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File Number 70-8667
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 4
TO
FORM U-1
APPLICATION-DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
and its subsidiary companies:
CNG COAL COMPANY CNG STORAGE SERVICE COMPANY
CNG ENERGY SERVICES CORPORATION CNG TRANSMISSION CORPORATION
and its subsidiary company CONSOLIDATED NATURAL GAS
CNG PRODUCTS AND SERVICES, INC. SERVICE COMPANY, INC.
CNG FINANCIAL SERVICES, INC. CONSOLIDATED SYSTEM LNG COMPANY
CNG POWER COMPANY HOPE GAS, INC.
and its subsidiary company THE EAST OHIO GAS COMPANY
CNG MARKET CENTER SERVICES, INC. THE PEOPLES NATURAL GAS COMPANY
CNG PRODUCING COMPANY VIRGINIA NATURAL GAS, INC.
and its subsidiary WEST OHIO GAS COMPANY
company CNG PIPELINE COMPANY
CNG RESEARCH COMPANY
Consolidated Natural Gas Company,
a registered holding company,
is the parent of the other parties.
Names and addresses of agents for service:
STEPHEN E. WILLIAMS, Esq., N. F. CHANDLER, Esq., General Attorney
Senior Vice President and Consolidated Natural Gas Service
General Counsel Company, Inc.
Consolidated Natural Gas Company CNG Tower
CNG Tower 625 Liberty Avenue
625 Liberty Avenue Pittsburgh, PA 15222-3199
Pittsburgh, PA 15222-3199
with a copy to:
Gary W. Wolf, Esq.
Cahill Gordon & Reindel
Eighty Pine Street
New York, NY 10005
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File Number 70-8667
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 4
to
FORM U-1
APPLICATION-DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
___________________________________
(a) Furnish a reasonably detailed and precise description of the proposed
transaction, including a statement of the reasons why it is desired to
consummate the transaction and the anticipated effect thereof. If the
transaction is part of a general program, describe the program and its relation
to the proposed transaction.
Consolidated Natural Gas Company (the "Company" or "Consolidated") is
a public utility holding company registered as such under the Public Utility
Holding Company Act of 1935 (the "Act" or "1935 Act"). It is engaged solely in
the business of owning and holding all of the outstanding securities of sixteen
directly owned subsidiary companies most of which are in the natural gas
business. All directly and indirectly owned subsidiaries of Consolidated are
referred to individually as "Subsidiary" and collectively as "Subsidiaries."
The Subsidiaries are principally engaged in natural gas exploration,
production, purchasing, gathering, transmission, storage, distribution,
marketing and by-product operations. Consolidated and its Subsidiaries are
referred to herein as the "Consolidated System" or "CNG System."
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I. OVERVIEW OF OMNIBUS TYPE APPLICATION
This application-declaration ("Application") contains the request of
Consolidated and certain of its Subsidiaries for authorization for financing
for the period beginning with the effective date of an order issued in this
proceeding through March 31, 2001. The Application is an omnibus type filing
and is a departure from Consolidated's traditional annual system financing
requests in several respects. The Application is believed to be in alignment
with the efforts of the Securities and Exchange Commission ("Commission") to
modernize its administration of the Act.
The Application seeks to consolidate in one filing all of the financing
authorizations for the Consolidated System, and simultaneously asks for a
significant amount of flexibility as to these financings - both as to
characteristics and as to amounts. It is similar in concept to the shelf-type
registration statement filings permitted under Rule 415 promulgated under the
Securities Act of 1933 ("1933 Act"). The Application approaches financing from
a system-wide viewpoint, and does not concentrate on the details of the
individual components within the over-all system financing program. As long as
Consolidated maintains a solid financial base which is reflected objectively by
ratings of a nationally recognized statistical rating organization,
Consolidated would be allowed a great deal of discretion with respect to its
financing activities. This would allow it to be readily responsive so as to be
able to take advantage of current financial market conditions, which, in turn,
should make it more competitive with companies which are not subject to the
jurisdiction of the Act.
The Application strives to open pathways for a variety of activities which
would occur within stated ambits, but for which specific prior authorization
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would not be needed. Continuous Commission oversight would take place through
disclosures of Consolidated System activities made in the Commission's
integrated disclosure system in place for use under the 1933 Act and the
Securities Exchange Act of 1934 ("1934 Act"), and through the notification
system pursuant to this proceeding.
The following is a summary description of how the Application differs from
Consolidated's usual past annual financing applications.
Consolidated External Financings
1. The Application seeks financing for an approximate 5 year period instead
of the traditional 12 month fiscal financing period running from July 1 of
one year through June 30 of the succeeding year.
2. The Application requests authority for Consolidated to offer and sell a
variety of securities in an "out of the basket" or "off the shelf" manner,
and to sell the securities in a variety of ways in addition to the
formerly required competitive bidding process. Consolidated would have
the right to choose the amount, type and terms of a security, as
appropriate to its needs and market conditions as they exist at the time
of financing, provided (i) the aggregate amount of securities sold during
the approximate 5 year period does not exceed $7 billion and (ii) its debt
has an investment grade financial rating. Securities which may be
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issued pursuant to this proceeding include common stock, preferred stock
the terms of which are set by the Board of Directors, bonds, debentures,
notes, other forms of indebtedness, monthly or quarterly income preferred
securities, interest rate and equity swaps, and such other securities as
may be authorized by the Commission by supplemental order pursuant to
post-effective amendments.
3. Consolidated seeks authority to organize and use new corporations, trusts,
partnerships or other entities (individually, a "Financing Entity") which
would be created for the purpose of facilitating financings involving the
issuance of monthly or quarterly income preferred securities.
4. Consolidated's currently effective authorization to sell up to $350
million of debt securities under its new indenture would be superseded by
the omnibus Application; the ability to sell term debt thereunder would
accordingly be extended as to time.
5. Consolidated would be able to amend its certificate of incorporation to
increase its authorized common stock and to authorize a new class of
preferred stock (in place of its preferred stock currently authorized)
with up-to-date terms and conditions determined by its Board of Directors
as appropriate to meet the Company's needs and market conditions as they
exist at the time of issuance. There are no shares of preferred stock
presently outstanding.
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Intra-system Financings by Consolidated
6. The Application seeks authority for Consolidated to finance certain of its
Subsidiaries through investment vehicles in addition to the traditional
common stock, open account advances and long term note financings.
7. The Application requests authority for Consolidated to finance certain of
its Subsidiaries in an aggregate amount not exceeding $1.5 billion during
the approximate 5 year period. The $1.5 billion excludes financing that
is exempt pursuant to Rules 45 and 52. Consolidated would be allowed to
use its discretion as to how much financing to give to each Subsidiary as
its needs dictate during the period.
Intra-system and External Financings by Subsidiaries
8. Second tier parent company financing of operational Subsidiaries thereof
through transactions involving securities not covered by Rule 52 is
included in the Application.
9. External financing by certain Subsidiaries involving the issuance of
securities not falling within the compass of Rule 52 and their use of
Financing Entities would be authorized.
Changes in Authorized Capital
10. The Application retains the request for Subsidiaries to alter their legal
capitalization in order to engage in financing with their parent company.
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Parent Company Credit Support
11. The Application requests authority for certain parent companies in the
Consolidated System to enter guarantees, obtain letters of credit, enter
into expense agreements or otherwise provide credit support with respect
to obligations of their respective direct and indirect subsidiaries as
required to enable them to carry on their business.
The following describes which authorizations are specifically requested by
each of the Consolidated subsidiaries which are a party to this proceeding.
* Request to issue securities not covered by Rule 52, guarantee or otherwise
support subsidiary obligations and/or to form a Financing Entity.
CNG Producing Company
CNG Energy Services Corporation
CNG Storage Service Company
CNG Power Company
CNG Financial Services, Inc.
These five Subsidiaries and any Financing Entity of theirs are collectively
referred to herein as the "Non-utility Subsidiaries."
* Request for utility company issuance of short-term debt to Consolidated,
which is not subject to state utility commission approval.
The East Ohio Gas Company
The Peoples Natural Gas Company
West Ohio Gas Company
These three Subsidiaries are collectively referred to herein as the "Utility
Subsidiaries."
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* Request to amend the certificate of incorporation to increase authorized
capitalization to allow for issuance of additional shares of common stock.
All Subsidiary parties
* Request to buy back shares of its common or preferred stock from its
immediate parent company.
All Subsidiary parties
All normal course of business financings by Subsidiaries will occur
pursuant to either outstanding Commission authorizations until the expiration
thereof, or under exemptive Rule 52, and are not a part of the authorizations
requested herein.
II. PARAMETERS FOR AUTHORIZATIONS
The Application makes requests for authority, without any additional prior
Commission approvals, to engage in future financing transactions for which the
specific terms and conditions are not at this time known. Accordingly, it is
appropriate that certain conditions concerning the financial status of
Consolidated exist at the time of engaging in such activities. The general
conditions for doing such financing activities without further prior approval
are given directly below; further limitations on specific types of financing
are set forth further herein.
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CONSOLIDATED DEBT OF INVESTMENT GRADE AND MAINTENANCE OF EQUITY RATIO.
Consolidated would be authorized to engage in the financing activities
described herein as long as (i) its long-term debt rating is of investment
grade as established by a nationally recognized statistical rating organization
(as that term is used in Rule 15c3-1(c)2(vi)(F) under the 1934 Act) and (ii)
its common equity (as reflected in its most recent Form 10_K or Form 10-Q, as
the case may be) does not fall below 30% of its consolidated capitalization.
Consolidated will at all times during the authorization period ending March 31,
2001 strive to maintain a capital structure sufficient to keep an investment
grade rating for its debt.
EFFECTIVE COST OF MONEY ON BORROWINGS. The effective cost of money on
borrowings occurring pursuant to the authorizations granted under the
Application will not exceed 300 basis points over comparable term U. S.
Treasury securities.
EFFECTIVE COST OF MONEY ON OTHER APPROVED SECURITIES. The effective cost
of money on preferred stock and other fixed income oriented securities will not
exceed 500 basis points over 30 year term U.S. Treasury securities.
MATURITY OF DEBT. The maturity of indebtedness will not exceed 50 years.
ISSUANCE EXPENSES. The underwriting fees, commissions, or other similar
remuneration paid in connection with the non-competitive bid issue, sale or
distribution of a security pursuant to the Application will not exceed 5% of
the principal or total amount of the financing.
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AGGREGATE DOLLAR LIMIT. The aggregate amount of outstanding external
financing effected by Consolidated for purposes including refunding of
outstanding securities during the approximate 5 year period will not exceed $7
billion; for purpose of calculating the amount effected only outstanding
amounts of short-term debt and under revolving credit arrangements will be
counted. Further, credit support of underlying Subsidiary obligations (because
the same would be subject to a separate $2 billion limitation) would not be
included in the calculation. Interest and equity swaps will relate only to
investments or obligations already existing at the time of the swap
transaction.
III. GENERAL FINANCING CONCEPT
Even though no dollar amounts of specific financing transactions are
discussed in this Application, Consolidated and its Subsidiaries would continue
to develop capital budgets and estimates of other financing needs on an annual
basis as they have customarily done for years. Actual financings during a
given year would occur based upon such normal financial planning.
Consolidated would continue to finance its utility Subsidiaries to achieve
a Subsidiary capital structure which would be an approximately mirror image of
that of the parent company. Certain restrictive covenants in the Indenture
dated as of May 1, 1971 between Consolidated and Chemical Bank would continue
to apply during the authorization period requested herein unless otherwise
amended or such indenture is defeased. Such covenants require, among other
things, that certain financial standards be met before dividends can be paid or
additional funded debt may be incurred.
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Consolidated and its Subsidiaries would be allowed to issue and sell
additional debt, preferred stock or common stock or other types of securities
approved for issuance in this proceeding without any additional prior
Commission approval if Consolidated has a long-term debt rating of investment
grade as established by a nationally recognized statistical rating
organization. The provisions of the securities would be determined by
Consolidated at the time of sale and would not be limited by any of the
Commission's "policies" with respect thereto.
To the extent not already exempt under Rule 52, Consolidated and its
Subsidiaries would be permitted to engage in intra-system financing of their
respective directly owned Subsidiaries without additional prior Commission
approval. The use of proceeds from the financings would be limited to use in
the operations of the respective businesses in which such Subsidiaries are
already authorized to engage. However, on June 20, 1995 the Commission issued
HCAR No. 26313 in which it published and solicited public comments on a
proposed Rule 58 under the Act. This proposed rule would permit registered
holding companies and their subsidiaries to acquire securities of companies
engaged in specified nonutility activities without prior Commission approval.
If Rule 58 is adopted, the proceeds of the financings proposed in this
proceeding could also be used for these additional purposes.
In HCAR Nos. 13105 and 13106, dated February 16, 1956, as amended in
HCAR Nos. 16369 and 16758, dated June 22, 1970, the Commission adopted
statements of policy with respect to the first mortgage bonds and preferred
stock ("Statements of Policy"). To the extent that securities proposed to be
issued and sold pursuant to an authorization granted in this proceeding may
conflict with the Statements of Policy, request is hereby made for deviation
from the Statements of Policy
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Due to statutory requirements, the authorization requested herein to
engage in external or intra-system financing without additional Commission
approval do not apply in the case of any financing (other than through the use
of internally generated funds) for the purpose of investing in either an exempt
wholesale generator ("EWG") or a foreign utility company ("FUCO") as defined in
Sections 32 and 33 of the Act, respectively. Consolidated will be in
compliance with Rules 53 and 54 promulgated under the Act at the time any
financing is consummated pursuant to authorization requested herein.
IV. DESCRIPTION OF SPECIFIC TYPES OF FINANCING
A. Consolidated External Financings
Consolidated currently obtains funds externally through short-term debt
financing, including commercial paper sales; long-term debt financing, such as
debentures and notes; and sales of capital stock. Debt and preferred stock
financings can be either privately placed or publicly distributed. Common
stock can be issued and sold pursuant to underwriting agreements of a type
generally standard in the industry. Public distributions can be pursuant to
private negotiation with underwriters, dealers or agents as discussed below or
effected through competitive bidding among underwriters, private placements or
other non-public offering to one or more persons. All such debt and stock
sales are at rates or prices and under conditions negotiated or based upon, or
otherwise determined by, competitive capital markets. Common stock is also
sold pursuant to various existing or new employee benefit plans and dividend
reinvestment plans. In addition, Consolidated now seeks to issue and sell
monthly or quarterly income preferred securities and to engage in interest rate
swaps.
