through its
wholly-owned subsidiary, CEG Acquisition Corp., a Delaware corporation ("Sub"
and together with NiSource, the "Bidder"), purchase all of the outstanding
shares (the "Shares") of Common Stock at a price per Share of $68.00 (the "Offer
Price") net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated June 25, 1999 and in the related
Letter of Transmittal (together, the "Offer"). The Schedule 14D-1 was filed on
June 25, 1999 after the Bidder first publicly disclosed on June 24, 1999 its
intention to commence the Offer. The Offer to Purchase states that the principal
executive offices of NiSource and Sub are located at 801 East 86th Avenue,
Merrillville, Indiana 46410.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements, or understandings
between the Company and its executive officers, directors or affiliates are
described in the sections entitled "Security Ownership of Certain Beneficial
Owners, Directors and Management," "Standard Directors' Compensation," "1998
Executive Compensation Plan," "Employment Agreements," and "Approval of
Amendments to the 1996 Long-Term Incentive Plan" in the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May 19, 1999 (the
"Proxy Statement"). A copy of the relevant portions of the Proxy Statement is
filed as Exhibit (c)(1) hereto and the portions of such Proxy Statement referred
to above are incorporated herein by reference.
Vesting of rights and awards of Shares pursuant to the Company's Phantom
Stock Plan for Outside Directors, 1996 Amended and Restated Long-Term Incentive
Plan and 1998 Value Sharing Rights Plan (the "Plans") will occur in accordance
with the terms of each of the Plans upon a change in control, defined as the
occurrence of any of the following events: (a) the acquisition by any party or
parties of the beneficial ownership of 25 percent or more of the voting shares
of the Company; (b) the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Company through purchase or exchange of
stock or assets, or by merger, or otherwise; or (c) the election during a period
of 24 months, or less, of 30 percent or more of the members of the Board of
Directors of the Company (the "Board"), without the approval of a majority of
the Board as constituted at the beginning of the period.
Directors of the Company may elect to receive lump sum payments of benefits
accrued or deemed accrued under the Company's Retirement Plan for Outside
Directors, as amended and restated in 1996, and will receive a lump sum payment
of all amounts due them under the Company's Deferred Compensation Plan for
Outside Directors, upon the occurrence of a change in control, or within 30 days
thereafter, which is defined as the occurrence of any of the following events:
(a) the acquisition by any party or parties of the beneficial ownership of 25
percent or more of the voting shares of the Company; (b) the occurrence of a
transaction requiring shareholders' approval for the acquisition of the Company
through purchase of stock or assets, or by merger, or otherwise; (c) the
election during a period of 24 months, or less, of 30 percent or more of the
members of the Board, without the approval of a majority of the Board as
constituted at the beginning of the period; or (d) the occurrence of a
transaction requiring the filing of a report or disclosure with the Securities
and Exchange Commission in connection with the obtaining of an interest in the
Company through a purchase of stock or assets, or by merger or otherwise.
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The foregoing description of the Company's Phantom Stock Plan for Outside
Directors, the Retirement Plan for Outside Directors, as amended and restated in
1996, the 1996 Amended and Restated Long-Term Incentive Plan, the Deferred
Compensation Plan for Outside Directors, and the 1998 Value Sharing Rights Plan
does not purport to be complete and is qualified in its entirety by reference to
the pertinent portions of such plans which are filed respectively as Exhibits
(c)(2), (c)(3), (c)(4), (c)(5) and (c)(6) hereto, and are incorporated herein by
reference.
(b)(2) Various subsidiaries of the Company have contractual relationships
with various affiliates of NiSource. From January 1, 1998 through June 30, 1999,
Columbia Energy Services purchased approximately $40.1 million of gas from and
sold approximately $79.2 million of gas to NiSource affiliates. Columbia Gas of
Ohio ("COH") has hired NiSource affiliate Miller Pipeline Co. ("Miller") to
perform new and replacement pipeline projects. In 1997 COH paid Miller
approximately $7.7 million, in 1998 approximately $7.2 million and in 1999
through June 30 approximately $3.2 million. In 1998 COH entered into a ten year
lease of a pipeline pursuant to which it will pay a NiSource affiliate
approximately $365,000 per year. NESI Marketing ("NESI"), a NiSource gas
marketer, has taken assigned capacity of COH-owned firm capacity on Columbia
Transmission Company pipelines and is paying approximately $1.2 million per year
to COH for that capacity. The five Columbia local distribution companies have
base contracts with NESI but no business has been transacted under these
contracts since their execution on March 1, 1996. Affiliates of NiSource and
Columbia have standard operational balancing agreements and operation and
maintenance agreements related to pipeline interconnections. From time to time,
affiliates of NiSource and Columbia have entered into other small transactions.
To the best knowledge of the Company, there are no other material contracts,
agreements, arrangements or understandings or any actual or potential conflicts
of interest, between the Company, its executive officers, directors or
affiliates, on the one hand, and the Bidder, its executive officers, directors
or affiliates, on the other hand.
(c) Background of Contacts between NiSource and the Company.
In November 1998, during a NiSource sponsored event to which representatives
from a number of companies were invited, Oliver G. Richard, III, Chairman,
President and Chief Executive Officer of the Company, and Mr. Neale, Chairman,
President and Chief Executive Officer of NiSource, had discussions, as Mr.
Richard has had with many industry executives over the years, about the active
pace of change in the utility industry, including general discussions concerning
the possibility of joint ventures, combinations or other transactions with
respect to certain lines of businesses. On March 22, 1999, Mr. Neale and Mr.
Richard sat at the same table at a gas and electric industry Y2K conference at
the Old Executive Office Building in Washington, D.C. At this conference they
did not engage in any substantive discussions regarding a business combination
between NiSource and the Company. Also in March 1999, Mr. Neale and Mr. Richard
saw each other by chance in the lobby of the Willard Hotel in Washington, D.C.
As a courtesy, Mr. Richard gave Mr. Neale a ride to Mr. Neale's next destination
in downtown Washington. During the ride Mr. Neale indicated he wanted to arrange
a meeting with Mr. Richard. On a subsequent phone call, Mr. Richard agreed to
meet with Mr. Neale on April 1, 1999.
On April 1, 1999, Mr. Neale delivered a letter to Mr. Richard, which
indicated that NiSource was interested in pursuing a transaction with the
Company pursuant to which NiSource would purchase all of the outstanding Shares
of the Company for cash in the amount of $63.00 per Share subject to certain
conditions. Mr. Richard told Mr. Neale that in light of the brevity of their
prior contacts, the idea of a written proposal pursuant to which NiSource would
acquire Columbia was inappropriate at that time. Mr. Neale agreed to withdraw
the letter and proposal. Mr. Richard agreed to meet again with Mr. Neale on
April 16, 1999. Because of the impending Company proposal to Consolidated
Natural Gas ("CNG") described below, Mr. Richard cancelled the planned April 16
meeting with Mr. Neale. On April 16 the Board met to discuss a possible public
offer to acquire all of the outstanding common stock of CNG.
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On April 16, 1999, NiSource delivered a letter addressed to Mr. Richard in
which NiSource proposed a transaction pursuant to which NiSource would purchase
all of the outstanding Shares of the Company for cash in the amount of $63.00
per Share. The Board met on April 18, 1999 to consider NiSource's April 16
letter. After receiving advice from the Company's financial advisors and outside
counsel, the Board unanimously voted to reject the transaction proposed in
NiSource's April 16 letter.
On April 18, 1999, the Company publicly announced that it had submitted a
formal proposal to CNG pursuant to which the Company would acquire all of the
outstanding common stock of CNG for consideration consisting of cash and Common
Stock valued at $70.00 per CNG share. The proposal was to be kept open until
5:00 p.m. May 3, 1999. The Company had long been interested in the potential for
a combination with CNG. On May 27, 1998, in a meeting arranged by Salomon Smith
Barney Inc., Mr. Richard met with George Davidson, Chairman of CNG, and began
preliminary discussions regarding a potential combination of the Company and
CNG. Mr. Richard and Mr. Davidson met again on July 7, 1998 and again on August
27, 1998 to discuss the potential combination of the Company and CNG. The
Company had performed merger and acquisition analyses with respect to a business
combination with CNG on an ongoing basis from the summer of 1998. The Company
had delivered a letter to CNG on February 20, 1999 proposing a business
combination transaction in which shareholders of CNG would receive between
$66.00 and $70.00 per share. CNG subsequently entered into a merger agreement
with Dominion Resources, Inc. ("Dominion") on February 22, 1999. Since that
date, the Company had continued to review the status of the CNG-Dominion
transaction and extensively reviewed the option of making an alternative
proposal for CNG's board (the "CNG Board") to consider, particularly in light of
the substantial decline in the value of the consideration offered to CNG
shareholders in the CNG-Dominion transaction since its announcement.
On or about April 20, 1999, Mr. Neale called Mr. Richard and offered to
assist the Company in connection with its proposal to CNG.
On May 3, 1999 the Company announced that in response to CNG's requests for
additional information concerning the Company's April 18 proposal, detailed
information had been provided to CNG and that the Company was extending its
proposal until 5:00 p.m. on May 10, 1999. On May 7, 1999 the Company announced
that it had completed providing information requested by CNG and that it would
be sending a definitive merger agreement to CNG on May 8, 1999 for the
consideration of CNG's Board of Directors. The definitive merger agreement was
to be binding on the Company through 5:00 p.m. on May 10, 1999. On May 10, 1999
the Company announced that, in response to a written communication on behalf of
CNG, it had extended the expiration of the definitive merger agreement until
5:00 p.m. on May 11, 1999. The Company was advised that the CNG Board was to
meet on May 11, 1999 to consider the Company's proposal for a combination of the
Company and CNG.
On May 11, 1999 CNG and Dominion amended the terms of their transaction. The
new terms of the CNG-Dominion transaction substantially increased the value of
the aggregate consideration to be received by CNG shareholders as compared to
the market value of the merger consideration under the original CNG-Dominion
transaction as of the business day immediately prior to the Company's April 18
proposal to CNG. Following the decision by the CNG Board to enter into a revised
and enhanced agreement with Dominion, the Company announced on the same day that
it had withdrawn its offer to acquire CNG.
On May 28, 1999, NiSource's financial advisor telephoned Salomon Smith
Barney Inc. to discuss a possible acquisition of the Company by NiSource.
Salomon Smith Barney Inc. confirmed that, consistent with Columbia's previous
correspondence with NiSource, Columbia was not interested in negotiating a
transaction with NiSource. NiSource's financial advisor indicated that NiSource
planned to take its offer directly to Columbia's shareholders.
On June 7, 1999 Bidder publicly disclosed a letter from Mr. Neale addressed
to Mr. Richard offering to purchase all of the Company's Shares for $68.00 per
Share (the "June 7 Proposal"). Mr. Richard advised Mr. Neale in writing that the
Board would consider NiSource's revised unsolicited offer.
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At a meeting of the Board held on June 10, 1999, the Board carefully
considered the Company's business, financial condition and prospects, the terms
of the June 7 Proposal and other matters. The Board had earlier met on April 18,
1999 to consider NiSource's unsolicited proposal to negotiate the purchase of
the Company for $63.00 per Share, which the Board had unanimously rejected after
receiving advice from its management and professional advisors. At the June 10
Board Meeting, after a lengthy discussion and following presentations by the
Company's management and financial and legal advisors, the Board unanimously
voted against entering into the $68 per Share merger contemplated in the June 7
Proposal.
On June 19 and 20, 1999, the Company's financial advisors received calls
from NiSource's financial advisor suggesting that NiSource would soon be
commencing a tender offer.
On June 21, 1999, Mr. Neale telephoned Mr. Richard and requested a meeting.
Mr. Richard responded that a meeting was inappropriate but that Mr. Neale was
free to make any proposal to the Company and indicated that the Board would give
any such proposal full and fair consideration.