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Consolidated also seeks authority to engage in equity swaps. An equity
swap is one in which two counterparties exchange the rate of return of an
equity investment for the rate of return of a non-equity investment or another
equity investment. Typically, an investor will swap either fixed or floating
rate interest payments for payments indexed on the performance of a broad-based
stock index in a domestic or foreign market. An equity swap may also allow the
exchange of one equity market risk (such as a fixed sum based on the S&P index)
for another market risk (such as a sum based on a foreign equity market index).
The use of equity swaps could be used by Consolidated to hedge earnings from
domestic or international investments it may own, but would not be used in any
way to transfer title to the equity securities owned by it which are used in
the swap transaction. Consolidated requests reservation of jurisdiction over
the use of equity swaps pending completion of the record as to exact form in
which such transactions will occur.
Consolidated may sell securities covered by this Application in any of the
following ways: (i) through underwriters or dealers; (ii) directly to a
limited number of purchasers or to a single purchaser, or (iii) through agents.
If underwriters are used in the sale of the securities, such securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The securities may be offered to the public either through underwriting
syndicates (which may be represented by managing underwriters designated by the
Company) or directly by one or more underwriters acting alone. The securities
may be sold directly by the Company or through agents designated by the Company
from time to time. If dealers are utilized in the sale of any of the
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securities, the Company will sell such securities to the dealers, as principal.
Any dealer may then resell such securities to the public at varying prices to
be determined by such dealer at the time of resale. If equity securities are
being sold in an underwriting offering, the Company may grant the underwriters
thereof a "green shoe" option permitting the purchase from the Company at the
same price additional equity securities (an additional 15% under present
guidelines) then being offered solely for the purpose of covering over-
allotments.
If debt securities are being sold, they may be sold pursuant to "delayed
delivery contracts" which permit the underwriters to locate buyers who will
agree with the Company to buy the debt at the same price but at a later date
than the date of the closing of the sale to the underwriters. They may also be
sold through the use of medium term notes and similar programs or in
transactions covered by Rule 144A under the 1933 Act.
1. Short-term Financing
To provide financing for general corporate purposes, including financing
gas storage inventories, other working capital requirements and construction
spending until long term financing can be obtained, Consolidated would continue
to sell commercial paper, from time to time, in established domestic or
European commercial paper markets. Such commercial paper would be sold to
dealers at the discount rate per annum prevailing at the date of issuance for
commercial paper of comparable quality and maturities sold to commercial paper
dealers generally. It is expected that the dealers acquiring commercial paper
from Consolidated will reoffer such paper at a discount to corporate,
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institutional and, with respect to European commercial paper, to individual
investors. It is anticipated that Consolidated's commercial paper will be
reoffered to investors such as commercial banks, insurance companies, pension
funds, investment trusts, foundations, colleges and universities, finance
companies and nonfinancial corporations.
Back-up bank lines of credit for 100% of the outstanding commercial paper
are required by credit rating agencies. To satisfy this requirement,
Consolidated proposes to establish back-up bank lines in an aggregate principal
amount not to exceed the amount of authorized commercial paper. Consolidated
would borrow, repay and reborrow under these lines from time to time, without
collateral, to the extent that it becomes impracticable to sell commercial
paper due to market conditions or otherwise. Loans under these lines shall
have a maturity date not more than one year from the date of each borrowing.
Consolidated may engage in other types of short-term financing as it may
deem appropriate in light of its needs and market conditions at the time of
issuance. Such short-term financing could include, without limitation, bank
lines and debt securities issued under its debt securities indenture and note
programs.
2. Long-term Financing
Consolidated was authorized to issue and sell up to $500 million of debt
securities in Commission order dated March 6, 1995, HCAR No. 26245, in File No.
70-8107. On April 12, 1995, Consolidated sold $150 million principal amount of
7 3/8% Debentures Due April 1, 2005, thus leaving $350 million of such
authorization available for future use. The aforesaid 7 3/8% Debentures were,
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and new issuances of debt securities would be, issued pursuant to a new form of
simplified indenture which was also authorized in the proceeding under File No.
70-8107. The authorization under the March 6, 1995 order expires on June 30,
1996.
Consolidated is proposing herein a fundamental change in the method by
which it would be authorized to engage in external financings, which would
supersede the above authorization. Consolidated accordingly proposes to
incorporate the specific authorization into the more general financing
authorization requested in this Application. If such is permitted,
Consolidated would issue debt securities under its new indenture (or other
securities indentures) pursuant to the authorization granted in this proceeding
and not under the earlier specific authorization. One effect of this would be
a removal of the terms and conditions and dollar amount limits in the earlier
orders to the extent not replaced by like terms and conditions or issuance
limitations imposed by an order in this proceeding. The effective date of the
authorization to issue debt securities under the indenture would accordingly be
extended, pursuant to an order issued in this proceeding, to March 31, 2001.
Consolidated may engage in other types of long-term financing with such
terms and conditions as it may deem appropriate in the context of its needs and
financial market conditions at the time of issuance. Any long-term debt or
other security would have such designation, aggregate principal amount,
maturity, interest rate(s) or methods of determining the same, terms of payment
of interest, redemption provisions, non-refunding provisions, and sinking fund
terms, conversion or put terms and other terms and conditions as Consolidated
may at the time of issuance determine. Examples of such long-term securities
would include convertible debt, medium term notes, monthly or quarterly income
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debt securities, other bank debt arrangements, and securities with call or put
options similar to the conversion and put terms such as currently exist in
Consolidated's outstanding 7 1/4 % Convertible Subordinated Debentures Due
December 15, 2015. The issuance and sale of $250 million of these debentures
were approved by SEC order, dated December 13, 1990, HCAR No. 25211, File No.
70-7811. These debentures will be purchased for cash by the Company at the
option of the holders on December 15, 2000 at a purchase price equal to 100% of
the principal amount thereof plus accrued interest, and are convertible at any
time prior to maturity, unless previously redeemed, into shares of Common Stock
of the Company at a conversion price of $54 per share, subject to adjustment
under certain conditions.
3. Stock Financing
Consolidated may also issue and sell preferred or common stock, monthly or
quarterly income preferred securities, or issue stock upon the exercise of
convertible debt or pursuant to rights, options, warrants and similar
securities. Consolidated may also buy back shares of such stock, during the
authorization period.
Consolidated obtains funds through the sale of its common stock (whether
newly issued or treasury shares) sold pursuant to various employee benefit
plans and a dividend reinvestment plan. From time to time in the future, other
similar plans may be adopted by Consolidated, existing plans may be changed and
Consolidated may issue securities to fund its obligations under employee
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benefit plans or arrangements. For instance, a new dividend reinvestment plan
and stock purchase plan allowing sales to persons not already shareholders may
be implemented. Further, Consolidated's Board of Directors recently authorized
the funding of the Company's obligations under various of it non-qualified
plans and agreements through the issuance to a trust of up to 750,000 shares of
Consolidated common stock, and adopted a 1995 Employee Stock Incentive Plan
pursuant to which up to 2,000,000 shares of common stock may be issued over a
ten year period. Consolidated also acquires treasury shares through the
operations of such employee plans. Details concerning all the currently
effective authorizations relating to these plans and treasury share
acquisitions are set forth in Exhibit G. Consolidated now proposes to issue
and/or sell shares of common stock pursuant to these existing plans and similar
plans or plan funding arrangements hereafter adopted, and to engage in other
sales of its treasury shares for reasonable business purposes, without any
additional prior Commission order. Stock transactions of this variety would
thus be treated the same as other stock transactions permitted pursuant to this
Application. Such authorization would supersede all prior authorizations
listed on Exhibit G, thereby simplifying considerably the extensive reporting
for generally small transactions now in place under Consolidated's filings
under the Act.
4. Changes in Authorized Capital Stock
On February 20, 1996, the Board of Directors of Consolidated adopted
resolutions amending Article FOURTH of the Company's Certificate of
Incorporation ("Certificate"), to (i) increase the number of authorized shares
of common stock from 200,000,000 shares, $2.75 par value per share, to
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400,000,000 shares, $2.75 par value per share, (ii) to eliminate the Company's
existing 2,500,000 shares of authorized preferred stock, $100 par value per
share, and (iii) authorize 5,000,000 shares, par value $100 per share, of a new
class of preferred stock ("New Preferred Stock") to increase the Company's
financial flexibility. To effect such amendments to the Certificate, approval
by a majority of the shares of the Company's outstanding common stock present
in person or represented by proxy and entitled to vote at the Company's Annual
Meeting of Stockholders scheduled for May 21, 1996 will be necessary. The
exact language of the proposed amendments to effect such changes in the
Certificate are set forth in the draft of the preliminary Notice, Proxy
Statement and Proxy filed herewith as Exhibit A-5.
An increase in authorized common stock is proposed to insure that there
will be sufficient authorized but unissued shares available for stock
dividends, for use in connection with possible acquisitions and for other
corporate purposes. The Company's Board of Directors has no present plans to
issue additional shares of common stock, although the Company is continually
reviewing various transactions that could result in the issuance of common
stock.
The Certificate provisions permitting the Board of Directors to issue New
Preferred Stock from time to time would allow for such issuance in one or more
series and with such voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications as the Board
of Directors may, in its discretion, determine, including, but not limited to
(i) the distinctive designation of such series and the number of shares to
constitute such series; (ii) the dividends, if any, for such series; (iii) the
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voting power, if any, of shares of such series; (iv) the right, if any, of the
Company to redeem shares of such series and the terms and conditions of such
redemption; (v) the retirement or sinking fund provisions, if any, of shares of
such series and the terms and provisions relative to the operation thereof:
(vi) the amount, if any, which the holders of the shares of such series shall
be entitled to receive in case of a liquidation, dissolution, or winding-up of
the Company; (vii) the limitations and restrictions, if any, upon the payment
of dividends or the making of other distributions on, and upon the purchase,
redemption, or other acquisition by the Company of , the Company's common
stock, and (viii) the conditions or restrictions, if any, upon the creation of
indebtedness or upon the issuance of any additional stock of the Company.
The Board of Directors believes that availability of the New Preferred
Stock will provide the Company with needed flexibility of action for possible
acquisitions, financing transactions and other general corporate purposes. The
New Preferred Stock would be available for issuance, on such terms as the Board
of Directors determines, without further action by the stockholders unless such
action is required by applicable law or stock exchange requirements or the New
Preferred Stock is to be used for an anti-takeover purpose. The Company has no
present plans, agreements or commitments for the issuance of the New Preferred
Stock.
Consolidated requests an order pursuant to Rule 62(d) authorizing it to
solicit proxies from its shareholders approving the aforesaid proposed changes
in the capital stock portion of its Certificate. Such proxies are being
solicited by the Company's directors. The cost of solicitation will be paid by
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the Company. In addition to the use of the mails, proxies may be solicited on
behalf of the directors personally, or by telephone or telecopy, by employees
of the Company and its subsidiaries with no special compensation to these
employees. Kissel-Blake Inc., 110 Wall Street, New York, New York 10005, has
been retained to assist in the solicitation of proxies at an estimated cost of
$11,000.
5. Other Securities
In addition to the specific securities for which authorization is sought
herein, Consolidated also proposes to issue other types of securities that it
deems appropriate during the period ending March 31, 2001. Consolidated
requests that the Commission reserve jurisdiction over the issuance of
additional types of securities. Consolidated also undertakes to file a post-
effective amendment in this proceeding which will describe the general terms of
each such security and request a supplemental order of the Commission
authorizing the issuance thereof by Consolidated. Consolidated further
requests that each supplemental order be issued by the Commission without
further time-consuming public notice.
B. Parent-Subsidiary Intra-System Financing
1. Rule 52 Exemption
Due to the Commission's adoption in HCAR No. 26311, dated June 20, 1995,
of amendments to its exemptive Rule 52, much of the financing transactions
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between Consolidated and its Subsidiaries would now be exempt pursuant to such
rule. However, to the extent that the transaction (i) involves the issue and
sale of a short-term debt security by an Utility Subsidiary or (ii) involves
the issue and sale by a Non-utility Subsidiary of a security not currently
covered by Rule 52, Rule 52 would not apply. In order to cover these areas not
included within the ambit of Rule 52, request is made to engage in Consolidated
Utility Subsidiary short-term debt financings and Consolidated Non-utility
Subsidiary security financings as described below.
2. Intra-system Financings by Consolidated
Consolidated would continue to provide financing to each of its directly
owned Subsidiaries as required. Such financings would generally continue to be
in the form of open account advances, long-term loans and/or capital stock
purchases, as requested by the Treasurer of each such Subsidiary. Open account
advances will provide funds for general corporate purposes, including gas
storage inventories, other working capital requirements and temporarily for
capital expenditures until long-term financing is obtained and /or cash is
generated internally. Generally, Consolidated's long-term loans to, and
purchase of capital stock from, such Subsidiaries will provide financing for
their capital expenditures, and will be exempt transactions under Rule 52. The
Subsidiaries may also, from time to time as deemed appropriate by them, buy
back shares of their respective common stock or preferred stock from
Consolidated. Request is made for retention of jurisdiction over such a buy-
back of its capital stock by Hope Gas, Inc., the Peoples Natural Gas Company
<PAGE> 23
and Virginia Natural Gas Company pending completion of the record in regard to
their respective required prior state commission approvals.
Open account advances by Consolidated to Utility Subsidiaries, which would
not be covered by Rule 52, may be made, repaid and remade on a revolving basis,
with interest at the same effective rate of interest as Consolidated's daily
weighted average effective rate of commercial paper, revolving credit and/or
other short-term borrowings. If no such borrowings are outstanding then the
interest rate shall be predicated on the Federal Funds' effective rate of
interest as quoted daily by the Federal Reserve Bank of New York. Such
advances will be made through the CNG System money pool ("Money Pool")
authorized under Commission order dated June 12, 1986, HCAR No. 24128, File No.
70-7258.
The Non-utility Subsidiaries propose to issue and Consolidated proposes to
acquire other types of securities which do not qualify for use of Rule 52 but
which are considered appropriate during the period of authorization granted
pursuant to this Application. Consolidated and the Non-utility Subsidiaries
request that the Commission reserve jurisdiction over the issuance of such
additional types of securities. They also undertake to cause a post-effective
amendment to be filed in this proceeding which will describe the general terms
of each such security and request a supplemental order of the Commission
authorizing the issuance thereof by the subject Non-utility Subsidiary.
Consolidated and the Non-utility Subsidiaries further request that each
supplemental order be issued by the Commission without further time-consuming
public notice.
<PAGE> 24
3. Transactions between Certain Subsidiaries and their Subsidiaries
Consolidated, CNG Energy and CNG Products and Services, Inc. have filed an
application-declaration, File No. 70-8703, pursuant to which CNG Power and CNG
Storage would become subsidiaries of CNG Energy. In the event such changes are
authorized and occur, CNG Storage and CNG Power propose to issue and CNG Energy
proposes to acquire other types of securities not covered by exemptive Rule 52
but which are considered appropriate during the period of the Commission's
authorization in this proceeding. CNG Energy, CNG Storage and CNG Power
accordingly request that the Commission reserve jurisdiction over the issuance
of additional types of securities and also undertake that they will cause a
post-effective amendment to be filed in this proceeding describing the general
terms of each such security and obtain a supplemental order of the Commission
authorizing the acquisition and issuance thereof. Such supplemental orders may
be issued by the Commission without further public notice in the Federal
Register.
4. Changes in Capital Stock of Subsidiaries
The portion of an individual Subsidiary's aggregate financing to be
effected through the sale of stock to Consolidated or other immediate parent
company during the approximate 5 year authorization period cannot be
ascertained at this time. It may happen that the proposed sale of common stock
may in some cases exceed the currently authorized capital stock of such
Subsidiary. In addition, the Subsidiary may choose to use other forms of
capital stock. As needed to accommodate such proposed transactions and to
provide for future issues, request is made for authority to increase the amount
of any such Subsidiary's authorized common stock capitalization by an amount
deemed appropriate by Consolidated or other immediate parent company in the
<PAGE> 25
instant case, but in no event to exceed twice the currently authorized amount
of common stock capitalization. A Subsidiary would be able to change the par
value, or change between par and no-par common stock, without additional
Commission approval.
C. External Non-exempt Financing by Non-Utility Subsidiaries
The Non-utility Subsidiaries are expected to be active in the development
and expansion of energy-related, non-utility businesses in the Consolidated
System. They will be competing with large, well-capitalized companies in
different sectors of the energy industry. In order to accomplish investments
in such competitive arenas, it will be necessary for the Non-utility
Subsidiaries to have the ability to engage in financing transactions which are
commonly accepted for such types of investments. For example, the Non-utility
Subsidiaries may issue and sell monthly or quarterly income preferred
securities pursuant to Rule 52.
The Non-utility Subsidiaries may engage in types of security financing
with non-affiliates which do not qualify for the application of Rule 52. The
Non-utility Subsidiaries therefore request that the Commission reserve
jurisdiction over the issuance of such additional types of securities. They
also undertake to cause a post-effective amendment to be filed in this
proceeding which will describe the general terms of each such security and
request a supplemental order of the Commission authorizing the issuance thereof
by the subject Non-utility Subsidiary. The Non-utility Subsidiaries further
request that each supplemental order be issued by the Commission without
further time-consuming public notice.
<PAGE> 26
D. Financing Entities
Consolidated and the Non-utility Subs seek authority to organize new
corporations, trusts, partnerships or other entities created for the purpose of
facilitating financings through their issue to third parties of monthly and
quarterly income preferred securities. Request is also made for these
financing entities to issue such securities to third parties in the event such
transactions involving financing by Consolidated may not be covered by
exemptive Rule 52. Additionally, request is made for authorization with
respect to (i) the issuance of debentures or other evidences of indebtedness by
Consolidated to a financing entity in return for the proceeds of the financing
and (ii) the acquisition by Consolidated of voting interests or equity
securities issued by the financing entity to establish Consolidated's ownership
of the financing entity (the equity portion of the entity generally being
created through a capital contribution or the purchase of equity securities,
such as shares of stock or partnership interests, involving an amount usually
ranging from 1 to 3 percent of the capitalization of the financing entity).
Consolidated and the Non-utility Subsidiaries also request authorization to
enter into expense agreements with their respective Financing Entities,
pursuant to which they would agree to pay all expenses of such entity.
V. PARENT COMPANY GUARANTEES
Consolidated and its Non-utility Subsidiaries request authorization to
enter guarantee arrangements, obtain letters of credit, and otherwise provide
credit support with respect to obligations of their respective Subsidiaries to
third parties as may be needed and appropriate to
<PAGE> 27
enable them to carry on in the ordinary course of their respective businesses.
The maximum aggregate limit on all such credit support by Consolidated and by
all Subsidiaries at any one time will be $2 billion. The $2 billion on
guarantees is in addition to the $7 billion limit on Consolidated's external
financing and the $1.5 billion limit on intra-system financing requested
elsewhere herein. Such authorization of Consolidated to provide credit support
would supersede and replace the current authorization of Consolidated to
guarantee up to $750 million of obligations of CNG Energy Services Corporation
as set forth in Commission order dated November 16, 1993, HCAR No. 25926, File
No. 70-8231.
VI. FILING OF CERTIFICATES OF NOTIFICATION
It is proposed that, with respect to Consolidated, the reporting system of
the 1933 Act and the 1934 Act be integrated with the reporting system under the
1935 Act. This would eliminate duplication of filings with the Commission that
cover essentially the same subject matters, resulting in a reduction of expense
for both the Commission and Consolidated. To effect such integration, the
portion of the 1933 Act and 1934 Act reports containing or reflecting
disclosures of transactions occurring pursuant to the authorization granted in
this proceeding would be incorporated by reference into this proceeding through
Rule 24 certificates of notification. The certificates would also contain all
other information required by Rule 24, including the certification that each
transaction being reported on had been carried out in accordance with the terms
and conditions of and for the purposes represented in this Application. Such
certificates of notification would be filed within 60 days after the end of
each of the first three calendar quarters, and 90 days after the end of the
last calendar quarter, in which transactions occur.
<PAGE> 28
The Rule 24 certificates will contain the following information:
(a) If sales of common stock by Consolidated are reported, the purchase
price per share and the market price per share at the date of the
agreement of sale;
(b) If purchases by Subsidiaries of their securities from their respective
parents are reported, the purchase price and the basis on which it is
determined;
(c) Consolidated balance sheets as of the end of the quarter, and separate
balance sheets as of the end of the quarter for each company,
including Consolidated, that has engaged in financing transactions
during the quarter; and
(d) Future registration statements filed under the 1933 Act with respect
to securities that are the subject of the Application will be filed
(or incorporated by reference) as exhibits to the next certificate
filed pursuant to Rule 24.
<PAGE> 29
VII. CURRENTLY EFFECTIVE SYSTEM FINANCING FORM U-1 SUPERSEDED
On April 28, 1995 Consolidated and certain of its Subsidiaries filed a
Form U-1 application-declaration, File No. 70-8619, seeking Commission
authorization for Consolidated System financing for the fiscal period July 1,
1995 through June 30, 1996. The Form U-1 in such earlier proceeding is in the
traditional format used by Consolidated over many years in seeking intra-system
financing on an annual basis. An order dated June 29, 1995, HCAR No. 26321,
was issued by the Commission in the File No. 70-8619 proceeding. An order
issued in this proceeding would supersede and replace the authorizations
granted in the June 29, 1995 order.
VIII. RULE 53 SATISFIED
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an EWG or a FUCO, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rules 53(a), (b) or (c) are satisfied in
its case as follows.
Fifty percent of Consolidated's retained earnings as of September 30, 1995
was $634,048,000. Consolidated does not own any interests in a FUCO.
Consolidated's aggregate investment (as defined in Rule 53(a)(l)(i)) in EWGs as
of the date of filling of this Application is estimated to be approximately
$18,000,000, thereby satisfying Rule 53(a)(l).
<PAGE> 30
Consolidated and its subsidiaries maintain books and records to identify
the investments in and earnings from its EWGs in which they directly or
indirectly hold an interest, thereby satisfying Rule 53(a)(2). In addition,
the books and records of each such entity are kept in conformity with United
States generally accepted accounting principles ("GAAP"), the financial
statements are prepared according to GAAP, and Consolidated undertakes to
provide the SEC access to such books and records and financial statements as it
may request.
Employees of Consolidated's domestic public-utility companies at this
time do not render services, directly or indirectly, to the EWGs in the
Consolidated System, thereby satisfying Rule 53(a)(3). There has been
compliance with Rule 53(2)(4) in regard to Consolidated's only filing for EWG
and FUCO financing, currently pending at File No. 70-8759.
None of the conditions described in Rule 53(b) exist with respect to
Consolidated, thereby satisfying Rule 53(b) and making Rule 53(c) inapplicable.
(b) Describe briefly, and where practicable state the approximate amount
of, any material interest in the proposed transaction, direct or indirect, of
any associate company or affiliate of the applicant or declarant or any
affiliate of any such associate company.
None, except as set forth in Item 1.(a) above.
(c) If the proposed transaction involves the acquisition of securities
not listed by a registered holding company or a subsidiary thereof, describe
briefly the business and property, present or proposed, of the issuer of such
securities.
Inapplicable.
<PAGE> 31
(d) If the proposed transaction involves the acquisition or disposition
of assets, describe briefly such assets setting forth original cost, vendor's
<PAGE> 32
book cost (including the basis of determination) and applicable valuation and
qualifying reserves.
Inapplicable.
Item 2. Fees, Commissions and Expenses
______________________________
(a) State (1) the fees, commissions and expenses paid or incurred, or to
be paid or incurred, directly or indirectly, in connection with the proposed
transaction by the applicant or declarant or any associate company thereof, and
(2) if the proposed transaction involves the sale of securities at competitive
bidding, the fees and expenses to be paid to counsel selected by
applicant or declarant to act for the successful bidder.
It is estimated that underwriting fees and all other expenses in a
transaction not involving competitive bidding will not exceed 5% of the
proceeds. The fees and other expenses involved with a competitively bid
transaction will not exceed approximately 0.5% of the proceeds.
Since the authorization period request is for approximately five years and
it is currently difficult to estimate with any precision future counsels' fees,
no separate memorandum of services of counsel selected by an applicant to act
for the successful bidder in a transaction involving competitive bidding needs
to be filed.
<PAGE> 32
(b) If any person to whom fees or commissions have been or are to be paid
in connection with the proposed transaction is an associate company or an
affiliate of the applicant or declarant, or is an affiliate of an associate
company, set forth the facts with respect thereto.
Charges of Consolidated Natural Gas Service Company, Inc. in
connection with the preparation of this application-declaration on Form U-1 and
other related documents and papers required to consummate the proposed
transactions are included in the information stated above.
Item 3. Applicable Statutory Provisions
_______________________________
(a) State the sections of the Act and the rules thereunder believed to
be applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of
exemption.
Applicable Statutory
Transactions Provisions or Rules
____________ ____________________
Issuance of securities by Section 6(a) and 7
Consolidated to non-associ-
ate parties
Issuance of securities by Section 6(a) and 7;
Non-utility Subsidiaries to Rule 43
Consolidated.
Acquisition of securities Section 9(a), 10 and
of Non-utility Subsidiaries 12(b); Rule 45
by Consolidated.
Issuance of securities by Section 6(a) and 7;
a Financing Entity to its Rule 43
parent.
Acquisition of securities Section 9(a), 10 and
of a Financing Entity by 12(b); Rule 45
its parent.
<PAGE> 33
Issuance of short-term debt Section 6(a) and 7;
by Utility Subsidiaries Rule 43
to Consolidated.
Acquisition of short-term Section 9(a), 10 and
debt securities of Utility and 12(b); Rule 45
Subsidiaries by Consolidated.
Amendment of the certificate Section 6(a); Rule 62
of incorporation of Consoli-
dated and Subsidiaries to
increase their respective
capitalization.
Amendment of the certificate Section 6(a); Rule 62
of incorporation of Consoli-
dated to eliminate the current
preferred stock provision and
to substitute therefor new
provisions authorizing a class
of preferred stock with up-to-
date provisions.
Acquisition of shares of Section 9(a) and 10:
their own respective outstand- Rule 42
ing stock by Consolidated and
the Subsidiaries.
Guarantees, expense agreements Section 6(a), 7 and
and other credit support given 12(b); Rule 45
by Consolidated and the
Subsidiaries to their
respective Subsidiaries.
If the Commission considers the proposed future transactions to require
any authorization, approval or exemption, under any section of the Act for Rule
or Regulation other than those cited hereinabove, such authorization, approval
or exemption is hereby requested.
(b) If an applicant is not a registered holding company or a subsidiary
thereof, state the name of each public utility company of which it is an
affiliate, or of which it will become an affiliate as a result of the proposed
transaction, and the reasons why it is or will become such an affiliate.
Inapplicable.
<PAGE> 34
Item 4. Regulatory Approval
___________________
(a) State the nature and extent of the jurisdiction of any State
commission or any Federal commission (other than the Securities and Exchange
Commission) over the proposed transaction.
The Public Service Commission of West Virginia has jurisdiction over
the purchase by Hope Gas Inc. of its capital stock from Consolidated.
The Virginia State Corporation Commission has jurisdiction over the
purchase by Virginia Natural Gas, Inc. of its capital stock from Consolidated.
The Pennsylvania Public Utility Commission has jurisdiction over the
purchase by The Peoples Natural Gas Company of its capital stock from
Consolidated.
No other State commission and no Federal commission other than the
Securities and Exchange Commission has jurisdiction over any of the proposed
transactions.
(b) Describe the action taken or proposed to be taken before any
commission named in answer to paragraph (a) of this item in connection with the
proposed transaction.
Required applications as needed will be filed with the commissions
mentioned above.
Item 5. Procedure
_________
(a) State the date when Commission action is requested. If the date is
less than 40 days from the date of the original filing, set forth the reasons
for acceleration.
<PAGE> 35
It is requested that Commission action with respect to the
transaction set forth in this application-declaration become effective on or
before March 31, 1996.
(b) State (i) whether there should be a recommended decision by a hearing
officer, (ii) whether there should be a recommended decision by any other
responsible officer of the Commission, (iii) whether the Office of
Public Utility Regulation of the Division of Investment Management may assist
in the preparation of the Commission's decision, and (iv) whether there should
be a 30-day waiting period between the issuance of the Commission's order and
the date on which it is to become effective.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed with respect to the
proposed transactions. The Office of Public Utility Regulation of the Division
of Investment Management may assist in the preparation of the Commission's
decision. There should be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are filed as a part
of this statement:
(a) Exhibits
A-1 The certificate of incorporation and by-laws
of Consolidated as filed as exhibits to
Consolidated's Form U5S, File No. 30-203,
are hereby incorporated by reference.
<PAGE> 36
A-2 Form of provisions to be included in an
amendment to the certificate of incorporation
of Consolidated creating New Preferred Stock.
A-3 Form of Commercial Paper notes.
(Incorporated by reference to Files No. 70-6153
and 70-7393.)
A-4 Form of Indenture.