On June 24, 1999 Bidder publicly announced its intention to commence the
Offer, which was subsequently commenced on June 25, 1999.
Also on June 24, 1999, the Company issued a press release urging its
shareholders to take no action with respect to the Offer until the Board had
issued its recommendation.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) At a meeting of the Board held on July 1, 1999, the Board carefully
considered the Company's business, financial condition and prospects, the
terms and conditions of the Offer and other matters, including
presentations by its management and legal and financial advisors.
FOR THE REASONS DESCRIBED BELOW, THE BOARD CONCLUDED, AMONG OTHER THINGS,
THAT THE OFFER IS INADEQUATE, AND NOT IN THE BEST INTERESTS OF THE COMPANY AND
ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD STRONGLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS REJECT THE OFFER AND NOT TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of the press release announcing the Board's recommendation is
attached hereto as Annex A and filed as Exhibit (a)(2) hereto. A copy of a
letter to shareholders communicating the Board's recommendation is filed as
Exhibit (a)(1) hereto, and is incorporated herein by reference.
(b) In reaching the conclusions referred to in Item 4(a), the Board took
into account numerous factors, including but not limited to the
following:
(i) The Board's familiarity with the business, financial condition,
prospects and current business strategy of the Company, the nature
of the industries in which the Company operates and the Company's
strong position in these industries and the Board's belief that the
Offer does not reflect the long-term values inherent in the Company.
In this regard, the Board particularly considered:
-- The fact that the Company has a unique network of assets and
businesses that cannot be replicated. Its core
businesses--transmission and distribution--are strategically
located to serve growing energy markets (including power markets)
in the Eastern United States. These businesses include highly
valued storage assets.
-- The fact that Columbia is expanding its non-regulated businesses,
such as exploration and production, propane, LNG and power
generation.
-- The fact that the Company continues to seek ways to manage its
existing assets to enhance their use for new, non-traditional
business opportunities, such as the Company's recently announced
decision to build a fiber network to carry telecommunications
along a corridor of existing transmission right-of-way. The
Company's extensive,
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integrated assets afford many opportunities to build value from
evolving competitive markets, by using the Company's expertise
and skills in nonregulated business environments and in
businesses created by transformation and convergence in the
energy industry.
-- The Company's demonstrated ability over the past three years to
reduce operating and maintenance expenses significantly in
transmission and distribution and increase retained revenues from
distribution assets.
-- The Board's confidence in the Company's management team that has
from January 1, 1995, through June 4, 1999, the business day
prior to the public disclosure of the NiSource offer, driven the
Company's total rate of return to shareholders to approximately
258% or 33.5% on an annual basis. These returns substantially
exceeded returns on the Standard & Poor's 500 and the S&P Natural
Gas Indices during the same time period.
-- The fact that the Company's results for the fourth quarter of
1998 and the first quarter of 1999 were affected by the impact of
much warmer than normal weather on its distribution segment and
by significant investment and costs in its marketing segment and
the Board's belief that its stock price does not fully reflect
the Company's true value or its attractive growth opportunities.
(ii) The opinion of the Company's management as to the Company's
prospects for future growth and profitability, based on its
knowledge of the Company's businesses, its views as to the
Company's long-term strategic plan, the various strategic
initiatives which have been implemented over the past several years
and the other opportunities available to the Company in the future,
as well as management's view that the Offer Price is inadequate and
that the Offer is an attempt to take advantage of short-term
business and market factors.
(iii) The written opinions to the Board of each of Morgan Stanley & Co.
Inc. ("Morgan Stanley") and Salomon Smith Barney Inc. ("Salomon")
to the effect that, as of July 1, 1999, the $68.00 per share
consideration set forth in the Offer was inadequate from a
financial point of view to the Company's shareholders other than
NiSource and its affiliates, and the analyses performed by Morgan
Stanley and Salomon in connection with the delivery of their
opinions. Such written opinions delivered to the Board are attached
hereto as Annexes B and C, respectively, and filed as Exhibits
(a)(3) and (a)(4) hereto. The Company's shareholders are urged to
read such opinions in their entirety. Such opinions were expressed
after review of various financial criteria used in assessing an
offer, and were based on various assumptions and subject to various
limitations, which were reviewed for the Board as part of the Board
presentations by Morgan Stanley and Salomon.
(iv) The fact that the closing price of the Shares on June 30, 1999 (the
date immediately prior to the date of the Board's meeting) was
$63.0625 and, that based on Bidder's own stated view that the
required regulatory approvals, if received at all, may take as long
as 18 months, the present value of the Offer Price is only $60.53
based on a discount rate of 9.5%.
(v) The Board's belief, in light of the terms of the present Offer, the
Company's inherent earning power and long-term strategic plan and
the short-term nature of the factors negatively affecting the
Company's operations, business and stock price, that the interests
of the Company, its shareholders and other constituencies would best
be served by the Company continuing as an independent entity.
(vi) The disruptive effect consummation of the Offer could have on the
Company's employees, suppliers and customers and the communities
where the Company operates.
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(vii) The significant conditions to which the Offer is subject. Twelve
conditions and many more sub-conditions must be satisfied or waived
before Bidder is obligated to consummate the Offer. Many of the
conditions are at the sole discretion of Bidder or subject to
external events not directly related to the Company, including the
receipt of numerous federal, state and local public utility
regulatory consents and approvals, the absence of threatened or
instituted actions by any governmental authorities or other persons
which might diminish benefits expected by Bidder in its sole
judgment regardless of materiality, the lack of any changes in the
general economic or financial market conditions in the United
States or abroad that could have a material adverse effect on any
of the Company's subsidiaries, and that no tender or exchange offer
for some or all of the Shares shall have been publicly announced by
a third party.
(viii) The serious regulatory hurdles associated with the Offer, including
the likely negative reaction of numerous state and federal
regulators to NiSource's need to borrow $5.7 billion to consummate
the Offer, creating a highly leveraged debt-to-capital ratio of
approximately 84%.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive but includes all material factors
considered by the Board. In reaching its determination to reject the Offer, the
Board did not assign any relative or specific weights to the foregoing factors,
and individual directors may have given differing weights to different factors.
Throughout its deliberations, the Board received the advice of its legal and
financial advisors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained both Morgan Stanley and Salomon as the Company's
financial advisors in connection with the evaluation of and response to the
Offer and other matters arising in connection therewith. In addition, the
Company has retained MacKenzie Partners, Inc. ("MacKenzie") to assist the
Company in connection with its communications with shareholders with respect to,
and to provide other services to the Company in connection with, the Offer.
(a) MORGAN STANLEY & CO. INC. AND SALOMON SMITH BARNEY INC.
Pursuant to separate engagement letters, each dated July 1, 1999, the
Company has retained Morgan Stanley and Salomon to act as the Company's
financial advisors in connection with the Offer and related matters. Pursuant to
the engagement letters, the Company has agreed to pay each of Morgan Stanley and
Salomon:
(i) an initial fee of $4,000,000;
(ii) a fee of $8,000,000 in the event that the Board concludes that the
Offer is not in the best interests of the Company's shareholders
and the Offer is withdrawn or does not result in, by July 1, 2000,
the acquisition of 50% or more of the voting stock of the Company
by NiSource or any other party, the signing of a definitive
agreement by NiSource or any other party to acquire the common
stock of the Company, or a change in at least 4 members of the
Board as a result of the Offer, except that so long as the majority
of the Board is not changed by July 1, 2001, the fee will be
payable even if at least 4 members of the Board are changed by July
1, 2000; and
(iii) a business combination fee (against which the initial fee will be
credited) in the event of any transaction in which (A) a majority
of voting stock of the Company or all or substantially all of the
assets of the Company are acquired, (B) the Company is acquired
other than through the acquisition of the Company's capital stock
or (C) the business of the Company is combined with that of another
entity and the Company's shareholders would own less than
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50% of the stock of the surviving entity, equal to 0.225% of the
aggregate value (as defined in the engagement letters) of such
transaction.
In addition, the Company has agreed to pay each of Morgan Stanley and
Salomon a transaction fee if, in connection with the engagement letters,
Columbia elects to enter into any transaction involving a business combination
or restructuring of the Company, sale or joint venture of assets of the Company,
negotiated sales of securities or certain other specified transactions (other
than a transaction of the type described in (iii) above or a transaction with an
aggregate value of less than $200 million), which fee is calculated as a
percentage of the transaction's aggregate value, ranging from 1.0% to 0.245%.
The initial fee paid under (i) above will be credited against the transaction
fee on a dollar-for-dollar basis to the extent that the transaction fee exceeds
$8,000,000, up to a maximum credit of $4,000,000. In the event that the Company
jointly retains Morgan Stanley and Salomon on such transactions, the Company
agrees to pay each of them 75% of the transaction fee.
If, in connection with the engagement letters, the Company repurchases or
sells equity, preferred or debt securities in a public or private placement,
Morgan Stanley and Salomon will be given first preference to lead or co-lead
such repurchase or offering. If the Company elects not to use Morgan Stanley or
Salomon in connection with such transactions, the Company will nevertheless pay
them fees associated with such transactions as if they had been retained by the
Company.
The Company has agreed to reimburse Morgan Stanley and Salomon for their
expenses, including reasonable travel costs and reasonable fees of outside
counsel and other professional advisors engaged with the Company's consent. The
Company has also agreed to indemnify Morgan Stanley and Salomon and certain
related persons against various liabilities relating to or arising out of their
engagements, including liabilities under the federal securities law. In the
ordinary course of business, Morgan Stanley and Salomon may from time to time
effect transactions and hold positions in securities of the Company and
NiSource.
(b) MACKENZIE PARTNERS, INC.
The Company has also retained MacKenzie to assist the Company in connection
with its communications with stockholders with respect to, and to provide other
services to the Company in connection with, the Offer. The Company will pay
MacKenzie reasonable and customary compensation for their services and will
reimburse MacKenzie for their reasonable out-of-pocket expenses incurred in
connection therewith. The Company has also agreed to indemnify MacKenzie against
various liabilities relating to its engagement.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) The Company has from time to time bought back Shares on the open market
within the past 60 days. Between the dates of May 20 and May 28, the Company
repurchased 713,500 Shares at an average price of $53.04, excluding a $.04 per
Share commission.
To the best of the Company's knowledge, no other transactions in Shares have
been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company, other than the option
grants referred to in Item 3(b) above.
(b) To the best of the Company's knowledge, none of the Company's executive
officers, directors, affiliates or subsidiaries presently intends to tender to
the Bidder pursuant to the Offer or sell any Shares that are held of record or
beneficially owned by such persons, but rather such persons presently intend to
continue to hold such securities.
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ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a-b) For the reasons discussed in Item 4 above, the Board has concluded
that the Offer is inadequate and not in the best interests of the Company and
its shareholders and strongly recommends that the Company's shareholders reject
the Offer and not tender their Shares pursuant to the Offer. The Company is not
engaged now in any negotiations in response to the Offer that relate to, or
would result in, one or more of the following or a combination thereof: (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (iii) a
tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) DELAWARE TAKEOVER STATUTE. The Delaware Takeover Statute may have the
effect of significantly delaying the Bidder's ability to acquire the entire
equity interest in the Company.
In general, the Delaware Takeover Statute prevents an "Interested
Stockholder" (as defined below) from engaging in a "Business Combination"
(defined as a variety of transactions, including a merger) with the Company for
a period of three years following the time such person became an Interested
Stockholder, unless: (i) before the time such person became an Interested
Stockholder, the Board either approved the Business Combination or the
transaction in which such person became an Interested Stockholder; (ii) upon
consummation of the transaction which resulted in such person becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding those
shares owned by directors who are also officers and employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) at or following the time at which such person became an
Interested Stockholder, the Business Combination is (A) approved by the Board
and (B) authorized at a meeting of shareholders by an affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding voting stock of the Company not owned by the Interested Shareholder.