(Incorporated by reference to Exhibit A of File No. 70-8107)
A-5 Draft of Notice of Annual Meeting and Proxy Statement proposed
to be used in connection with the annual meeting of
Stockholders.
B-1 Form of Standard Purchase Agreement Provisions - Debt Securities
including Form of Purchase Agreement
(Incorporated by reference to Exhibit B of File No. 70-8107)
B-2 Form of Standard Purchase Agreement Provisions - Stock
including Form of Purchase Agreement
C-1 Form S-3 Registration Statement.
(Incorporated by reference to Registration
Statement No. 33-49469 filed via EDGAR on
April 6, 1993)
C-2 Form S-3 Registration Statement.
(Incorporated by reference to Registration
Statement No. 33-52585 filed via EDGAR on
March 9, 1994)
D - Applications to, and orders issued by, state commissions
relating to the buy back of common stock or preferred
stock by Hope Gas, Inc., The Peoples Natural Gas Company,
or Virginia Natural Gas, Inc.
(To be filed by amendment; further specific exhibit
designation will be made at time of filing.)
F Opinion of Counsel
<PAGE> 37
G - Currently effective authorizations for sale of stock to
employee benefit plans and dividend reinvestment plan, and
for acquisition of treasury shares on the open market.
O - Proposed notice pursuant to Rule 22(f).
(b) Financial Statements
Financial statements included in Consolidated's Form 10-K for the
year ended December 31, 1994 and in Consolidated's Form 10-Q for the quarters
ended March 31, June 30, 1995 and September 30, 1995 are hereby incorporated by
reference to File No. 1-3196 under the 1934 Act.
Item 7. Information as to Environmental Effects
_______________________________________
(a) Describe briefly the environmental effects of the proposed
transaction in terms of the standards set forth in Section 102(2)(c) of the
National Environmental Policy Act (42 U.S.C. 4332(2)(C)). If the response to
this item is a negative statement as to the applicability of Section 102(2)(C)
in connection with the proposed transaction, also briefly state the reasons for
that response.
As more fully described in Item 1(a), the proposed transactions
subject to the jurisdiction of this Commission relate to financing proposals
<PAGE> 38
and involve no major federal action significantly affecting the human
environment.
(b) State whether any other federal agency has prepared or is preparing
an environmental impact statement ("EIS") with respect to the proposed
transaction. If any other federal agency has prepared or is preparing an EIS,
state which agency or agencies and indicate the status of that EIS preparation.
None.
SIGNATURES
__________
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned companies have duly caused this statement to be
signed on their behalf by the undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
By D. M. Westfall, Senior Vice President
and Chief Financial Officer
CNG COAL COMPANY
CNG ENERGY SERVICES CORPORATION
CNG PRODUCTS AND SERVICES, INC.
CNG FINANCIAL SERVICES, INC.
CNG POWER COMPANY
CNG MARKET CENTER SERVICES, INC.
CNG PRODUCING COMPANY
CNG PIPELINE COMPANY
CNG RESEARCH COMPANY
CNG STORAGE SERVICE COMPANY
CNG TRANSMISSION CORPORATION
CONSOLIDATED NATURAL GAS SERVICE
COMPANY, INC.
CONSOLIDATED SYSTEM LNG COMPANY
HOPE GAS, INC.
THE EAST OHIO GAS COMPANY
THE PEOPLES NATURAL GAS COMPANY
VIRGINIA NATURAL GAS, INC.
WEST OHIO GAS COMPANY
By N. F. Chandler, Their Attorney
Dated: March 18, 1996
<PAGE> 1
EXHIBIT A-5
DRAFT
(2-27-96)
Consolidated Natural Gas Company Notice of Annual Meeting
CNG Tower and Proxy Statement
625 Liberty Avenue 1996
Pittsburgh, Pennsylvania 15222-3199 CNG
Consolidated Natural Gas Company
Distribution Group
The East Ohio Gas Company
Cleveland, Ohio
The Peoples Natural Gas Company
Pittsburgh, Pennsylvania
Virginia Natural Gas, Inc.
Norfolk, Virginia
Hope Gas, Inc.
Clarksburg, West Virginia
West Ohio Gas Company
Lima, Ohio
Gas Transmission
CNG Transmission Corporation
Clarksburg, West Virginia
Exploration and Production
CNG Producing Company
New Orleans, Louisiana
Energy Marketing Services
CNG Energy Services Corporation
Pittsburgh, Pennsylvania
CNG Power Company
Pittsburgh, Pennsylvania
Other
CNG International Corporation
Pittsburgh, Pennsylvania
<PAGE > 2
CONSOLIDATED NATURAL GAS COMPANY
March 22, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders to
be held on Tuesday, May 21, 1996, at 10:30 a.m. Eastern Time at the Newark
Marriott Airport Hotel, Newark International Airport, Newark, New Jersey
07114.
The business items to be acted on during the Meeting are listed in the Notice
of Meeting and are described more fully in the Proxy Statement. The Board of
Directors has given careful consideration to these proposals and believes that
Proposals 1, 2, 3 and 4 are in the best interests of the Company and that
Proposals 5, 6 and 7 are not in the best interests of the Company. The Board
recommends that you vote FOR Proposals 1, 2, 3 and 4 and AGAINST Proposals 5, 6
and 7.
It is important that you be represented at the Annual Meeting in person or by
proxy. Whether or not you plan to attend, we urge you to mark, sign, date and
return the enclosed proxy card promptly in the postage paid envelope provided.
If you plan to attend, please check the appropriate box on the proxy card.
Thank you for your cooperation.
Sincerely,
George A. Davidson, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
CONSOLIDATED NATURAL GAS COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Consolidated Natural Gas Company will be held on Tuesday,
May 21, 1996, at 10:30 a.m. Eastern Time at the Newark Marriott Airport Hotel,
Newark International Airport, Newark, New Jersey 07114. Stockholders of
record at the close of business on March 21, 1996, will be entitled to vote at
the Meeting and any adjournment thereof.
The agenda for the Meeting includes:
1. Election of three Directors.
2. Ratification of the appointment of Price Waterhouse as independent
accountants.
3. A proposal to amend article FOURTH of the Certificate of Incorporation
to increase the authorized number of shares of common stock from
200,000,000 shares of $2.75 par value , to 400,000,000 shares of
$2.75 par value.
4. A proposal to amend article FOURTH of the Certificate of Incorporation
to increase the authorized number of shares of preferred stock from
2,500,000 shares of $100 par value, to 5,000,000 shares $100 par value
and to amend certain provisions.
5. Action on a stockholder-proposed resolution regarding the rights plan.
6. Action on a stockholder-proposed resolution regarding Director
compensation.
7. Action on a stockholder-proposed resolution regarding change of
control agreements.
8. Transaction of any other business which may properly be brought
before the Meeting.
In the event you cannot be present in person, please sign and promptly return
the enclosed proxy card in the accompanying postage paid envelope so that your
shares will be represented at the Meeting. Prompt return of proxies will save
the Company the expense of further requests for proxies to insure a quorum.
By order of the Board of Directors,
Laura J. McKeown
Secretary
Pittsburgh, Pennsylvania
March 22, 1996
<PAGE> 4
ATTENTION: Stockholders Participating in the Dividend Reinvestment Plan
The accompanying proxy card reflects the total shares of Common Stock
registered in your name directly, as well as any full shares credited to your
Dividend Reinvestment Plan account.
CONSOLIDATED NATURAL GAS COMPANY
PROXY STATEMENT
This statement and proxy card, mailed to stockholders commencing March 29,
1996, are furnished in connection with the solicitation by the Board of
Directors of Consolidated Natural Gas Company of proxies to be voted at the
Annual Meeting of Stockholders, and any adjournment thereof, for the purposes
stated in the Notice of the Annual Meeting. Any stockholder who cannot attend
is requested to sign and return the accompanying proxy card promptly. The
proxy reflects the number of shares registered in a stockholder's name directly
and, for participants in the Company's Dividend Reinvestment Plan, includes
full shares credited to a participant's Dividend Reinvestment Plan account.
Proxies so given will be voted on all matters brought before the Meeting and,
as to the matters with respect to which a choice is specified, will be voted as
directed. The cost of solicitation will be paid by the Company. In addition
to the use of the mails, proxies may be solicited personally, or by telephone
or telecopy, by employees of the Company and its subsidiaries with no special
compensation to these employees. Kissel-Blake Inc., 110 Wall Street, New York,
New York 10005, has been retained to assist in the solicitation of proxies at
an estimated cost of $11,000. The Company will reimburse brokerage houses and
other custodians, nominees and fiduciaries for expenses incurred in sending
proxy material to their principals.
Any proxy given pursuant to this solicitation may be revoked at any time
prior to exercise by written notice to the Corporate Secretary, by filing a
later dated executed proxy, or by attending and voting at the Annual Meeting.
The address of the principal executive offices of the Company is Consolidated
Natural Gas Company, CNG Tower, 625 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3199.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF. Holders of Common Stock,
$2.75 par value, of record on March 21, 1996, have one vote for each share
held. On March 1, 1996, 94,052,652 shares of Common Stock were outstanding. A
majority of the outstanding shares will constitute a quorum at the Meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders. Broker non-votes are not counted for purposes of determining
whether a proposal has been approved.
<PAGE> 5
The following table indicates the beneficial ownership, as of January 31,
1996, of the Company's Common Stock with respect to the only persons known to
the Company to be the beneficial owner of more than 5% of such Common Stock.
On January 31, 1996, 94,010,249 shares of Common Stock were outstanding.
Percent of
Name and Address of Amount and Nature Outstanding
Beneficial Owner of Beneficial Ownership Common Stock
____________________________________________________________________________
Trustees, Alternate Thrift
Trust of Employees Thrift Plans
CNG Tower, 625 Liberty Avenue
Pittsburgh, PA 15222-3199 6,002,331(1) 6.4%
Trustees, Long-Term Thrift
Trust of Employees Thrift Plan
CNG Tower, 625 Liberty Avenue
Pittsburgh, PA 15222-3199 5,419,823(2) 5.8%
(1)Such shares are beneficially owned in varying amounts by 3,825 employees, no
one of whom beneficially owned in excess of 12,000 shares in the Plans, or
2/100ths of 1% of the shares outstanding. Such shares are voted pursuant to
confidential instructions of participating employees and in the absence of
instructions such shares are not voted. A Registration Statement relating to
various investment options available to participants in the Plans has been made
effective under the Securities Act of 1933 and is on file with the Securities
and Exchange Commission (SEC).
(2)Such shares are beneficially owned in varying amounts by 2,739 employees, no
one of whom beneficially owned in excess of 14,000 shares in the Plan, or
2/100ths of 1% of the shares outstanding. Such shares are voted pursuant to
confidential instructions of participating employees and in the absence of
instructions such shares are not voted. A Registration Statement relating to
various investment options available to participants in the Plan has been made
effective under the Securities Act of 1933 and is on file with the SEC.
<PAGE> 6
The Board of Directors does not know of any other persons or groups who
beneficially own 5% or more of the outstanding shares of Common Stock.
ANNUAL REPORT. Commencing on or about March 15, 1996, the Company's
Annual Report for the year ended December 31, 1995, including financial
statements, was mailed to stockholders of record on March 1, 1996, and will be
mailed to any additional persons who were not stockholders on that date but are
stockholders of record on March 21, 1996. The Company will provide a copy of
the Annual Report to any stockholder of record after March 21, 1996, upon
request in writing to the Corporate Secretary, Consolidated Natural Gas
Company, CNG Tower, 625 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3199.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of ten members divided into three classes.
Each class has a three-year term, and only one class is elected each year.
There are no family relationships among any of the nominees, continuing
Directors and Executive Officers of the Company nor any arrangement or
understanding between any Director or Executive Officer or any other person
pursuant to which any of the nominees has been nominated. During 1995, each of
the members of the Board of Directors attended more than 75% of the aggregate
of the Board meetings and meetings held by all committees of the Board on which
the Director served during the periods that the Director served.
On recommendation of the Nominating Committee of the Board of
Directors, three incumbent Class III Directors have been designated nominees
for reelection; each has consented to be a nominee and to serve if elected.
The remaining Directors will continue to serve in accordance with their
previous elections. The names and other information concerning the three
persons nominated for a term of three years and the seven continuing Board
members are set forth by Class on pages 5 through 8 of this Proxy Statement.
However, since the bylaws of the Company state that the term of office of a
Director shall expire on the date of the Annual Meeting of Stockholders
following his or her 70th birthday, it is anticipated that Mr. Peirson will
serve one year of the three-year term to which he is nominated. The personal
information has been furnished to the Company by the nominees and other
Directors. Unless you specify otherwise on your signed proxy card, your shares
will be voted FOR the election of the three persons named below to three-year
terms as Directors. In the event of an unexpected vacancy on the slate of
nominees, your shares will be voted for the election of a substitute nominee if
one shall be designated by the Board. If any nominee for election as Director
is unable to serve, which the Board of Directors does not anticipate, the
persons named in the proxy may vote for another person in accordance with their
judgment.
<PAGE> 7
Vote Needed For Election of Directors
Directors are elected by a plurality of the votes of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting. Any shares not voted (whether by abstention, broker non-vote or votes
withheld) are not counted as votes cast for such individuals and will be
excluded from the vote.
Board Recommendation
The Board recommends that stockholders vote FOR Proposal 1, and the
accompanying proxy will be so voted, unless a contrary specification is made.
DIRECTORS NOMINATED FOR ELECTION TO THE BOARD WITH A TERM EXPIRING MAY 1999
Paul E. Lego Member: Compensation and Benefits
Age 65 Committee
Director since 1991 Executive Committee
Financial Policy Committee
Nominating Committee
Mr. Lego served as Chairman and Chief Executive Officer of
Westinghouse Electric Corporation, an electronic products and
services, environmental systems, equipment and broadcasting
company, Pittsburgh, Pennsylvania, from 1990 to his retirement
in January 1993. He served that company as President and Chief
Operating Officer from 1988 to 1990 and as a Director from 1988 to 1993. He
had been Senior Executive Vice President, Corporate Resources from 1985 to
1988, Executive Vice President, Westinghouse Industries & International Group
from 1983 to 1985 and Executive Vice President, Westinghouse Industry Products
from 1980 to 1983. Prior thereto, he served in various engineering and
management capacities with Westinghouse since 1956. Mr. Lego is the
non-executive Chairman of the Board of Commonwealth Aluminum Corporation and a
Director of the Lincoln Electric Company and USX Corporation. He is a member
of the Business Council and a Trustee of the University of Pittsburgh.
<PAGE> 8
Margaret A. McKenna Member: Compensation and Benefits
Age 50 Committee
Director since 1994 Ethics Committee
Nominating Committee
Ms. McKenna has served as President of Lesley College, Cambridge,
Massachusetts, since 1985. She served as Vice President, Program
Planning, Radcliffe College from 1982 to 1985 and as Director of
its Bunting Institute from 1981 to 1985. Prior thereto, she had
served as Deputy Under Secretary of the U.S. Department of Education,
Deputy Counsel to the President of the United States, and in posts with the
International Association of Human Rights agencies and U.S. Department of
Justice. Ms. McKenna is a Director of Best Products and The Stride Rite
Corporation.
Walter R. Peirson Chair: Nominating Committee
Age 69 Member: Audit Committee
Director since 1989 Financial Policy Committee
Mr. Peirson served as a Director of Amoco Corporation, Chicago,
Illinois, an integrated oil company and producer of natural gas, from
1976 to 1989, and as an Executive Vice President of that company from
1978 until his retirement in 1989. Mr. Peirson served as President of
Amoco Oil Company from 1974 to 1978, Executive Vice President from 1971
to 1974 and Vice President-Marketing of that company from 1968 to 1971. He was
President of Toloma Gas Products Co., subsidiary of Standard Oil Company
(Indiana), from 1964 to 1968. He served as President of General Gas
Corporation from 1962 to 1964 and Executive Vice President of that company from
1961 to 1962. He was an attorney at Standard Oil Company of Indiana from 1955
to 1961. He is a Director of the Federal Signal Corporation and a Trustee of
the Museum of Science and Industry in Chicago, Illinois.
<PAGE> 9
CONTINUING DIRECTORS WITH A TERM EXPIRING MAY 1997
William S. Barrack, Jr. Member: Audit Committee
Age 66 Ethics Committee
Director since 1994 Nominating Committee
Mr. Barrack served as Senior Vice President of Texaco Inc., Harrison,
New York, an integrated international oil company and a producer of
natural gas, from 1983 to his retirement in 1992. He served as a
Senior Director of Caltex Petroleum Corporation from 1982 to 1992,
President of Texaco Oil Trading & Supply Company from 1983 to 1984, and
Chairman and Chief Executive Officer of Texaco Limited-London from 1980 to
1983. Prior thereto, he served in various marketing, producing and management
positions with Texaco Inc. since 1953. Mr. Barrack is a Director of Standard
Commercial Corporation and the International Executive Services Corp.
Ray J. Groves Member: Audit Committee
Age 60 Financial Policy Committee
Director since 1994 Nominating Committee
Mr. Groves served as Chairman and Chief Executive Officer of Ernst &
Young, New York, New York, a public accounting firm, from 1991 to his
retirement in 1994. He served as Co-Chief Executive Officer of the
firm from 1989 to 1991 and served as Chairman and Chief Executive
Officer of Ernst & Whinney from 1977 to 1989. Mr. Groves was admitted
as a Partner in the firm in 1966, having joined the firm in 1957. Mr. Groves
is the Chairman of Legg Mason Merchant Banking Inc., a Director of Marsh &
McLennan Companies, Inc. and RJR Nabisco, Inc. Mr. Groves serves as a Trustee
of The Business Council for the United Nations, the Public Policy Institute,
The Ohio State University Foundation and as a Managing Director and Treasurer
of the Metropolitan Opera Association.
<PAGE> 10
Steven A. Minter Chair: Compensation and
Age 57 Benefits Committee
Director since 1988 Member: Ethics Committee
Nominating Committee
Mr. Minter has been the Executive Director and President of The
Cleveland Foundation, Cleveland, Ohio, since 1984, an organization
supporting health, human services, cultural and educational programs
in the greater Cleveland area. He had been Associate Director and
Program Officer of The Cleveland Foundation from 1975 to 1980 and from
1981 to 1983. He served as Under Secretary of the U.S. Department of
Education, Washington, D.C., from 1980 to 1981. He was the Commissioner of
Public Welfare for the Commonwealth of Massachusetts from 1970 to 1975.
Mr. Minter is a Director of Goodyear Tire & Rubber Company, Rubbermaid Inc.
and KeyCorp. He is also a Trustee of the College of Wooster and of The
Foundation Center.
<PAGE> 11
CONTINUING DIRECTORS WITH A TERM EXPIRING MAY 1997
Lois Wyse Chair: Ethics Committee
Age 69 Member: Compensation and
Director since 1978 Benefits Committee
Nominating Committee
Ms. Wyse has been President of Wyse Advertising, Inc., a Cleveland-
based advertising agency with offices in New York, New York, since
February 1979, and prior thereto had been an Executive Vice President
of the same firm since 1970. She is a Contributing Editor of Good
Housekeeping magazine, a syndicated columnist for United Features
Syndicate, and a widely published author. She is a Trustee of Beth Israel
Medical Center.
CONTINUING DIRECTORS WITH A TERM EXPIRING MAY 1998
J. W. Connolly Chair: Financial Policy Committee
Age 62 Member: Compensation and
Director since 1984 Benefits Committee
Executive Committee
Nominating Committee
Mr. Connolly served as Senior Vice President and Director of
H. J. Heinz Company, Pittsburgh, Pennsylvania, a processed food
products manufacturer, from 1985 to his retirement in December
1993. He served as President and Chief Executive Officer of Heinz
U.S.A., a division of the H. J.Heinz Company, from 1980 to 1985, and
served as Executive Vice President of that company from 1979 to 1980. He was
President and Chief Executive Officer of The Hubinger Company, a Heinz Company
subsidiary, from 1976 to 1979, Treasurer of H. J. Heinz Company from 1973 to
1976, and a Vice President of Ore-Ida Foods, Inc., a Heinz Company subsidiary,
from 1967 to 1973. An attorney by profession, Mr. Connolly joined the Law
Department of the H. J. Heinz Company in 1961. He is a Director of Mellon Bank
Corporation, Mellon Bank, N.A., Presbyterian-University Health System and the
University of Pittsburgh Medical Center System. He is also Chairman, Board of
Trustees of the University of Pittsburgh.
<PAGE> 12
George A. Davidson, Jr. Chair: Executive Committee
Age 57 Member: Financial Policy Committee
Director since 1985 Nominating Committee
Mr. Davidson has served as Chairman of the Board and Chief Executive
Officer of the Company since May 1987, and has been employed by the
Consolidated System since 1966. He served as Vice Chairman and Chief
Operating Officer of the Company from January 1987 to May 1987, and
Vice Chairman from October 1985 to January 1987. He served as
President of CNG Transmission Corporation(1) from 1984 through 1985. He had
been Vice President, System Gas Operations, for Consolidated Natural Gas
Service Company, Inc.,(1) from 1981 to 1984, and was Assistant Vice President,
Rates and Certificates, of that company from 1975 to 1981. Mr. Davidson held
various other positions in the Rates and Certificates Department from 1966 to
1975. Mr. Davidson serves on the National Petroleum Council and the Allegheny
Conference on Community Development. He is Chairman and a Director of the
American Gas Association, and a Director of PNC Bank Corp. and B. F. Goodrich
Company. He is also a Trustee of the University of Pittsburgh.
(1) Wholly owned subsidiary of the Company.
<PAGE> 13
CONTINUING DIRECTORS WITH A TERM EXPIRING MAY 1998
Richard P. Simmons Chair: Audit Committee
Age 64 Member: Ethics Committee
Director since 1990 Executive Committee
Nominating Committee
Mr. Simmons has served as Chairman and Chairman of the Executive
Committee of Allegheny Ludlum Corporation, Pittsburgh, Pennsylvania,
a specialty steel manufacturer, since 1990. He served as Chairman and
Chief Executive Officer from 1980 to 1990, and as a Director of that
company since 1980. He had been a Director of Allegheny Ludlum
Industries from 1973 to 1980 and a member of the Executive Office of that
company from 1978 to 1980. Mr. Simmons is a Director of PNC Bank Corp. He is
a member of the Massachusetts Institute of Technology Corporation and
Development Committee, Director and Chairman of the Pittsburgh Symphony
Society, President and a member of the Executive Committee of the Allegheny
Conference on Community Development and a member of the Executive Committee and
Director of the Southwestern Pennsylvania United Way.
<PAGE> 14
THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES THEREOF
Board of Directors
The Company is managed under the direction of the Board of Directors, which met
eight times in 1995. To assist it in various areas of responsibility, the
Board has established several standing committees that are briefly described
below.
Audit Committee
The Audit Committee is composed of four non-employee Directors. Among its
functions are: reviewing the scope and effectiveness of audits by the
independent accountants and the Company's internal auditing staff; selecting
and recommending to the Board of Directors the employment of independent
accountants, subject to ratification by the stockholders; receiving and acting
on comments and suggestions by the independent accountants and by the internal
auditors with respect to their audit activities; approving fees charged by the
independent accountants; and reviewing the Company's annual financial
statements before their release. The Committee met five times in 1995.
Compensation and Benefits Committee
The Compensation and Benefits Committee is composed of five non-employee
Directors. The Committee approves the salary budgets for all non-union
employees and fixes the salaries of the Officers and other personnel on the
executive payroll of the Company and its subsidiaries.
The Committee also has general supervision over the administration of all
non-union employee pension, compensation and benefit plans of the Company and
its subsidiaries; reviews proposals with respect to the creation of and changes
in such plans; and makes appropriate recommendations with respect thereto to
the Board of Directors. The Committee met eight times in 1995.
Ethics Committee
The Ethics Committee consists of five non-employee Directors. Its function is
to review and act on all situations subject to the provisions and procedures of
the Company's Business Ethics Policy and to monitor the Company's environmental
compliance activities. The Committee met three times in 1995.
Financial Policy Committee
The Financial Policy Committee consists of four non-employee Directors and the
Chairman of the Board. Its function is to oversee the short-term and long-term
financial activities and planning of the Company, including dividend actions.
The Committee met two times in 1995.
<PAGE> 15
Nominating Committee
The Nominating Committee consists of nine non-employee Directors and the
Chairman of the Board. It reviews the qualifications of Director candidates on
the basis of recognized achievements and their ability to bring skills and
experience to the deliberations of the Board. It also recommends qualified
candidates to the Board, including the slate of nominees submitted to the
stockholders at the Annual Meeting; reviews the size and composition of the
Board; and monitors the Company's management succession program. The Committee
met three times in 1995.
Stockholders who wish to propose candidates to the Nominating Committee
for election to the Board at the 1997 Annual Meeting should write to the
Corporate Secretary, Consolidated Natural Gas Company, CNG Tower, 625 Liberty
Avenue, Pittsburgh, Pennsylvania 15222-3199, between March 21, 1997 and
April 21, 1997, stating in detail the qualifications of such candidates for
consideration by the Committee. Any such recommendation should be accompanied
by a written statement from the candidate of his or her consent to be
considered as a candidate and, if nominated and elected, to serve as a
Director.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table lists the beneficial ownership, as of January 31, 1996, of
the Company's Common Stock by each current Director, named executive and all
current Directors and Officers as a group.
<PAGE> 16
(a) (b) (a) + (b)
___________________________ ____________
Number of Number of Director's
Shares Shares Under Deferred Percent of
Name of Beneficially Exercisable Compensation Outstanding
Beneficial Owner Owned(1)(2) Options(3) Stock Credits(4) Common Stock
_____________________________________________________________________________
W. S. Barrack, Jr. 641 361 .001
J. W. Connolly 900 3,488 .001
G. A. Davidson, Jr. 126,911 84,396 .226
W. F. Fritsche, Jr. 27,607 6,708 .037
R. R. Gifford 40,113 22,219 .066
R. J. Groves 1,112 1,458 .001
L. D. Johnson 17,013 41,632 .063
P. E. Lego 700 .001
M. A. McKenna 200 303 - (5)
S. A. Minter 1,230 .001
W. R. Peirson 2,200 7,552 .002
R. P. Simmons 1,200 3,618 .001
L. J. Timms, Jr. 17,415 32,376 .053
D. M. Westfall 41,499 8,821 .054
S. E. Williams 36,360 15,468 .055
L. Wise 600 .001
Directors and Officers
of the Company as a
Group (21 persons) 7373,549 240,053 16,780 .655
(1)Includes shares owned by spouses and, in the case of employees, shares
beneficially owned under the Long-Term Thrift Trust of the Employees Thrift
Plan, the Employee Stock Ownership Plan and the Virginia Natural Gas, Inc.
Employee Savings Plan. Unless otherwise noted, the Directors and Officers
have sole voting and investment power.
(2)Includes Performance Restricted Stock Awards and Restricted Stock Awards
granted on January 2, 1996, pursuant to the newly established Long Term
Strategic Incentive Program, the terms of which are further described in the
Compensation and Benefits Committee Report. Performance Restricted Stock
Awards were granted as follows: Messrs. Davidson, 70,000; Fritsche, 19,500;
Gifford, 19,500; Westfall, 26,300; and Williams, 19,500. Restricted Stock
Awards were granted as follows: Messrs. Davidson, 14,000; Fritsche, 3,800;
Gifford, 3,800; Westfall, 5,100; and Williams, 3,800.
(3)Includes shares subject to options exercisable on January 31, 1996, and
options which will become exercisable within 60 days thereafter.
(4)Director's compensation deferred in the form of CNG stock credits, as
described under Non-Employee Directors' Compensation on page 18, is not
included in the percentage shown in the last column.
(5)Less than .001% of outstanding shares.
<PAGE> 17
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of the named Executive Officers
for the last three completed fiscal years of the Company.