Additionally, under the Delaware Takeover Statute, the restrictions described
above do not apply to certain Business Combinations proposed by an Interested
Shareholder following the announcement or notification, but prior to the
consummation or abandonment of, one of certain extraordinary transactions
involving the Company and a person who had not been an Interested Shareholder
during the three years preceding the date of the proposed Business Combination
or who became an Interested Shareholder with the approval of a majority of the
Board or who became an Interested Shareholder during the period in which the
restrictions of the Delaware Takeover Statute did not apply.
For purposes of the Delaware Takeover Statute the term "Interested
Shareholder" generally means a person who beneficially owns 15% or more of the
Company's outstanding voting stock, other than any person who owns shares in
excess of the 15% limitation on, or acquired such shares pursuant to a tender
offer commenced prior to, December 23, 1987, or pursuant to an exchange offer
announced prior to December 23, 1987 and commenced within 90 days thereafter and
either (A) continued to own shares in excess of such 15% limitation or would
have but for action by the Company or (B) is an affiliate or associate of the
Company and so continued (or so would have continued but for action by the
Company) to be the owner of 15% or more of the outstanding voting stock of the
Company at any time within the 3-year period immediately prior to the date on
which it is sought to be determined whether such person is an Interested
Shareholder.
The foregoing summary of the Delaware Takeover Statute does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the Delaware Takeover Statute.
8
<PAGE>
(b) LITIGATION. NiSource has commenced two litigations against the Company
and its directors, one in Delaware Chancery Court and one in the United States
District Court for the District of Delaware. The Chancery Court complaint
alleges that the Company's certificate of incorporation requires 13 persons to
be on the Board and that, therefore, the Company's current 12-person Board
violates the certificate. The complaint seeks an order requiring a special
meeting to elect a thirteenth director.
NiSource's federal court complaint, among other things (1) alleges that
certain statements that the Company has made in connection with NiSource's
overtures to purchase the Company have been false and misleading in violation of
the Securities and Exchange Act of 1934, as amended; (2) seeks an injunction
requiring the Company to take all actions necessary to exempt the NiSource
tender offer from the requirements of the Delaware Takeover Statue; and (3)
seeks injunctive relief against the Company taking any defensive actions against
the NiSource offer.
In addition, five purported shareholder class actions have been filed
against the Company in Delaware Chancery Court. These actions are in the process
of being consolidated into one action entitled IN RE COLUMBIA ENERGY GROUP
SHAREHOLDER LITIGATION and allege, among other things, that the Company and its
directors have breached their fiduciary duties to the Company's shareholders by
not negotiating with NiSource regarding its offer to purchase the Company. The
complaint also makes an allegation similar to that contained in the NiSource
chancery court complaint that the Company's current Board composition violates
its certificate of incorporation.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
Exhibit (a)(1) Form of Letter to Shareholders of the
Company, dated July 6, 1999.*
(a)(2) Form of Press Release, dated July 6,
1999.*
(a)(3) Opinion of Morgan Stanley & Co. Inc.,
dated July 1, 1999.*
(a)(4) Opinion of Salomon Smith Barney Inc.,
dated July 1, 1999.*
Exhibit (c)(1) Excerpts from the Company's Proxy
Statement for the Annual Meeting of
Shareholders held on May 19, 1999.
(c)(2) Phantom Stock Plan for Outside
Directors.
(c)(3) Retirement Plan for Outside Directors,
as amended and restated in 1996.
(c)(4) 1996 Amended and Restated Long-Term
Incentive Plan.
(c)(5) Deferred Compensation Plan for Outside
Directors.
(c)(6) 1998 Value Sharing Rights Plan.
</TABLE>
This document and the exhibits attached hereto may contain certain
statements that are considered "forward-looking statements" under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"). Although the Company believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that its expectations will be realized. There can be no assurance that
actual results will not differ materially due to various factors, many of which
are beyond the control of the Company, including, but not limited to,
competition and general economic, capital and commodity market conditions and
other risks described from time to time in the Company's reports with the
Securities and Exchange Commission including quarterly reports on Form 10-Q,
annual reports on Form 10-K and reports on Form 8-K. The safe harbor provisions
of the PSLRA with respect to forward-looking statements are not available to
statements made in connection with a tender offer.
- ------------------------
* Included in copies mailed to shareholders.
9
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
<TABLE>
<S> <C> <C>
Dated: July 6, 1999 COLUMBIA ENERGY GROUP
By: /s/ MICHAEL W. O'DONNELL
-----------------------------------------
Name: Michael W. O'Donnell
Title: Senior Vice President
and Chief Financial Officer
</TABLE>
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
Exhibit (a)(1) Form of Letter to Shareholders of the
Company, dated July 6, 1999.*
(a)(2) Form of Press Release, dated July 6,
1999.*
(a)(3) Opinion of Morgan Stanley & Co. Inc.,
dated July 1, 1999.*
(a)(4) Opinion of Salomon Smith Barney Inc.,
dated July 1, 1999.*
Exhibit (c)(1) Excerpts from the Company's Proxy
Statement for the Annual Meeting of
Shareholders held on May 19, 1999.
(c)(2) Phantom Stock Plan for Outside
Directors.
(c)(3) Retirement Plan for Outside Directors,
as amended and restated in 1996.
(c)(4) 1996 Amended and Restated Long-Term
Incentive Plan.
(c)(5) Deferred Compensation Plan for Outside
Directors.
(c)(6) 1998 Value Sharing Rights Plan.
</TABLE>
- ------------------------
* Included in copies mailed to shareholders.
11
<PAGE>
[LOGO]
July 6, 1999
Dear Shareholder:
On June 25, 1999, CEG Acquisition Corp., a wholly owned subsidiary of
NiSource Inc., an Indiana corporation, commenced an unsolicited tender offer for
all of the outstanding shares of common stock of Columbia Energy Group for $68
per share in cash. Your Board of Directors has determined that the NiSource
tender offer is inadequate and not in the best interests of Columbia or its
shareholders. ACCORDINGLY, WE STRONGLY RECOMMEND THAT YOU REJECT NISOURCE'S
TAKEOVER ATTEMPT AND NOT TENDER YOUR SHARES TO NISOURCE.
In making its determination about the NiSource offer, your Board considered
many factors, among them:
- The Company's UNIQUE AND STRATEGICALLY LOCATED NETWORK OF ASSETS AND
BUSINESSES that cannot be replicated and its ongoing efforts to enhance
the use of these assets for non-traditional business opportunities, such
as the recently announced plans to build a fiber network to carry
telecommunications along a corridor of existing transmission right-of-way.
- The fact that Columbia is expanding its non-regulated businesses, such as
exploration and production, propane, LNG and power generation.
- The Company's demonstrated ability over the past three years TO REDUCE
OPERATION AND MAINTENANCE EXPENSES SIGNIFICANTLY in transmission and
distribution and increase retained revenues from distribution assets.
- The fact that from January 1, 1995, through June 4, 1999, the business day
prior to the public disclosure of the NiSource offer, THE TOTAL RATE OF
RETURN TO COLUMBIA'S SHAREHOLDERS WAS APPROXIMATELY 258 PERCENT, OR 33.5
PERCENT ON AN ANNUALIZED BASIS. These returns substantially exceeded the
returns for the Standard & Poor's 500 and the S&P Natural Gas Indices.
- The fact that the Company's results for the fourth quarter of 1998 and
first quarter of 1999 were adversely affected by much warmer than normal
weather in its distribution segment and by significant investment and
costs in its marketing segment, and its belief that its STOCK PRICE DOES
NOT FULLY REFLECT THE COMPANY'S TRUE VALUE OR ITS ATTRACTIVE GROWTH
OPPORTUNITIES.
<PAGE>
- The opinions to the Board of our co-financial advisors, Morgan Stanley
Dean Witter and Salomon Smith Barney Inc., that the tender offer's
proposed consideration of $68 per share is, as of the date of such
opinions, INADEQUATE from a financial point of view.
- The substantial risk that regulators will not approve NiSource's proposal,
in light of NiSource's need to borrow $5.7 billion, which would result in
A HIGHLY LEVERAGED DEBT-TO-CAPITAL RATIO of 84 percent upon consummation.
- The significant and subjective conditions NiSource has imposed on its
offer and the numerous state and federal regulatory approvals that need to
be obtained before the tender offer could be consummated, MAKING IT HIGHLY
UNLIKELY THAT SHAREHOLDERS WOULD RECEIVE ANY PAYMENT FROM NISOURCE FOR
THEIR SHARES IN LESS THAN 18 MONTHS, IF AT ALL.
- The disruptive effect consummation of the offer could have on the
Company's employees, suppliers and customers and the communities where the
Company operates.
We encourage you to read carefully Columbia's attached Schedule 14D-9,
including the discussion of the reasons for your Board's recommendation, and the
written opinions of Morgan Stanley Dean Witter and Salomon Smith Barney Inc.,
which are attached as well.
WE AGAIN URGE YOU TO REJECT NISOURCE'S UNSOLICITED AND INADEQUATE OFFER. If
you have any questions or need any assistance, please contact MacKenzie
Partners, Inc. at (800) 322-2885 (toll-free) or at (212) 929-5500 (collect).
Your Board of Directors and management will continue to act in the best
interests of the Company and all its shareholders.
On Behalf of the Board of Directors
Sincerely,
/s/ Oliver G. Richard III
Oliver G. Richard III
Chairman, President
and Chief Executive Officer
<PAGE>
ANNEX A
[LOGO]
For Immediate Release CONTACTS:
July 6, 1999 COLUMBIA ENERGY GROUP
Thomas L. Hughes (Financial Community)
703/561-6001
R. A. Rankin, Jr. (News Media)
703/561-6044
KEKST AND COMPANY
Michael Freitag (News Media)
212/521-4800
COLUMBIA ENERGY GROUP BOARD REJECTS LATEST NISOURCE PROPOSAL;
RECOMMENDS THAT SHAREHOLDERS OPPOSE UNSOLICITED TENDER OFFER
HERNDON, Va., July 6 -- Columbia Energy Group announced today that its board
of directors has rejected the latest unsolicited merger proposal from NiSource
Inc. The board determined that the cash tender offer by NiSource for all of
Columbia's outstanding common stock for $68 per share is inadequate and not in
the best interests of the company or its shareholders. The board also strongly
recommended that Columbia's shareholders oppose NiSource's takeover attempt by
not tendering their shares to NiSource.
Oliver G. Richard III, Columbia's chairman, president and chief executive
officer, today is informing Gary L. Neale, NiSource chairman, president and CEO,
of the Columbia board's decision in the following letter:
Dear Gary:
Our Board of Directors has considered your most recent unsolicited merger
proposal -- a cash tender offer for all the outstanding shares of Columbia
Energy Group at $68 per share. After careful deliberation, and in accordance
with its fiduciary duties, the Board rejected your proposal, having concluded
that it is not in the best interests of Columbia Energy Group and its
shareholders. The Board made this determination after reviewing reports from our
management and legal and financial advisors, including opinions from our
co-financial advisors, Morgan Stanley Dean Witter and Salomon Smith Barney Inc.,
that, as of July 1, 1999, the offer is inadequate from a financial point of
view. We continue to believe that your proposal threatens to deprive Columbia
shareholders of the substantial additional value that Columbia's existing
strategic plan is creating.
Contrary to the self-serving allegations in your June 24 letter, we have
every reason to believe that our shareholders have full faith in our abilities
to serve their interests and deliver superior value. Indeed, after your June 7
cash merger proposal at the same $68 price, we met with many of our largest
shareholders and the analysts covering our industry and there is growing
sentiment that your offer is inadequate and not reflective of Columbia's true
value. Moreover, following our annual two-day conference of analysts and
institutional investors in late June, we believe our shareholders understand our
strategic plan and the tremendous value that we are well prepared to deliver.