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
__________________________ __________________________
Other All
Annual Restricted Shares Other
Name and Compen- Stock Underlying Compen-
Principal Position Year Salary Bonus sation(1) Award(s)(2) Options(3) sation(4) (5)
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
G. A. Davidson, Jr. 1995 $568,000 $213,600 $ 7,511 0 77,768 $ 42,853
(Chairman and 1994 564,400 0 9,119 0 29,607 42,617
Chief Executive 1993 511,100 280,400 3,012 0 27,310 38,654
Officer, Director)
W. F. Fritsche, Jr. 1995 203,500 96,300 4,735 0 20,828 20,602
(Sr. Vice President, 1994 162,800 13,739 1,924 1,924 4,076 16,278
Distribution) 1993 148,500 65,500 2,274 0 3,757 14,845
R. R. Gifford 1995 241,400 51,400 15,752 0 23,795 24,397
(President, CNG 1994 221,100 0 3,958 0 5,891 22,394
Energy Services) 1993 187,600 96,600 312 0 5,434 19,082
L. D. Johnson 1995 292,000 100,300 8,430 0 28,394 202,549
(Retired Vice Chairman, 1994 307,100 0 5,051 0 11,622 30,994
Chief Financial 1993 273,700 156,000 793 0 15,790 27,687
Officer, Director)
L. J. Timms, Jr. 1995 250,800 96,700 10,839 0 24,984 40,908
(Retired President, 1994 266,200 0 5,952 0 10,226 26,908
CNG Transmission) 1993 232,800 137,000 708 0 9,566 18,796
D. M. Westfall 1995 174,600 67,800 1,717 1,506 13,886 13,519
(Sr. Vice President and 1994 144,800 0 3,867 0 2,644 11,146
Chief Financial Officer) 1993 135,000 50,000 766 0 2,427 10,441
S. E. Williams 1995 227,400 68,300 3,504 0 22,085 17,307
(Sr. Vice President and 1994 219,500 0 1,561 0 8,546 14,270
General Counsel) 1993 166,800 113,500 972 0 5,434 8,659
</TABLE>
<PAGE> 19
____________________
(1)Includes only tax reimbursements. No amounts are included in this column
for the Executive Split-Dollar Life Insurance Plan because the executives'
contributions to this plan are greater than or equal to the term life
insurance costs that apply to the underlying life insurance policies. No
amounts are included for perquisites or personal benefits because, for each
Executive Officer, the aggregate amount of such compensation was less than
$50,000 and less than 10% of that executive's base salary and bonus.
(2)Restricted Stock Award Grants are reported at aggregate market value at the
date of grant. Restrictions on the awards granted in 1995 lapse in 25%
increments, beginning with the first anniversary and on each of the next
three anniversaries of the grant date. Dividends are paid on the shares
from the date of grant. Restricted Stock Award Grants are based on the
individual's level of performance and responsibility. At December 31, 1995,
the number of restricted stock holdings for each of the named Executive
Officers was: Mr. Davidson, 0; Mr. Fritsche, 1,769; Mr. Gifford, 506;
Mr. Westfall, 1,506; and Mr. Williams, 606. The aggregate values of such
holdings at December 31, 1995, at the year-end closing price of $45.375 per
share, for each of the named Executive Officers was: Mr. Davidson, $0;
Mr. Fritsche, $80,268; Mr. Gifford, $22,960; Mr. Westfall, $68,335; and
Mr. Williams, $27,497.
(3)Does not include Triannual Non-Qualified Stock Options granted pursuant to
the newly-established Long Term Strategic Incentive Program as described in
the Compensation and Benefits Committee Report. On January 2, 1996, the
Company granted the following number of Triannual Non-Qualified Stock
Options to each of the named executive officers: Messrs. Davidson, 280,000;
Fritsche, 78,000; Gifford, 78,000; Westfall, 105,000; and Williams, 78,000.
(4)Comprising annual employer matching thrift plan contributions and ESOP
allocations.
(5)Mr. Johnson received an additional lump sum payment at the time of his
retirement in the amount of $160,250 and title to his company car with a
then fair market value of $12,850. Mr. Timms received title to his company
car with a then fair market value of $15,575 at the time of his retirement.
<PAGE> 20
The following table contains information concerning the grant of stock options
under the Company's 1991 Stock Incentive Plan to the named Executive Officers
as of the end of the last fiscal year of the Company. No SARs (stock
appreciation rights) have been granted.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
_____________________________________________________
Potential Realizable
Number of % of Total Value at Assumed Annual
Shares Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for Option Term (2)
Options Employees Price Per Expiration ___________________________________
Name Granted (1) in Fiscal Yr. Share Date 0% 5% 10%
__________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
G. A. Davidson, Jr. 77,768 7.21% $37.250 2005 0 $ 1,821,818 $ 4,616,846
W. F. Fritsche, Jr 20,828 1.93 37.250 2005 0 487,923 1,236,494
R. R. Gifford 23,795 2.21 37.250 2005 0 557,429 1,412,636
L. D. Johnson 28,394 2.63 37.250 2005 0 665,167 1,685,664
L. J. Timms, Jr. 24,984 2.32 37.250 2005 0 585,283 1,483,223
D. M. Westfall 13,886 1.29 37.250 2005 0 325,298 824,369
S. E. Williams 22,085 2.05 37.250 2005 0 517,370 1,311,118
All Shareholders N/A N/A N/A N/A 0 $2,192,507,881 $5,556,245,442
__________________________________________________________________________________________________________________
All Optionees 1,078,302 100.00 37.250 - 2005 0 25,260,653 64,015,454
45.375
__________________________________________________________________________________________________________________
Optionee Gain as
% of All
Shareholder Gain N/A N/A N/A N/A N/A 1.15% 1.15%
<PAGE> 21
(1)All material terms of the Non-Qualified Stock Options granted in 1995 are as
follows: Non-Qualified Stock Options are granted at the fair market value
of a share on the date of grant of the option. The option expires on the
tenth anniversary of the grant date and is exercisable in installments of up
to 25% of the shares on or after the second, third, fourth and fifth
anniversaries of the grant. If the employee retires from CNG, his or her
options expire the earlier of the option expiration date or three years
after he or she retires. If an employee otherwise leaves CNG, his or her
options expire the earlier of the option expiration date or three months
after he or she ceases to be employed by CNG. Subject to the vesting
schedule, options are exercisable from time to time up to the expiration
date. Non-Qualified Stock Option Award grants are based on the individual's
level of performance and responsibility.
(2)Based on actual option term (10-year) and annual compounding at rates shown.
The dollar amounts under these columns are the result of calculations at 0%
and at the 5% and 10% rates set by the Securities and Exchange Commission
and therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price. No gain to the optionees is possible
without stock price appreciation, which will benefit all shareholders
commensurately. A 0% gain in stock price appreciation will result in
0 dollars for the optionees. The Company did not use an alternative formula
for a grant date valuation, as the Company is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown or volatile factors.
<PAGE> 22
The following table sets forth information with respect to the named Executive
Officers concerning the exercise of options during the last fiscal year of the
Company and unexercised options held as of the end of the fiscal year.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1995, YEAR-END OPTION VALUES
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Shares Value of Unexercised,
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options Held at Year-End at Year-End(2)
___________________________ __________________________
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
____________________________________________________________________________________________________
G. A. Davidson, Jr. 0 $ 0 54,715 152,061 $227,068 $864,922
W. F. Fritsche, Jr. 4,818 45,771 3,828 28,643 2,766 175,706
R. R. Gifford 0 0 16,314 38,575 70,368 239,692
L. D. Johnson 40,656 386,395 70,026 0 263,107 0
L. J. Timms, Jr. 37,246 318,531 57,360 0 234,429 0
D. M. Westfall 0 0 10,228 37,227 34,648 208,094
<FN>
_____________________
(1)Market value of underlying shares at time of exercise minus the exercise
price.
(2)Market value of underlying shares at year-end market price of $45.375 per
share minus the exercise price.
</FN>
</TABLE>
<PAGE> 23
LONG-TERM INCENTIVE PLAN AWARDS IN THE LAST FISCAL YEAR
In 1995, Mr. Westfall was granted a Restricted Stock Award of 1,506 shares.
Restrictions on this award lapse in 25% increments, beginning with the first
anniversary and on each of the next three anniversaries of the grant date.
Dividends are paid on the shares from the date of the grant. Restricted Stock
Awards are based on an individual's level ofperformance and responsibility.
No other Restricted Stock Awards were made to the named executives under the
Long-Term Incentive Plan in 1995.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
Messrs. Davidson, Fritsche, Gifford, Westfall and Williams entered into
agreements with the Company dated December 12, 1995, that have provisions which
become operative upon a defined change of control of the Company. Such
agreements preserve for three years following a change of control the annual
salary levels and employee benefits as are then in effect for these executives
and provide that, in the event of certain terminations of employment, these
executives shall receive severance payments equal to 2.99 times their
respective annual compensation prior to severance. The agreements also provide
for the payment by the Company of certain excise taxes, if any, payable in
connection with compensation paid under such agreement.
COMPENSATION AND BENEFITS COMMITTEE REPORT
The Company's executive compensation programs are administered by the
Compensation and Benefits Committee of the Board of Directors (the
"Committee"), which is composed of five non-employee Directors. The Committee
reviews and approves all issues pertaining to executive compensation. Total
compensation is designed in relationship to compensation paid by competitor
organizations. Base salary and long-term incentive compensation are targeted
to median market levels and short-term incentive compensation is goal-based and
structured to be comparable to that paid by competitor organizations. The
objective of the Company's three compensation programs (base salary, short-term
incentive and long-term incentive) is to provide a total compensation package
that will enable the Company to attract, motivate and retain outstanding
individuals and align their success with that of the Company's shareholders.
Competitor organizations are defined annually as part of the compensation
administration process and include fully integrated natural gas companies as
well as broader industry comparatives, e.g., comparably-sized general
industrial companies and, where appropriate, specific energy companies.
<PAGE> 24
The level of base salary paid to executives for 1995 was determined on the
basis of performance and experience. The Company measures or identifies its
base salary structure by range midpoints in comparison to base salaries offered
by competitors. Salary levels are targeted to, and in 1995, correspond to the
median range of compensation paid by competitor organizations. These are not
the same companies that comprise the Value Line Diversified Natural Gas
Companies Index or the American Gas Association Diversified Gas Index shown on
the shareholder return performance presentation. The specific competitive
marketplace that the Company and its subsidiaries use in base salary analysis
is determined based on the nature and level of the positions being analyzed and
the labor markets from which individuals would be recruited. The Committee
also considered the competitiveness of the entire compensation package in its
determination of salary levels.
Short-term incentive compensation plans are used at both corporate and
subsidiary levels. The appropriateness of applying an incentive compensation
arrangement to any given position is determined based on the nature of the
position, its potential for contribution and the then-current competitive
environment. Short-term incentive opportunity is structured so that awards are
competitive at a level commensurate with the performance level achieved by the
employee with consideration for the employee's level of responsibility. The
short-term incentive plan has threshold, target and maximum bonus levels for
the various executive levels based on competitive data. For the named
Executive Officers, the threshold bonus level is 16% to 20% of base pay, the
target bonus level is 40% to 50% of base pay, and the maximum bonus level is
56% to 70% of base pay. At the executive level, the primary form of short-term
incentive compensation is a cash or stock bonus pool arrangement, for which all
employees on the Company's system executive payroll are eligible.
Individual Operating Company Pools and a CNG System Pool are established
if the Operating Companies and the CNG System attain certain levels of
performance. The Operating Company Pools are calculated as a percent of the
eligible base payroll using the weighted differential between established
Operating Company goals and actual performance. The CNG System Company Pool is
calculated as a percent of eligible base payroll and the weighted differential
between CNG System goals and actual performance. Executives participate in
both pools with payout opportunities determined by actual individual
performance and the level of responsibility within their respective Operating
Companies and within the CNG System. At 85% of goal achievement, the
threshold bonus pools are created; at 100% of goal, the target bonus pools are
achieved; at 115% or greater of goal achievement, the maximum bonus pools are
achieved. At less than the threshold level, there are no bonus pools. The
<PAGE> 25
performance measures for the CNG System Company Pool (weighted as indicated)
are based on the Company's return on equity vs. peers (40%), net income (20%),
fixed charge coverage ratio (20%), and cash flow (20%), with performance goals
established based on the Company's annual long-range forecast, actual prior
year performance and business plan reviews. Performance targets are set to
meet or exceed the performance of peer companies. The performance measures for
each Operating Company Pool (weighted as indicated) are: for the Distribution
Group companies, net income (20%), return on average net plant (20%), net cash
flow (20%), non-gas cost revenue (20%), and controllable operations and
maintenance expenses (20%); CNG Transmission Corporation, net income (20%),
return on average net plant (20%), net cash flow (20%), throughput (20%), and
controllable operations and maintenance expenses (20%) ; for CNG Energy
Services Corporation, net income (40%), managed sales volumes (40%), and power
marketing net income (20%); and CNG Producing Company, net income (20%), net
cash flow (15%), reserve additions (20%), finding costs (20%), full cycle
finding and development costs (10%), and controllable operations and
maintenance expenses (15%); and CNG Corporate, total Operating Company net
income (30)%), controllable operations and maintenance expense (30%), and
System return on equity compared to peer companies (40%). For the last fiscal
year, before special charges, the System overall goal achievement was 91.8%
with return on equity achieving 84.4% of goal, net income achieving 101.2% of
goal, fixed charge coverage ratio achieving 98.9% of goal, and cash flow
achieving 90.2% of goal. Based on 1995 performance, a CNG System Pool of
$1,748,400 was established and Operating Company Pools of $1,206,500 for the
Distribution Group companies, $ 550,400 for CNG Transmission Corporation, $0
for CNG Energy Services Corporation, $226,600 for CNG Producing Company and
$582,400 for CNG Corporate.
Long-term incentive compensation plans are limited to only those employees
who are in positions which can affect the long-term success of the Company,
including both the establishment and execution of the Company's business
strategies. The 1991 Stock Incentive Plan is the principal method for long-
term incentive compensation, and compensation thereunder principally takes the
form of Non-Qualified Stock Option grants and Restricted Stock Awards. The
purposes of long-term incentive compensation are to: (i) focus key executives'
efforts on performance that will increase the value of the Company to its
shareholders; (ii) align the interests of management with those of the
shareholders; (iii) provide a competitive long-term incentive and capital
accumulation opportunity; and (iv) provide a retention incentive for selected
key executives. For 1995 awards, performance criteria used in long-term
<PAGE> 26
incentives are tied directly to the individual participant's performance over
time and his or her impact on increasing the economic performance of the
Company. Previous awards of options or restricted stock are not considered in
the determination of an award. Executive performance against stated position
responsibilities and goals is evaluated annually. Such performance rating is
used with the level of responsibility in determining the amount of the award.
At expected levels of performance, the long-term incentive award is structured
at the median range; at levels of performance that exceed expectations, the
grant is structured at the 75th percentile; if performance is outstanding, the
grant is structured at the 90th percentile.
The Committee's review in 1995 of the Company's total executive
compensation package indicated that the Company's long-term incentive
compensation program was significantly below that of comparable employers. In
addition, the Committee desired to strengthen the link between improvement in
shareholder return and the exercisability of stock options and the vesting of
restricted shares issued under the Company's long-term incentive programs. As
a result, the Committee has adopted the Long Term Strategic Incentive Program
and the Long Term Capital Accumulation Program.