As I have told you on several occasions, Columbia is not for sale. Of
course, like any publicly traded company -- including even NiSource, I presume
- -- Columbia would seriously consider a strategic combination that would provide
superior value for our shareholders. The various unsolicited merger proposals
from NiSource have been for the wrong price, at the wrong time, and with the
wrong company.
<PAGE>
A merger of our two companies is not compelling. Columbia has unique and
highly attractive assets located in high-demand markets on the East Coast.
NiSource's existing businesses appear to consist primarily of high-cost
generation assets serving low-growth markets. Columbia has a talented and
experienced management team that has developed a strong, forward-looking
strategy. NiSource has yet to prove its ability to compete successfully in an
increasingly deregulated energy market.
While you have claimed publicly that the proposed transaction would be
accretive in the first year, our analysis shows that it would be substantially
dilutive. Unless you are quietly planning massive layoffs or rate increases, we
do not believe you will be able to achieve the kind of synergies you would need
for the transaction to be even marginally accretive, let alone achieve the 10 to
12 percent annual earnings per share growth that we are seeking for our company
on a stand alone basis by 2001.
We also have serious concerns about the timing and regulatory risks of
NiSource's proposed transaction, including the likely negative reaction of
numerous state and federal regulators to your need to borrow $5.7 billion to
complete the acquisition, creating a highly leveraged debt-to-capital ratio of
approximately 84 percent at closing. We also believe there are significant risks
inherent in your plans to reduce that debt with a $2.6 billion equity offering
- -- which would be, by far, the largest such offering in the utility industry.
It is unfortunate that, in your apparent need to find a solution for
NiSource's vulnerabilities in an increasingly competitive environment, you are
attempting a 1980s-style hostile takeover of our company. We agree with you that
your costly and disruptive tender offer and related lawsuits are a waste of
valuable resources -- particularly since NiSource has publicly claimed that the
tender offer is little more than a "no-cost, no-risk, fully reversible"
shareholder referendum.
We know our shareholders would like to see Columbia's true value and
long-term potential more fully reflected in its stock price, which has been
impacted this year by much warmer-than-usual weather, and significant investment
and costs in the marketing segment. The board and I share that objective for our
shareholders, as do the other members of our senior management team. We are hard
at work implementing our ongoing growth strategies for both our regulated and
non-regulated businesses, and enhancing near- and long-term shareholder value.
We will resist any attempts to take for the benefit of NiSource shareholders
the value of Columbia's assets and strategic growth plans. Columbia's value
rightfully belongs to Columbia's shareholders, not yours.
Sincerely,
Oliver G. Richard III
Columbia will file today with the Securities and Exchange Commission, and
will mail to its shareholders, a Solicitation/Recommendation Statement on
Schedule 14D-9 setting forth the board's formal recommendation to reject the
NiSource offer. Additional information with respect to the board's decision to
recommend that shareholders reject the NiSource offer, and the matters
considered by the board in reaching that decision, is contained in the Schedule
14D-9.
Since May 1995 Columbia has, under its current management team, promoted
change and competition to the benefit of the corporation, its customers and
shareholders. The company has a unique network of assets and businesses that
cannot be replicated. Columbia's core businesses--transmission and
distribution--are strategically located to serve growing energy markets
(especially power markets) in the Eastern United States. These businesses also
include highly valued storage assets that the company continues to expand.
In addition, Columbia is expanding its existing non-regulated businesses,
including a growing exploration and production business that is deploying
advanced technologies to develop the Appalachian Basin;
2
<PAGE>
profitable propane distribution operations with a broad and growing geographic
footprint; and independent power generation operations that are developing and
building efficient and environmentally sound facilities. Moreover, the company
is positioning itself for future growth in new non-regulated businesses that are
emerging from the ongoing deregulation of natural gas and electricity
industries.
Columbia also continues to seek ways to manage its existing assets to
enhance their use for non-traditional business opportunities, such as building a
fiber network to carry telecommunications along a corridor of existing
transmission right-of-way.
From January 1, 1995 to June 4, 1999, the business day prior to public
disclosure of the NiSource offer, Columbia's total rate of return to
shareholders of approximately 258 percent, or 33.5 percent annualized, exceeds
that of the Standard & Poor's 500 and the S&P Natural Gas Indices. In the past
three years, the company has significantly reduced operation and maintenance
expenses in transmission and distribution, increased retained revenues from
distribution assets, and increased operating income from growth investments in
exploration and production, propane, LNG and power generation. At the same time,
it has been highly regarded for customer satisfaction in its core businesses.
Columbia's co-financial advisors are Morgan Stanley Dean Witter and Salomon
Smith Barney Inc. and its legal counsel is Sullivan & Cromwell. Columbia's
information agent for the company's response in opposition to the tender offer
is MacKenzie Partners, Inc.
Columbia Energy Group, based in Herndon, Va., is one of the nation's leading
energy services companies, with 1998 revenues of nearly $6.6 billion and assets
of about $7 billion. Its operating companies engage in all phases of the natural
gas business, including exploration and production, transmission, storage and
distribution, as well as commodities marketing, energy management, propane sales
and electric power generation, sales and trading. Information about Columbia
Energy Group (NYSE:CG) is available on the Internet at
WWW.COLUMBIAENERGYGROUP.COM.
THIS PRESS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE FEDERAL SECURITIES LAWS, INCLUDING STATEMENTS CONCERNING COLUMBIA'S
PLANS, OBJECTIVES AND EXPECTED PERFORMANCE. THERE CAN BE NO ASSURANCE THAT
ACTUAL RESULTS WILL NOT DIFFER MATERIALLY DUE TO VARIOUS FACTORS, MANY OF WHICH
ARE BEYOND THE CONTROL OF COLUMBIA, INCLUDING, BUT NOT LIMITED TO, COMPETITION,
THE REGULATORY APPROVAL PROCESS, WEATHER, SUPPLY AND DEMAND FOR NATURAL GAS,
ELECTRICITY, PROPANE AND PETROLEUM AND CHANGES IN GENERAL ECONOMIC CONDITIONS.
THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT WITH
RESPECT TO FORWARD-LOOKING STATEMENTS ARE NOT AVAILABLE TO STATEMENTS MADE IN
CONNECTION WITH A TENDER OFFER.
# # #
3
<PAGE>
ANNEX B
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
July 1, 1999
Board of Directors
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171-4600
Members of the Board:
We understand that on June 25(th), 1999 CEG Acquisition Inc. ("CEG
Acquisition"), a wholly owned subsidiary of NiSource Inc. ("Bidder"), commenced
a tender offer to purchase all outstanding shares of Common Stock, par value
$0.01 per share (the "Common Stock"), of Columbia Energy Group Inc. ("Target" or
the "Company"), other than shares of Common Stock owned by the Bidder and its
affiliates, at a price of $68.00 per share net to the seller in cash upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
June 25, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Bidder Offer"). The terms of the Bidder Offer
are more fully set forth in the Schedule 14D-1 (the "Schedule 14D-1") filed by
Subsidiary and Bidder with the Securities and Exchange Commission on June 25,
1999.
You have asked for our opinion as to whether the Bidder Offer is adequate from a
financial point of view to the holders of Common Stock other than Bidder and its
affiliates.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the Offer to Purchase, the Schedule 14D-1 and certain related
documents;
(ix) reviewed a report from the Ryder Scott Company dated January 27, 1999,
regarding the reserves, future production and income attributable to
certain leasehold and royalty interests of Columbia Natural Resources
Corporation (the "Ryder Scott Report"); and
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we
<PAGE>
MORGAN STANLEY DEAN WITTER
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of the Company. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company nor have we been furnished
with any such appraisals; however, we have reviewed the Ryder Scott Report and
have relied without independent verification upon such report for purposes of
this opinion. Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the Bidder Offer with the
Securities and Exchange Commission. This opinion is not intended to be and shall
not constitute a recommendation to any holder of Common Stock as to whether to
tender shares of Common Stock pursuant to the Bidder Offer.
Based on the foregoing, we are of the opinion on the date hereof that the Bidder
Offer is inadequate from a financial point of view to the holders of Common
Stock other than Bidder and its affiliates.
<TABLE>
<S> <C>
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Daniel B. More
Daniel B. More
Managing Director
</TABLE>
<PAGE>
Exhibit 99(a)(4)
SALOMON SMITH BARNEY
July 1, 1999
Board of Directors
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA
Ladies and Gentlemen:
You have requested our opinion as to the adequacy, from a financial point of
view, to the holders of common stock, par value $0.01 per share ("Company Common
Stock"), of Columbia Energy Group (the "Company") of the tender offer of CEG
Acquisition Corp. ("Subsidiary"), a wholly owned subsidiary of NiSource Inc.
("NI"), to purchase all of the issued and outstanding shares of Company Common
Stock, other than shares of Company Common Stock owned by NI and its affiliates,
for $68 per share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
June 25, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together with the Offer to Purchase constitutes the "Offer"). The terms
of the Offer are more fully set forth in the Schedule 14D-1 (the "Schedule
14D-1") filed by Subsidiary and NI with the Securities and Exchange Commission
on June 25, 1999.
In connection with rendering our opinion, we have reviewed and analyzed, among
other things, the following; (i) certain publicly available information
concerning the Company; (ii) certain internal information, primarily financial
in nature, including projections, concerning the business and operations of the
Company, furnished to us by the Company for purposes of our analysis; (iii)
certain publicly available information concerning the trading of, and the
trading market for, Company Common Stock; (iv) certain publicly available
information concerning NI; (v) certain publicly available information with
respect to certain other companies that we believe to be comparable to the
Company and the trading markets for certain of such other companies' securities;
(vi) the Offer to Purchase and the Schedule 14D-1; (vii) a report from the Ryder
Scott Company dated January 27, 1999, regarding the reserves, future production
and income and certain leasehold and royalty interests of Columbia Natural
Resources Corporation (the "Ryder Scott Report"); and (viii) certain publicly
available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We further have
considered such other information, financial studies, analyses, investigations
and financial, economic and market
<PAGE>
SALOMON SMITH BARNEY
Columbia Energy Group
July 1, 1999
Page 2
criteria that we deemed relevant. We also have met with certain officers and
employees of the Company to discuss the foregoing as well as other matters
that we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make any of such
information inaccurate or misleading. We have not conducted a physical
inspection of any of the properties or facilities of the Company, nor have we
made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of such properties or facilities,
nor have we been furnished with any such valuations or appraisals; however, we
have reviewed the Ryder Scott Report and have relied without independent
verification upon such report for purposes of this opinion. With respect to
financial projections, we have been advised by the management of the Company and
have assumed that they were reasonably prepared and reflect the best currently
available estimates and judgment of the management of the Company as to the
future financial performance of the Company and we express no view with respect
to such projections or the assumptions on which they were based.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors as we have deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
current market for Company Common Stock and for the equity securities of certain
other companies that we believe to be comparable to the Company; and (iv) the
nature and terms of certain other merger transactions that we believe to be
relevant. We have also taken into account our assessment of general economic,
market and financial conditions as well as our experience in connection with
similar transactions and securities valuation generally. Our opinion necessarily
is based upon conditions as they exist and can be evaluated on the date hereof,
and we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion is, in any
event, limited to the adequacy, from a financial point of view, of the Offer to
the holders of Company Common Stock. Our opinion is not intended to be and
shall not constitute a recommendation to any holder of Company
<PAGE>
SALOMON SMITH BARNEY
Columbia Energy Group
July 1, 1999
Page 3
Common Stock as to whether to tender shares of Company Common Stock pursuant
to the Offer.
We have acted as financial advisor to the Company in connection with the Offer
and will receive a fee for such services. In addition, in the ordinary course of
business, we and our affiliates may actively trade the securities of the Company
and NI for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. We and our
affiliates (including Citigroup Inc.) may have other business relationships with
the Company or NI.
This opinion is intended solely for the benefit and use of the Company
(including the management and directors of the Company) in considering the
transaction to which it relates and may not be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, without the prior written consent of Salomon Smith Barney.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Offer is inadequate, from a financial point of view, to the holders
of Company Common Stock, other than NI and its affiliates.