Under the Long Term Strategic Incentive Program, executives who are
driving the strategy of the Company are granted Performance Restricted Stock
Awards ("Performance Shares") and Triannual Non-Qualified Stock Options
("Triannual Options") in amounts which are intended to be competitive with
comparable employers. Executives who are responsible for strategy
implementation are granted Triannual Options in amounts which are intended to
be competitive with comparable employers. Grants under the Long Term Strategic
Incentive Program are to be made every three years, with the first such grants
having been made on January 2, 1996.
Performance Shares granted under the Long Term Strategic Incentive
Program to an executive will vest or be forfeited after a three-year
performance period based upon attainment of return on equity targets for the
System. With respect to those executives employed within a business unit of
the Company, both the return on equity target and objective success goals for
the executive's business unit under an integrated three-year plan must be
achieved for vesting to occur. For Performance Shares granted on January 2,
1996 which are subject to achievement of the System return on equity targets,
if the average annual return on equity for the System for the three-year period
ended December 31, 1998 is (i) less than 11.3%, no Performance Shares will
vest, (ii) at least 11.3% but less than 11.7%, one-half of such Performance
Shares will vest on March 1, 1999, and (iii) is at least 11.7%, all such
Performance Shares will vest on March 1, 1999. The Performance Shares that
were granted on January 2, 1996 are also subject to the achievement of business
unit success goals and will be forfeited or will vest all or in part on
<PAGE> 27
March 1, 1999, depending upon whether business unit success goals have been
met. The Committee reserves the right to reduce the number of Performance
Shares that vest based on factors that it deems appropriate. Executives will
not receive dividends on Performance Shares until they have vested, at which
time, dividends otherwise payable prior to the vesting date will be paid to the
executive without interest. Executives may vote Performance Shares until they
are forfeited.
Triannual Options granted on January 2, 1996, pursuant to the newly
established Long Term Strategic Incentive Program are granted at the fair
market value of a share on the date of grant. If the annual return on equity
for the System for the three-year period ended December 31, 1998 is (i) less
than 11.3%, all of the Triannual Options will be exercisable on March 1, 1999,
after which they will expire, (ii) at least 11.3% but less than 11.7%, one-half
of the Triannual Options will be exercisable on March 1, 1999, after which they
will expire, and one-half of the Triannual Options will have an exercise period
extending from March 1, 1999 until January 2, 2006 and (iii) at least 11.7%,
all of the Triannual Options will have an exercise period extending from March
1, 1999 until January 2, 2006. Options expire at the earlier of (a) the
expiration date of the option or (b) (1) three years following separation from
employment due to retirement, (2) one year after separation from employment due
to death or permanent disability or (3) three months after separation from
employment for any other reason. Grants of Triannual Options are based upon an
executive's level within the Company. The Company generally intends to make
grants under the Long Term Strategic Incentive Program every three years;
however, executives that are hired or promoted during the three-year
performance period will receive a pro-rated grant of Triannual Options.
Restricted Stock was granted January 2, 1996, to the executives who are
driving the strategy of the Company under the Long Term Capital Accumulation
Program and such stock will vest March 1, 1999. Once vested, taxes will be
due by the executive and the executive must then hold the net shares, after
taxes are paid by withholding a portion of the shares, until March 1, 2001.
Restricted Stock Awards are based on an individual's level of responsibility.
Under the Long Term Capital Accumulation Program on January 2, 1996,
employees who are responsible for implementing the strategy were granted Annual
Non-Qualified Stock Options. These options are granted at the fair market
value of a share on the date of grant of the option. The option expires on the
tenth anniversary of the grant date and is exercisable in installments of up to
25% of the shares on or after the second, third fourth and fifth anniversaries
of the grant. If an employee retires, he or she has 3 years to exercise vested
options. If an employee dies or becomes disabled, he or she has 1 year to
exercise vested options. If an employee leaves due to involuntary separation,
he or she has 3 months to exercise vested options. Subject to the vesting
<PAGE> 28
schedule, options are exercisable from time to time up to the expiration date.
Annual Non-Qualified Stock Option grants are based on an individual's level of
responsibility.
The Committee utilizes the services of an independent compensation
consultant to assess market relativity of the executive compensation packages.
Consistent with the Company's compensation philosophy, adjustments are made to
any executive compensation components necessary to achieve levels of
compensation at the median market position.
Effective for the tax-year ended December 31, 1994, Section 162(m) of the
Internal Revenue Code places certain limits on the deductibility of non-
performance based executive compensation. It is the policy of the Company to
preserve the tax deductibility of compensation to the extent that it is in the
best interest of the Company. Current and anticipated levels of executive
compensation do not subject the Company to the limitations under Section
162(m).
Mr. Davidson's compensation for 1995 was determined in the general context
of the programs described above. Mr. Davidson's 1995 incentive compensation
goals were based in part on the following measures of the Company's performance
before special items (weighted as shown): net income (10%), cash flow (defined
as net income plus depreciation plus deferred taxes minus dividends) (5%),
return on equity (compared to peer companies) (10%), System controllable
operations and maintenance expense (10%), credit rating of the Company's long-
term debt (10%), price to earnings ratio (compared to published summary data)
(10%), and the continued improvement in System exploration and production
financial performance (20%). In addition, Mr. Davidson's 1995 incentive
compensation goals were based upon his support of CNG Energy Services
Corporation to ensure its success in 1995 (20%) and discretion of the Committee
(5%). Mr. Davidson's threshold bonus level is 20% of base pay, his target
bonus level is 50% of base pay and his maximum bonus level is 70% of base pay.
The Committee awarded $213,600 in incentive compensation to Mr. Davidson for
1995.
S. A. Minter, Chair
J. W. Connolly
P. E. Lego
M. A. McKenna
L. Wyse
<PAGE> 29
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly cumulative total
shareholder return on CNG's Common Stock against the cumulative total return of
the S&P 500 Stock Index, the Value Line Natural Gas Diversified Industry Index
and the American Gas Association (AGA) Diversified Gas Index for the period of
five years commencing December 31, 1990, and ended December 31, 1995. Two
industry indexes are shown in the performance graph, the Value Line Index,
which the Company will use beginning in 1996 as the comparative peer company
measurement for return on equity goal for 1996 short term incentive
compensation purposes, and the AGA Index, which was presented in this graph
last year.
The Value Line Investment Natural Gas Diversified Industry Data is
published weekly by Value Line Publishing. The Value Line Natural Gas
Diversified Industry Index was prepared in January 1996. The companies
contained in the index are: Burlington Resources, Cabot Oil & Gas, Coastal
Corporation, Columbia Gas System, Inc., Consolidated Natural Gas Company,
Eastern Enterprises, Enron Corp., ENSERCH Corporation, Equitable Resources,
Inc., KN Energy, Inc., Mitchell Energy & Development Corp. 'A' , National Fuel
Gas, NorAm Energy, Pan Energy Corp., Questar Corporation, Seagull Energy
Corporation, Sonat Inc., Southwestern Energy, Tenneco, Inc., Valero Energy
Corp., and Williams Companies.
The AGA is the primary trade association for the natural gas industry.
The index was prepared in January 1996, under the direction of the AGA Finance
Committee. All companies contained in the index are members of the AGA. Those
companies are: Chesapeake Utilities Corp., Columbia Gas System, Inc.,
Consolidated Natural Gas Company, Eastern Enterprises, Energen Corporation,
ENSERCH Corporation, Equitable Resources, K N Energy, Inc., NICOR Inc., NorAm
Energy, ONEOK Inc., Pacific Enterprises, Pennsylvania Enterprises, Inc.,
Questar Corporation, South Jersey Industries, Inc., Southwest Gas Corporation,
Southwestern Energy, UGI Corporation, Valley Resources, Inc., Washington Energy
Company and WICOR, Inc.
<PAGE> 30
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
1990 1991 1992 1993 1994 1995
____ ____ ____ ____ ____ _____
CNG $100 $102 $112 $121 $ 96 $128
S&P 500 100 130 140 154 156 215
AGA 100 87 92 104 91 123
Value Line 100 90 105 126 113 150
*Assumes $100 investment on December 31, 1990, and reinvestment of dividends.
NON-EMPLOYEE DIRECTORS' COMPENSATION
Non-employee Directors are currently paid a $24,000 annual retainer, a $2,000
per diem fee for attending each Board meeting including all Board Committee
meetings held in conjunction with such Board meeting, and a $1,000 per diem fee
for participating in telephonic Board or Board Committee meetings. Committee
Chairpersons receive an additional annual fee of $3,000. Such Directors may
elect to defer receipt of these payments until after retirement from the Board.
Such payments are deferred in the form of cash credits or Consolidated Natural
Gas Company Common Stock credits. Such stock credits are valued as Common Stock
equivalents equal to the number of shares that could have been purchased at the
closing price on the date the compensation was earned. As of the date any
dividend is paid on the Company's Common Stock, a credit is made to each
participant's deferred account equal to the number of shares of Common Stock
that could have been purchased on such date with the dividend paid. Amounts
deferred in the form of cash credits earn interest, compounded quarterly, at a
rate equal to the closing prime commercial rate at The Chase Manhattan Bank
N.A. on the last day of each quarter. The annual retainer paid to non-employee
Directors, as set by the Board of Directors from time to time, shall continue
to be paid for life to each non-employee Director retired at age 70, or at an
earlier age due to disability, provided the non-employee Director served a
minimum of four years and agrees to be generally available as a consultant.
Employee Directors do not receive any compensation for service as Directors.
<PAGE> 31
As approved by the shareholders in May 1994 under the Non-Employee
Directors' Restricted Stock Plan, non-employee Directors receive an annual
grant of 100 shares of the Company's Common Stock, par value $2.75 per share,
subject to restrictions. Such grant is made on the date of the Annual Meeting
of Stockholders. The restrictions on such stock shall lapse in 25%
installments on the anniversary date of each grant or shall lapse in total upon
the Director's retirement at age 70 or the Director's ceasing to serve due to
death or disability.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the following Directors served as members of the Compensation and
Benefits Committee: S. A. Minter, Chair, J. W. Connolly, P. E. Lego, M. A.
McKenna and L. Wyse.
The Company has Credit Agreements totaling $775 million with a group of
banks. Each participating bank is compensated with a fee of .06% on its
respective commitment amounts.
Currently, PNC Bank, Pittsburgh, Pennsylvania, the subsidiary of PNC Bank
Corp., of which Messrs. Davidson and Simmons are Directors, provides a
commitment of $100 million under the Credit Agreements. Mellon Bank, N.A.,
Pittsburgh, Pennsylvania, of which Mr. Connolly is a Director, provides a
commitment of $100 million under the Credit Agreements. Society National Bank,
Cleveland, Ohio, the subsidiary of KeyCorp (formerly Society Corporation), of
which Mr. Minter is a Director, provides a commitment of $90 million under the
Credit Agreements. There were no borrowings under these agreements in 1995.
The Company has, since 1977, retained Wyse Advertising, Inc., of which Ms.
Wyse is the President and a principal stockholder. Wyse Advertising plans,
creates, writes and designs media communications at commission rates and
billing practices which are comparable to such rates and practices charged by
non-affiliated firms. During 1995, the Company paid aggregate commissions of
$196,927 to Wyse Advertising.
LIFE INSURANCE AND RELATED BENEFIT PLANS
The Company maintains a program composed of Split Dollar Life Insurance Plans
and Supplemental Death Benefit Plans for employees on the executive payroll of
the Company and its subsidiaries, as well as non-employee Directors, which
provides death benefits to beneficiaries of those individuals. There were 124
eligible employees on December 31, 1995, and 80 were participating. Five non-
employee Directors were also participating. The plans are under the general
supervision of the Compensation and Benefits Committee of the Board.
Continuation of the plans beyond retirement requires the Committee's approval.
The costs for the Split Dollar Life Insurance Plans are shared by the Company
<PAGE> 32
and the participants. Each year an employee participant pays a premium based
on age and amount of individual coverage, which is approximately twice annual
salary. Each year Director participants pay a premium based on age and amount
of individual coverage. The Company pays all additional premiums and expects
to receive proceeds approximately equal to its investment in the policy through
the total coverage exceeding the participant's individual coverage. The
Supplemental Death Benefit Plans provide for payments to a deceased
participant's beneficiaries over a period of years.
RETIREMENT PROGRAMS
A non-contributory Pension Plan is maintained for employees who are not
represented by a recognized union, including Officers of the Company and its
subsidiaries. On December 31, 1995, all 2,814 eligible employees of the
Company and its subsidiary companies were participating in the Pension Plan.
The Company also maintains an unfunded Short Service Supplemental
Retirement Plan for certain management employees whose commencement of service
with the Company occurred after the employee had acquired experience of
considerable value to the Company and who will have less than 32 years of
service at normal retirement.
The following table illustrates maximum annual benefits--including any
supplemental payment described above but before being reduced by the required
offset--at normal retirement date (age 65) on the individual life annuity basis
for the indicated levels of final average annual salary and various periods of
service.
PENSION PLAN TABLE
Annual Pension Benefit
for Years of Service Indicated
___________________________________________________
Average Annual Salary 15 20 25 35 40
____________________________________________________________________________
$100,000 $34,000 $ 45,300 $ 55,000 $ 59,500 $ 68,000
150,000 51,000 68,000 82,500 89,300 102,000
200,000 68,000 90,700 110,000 119,000 136,000
250,000 85,000 113,300 137,500 148,800 170,000
300,000 102,000 136,000 165,000 178,500 204,000
350,000 119,000 158,700 192,500 208,300 238,000
400,000 136,000 181,300 220,000 238,000 272,000
450,000 153,000 204,000 247,500 267,800 306,000
500,000 170,000 226,700 275,000 297,500 340,000
550,000 187,000 249,300 302,500 327,300 374,000
600,000 204,000 272,000 330,000 357,000 408,000
650,000 221,000 294,700 357,500 386,800 442,000
700,000 238,000 317,300 385,000 416,500 476,000
<PAGE> 33
The 1995 salaries, projected service to age 65, and estimated annual
retirement benefits on the individual life form of annuity, assuming
continuation of their December 1995 salaries until age 65 for each of the
individuals in the Summary Compensation table, are as follows:
ESTIMATED ANNUAL RETIREMENT BENEFITS
Estimated
Annual
Years of Years of Retirement
1995 Service at Service Benefits
Name(1) Salary Year-End 1995 at Age 65 at Age 65
__________________________________________________________________________
G. A. Davidson, Jr. $568,000 29 37 $354,065
W. F. Fritsche, Jr. 203,500 39 39 107,465
R. R. Gifford 241,400 33 42 167,595
D. M. Westfall1 76,900 26 43 138,985
S. E. Williams 227,400 21 39 145,910
______________
(1)Messrs. Johnson and Timms retired from the Company December 1, 1995, and
are accordingly not mentioned in this table.