Very truly yours,
SALOMON SMITH BARNEY
<PAGE>
Exhibit 99(c)(1)
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>
(2) (3)
(1) Name and Amount and Nature
Title of Class Address of Beneficial Ownership**
------------------------------------------------------------------------------------------------------
Shared Sole Shared Sole
Voting Voting Investment Investment
Power Power Power Power
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Massachusetts Financial 4,311,859 4,333,434
Services Company***
500 Boylston St.
Boston, MA 02116-3741
------------------------------------------------------------------------------------------------------
Common R. F. Albosta
------------------------------------------------------------------------------------------------------
Common R. H. Beeby
------------------------------------------------------------------------------------------------------
Common W. K. Cadman
------------------------------------------------------------------------------------------------------
Common J. P. Heffernan
------------------------------------------------------------------------------------------------------
Common K. L. Hendricks
------------------------------------------------------------------------------------------------------
Common M. T. Hopkins
------------------------------------------------------------------------------------------------------
Common J. B. Johnston
------------------------------------------------------------------------------------------------------
Common M. Jozoff
------------------------------------------------------------------------------------------------------
Common W. E. Lavery
------------------------------------------------------------------------------------------------------
Common G. E. Mayo
------------------------------------------------------------------------------------------------------
Common D. E. Olesen
------------------------------------------------------------------------------------------------------
Common O. G. Richard III
------------------------------------------------------------------------------------------------------
Common W. R. Wilson
------------------------------------------------------------------------------------------------------
Common C. G. Abbott
------------------------------------------------------------------------------------------------------
Common R. R. Kaskel
------------------------------------------------------------------------------------------------------
Common M. W. O'Donnell
------------------------------------------------------------------------------------------------------
Common P. M. Schwolsky
------------------------------------------------------------------------------------------------------
Common All Executive Officers & Directors
(18 Persons) as a Group
<CAPTION>
(3)
(1) Amount and Nature
Title of Class of Beneficial Ownership**
---------------- -------------------------------
(4)
Total Percent
Owned of Classes
---------------- -------------------------------
<S> <C> <C> <C>
Common 4,333,434 5.2
-----------------------------------------------------
Common 15,500 *
----------------------------------------------------------
Common 15,500(1) *
---------------------------------------------------------------
Common 15,500 *
--------------------------------------------------------------------
Common 18,500 *
-------------------------------------------------------------------------
Common 15,500 *
------------------------------------------------------------------------------
Common 22,299.3270 *
-----------------------------------------------------------------------------------
Common 15,033.907 *
----------------------------------------------------------------------------------------
Common 15,500 *
---------------------------------------------------------------------------------------------
Common 15,650 *
--------------------------------------------------------------------------------------------------
Common 17,000 *
------------------------------------------------------------------------------------------------------
Common 15,531.721 *
------------------------------------------------------------------------------------------------------
Common 341,821.272(2) *
------------------------------------------------------------------------------------------------------
Common 23,000 *
------------------------------------------------------------------------------------------------------
Common 48,181.559(3) *
------------------------------------------------------------------------------------------------------
Common 128.874 *
------------------------------------------------------------------------------------------------------
Common 69,615.918(4) *
------------------------------------------------------------------------------------------------------
Common 56,498.704(5) *
------------------------------------------------------------------------------------------------------
Common 724,297.374(6) *
</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 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.
*** Information for this beneficial owner was obtained solely from owner's
Schedule 13-G filed with the U.S. Securities and Exchange Commission.
(1) Includes beneficial ownership of 1,500 shares with shared investment power.
6
<PAGE>
(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 586,095 shares which may be acquired
pursuant to stock options awarded under LTIP.
7
<PAGE>
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. If Total Shareholder Return performance is at or
below the median, then the nonemployee Directors receive no options. 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.
8
<PAGE>
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
9
<PAGE>
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,
nonemployee 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 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.
10
<PAGE>
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 17, 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 various levels. The
average award represented 24% of the average base salary of all
executives receiving Annual Incentive Compensation Plan awards,
excluding Mr. Richard, the Chairman, President and Chief Executive
Officer ("CEO") 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,
nonqualified 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 became effective as of February 21, 1996. Subject to
shareholder approval, the plan was amended and restated on
November 18, 1998 and further amended on February 17, 1999. Awards
made in 1999 for 1998 performance are reflected in the Options
Table
11
<PAGE>
elsewhere in this Proxy Statement as well as the subsection of
this report entitled "1998 Chief Executive Officer's Pay."
On February 22, 1999, the Committee awarded options for 1,444,700
shares (excluding Mr. Richard) of the Corporation's stock in the
form of nonqualified 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 for 6,597 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 17, 1999, in accordance with
the Corporation's "pay for performance" compensation philosophy, the Committee
approved a cash award for Mr. Richard of $295,300 under the Annual Incentive
Compensation Plan in recognition of personal accomplishments and achievement of
1998 threshold financial performance.
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
22, 1999, based on 1998 Total Shareholder Return performance at the fourth (top)
quartile and individual performance, the Committee awarded Mr. Richard, under
the Long-Term Incentive Plan, a grant of nonqualified stock options to purchase
60,000 shares of common stock at a price of $49.59375 per share, with one-third
vesting on the first anniversary of grant, one-
12
<PAGE>
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:
<TABLE>
<S> <C>
Gerald E. Mayo, Chairman James P. Heffernan
Robert H. Beeby Malcolm T. Hopkins
Wilson K. Cadman Malcolm Jozoff
</TABLE>
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, President and Chief Executive Officer 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. Upon retirement Mr. Richard may receive
supplemental pension payments to make up the difference, if any, between the
Group's pension benefits and those Mr. Richard would have received from his
previous employer.
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.
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
13
<PAGE>
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.
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
and February 17, 1999, the Board of Directors approved amendments to the LTIP,
subject to the approval of the Corporation's stockholders. The November 1998
amendments to the LTIP would be effective as of February 1, 1999 and the
February 1999 amendment would be effective as of May 19, 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:
- A prohibition against the repricing of stock options;
- 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;
14
<PAGE>
- 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);
- 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;
- A change in the timing of nonemployee director stock option awards to
coincide with the grant date of employee awards; and
- 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 generally has no discretionary authority over any transaction
under the LTIP with regard to Outside Directors.
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
15
<PAGE>
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.
Currently, 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 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
16
<PAGE>
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.
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.)
17
<PAGE>
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 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.
Third, the proposed amendments would change the timing of the issuance, if any,
of Outside Directors' NQOs to coincide with the date of grant of employees'
annual stock option awards, if any. If no stock option awards are made to
employees but the Corporation's Total Shareholder Return performance compared
with its peers is above the median, then in keeping with the intent that the
provisions of the Plan pertaining to Outside Directors' awards are meant to be
self-governing, the Outside Directors' stock option awards would be granted 90
days after the end of the Corporation's fiscal year.
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 March 15, 1999 was $53 7/8 per share of
common stock.
Based on the LTIP's plan design, options for approximately 280,000 shares are
expected to be issued to Outside Directors over the remaining life of the LTIP.
For officers and key employees, while the benefits to be granted for 1999 and
future years have not yet been determined by the Compensation Committee, the
following table shows the benefits awarded for 1998 under the 1996 LTIP:
NEW PLAN BENEFITS
Amended and Restated Long-Term Incentive Plan
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($)(1) NUMBER OF UNITS(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
O. G. RICHARD III
Chairman, President & CEO -- 60,000
- ------------------------------------------------------------------------------------------------------
M. W. O'DONNELL
Senior Vice President & Chief Financial Officer -- 25,000
- ------------------------------------------------------------------------------------------------------
P. M. SCHWOLSKY
Senior Vice President & Chief Legal Officer -- 25,000
- ------------------------------------------------------------------------------------------------------
C. G. ABBOTT
CEO of Corporation's Gas Transmission Segment -- 25,000
- ------------------------------------------------------------------------------------------------------
R. R. KASKEL
Senior Vice President, Columbia Energy Group Service
Corporation -- -0-
- ------------------------------------------------------------------------------------------------------
Executive Group (6 persons including those named above) -- 143,000
- ------------------------------------------------------------------------------------------------------
Non-Executive Director Group -- 72,000
- ------------------------------------------------------------------------------------------------------
Non-Executive Officer Employee Group -- 1,361,700
</TABLE>
18
<PAGE>
- -------------------------
(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, President &
CEO, 390,000; M. W. O'Donnell, Senior Vice President & Chief Financial Officer,
85,000; P. M. Schwolsky, Senior Vice President & Chief Legal Officer, 85,000; C.
G. Abbott, CEO of Corporation's Gas Transmission Segment, 85,000; R. R. Kaskel,
Senior Vice President, Columbia Energy Group Service Corporation, 10,500
(forfeited upon resignation of employment); all current executive officers as a
group, 674,000; all current directors who are not executive officers as a group,
216,000; nominees for election as a director, namely R. H. Beeby, 19,500, M. T.
Hopkins, 19,500, W. E. Lavery, 19,500, and O. G. Richard III, 390,000; and all
employees, including all current officers who are not executive officers, as a
group, 3,837,475. 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).
UNLESS THEY ARE DIRECTED OTHERWISE BY STOCKHOLDERS, THE PROXIES INTEND TO VOTE
FOR PROPOSAL FOUR.
19
<PAGE>
Exhibit 99(c)(2)
THE COLUMBIA GAS SYSTEM, INC.
Phantom Stock Plan for Outside Directors
- --------------------------------------------------------------------------------
1. PURPOSE: The purpose of The Columbia Gas System, Inc. Phantom Stock
Plan for Outside Directors (the "Plan") is to create in favor of
non-employee directors ("Outside Directors") of The Columbia Gas
System, Inc. (the "Corporation") benefits tied to common stock
performance, and thereby to foster a strong economic alignment between
the interests of the Outside Directors and the interests of the
Corporation's shareholders. The benefits granted hereunder are
designated for convenience as "Phantom Shares," as neither actual
shares nor other securities will be issued; but accounting will be
maintained on a share basis directly correlated to the market value of
the Corporation's common stock. The Plan is designed to be exempt from
the registration and reporting requirements of the federal securities
laws, and, in particular, Section 16 of the Securities Exchange Act of
1934, as amended ("Exchange Act").
2. PRICING OF PHANTOM SHARES: The Phantom Shares shall be priced at Fair
Market Value as of the date of crediting to an account of an Outside
Director. "Fair Market Value" shall be the average of the high and low
sales prices per share of the Corporation's common stock on The New
York Stock Exchange as reported in THE WALL STREET JOURNAL for a given
date.
3. ELIGIBILITY: Each Outside Director of the Corporation shall be eligible
to participate in this Plan.
4. BENEFITS: The Plan provides hereunder two forms of benefits---grants
and deferrals.
a. GRANTS: Each Outside Director who is in office on the
Effective Date, as defined in Paragraph 12 (a "Current
Director"), and who elects to terminate participation in the
Corporation's Retirement Plan for Outside Directors (the
"Retirement Plan") and to initiate participation in this Plan,
shall (1) forego all benefits and future claims under the
Retirement Plan, and (2) receive a one-time grant of Phantom
Shares equivalent to the present value of his/her benefits
under the Retirement Plan on the Effective Date within thirty
(30) days after the Effective Date. The foregoing election to
terminate participation in the Retirement Plan must be made
within thirty (30) days after the Effective Date. The present
value of the Current Director's retirement benefit under the
Retirement Plan shall be determined as of the Effective Date
by an actuarial firm chosen by the Plan Administrator and
using customary and reasonable actuarial assumptions as
mutually agreed upon by the actuary and Plan Administrator;
PROVIDED, HOWEVER, that a minimum of 3,000 shares will be
<PAGE>
granted to each such electing current Director. Each Outside
Director elected subsequent to the Effective Date shall
receive a one-time grant of 3,000 Phantom Shares.
b. DEFERRALS: Each Outside Director may elect to defer part or
all of his/her Compensation by electing on an annual basis to
receive Phantom Shares, making such election within thirty
(30) days of the Effective Date or, thereafter, as required
under the Deferred Compensation Plan for Outside Directors.
"Compensation" shall mean the annual retainer for Outside
Directors established from time to time plus compensation for
services rendered in connection with: (1) any meeting of the
Corporation's Board of Directors (the "Board"), (2) service as
a member of any committee designated by the Board, and (3) the
annual meeting of shareholders, any special meeting of the
Board or special assignment; but exclusive of reimbursements
for expenses incurred in performance of service as a director.
The number of Phantom Shares to be credited pursuant to
Paragraph 4.b shall be determined by dividing the Compensation
by the Fair Market Value on the date payment of Compensation
would normally be made, as determined by the Plan
Administrator.
5. DIVIDENDS: Each Outside Director's account shall be credited with
additional Phantom Shares (and/or fractions thereof) to reflect
dividends paid on the Corporation's common stock. Such additional
shares will be calculated by multiplying (x) the number of Phantom
Shares in each Outside Director's account as of the record date for
such dividend by (y) the dividend then paid on a share of the
Corporation's common stock, and dividing that result by the Fair Market
Value as of the date the dividend is paid.
6. VESTING: All Phantom Shares representing deferrals and dividends are
fully vested as credited to each Outside Director's account.
For the one-time grants made pursuant to Paragraph 4.a of the Plan, 20
percent of a grant will vest at the end of each 12 months of Board
service, with Board service prior to the Effective Date recognized for
vesting purposes.
Notwithstanding the foregoing, individual grants shall also become
fully vested upon (1) termination caused by the death, disability, or
mandatory retirement of an Outside Director, or (2) a "Change in
Control" as defined in Paragraph 9 hereunder.
7. PAYMENT: Consistent with Exchange Act Rule 16a-1(c), vested account
balances, valued as of the date of termination, shall become due and
payable in cash following termination of an Outside Director's service
on the Board. At the time of becoming Plan Participants, Outside
Directors shall irrevocably elect either to (i) receive payment of
vested account balances in a lump sum or (ii)
<PAGE>
have such payment made commencing on the date of Board termination in
stipulated annual installments in accordance with the formula
Guidelines for Annual Installment Distributions adopted by the Plan
Administrator in effect at the time of the election.
8. FUNDING POLICY: Outside Directors' accounts under this Plan shall be,
at all times, an unsecured contractual obligation of the Corporation.
No separate reserve shall be established in connection herewith.
Nothing contained in this Plan gives, or shall be construed to give,
any Outside Director or his/her beneficiaries any security, interest,
lien, or claim against any specific asset of the Corporation. Neither
an Outside Director nor his/her beneficiaries have any rights other
than as a general creditor.
9. CHANGE IN CONTROL: For the purposes of this Plan, a "Change in Control"
means the occurrence of any of the following events:
a. the acquisition by any party or parties of the beneficial
ownership of 25 percent or more of the voting shares of the
Corporation;
b. the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Corporation through
purchase or exchange of stock or assets, or by merger, or
otherwise; or
c. the election during a period of 24 months, or less, of 30
percent or more of the members of the Board, without the
approval of a majority of the Board as constituted at the
beginning of the period.
10. BENEFICIARY: Each Outside Director shall designate on a form provided
by the Plan Administrator a beneficiary to receive his/her account
balance in the event of termination due to death or disability. Payment
of the account balance will be made as soon as practicable after such
termination due to death or disability.
11. ASSIGNMENT OR ALIENATION: No award or benefit under the Plan shall be
assignable or transferable by the recipient thereof except by will or
by the laws of descent and distribution. During the life of the
recipient, such award shall be exercisable only by such person or by
such person's guardian or legal representative.
12. EFFECTIVE DATE: This Plan shall be effective upon its approval by the
shareholders of the Corporation.
13. AMENDMENT: The Board shall have the right to amend, suspend, or
terminate this Plan at any time, but without the written consent of a
participant, no such amendments, suspension, or termination shall
affect benefits vested hereunder, and in any event, no amendment,
suspension, or termination shall operate to change any previously
established payment date.
<PAGE>
14. ADMINISTRATION: The "Plan Administrator" means the Compensation
Committee of the Board. Subject to the express provisions of the Plan
and consistent with preserving the availability of the exemption from
reporting under Section 16 of the Exchange Act, the Plan Administrator
shall have plenary authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, to determine the
terms and provisions of the awards made pursuant to the Plan and to
make all other determinations necessary or advisable for the
administration of the Plan. The Plan Administrator's determinations of
the matters referred to in this Paragraph 14 shall be conclusive. The
Plan Administrator is also authorized to hire whatever experts may be
required to administer the Plan. The Plan Administrator will maintain
Plan accounts and issue reports, at least annually, to each Outside
Director regarding his/her account. The Plan Administrator shall not be
held liable for any action taken in the administration of the Plan,
unless such action involves willful misconduct, and the Plan
Administrator shall be indemnified and held harmless by the Corporation
for all actions taken in the proper administration of the Plan.
15. ADJUSTMENTS: In the event of any change in the outstanding common stock
of the Corporation by reason of a stock dividend, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the
like, the number of Phantom Shares in an Outside Director's account
shall be proportionately adjusted.
16. GOVERNING LAW: The laws of the State of Delaware shall govern, control,
and determine all questions arising with respect to the Plan and the
interpretation and validity of its respective provisions.
Approved by the Board of Directors of The
Columbia Gas System, Inc. at a meeting held
on February 21,1996 and approved by the
shareholders of The Columbia Gas System,
Inc. on April 26, 1996.
---------------------------------
Secretary
(CORPORATE SEAL)
<PAGE>
Exhibit 99(c)(3)
THE COLUMBIA GAS SYSTEM, INC.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
- -------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
1.1 "Company" shall mean The Columbia Gas System, Inc., a Delaware
corporation.
1.2 "Board" shall mean the Board of Directors of the Company.
1.3 "Effective Date" shall mean March 1, 1986.
1.4 "Eligible Director" shall mean any person who began service on the
Board on or after the Effective Date but prior to April 26, 1996, and
who is not otherwise entitled to receive retirement benefits under any
pension plan sponsored by the Company.
1.5 "Eligible Service" shall mean all service on the Board, whether before
or after the Effective Date and whether or not continuous, excluding all
periods of authorized absence.
1.6 "Base Compensation" shall mean, for all Eligible Directors, the
designated annual retainer for outside directors, established from time
to time in accordance with the Company's By-laws as annual compensation
for services rendered, exclusive of compensation for service as a
member of any Committee designated by the Board or in connection with
any meeting of the Board or special assignment, and exclusive of
reimbursements for expenses incurred in the performance of service as a
director; further, provided, in calculating Base Compensation it shall
make no difference what, if any, compensation an individual Eligible
Director is actually paid or whether an Eligible Director has elected
to defer receipt of any or all of his annual retainer.
1.7 "Final Pay" shall mean Base Compensation, as defined in Section 1.6
above, attributable to the Eligible Director's final year of Eligible
Service, regardless of the compensation, if any, actually paid to him
during such year.
1.8 "Normal Retirement Date" shall mean the mandatory retirement date as
established by the Board.
<PAGE>
1.9 "Plan" shall mean The Columbia Gas System, Inc. Retirement Plan for
Outside Directors as amended and/or restated from time to time.
1.10 "Plan Administrator" shall mean the Secretary of The Columbia Gas
System, Inc. or any successor in office.
1.11 "Total Permanent Disability" shall mean inability because of illness,
injury or other physical or mental condition to satisfactorily perform
the usual and customary responsibility of a director of the Board.
ARTICLE II
PARTICIPATION
2.1 AS OF EFFECTIVE DATE. Each Eligible Director serving on the Board as
of the Effective Date shall commence participation in the Plan
immediately and shall be credited with all of his Eligible Service prior
to the Effective Date.
2.2 ENTRY OF ELIGIBLE DIRECTORS. After the Effective Date, each person who
becomes an Eligible Director shall become a participant on the date of
commencement of his term of Eligible Service.
ARTICLE III
RETIREMENT BENEFIT
3.1 ELIGIBILITY REQUIREMENTS. Any Eligible Director with a minimum of five
years of Eligible Service and who has served until his 65th birth date,
but no later than his Normal Retirement Date, or separated from service
due to Total Permanent Disability shall be eligible for the Retirement
Benefit provided in this Article. If there is a disagreement regarding
the extent of disability, the Plan Administrator may, in his sole
discretion, require independent medical certification of disability.
3.2 RETIREMENT BENEFIT. The Retirement Benefit shall be an annual amount
equal to the Eligible Director's Final Pay.
3.3 TIME OF PAYMENT OF RETIREMENT BENEFITS. Annual Retirement payments to
an Eligible Director will be made at the time of the payment of the
annual retainer to active members of the Board. Payment of Retirement
Benefits shall commence with
<PAGE>
the first payment date following an Eligible Director's separation from
service due to retirement or disability.
3.4 DURATION AND FORM OF BENEFITS. An Eligible Director's Retirement
Benefit shall normally be paid in the form of annual payments equal to
the amount determined pursuant to Section 3.2, payable to the Eligible
Director for his lifetime ending with the last payment due before the
death of the Eligible Director.
Subject to the approval of the Plan Administrator, the Eligible
Director may elect a Joint and Survivor Benefit or a present value
single payment, actuarially equivalent to the normal form. Assumptions
used for alternate forms of payments will be determined at the
discretion of the Plan Administrator.
3.5 SPOUSE'S BENEFITS. If an Eligible Director dies after attaining
eligibility for a Retirement Benefit but before retirement, then his
Retirement Benefit will be paid to his surviving spouse for her life.
3.6 SUSPENSION OF RETIREMENT BENEFIT PAYMENTS. In the event an Eligible
Director commences receiving benefits hereunder, and is thereafter
reelected as a director of the Board, payment of retirement benefits
to such Director shall be suspended for the period of such continued
service. His retirement benefits shall resume following his next
separation from service.
3.7 REMOVAL FOR CAUSE. Notwithstanding anything herein to the contrary, no
benefit shall be payable under any provision of this Plan to an
otherwise Eligible Director, or beneficiaries of said Eligible
Director, if the Eligible Director has been removed from the Board for
cause. For purposes of this Plan, removal for cause shall include the
commission of an illegal, fraudulent, dishonest, deceitful or similar
act, or for breach of fiduciary duty.
ARTICLE IV
ADMINISTRATION
4.1 ASSIGNMENT OR ALIENATION. Unless required by statute or court order,
no Eligible Director shall assign or alienate any benefit provided
under the Plan, and the Plan Administrator shall not recognize any
such assignment or alienation.
4.2 ADDRESS FOR NOTIFICATION. Each Eligible Director shall file with the
Plan Administrator from time to time, in writing, his post office
address and any change of post office address. Any communication,
statement, or notice addressed to an Eligible Director, or
beneficiary, at his last post office address filed with the Plan
<PAGE>
Administrator shall be binding on the Eligible Director for the
purposes of this Plan.
4.3 FUNDING POLICY. Benefits under the Plan shall be funded out of the
general operating assets of the Company. The Board may implement a
device or instrument to secure the benefits under this Plan. However,
no Eligible Director or beneficiary of a deceased Eligible Director of
this Plan shall have any interest in any fund or in any specific asset
or assets of the Company by reason of amounts payable to him hereunder.
ARTICLE V
AMENDMENT AND TERMINATION
5.1. AMENDMENT. The Company shall have the right at any time and from time
to time to amend this Plan in any manner it deems necessary or
advisable. However, no amendment shall retroactively reduce benefits
of any Eligible Director who, at the time of amendment, is entitled to
a Retirement Benefit or who would have been entitled to such a benefit
if he had separated from service on that date, unless such Eligible
Director shall consent to the amendment in writing.
5.2 TERMINATION. The Company shall have the right, at any time, to suspend
or terminate this Plan. Such termination shall not affect the right of
any Eligible Director entitled to a Retirement Benefit as of the date
of termination, or who would have been entitled to such a benefit if
he separated from service on that date. Further, all Eligible Service
credited to each participant to the effective date of termination
shall thereupon become 100 percent nonforfeitable and shall entitle
such Eligible Director to a Retirement Benefit calculated in
accordance with Article III. All such benefits shall be paid in
accordance with the terms of the plan then in effect.
ARTICLE VI
CHANGE IN CONTROL
6.1 Upon the occurrence of a Change in Control (as defined below), or
within 30 days thereafter, any Eligible Director regardless of years
of Eligible Service may elect a lump sum payment under this Plan. This
lump sum will be the present value of the annuity which would have
been payable to him/her under the provisions of Section 3.2 based on
the amount of his current Eligible Service or ten (10) years,
whichever is greater. For this purpose, present value shall be
determined by using a discount
<PAGE>
factor equal to the Six Month U.S. Treasury Bill rate in effect on the
date of the "Change in Control." "Change in Control" shall mean the
occurrence of any of the following events:
(a) the acquisition by any party or parties of the beneficial
ownership of 25 percent or more of the voting shares of the
Company;
(b) the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Company through purchase
of stock or assets, or by merger, or otherwise;
(c) the election during a period of 24 months, or less, or 30
percent or more of the members of the Board of the Company,
without the approval of a majority of the Board as constituted
at the beginning of the period; or,
(d) the occurrence of a transaction requiring the filing of a
report or disclosure with the Securities and Exchange Commission
in connection with the obtaining of an interest in the Company
through a purchase of stock or assets, or by merger or otherwise.
6.2 Election of the lump sum payment described in Section 6.1 shall
constitute full payment of all obligations of the Company under this
Plan.
ARTICLE VII
MISCELLANEOUS
7.1 RIGHTS OF DIRECTORS. Neither the establishment or amendment of this
Plan, nor the payment of any benefits hereunder, shall be construed as
giving any director or any person whomsoever any legal or equitable right
against the Company or the Plan Administrator together or individually,
other than as expressly provided herein, or as giving any director any
additional right to be retained on the Board except to the extent such
right would obtain if this plan had never been established. Nothing
contained in this Plan shall be construed as creating a contract for the
director's services. Nothing contained in this Plan shall in any way
affect any director's rights to participate in any other plan of the
Company in which he may be entitled to participate.
7.2 GOVERNING LAW AND SEVERABILITY. This Plan for all purposes shall be
construed in accordance with the internal laws of the State of Delaware
to the extent not superseded by any federal law. Any controversy arising
out of or connected with this Plan shall be adjudicated in the courts of
the State of Delaware. In the event
<PAGE>
any provision hereof shall be held illegal or invalid for any reason,
the remaining provisions shall be construed and enforced as if such
illegal or invalid provisions had never been contained herein.
7.3 NUMBER AND GENDER. Wherever appropriate, words used in the singular
may include the plural, or the plural be read as the singular; and the
masculine may include the feminine.
This plan was adopted by the Board of Directors of The Columbia Gas
System, Inc. at its meeting on February 19, 1986, and amended by the Board of
Directors of The Columbia Gas System, Inc. at its meeting on April 26, 1996.
THE COLUMBIA GAS SYSTEM, INC.
By: /s/ [illegible]
-----------------------
Chairman, President and
Chief Executive Officer
ATTEST:
/s/ C. M. Afshar
- ------------------
Secretary
[CORPORATE SEAL]
<PAGE>
Exhibit 99(c)(4)
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 ("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
<PAGE>
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.
Effective May 19, 1999, stock option awards for Outside Directors, if
any, shall be granted effective as of the grant date for employees' stock
option awards made annually by the Committee (normally in February), or
if such a meeting is not held or awards are not made, then 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 Directors 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.
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<PAGE>
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 accelaration 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
3
<PAGE>
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 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 this
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.
4
<PAGE>
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 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
5
<PAGE>
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
6
<PAGE>
Corporation without payment or any consideration by the
Corporation, and neither the participant nor any successors,
heirs, assigns or personal representatives of such participant
shall thereafter have any further rights or interest in such
shares.
11. RESTRICTED STOCK AWARD. Restricted stock awards under the Plan shall be
evidenced by restricted stock agreements in such form, and not
inconsistent with this Plan, as the Committee shall approve from time
to time, which agreements shall contain in substance the following terms
and conditions:
(a) AWARD. The Committee shall determine the amount of a restricted
stock award to be granted to an Employee based on the past or
expected impact the Employee has had or can have on the financial
well-being of the Corporation and other factors deemed by the
Committee to be appropriate.
(b) RESTRICTION PERIOD. Restricted stock awards made pursuant to this
Plan shall be subject to such terms, conditions, and restrictions,
including without limitation, substantial risks of forfeiture
and/or attainment of performance objectives, and for such period or
periods 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 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
7
<PAGE>
legal representative shall be delivered to such participant or his
legal representative.
(c) TERMINATION PRIOR TO LAPSE OF RESTRICTION. 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:
(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
8
<PAGE>
(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.
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 such person's guardian or legal representative.
9
<PAGE>
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.
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
10
<PAGE>
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, effective February 1, 1999,
subject to the approval of the
Corporation's shareholders. Amended by
the Board of Directors on
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February 17, 1999 to change the date of
Outside Directors' awards to coincide
with the date of employees' awards,
effective May 19, 1999, subject to the
approval of the Corporation's
shareholders.
(CORPORATE SEAL) /s/ C. M. Afhsar
-------------------------------
Secretary
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Exhibit 99(c)(5)
THE COLUMBIA GAS SYSTEM, INC.
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
ARTICLE I
DEFINITIONS
1.1 "Board" shall mean the Board of Directors of The Columbia Gas System,
Inc.
1.2 "Company" shall mean The Columbia Gas System, Inc., a Delaware
corporation.
1.3 "Compensation" shall mean the designated annual retainer for outsider
directors established from time to time in accordance with the
Company's By-laws as annual compensation for services rendered plus
compensation for services in connection with any meeting of the Board,
inclusive of compensation for service as a member of any committee
designated by the Board or in connection with the annual meeting of
stockholders, any special meeting of the Board or special assignment;
but exclusive of reimbursements for expenses incurred in performance of
service as a director.
1.4 "Deferral Election Form" shall mean a document governed by the provisions
of Article III of this Plan that applies to that Participant's deferred
benefits under the Plan.
1.5 "Deferral Year" shall mean a calendar year for which a Participant has an
operative Deferral Election Form; except that for the initial Plan year,
the Deferral Year shall begin on the date of the 1986 Annual Meeting of
Stockholders and shall continue through December 31, 1986.
1.6 "Director" shall mean those duly elected members of the Board.
1.7 "Eligible Directors" shall mean those Directors who are not simultaneously
employees of the Company or any of its subsidiary companies.
1.8 "Effective Date" shall mean May 1, 1986, the date on which the provisions
of the Plan shall be effective.
1.9 "Election Date" shall mean the date by which an Eligible Director must
submit a valid Deferral Election Form to the Plan Administrator. For
each Deferral Year, the Election Date is December 31 of the preceding
calendar year; however, for the initial Plan Year, the Election Date
shall be May 13, 1986. For an individual who becomes an Eligible
Director during a Deferral Year, the Election Date is the twentieth day
following the date that he/she became an Eligible Director.
<PAGE>
1.10 "Participant" shall mean for any Deferral Year an Eligible Director
whose Deferral Election Form is operative for that year.
1.11 "Plan" shall mean The Columbia Gas System, Inc. Deferred Compensation
Plan for Outside Directors as amended and/or restated from time to time.
1.12 "Plan Administrator" shall mean the Secretary of The Columbia Gas
System, Inc. or any successor in office.
1.13 "Plan Year" shall mean the calendar year beginning January 1 and ending
December 31; however, for purposes of the initial year, the Plan Year
shall be a partial year beginning on May 1,1986 and ending on
December 31, 1986.
ARTICLE II
PARTICIPATION
2.1 DEFERRAL ELECTION. Any Eligible Director may become a Participant by
filing a valid Deferral Election Form on or before the Election Date for
that Deferral Year. An election to defer is valid when a Deferral
Election Form is completed, signed by the electing Director and received
by the Plan Administrator prior to the Election Date. This election must
be made with respect to each Deferral Year for which the Eligible
Director desires to be a Participant.
2.2 REVOCATION OF ELECTION. A Participant may not revoke a Deferral
Election Form after the Deferral Year begins. Any revocation before the
beginning of the Deferral Year is the same as a failure to submit a
Deferral Election Form. Any writing signed by a Participant expressing
an intention to revoke his Deferral Election Form and delivered to the
Plan Administrator before the close of business on the Election Date
shall be considered a revocation.
ARTICLE III
DEFERRAL ACCOUNT
3.1 AMOUNT OF DEFERRAL. An election to defer may be made with respect to
all or any part of a Participant's Compensation for the Deferral Year.
3.2 TIMING OF DEFERRAL. Deferred amounts will be credited to a deferral
account for each Participant as of the date they would have been paid
but for the deferral.
<PAGE>
3.3 PAYMENT OF INTEREST. Interest will be credited to the deferred
accounts on the last day of each month based on the Prime Rate as
published in THE WALL STREET JOURNAL for the last business day of
the month. Those interest rates will apply prospectively for all
current and future deferred account balances until the basis on
which interest is determined is changed.
3.4 PAYMENT OF DEFERRED AMOUNTS. Each Deferral Election Form must
specify the timing for receipt of deferred amounts and the method
of payment. Benefits will be paid in accordance with the Participant's
Deferral Election Form and subject to the following provisions:
(a) Deferred benefits must be paid in cash.
(b) Deferred benefits may be paid in a lump sum or in annual
installments over a period not to exceed ten years.
(c) Annual installments will be paid at the time of the payment
of the annual retainer to active members of the Board, beginning
with the first payment date immediately following the event which
gave rise to the distribution. Interest credits as provided in
Section 3.3 will continue to accrue on the unpaid balance of the
deferral account until all deferred amounts have been paid.
3.5 PAYMENT IN THE EVENT OF DEATH. In the event of the death of the
Participant before all deferred payments have been received, the
balance of the deferral account will be paid in the manner indicated
by the Participant on the most recent Beneficiary Designation Form
received by the Plan Administrator. If no such record has been filed,
the deferral account will be paid in a lump sum to the Participant's
estate.
ARTICLE IV
ADMINISTRATION
4.1 ASSIGNMENT OR ALIENATION. Unless required by statute or court order,
no Participant shall assign or alienate any benefit provided under the
Plan, and the Plan Administrator shall not recognize any such
assignment or alienation.
4.2 ADDRESS FOR NOTIFICATION. Each Participant shall file with the Plan
Administrator from time to time, in writing, his post office address
and any change of post office address. Any communication, statement,
or notice addressed to a Participant or beneficiary at his last post
office address filed with the Plan Administrator shall be binding on
the Participant for the purposes of this Plan.
<PAGE>
4.3 FUNDING POLICY. A Participant's deferral account is at all times an
unsecured contractual obligation of the Company. No separate reserve
shall be established in connection herewith. Nothing contained in this
Plan gives any Participant or his beneficiary any interest, lien, or
claim against any specific asset of the Company. A Participant or his
beneficiary has no rights other than as a general creditor.
ARTICLE V
AMENDMENT AND TERMINATION
5.1 AMENDMENT AND TERMINATION. The Board shall have the right at any
time to alter, amend, suspend or terminate this Plan; however,
amendment or termination of this Plan shall not impact amounts
deferred in any previous Deferral Year.
5.2 CHANGE IN CONTROL. Upon the occurrence of a Change in Control (as
defined below), or within 30 days thereafter, all Participants,
regardless of whether still a member of the Board, will receive a lump
sum payment of all sums due them under this Plan. For this purpose
"Change-in Control" means the occurrence of any of the following
events:
(a) the acquisition by any party or parties of the beneficial
ownership of 25 percent or more of the voting shares of the
Company;
(b) the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Company through purchase
of stock or assets, or by merger or otherwise;
(c) the election during a period of 24 months, or less, of 30
percent or more of the members of the Board, without the
approval of a majority of the Board as constituted at the
beginning of the period; or
(d) the occurrence of a transaction requiring the filing of a
report or disclosure with the Securities and Exchange
Commission in connection with the obtaining of an interest
in the Company through a purchase of stock or assets, or by
merger or otherwise.
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 RIGHTS OF DIRECTORS. Neither the establishment or amendment of
this Plan, nor the participation hereunder shall be construed
as giving any Director or any person any legal or equitable
right against the Company or the Plan Administrator together or
individually, other than as expressly provided herein, or as giving
any Director any additional right to be retained on the Board
except to the extent such right would obtain if the Plan had never
been established. Nothing contained in this Plan shall be
construed as creating a contract for the Director's services.
Nothing contained in this Plan shall in any way affect any
director's rights to participate in any other plan of the Company
in which he may be entitled to participate.
6.2 GOVERNING LAW AND SEVERABILITY. This Plan for all purposes shall
be construed in accordance with the internal laws of the State of
Delaware to the extent not superseded by any federal law. Any
controversy arising out of or connected with this Plan shall be
adjudicated in the courts of the State of Delaware. In the event
any provision hereof shall be held illegal or invalid for any
reason, the remaining provisions shall be construed and enforced
as if such illegal or invalid provisions had never been contained
herein.
6.3 NUMBER AND GENDER. Whenever appropriate, words used in the singular
may include the plural, or the plural may be read as the singular,
and the masculine may include the feminine.
This plan was amended by the Board of Directors of The Columbia
Gas System, Inc. at its meeting on February 21, 1996, to be effective
January 1, 1996.
THE COLUMBIA GAS SYSTEM, INC.
By: /s/ Illegible
-------------------------
Chairman, President and
Chief Executive Officer
ATTEST:
/s/ C. M. Afshar
- ----------------------
Secretary
(Corporate Seal)
<PAGE>
AMENDMENT TO THE COLUMBIA GAS SYSTEM, INC.
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
WHEREAS, The Columbia Gas System, Inc. Phantom Stock Plan for Outside
Directors (the "Phantom Stock Plan") was approved by the Board of Directors
(the "Board") of The Columbia Gas System, Inc. (the "Corporation") at a
meeting held on February 21, 1996 and approved by the stockholders of the
Corporation on April 26, 1996; and
WHEREAS, Section 4.b of the Phantom Stock Plan permits each director
who is not an employee of the Corporation to elect to defer part or all of
his/her Compensation; and
WHEREAS, some current directors have been deferring compensation under
The Columbia Gas System, Inc. Deferred Compensation Plan for Outside Directors
(the "Plan") and desire to have such deferred compensation deferred under, and
determined pursuant to the terms of, the Phantom Stock Plan; and
WHEREAS, pursuant to Section 5.1 of the Plan, the Board desires to amend
the Plan to permit the current directors participating in the Phantom Stock
Plan to elect to have their prior deferred compensation deferred under, and
determined pursuant to the terms of, the Phantom Stock Plan;
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 1.14 shall be added to Article I to read as follows:
"1.14 'Phantom Plan' shall mean The Columbia Gas System, Inc.
Phantom Stock Plan for Outside Directors, as amended and/or restated
from time to time."
2. Section 3.6 shall be added to Article III to read as follows:
"3.6 BENEFITS UNDER PHANTOM PLAN. An individual who is an Eligible
Director on April 26, 1996, and has a deferred account under this
Plan, may elect to have his/her deferred account credited to such
Eligible Director under the Phantom Plan. Such election shall be
made in writing on a form provided by, and filed with, the Plan
Administrator on or before September 29, 1996. The election shall be
effective for the amount credited in the deferred account as of
September 30, 1996. Any Eligible Director making the election under
this Section 3.6 as of October 1, 1996 shall no longer have a
<PAGE>
deferred account and no amount shall be payable hereunder except to
the extent such Eligible Director defers compensation under the Plan
after September 30, 1996, with such deferral being credited to the
Eligible Director in accordance with the provisions of the Plan."
This amendment was approved by the Board of Directors of The Columbia
Gas System, Inc. at a meeting held on, and is effective as of, August 21,
1996.
/s/ C. M. Afshar
-----------------------
Secretary
(CORPORATE SEAL)
2
<PAGE>
Exhibit 99(c)(6)
COLUMBIA ENERGY GROUP
1998 VALUE SHARING RIGHTS PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Columbia Energy Group, a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Columbia Energy Group 1998 Value
Sharing Rights Plan" (hereinafter referred to as the "Plan"), as set forth in
this document.
The Plan shall become effective as of January 1, 1998 (the "Effective
Date") and shall remain in effect until terminated by the Board of Directors
pursuant to Article 10 herein.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal interests
of Participants to those of the Company and its stockholders through the use of
performance-based incentive awards.
The Plan is further intended to motivate, attract and retain the
services of Participants upon whose judgment, interest and special effort the
successful conduct of Company's operations is largely dependent.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when such meaning is intended, the initial letter of the
word is capitalized:
2.1 "AWARD" means a grant under the Plan of Value Sharing Rights.
2.2 "AWARD AGREEMENT" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to an Award granted to a Participant under the Plan.
2.3 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.4(a) "CHANGE IN CONTROL OF COMPANY" means the earliest of the
following to occur:
<PAGE>
(i) the acquisition by any party or parties of the beneficial
ownership of 25 percent or more of the voting shares of the
Company;
(ii) the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Company 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.
2.4(b) "CHANGE IN CONTROL OF SUBSIDIARY" means the earliest of the
following to occur:
(i) the sale of all or substantially all of the assets of a
Subsidiary to a non-affiliate of the Company;
(ii) the merger or consolidation of a Subsidiary with or into a
non-affiliate of the Company; or
(iii) the sale of 50 percent or more of the outstanding common stock
of a Subsidiary to a non-affiliate of the Company.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 "COMMITTEE" means the committee, as specified in Article 3,
appointed by the Board to administer the Plan.
2.7 "COMPANY" means Columbia Energy Group, a Delaware corporation, or
any successor thereto as provided in Article 12 herein.
2.8 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.9 "DISABILITY" means "permanent and total disability" as defined
under Section 22(e)(3) of the Code.
2.10 "ELIGIBLE EMPLOYEE" means an Employee who is eligible to
participate in the Plan, as set forth in Section 4.1 herein.
2.11 "EMPLOYEE" means any full-time or regularly-scheduled part-time
employee of the Company or a Subsidiary, who is not covered by any collective
bargaining agreement to which the Company or any of its Subsidiaries is a party.
Directors who are not otherwise employed by the Company shall not be considered
Employees for purposes of the Plan. For purposes of the Plan,
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<PAGE>
transfer of employment of a Participant between the Company and any one of its
Subsidiaries (or between Subsidiaries) shall not be deemed a termination of
employment.
2.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.13 "PARTICIPANT" means an Employee of the Company who has outstanding
an Award granted under the Plan.
2.14 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act, as used in Section 13(d) and 14(d) thereof,
including usage in the definition of a "group" in Section 13(d) thereof.
2.15 "SHARES" means the shares of common stock of the Company.
2.16 "SUBSIDIARY" means any corporation that is a "subsidiary
corporation" of the Company as that term is defined in Section 424(f) of the
Code.
2.17 "VALUE SHARING RIGHT" or "VSR" means an Award granted to an
Employee, as described in Article 5 herein.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by such persons as
shall be appointed by the Board (the "Committee").
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power
except as limited by law, the Articles of Incorporation and the Bylaws of the
Company, subject to such other restricting limitations or directions as may be
imposed by the Board and subject to the provisions herein, to determine the size
of Awards; to determine the terms and conditions of such Awards in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article 10 herein) to amend the terms and conditions of any outstanding Award.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authorities as identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its
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<PAGE>
stockholders, Employees, Participants and their estates and beneficiaries.
3.4 COSTS. The Company shall pay all costs of administration of the
Plan.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. Persons eligible to participate in the Plan include
all officers and key employees of the Company and its Subsidiaries, as
determined by the Committee, including Employees who are members of the Board,
but excluding Directors who are not Employees.
4.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 5. VALUE SHARING RIGHTS
5.1 GRANT OF VALUE SHARING RIGHTS. Subject to the terms and conditions
of the Plan, Value Sharing Rights may be granted to an Eligible Employee at any
time and from time to time, as shall be determined by the Committee.
The Committee shall have complete discretion in determining the number
of Value Sharing Rights granted to each Participant and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Awards.
5.2 VALUE SHARING RIGHTS AWARD AGREEMENT. Each grant of Value Sharing
Rights shall be evidenced by a Value Sharing Rights Award Agreement that shall
specify the number of Value Sharing Rights granted, vesting provisions,
performance measures, form of payment, the extent to which a Participant shall
have the right to receive payment following termination of employment, and such
other provisions as the Committee shall determine.
5.3 TRANSFERABILITY. Value Sharing Rights may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution, and a Participant's rights with respect
to Value Sharing Rights granted under the Plan shall be available during the
Participant's lifetime only to such Participant or the Participant's legal
representative.
ARTICLE 6. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all
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<PAGE>
of such benefit. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
the Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
ARTICLE 7. DEFERRALS
The Committee may permit a Participant to defer the Participant's
receipt of the payment of cash that would otherwise be due to such Participant
under the Plan. If any such deferral election is permitted, the Committee shall,
in its sole discretion, establish rules and procedures for such payment
deferrals.
ARTICLE 8. RIGHTS OF EMPLOYEES
8.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, for any reason or no reason in the Company's sole discretion, nor
confer upon any Participant any right to continue in the employ of the Company
or any Subsidiary.
8.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under the Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 9. CHANGE IN CONTROL
The terms of this Article 9 shall immediately become operative, without
further action or consent by any person or entity, upon a Change in Control of
Company or a Change in Control of Subsidiary, and once operative shall supersede
and take control over any other provisions of this Plan.
Upon a Change in Control of Company, if the Plan does not continue
after the effective date of the Change in Control of Company, all outstanding
Awards of Value Sharing Rights shall vest in full and be exercisable in
accordance with their terms.
Upon a Change in Control of Subsidiary, as defined in Section
2.4(b)(iii), if the Plan is not continued after the effective date of the Change
in Control of Subsidiary as to that Subsidiary, all outstanding Awards of Value
Sharing Rights held by Participants who were Employees of that Subsidiary at the
time of grant shall vest in full and be exercisable in accordance with their
terms. Upon a Change in Control of Subsidiary, as defined in Section 2.4(b)(i)
or (ii), all outstanding Awards of Value Sharing Rights held by Participants who
were Employees of that Subsidiary at the time of grant shall vest in full and be
paid
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<PAGE>
out in cash to Participants based upon the value of the Subsidiary as of the
effective date of the Change in Control of Subsidiary, including any premium
that may be paid in connection with such Change in Control of Subsidiary, as may
be determined in the sole discretion of the Committee.
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION
10.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part.
10.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award, unless such termination, modification or
amendment is required by applicable law and except as otherwise provided herein.
ARTICLE 11. WITHHOLDING
11.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to an
Award made under the Plan.
ARTICLE 12. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 13. LEGAL CONSTRUCTION
13.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
13.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
13.3 REQUIREMENTS OF LAW. The granting of Awards under the Plan shall
be subject to all applicable laws, rules and
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<PAGE>
regulations, and to such approvals by any governmental agencies as may be
required.
13.4 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with, and
governed by, the laws of the State of Delaware.
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