The Company also maintains a Supplemental Retirement Benefit Plan under
which payments may be made, at the sole discretion of the Compensation and
Benefits Committee of the Board, to individuals comprising the executive
payroll. As of December 31, 1995, there were 124 potentially eligible
employees. The decision to grant a Supplemental Retirement Benefit is based on
a review of the retiring employee's total available benefits. Payments under
such plan during 1995 amounted to $357,200. The maximum annual supplemental
annuity under this plan is 10% of an individual's final average annual salary.
Assuming continuation of their December 1995 salaries until age 65, the
individuals named in the Summary Compensation table would be eligible to
receive the following maximum annual supplemental retirement benefits:
Mr. Davidson, $56,800; Mr. Gifford, $24,290; Mr. Westfall, $19,830; and Mr.
Williams, $22,850. Mr. Fritsche is not a participant in the Supplemental
Retirement Benefit Plan. Under a separate prior agreement, Mr. Fritsche would
receive an additional annual retirement benefit of $77,575 assuming his
December 1995 salary was continued until age 65.
The benefits described above have not been reduced by the limitations
imposed on qualified plans by the Internal Revenue Code. As permitted by the
Internal Revenue Code, the Board of Directors has adopted a policy whereby
supplemental payments may be made, as necessary, to maintain the benefit levels
earned under the benefit plans.
<PAGE> 34
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Based on the Company's review of copies of all Section 16(a) forms filed by the
Officers and Directors of the Company, the Company believes that in 1995 there
was compliance with all filing requirements applicable to its Officers and
Directors.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse has audited the accounts of the Company and its subsidiaries
since 1943. On recommendation of the Audit Committee, the Board of Directors
has, subject to ratification by the stockholders, appointed Price Waterhouse to
audit the accounts of the Company and its subsidiaries for the fiscal year
1996. Audit fees to Price Waterhouse in 1995 incurred by the Company and its
subsidiaries were approximately $1,173,800. A representative of Price
Waterhouse will be present at the Meeting to respond to appropriate questions
and will have an opportunity to make a statement if he or she desires to do so.
Accordingly, the following resolutions will be offered at the Meeting:
RESOLVED, That the appointment, by the Board of Directors of the Company,
of Price Waterhouse to audit the accounts of the Company and its subsidiary
companies for the fiscal year 1996, effective upon ratification by the
stockholders be, and it hereby is, ratified; and
FURTHER RESOLVED, That a representative of Price Waterhouse shall attend
the next Annual Meeting and any special meetings of stockholders that may be
held in the interim.
Vote Needed for Appointment of Independent Accountants
An affirmative vote of the holders of a majority of the Company's Common Stock,
represented in person or by proxy and entitled to vote at the Meeting, is
necessary for ratification. If the stockholders do not ratify the appointment
of Price Waterhouse, the selection of independent accountants will be
reconsidered by the Audit Committee and the Board of Directors.
Board Recommendation
The Board recommends that stockholders vote FOR Proposal 2, and the
accompanying proxy will be so voted, unless a contrary specification is made.
<PAGE> 35
PROPOSAL 3
AMENDMENT OF CERTIFICATE OF INCORPORATION TO AUTHORIZE ADDITIONAL SHARES OF
COMMON STOCK
The Board of Directors has unanimously proposed and declared advisable an
amendment (the "Common Stock Amendment") to Article FOURTH of the Company's
Certificate of Incorporation (the "Certificate") to increase the number of
authorized shares of common stock, par value $2.75 per share (the "Common
Stock"), from Two Hundred Million (200,000,000) shares of Common Stock to Four
Hundred Million (400,000,000) shares of Common Stock (the "Common Stock
Proposal"). The Board of Directors recommends that the Company's stockholders
approve the Common Stock Amendment by voting FOR Proposal 3.
If the proposed Common Stock Amendment is adopted by the affirmative vote
of a majority of all of the outstanding shares of the Company's Common Stock
entitled to vote at the Company's Annual Meeting, the proposed Common Stock
Amendment will become effective upon the filing of a certificate of amendment
with the Secretary of State of the State of Delaware, which is expected to
occur shortly after such stockholder approval. A copy of the proposed
Amendment is attached as Appendix A hereto and the following description is
qualified in its entirety by reference thereto.
As of January 31, 1996, there were 94,010,249 shares of Common Stock
outstanding. An additional 50,000,000 shares of Common Stock were reserved for
issuance under the Company's Shareholder Rights Plan, 2,071,547 shares of
Common Stock were reserved for issuance under the Dividend Reinvestment Plan,
4,559,353 shares of Common Stock were reserved for conversion of the Company's
convertible subordinated debentures, and 19,443,484 shares of Common Stock were
reserved for issuance under the Company's various benefit plans, leaving
29,872,964 shares of Common Stock available for general corporate purposes. If
this Common Stock Proposal is approved by the stockholders, the Company will
have 400,000,000 shares of authorized Common Stock.
The adoption of this Proposal will not result in the issuance of any
additional shares of Common Stock. The increase in the authorized number of
shares is intended to insure that there will be sufficient authorized but
unissued shares available for stock dividends, for use in connection with
acquisitions and for other corporate purposes.
Approval of this Proposal will permit the Board of Directors to issue such
additional shares without further approval of stockholders and upon such terms
and at such times as it may determine unless stockholder approval is required
by applicable law or stock exchange requirements. Holders of the Company's
securities have no preemptive rights to subscribe to the Company's securities.
<PAGE> 36
The Board of Directors has no present plans to issue additional shares of
Common Stock, although the Company is continually reviewing various
transactions that could result in the issuance of shares of Common Stock.
The additional shares of Common Stock proposed to be authorized might be
issued to a holder who might vote against a proposed merger or sale of assets
or other corporate transaction and therefore might be available for use to
impede or discourage an attempted takeover of the Company.
The Company's Board of Directors believes that this Proposal is in the
best interests of the Company and its stockholders and recommends that the
stockholders approve the Common Stock Amendment.
Vote Needed for Approval of Additional Shares of Common Stock
Approval of this proposal requires an affirmative vote by the holders of the
majority of the shares outstanding and entitled to vote. An abstention, broker
non-vote or vote withheld will have the same effect as a vote against this
proposal.
Board Recommendation
The Board recommends that stockholders vote FOR Proposal 3, and the
accompanying proxy will be so voted, unless a contrary specification is made.
PROPOSAL 4
AMENDMENT OF CERTIFICATE OF INCORPORATION TO AUTHORIZE A NEW CLASS OF PREFERRED
STOCK
The Board of Directors has unanimously proposed and declared advisable an
amendment (the "Preferred Stock Amendment") to Article FOURTH of the Company's
Certificate of Incorporation (the "Certificate") to authorize Five Million
(5,000,000) shares of a new class of preferred stock, par value $100 per share
(the "New Preferred Stock"). The Preferred Stock Amendment would also
eliminate the Company's existing authorized Two Million Five Hundred Thousand
(2,500,000) shares of preferred stock, par value $100 per share (the "Old
Preferred Stock"). In addition, the Preferred Stock Amendment makes certain
changes to references to Article FOURTH in other Articles in the Certificate.
A copy of the Preferred Stock Amendment is attached as Appendix A hereto and
the following description is qualified in its entirety by reference thereto.
The Board of Directors recommends that the Company's stockholders approve the
Preferred Stock Amendment by voting FOR Proposal 4.
<PAGE> 37
This proposal would add to Article FOURTH of the Restated Certificate of
Incorporation provisions authorizing the issuance of 5,000,000 shares of the
New Preferred Stock while eliminating provisions authorizing and concerning
the Old Preferred Stock. These new provisions would permit the Board of
Directors to issue the New Preferred Stock from time to time without the
necessity of further action or authorization by the Company's stockholders
(unless it is to be used for an anti-takeover purpose or it is required by
applicable law or stock exchange requirements) in one or more series and with
such voting powers, designations, preferences and relative, participating,
optional or other special rights and qualifications as the Board of Directors
may, in its discretion, determine, including, but not limited to (a) the
distinctive designation of such series and the number of shares to constitute
such series; (b) the dividends, if any, for such series; (c) the voting power,
if any, of shares of such series; (d) the terms and conditions (including
price), if any, upon which shares of such stock may be converted into or
exchanged for shares of stock of any other class or any other series of the
same class or any other securities or assets; (e) the right, if any, of the
Company to redeem shares of such series and the terms and conditions of such
redemption; (f) the retirement or sinking fund provisions, if any, of shares of
such series and the terms and provisions relative to the operation thereof; (g)
the amount, if any, which the holders of the shares of such series shall be
entitled to receive in case of a liquidation, dissolution, or winding-up of the
Company; (h) the limitations and restrictions, if any, upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption, or other acquisition by the Company of, the Company's Common Stock;
and (i) the conditions or restrictions, if any, upon the creation of
indebtedness or upon the issuance of any additional stock of the Company.
The Board of Directors believes that availability of the New Preferred
Stock will provide the Company with needed flexibility of action for possible
acquisitions, financing transactions and other general corporate purposes. The
Company anticipates using New Preferred Stock when it is not opportune to sell
common stock or debt due to prevailing market conditions or as may be needed to
meet Company capital structure requirements. In the past, the Company has used
the proceeds from the sale of preferred stock to satisfy the long-term capital
requirements of its subsidiaries. It is expected that the proceeds from the
sale of New Preferred Stock would be used to satisfy similar capital needs of
the Company's operations and for other corporate purposes. The Board is not
considering the use of New Preferred Stock to discourage attempts to acquire
control of the Company (an "anti-takeover purpose") and it is not aware of any
present effort to accumulate the Company's securities for the purpose of
gaining control of the Company. The Board represents that it will not issue,
without prior stockholder approval, New Preferred Stock for an anti-takeover
purpose. No New Preferred Stock will be issued to any individual or group for
<PAGE> 38
the purpose of creating a block of voting power to support management on a
controversial issue. The New Preferred Stock would be available for issuance,
on such terms as the Board of Directors determines, without further action by
the stockholders unless such action is required by applicable law or stock
exchange requirements or the New Preferred Stock is to be used for an anti-
takeover purpose. The Company is currently authorized to issue 2,500,000
shares of Old Preferred Stock, none of which are issued and outstanding. If
this Proposal is approved by the stockholders, the Company will no longer be
authorized to issue Old Preferred Stock and will be authorized to issue
5,000,000 shares of New Preferred Stock. The Company has no present plans,
agreements or commitments for the issuance of the New Preferred Stock.
The actual effect of the authorization of the New Preferred Stock upon the
rights of the holders of Common Stock cannot be stated until the Board of
Directors determines the respective rights of the holders of one or more series
of the New Preferred Stock. Such effects, however, might include (a)
restrictions on dividends on Common Stock if dividends on the New Preferred
Stock are in arrears; (b) dilution of the voting power of the Common Stock; and
(c) restrictions on the rights of the holders of Common Stock to share in the
Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the New Preferred Stock. The terms of the Old Preferred
Stock, if issued, could have a similar effect upon the rights of the holders of
Common Stock.
Although the Company has no present plans, agreements or commitments for
the issuance of the New Preferred Stock, and the Board has undertaken to seek
prior shareholder approval if it wishes to issue New Preferred Stock to be used
for an anti-takeover purpose, the authorized but unissued shares of such New
Preferred Stock could be used to make a takeover or change in control in the
Company more difficult. Under certain circumstances, rights granted upon
issuance of shares of the New Preferred Stock could be used to create voting
impediments or to discourage third parties seeking to effect a takeover or
otherwise gain control of the Company. For example, the shares could be placed
with purchasers who might support the Board of Directors in opposing a hostile
takeover bid or could be used in connection with adopting another shareholder
rights plan. The issuance of new shares could also be used to dilute the stock
ownership and voting power of a third party seeking to effect a merger, sale of
assets, or similar transaction. In the event and to the extent the proposed
amendment could facilitate such actions, it could serve to perpetuate incumbent
management. The Board of Directors is not aware, however, of any specific
effort or plan to accumulate the Company's securities or to obtain control of
the Company by means of a merger, tender offer, solicitation in opposition to
management, or otherwise.
<PAGE> 39
The Company already has a number of defensive provisions in its Restated
Certificate of Incorporation, including a classified board of directors,
certain Fair Price and supermajority voting provisions for business
combinations with a 5% or greater stockholder, and a prohibition against taking
stockholder action in certain situations without the use of a mailed proxy
statement. The Company also currently has a shareholder rights plan, the
effect of which may be to discourage attempts to gain control of the Company
without the approval of the Board. This rights plan would not be affected by
the proposed authorization of shares of New Preferred Stock.
The Company's Board of Directors believes that adoption of this Proposal
is in the best interests of the Company and its stockholders and recommends
that the stockholders approve the proposed Preferred Stock Amendment.
Vote Needed for Approval of the New Class of Preferred Stock
Approval of this proposal requires the affirmative vote by the holders of the
majority of the shares outstanding and entitled to vote. An abstention, broker
non-vote or vote withheld will have the same effect as a vote against this
proposal.
Board Recommendation
The Board recommends that stockholders vote FOR Proposal 4, and the
accompanying proxy will be so voted, unless a contrary specification is made.
PROPOSAL 5
STOCKHOLDER'S PROPOSAL CONCERNING RIGHTS PLAN
LongView Collective Investment Fund, which owns 19,900 shares of the Company's
Common Stock has submitted the resolution set forth below for inclusion in this
proxy statement for the Company's 1996 Annual Meeting of Shareholders.
The Stockholder's Proposal
Shareholder Rights Plan Resolution
"RESOLVED: That the shareholders of Consolidated Natural Gas Company ("CNG" or
the "Company") request the Board of Directors to redeem the shareholder rights
previously issued unless such issuance is approved by the affirmative vote of
shareholders, to be held as soon as may be practicable."
The Stockholder's Supporting Statement
Recently, the CNG Board of Directors issued, without shareholder approval,
certain shareholder rights (the "rights") pursuant to a shareholder rights
plan. We strongly believe that such rights are a type of anti-takeover device,
commonly known as a poison pill, which injures shareholders by reducing
management accountability and adversely affecting shareholder value.
<PAGE> 40
The shareholders of the Company believe the terms of the rights are
designed to discourage or thwart an unwanted takeover of the Company. While
management and the Board of Directors should have appropriate tools to ensure
that all shareholders benefit from any proposal to acquire the Company, the
Shareholders do not believe that the future possibility of a takeover justifies
the unilateral imposition of such a poison pill.
Rather, we believe that the shareholders should have the right to vote on
the necessity of such a powerful tool, which could be used to entrench existing
management. Rights plans like the Company's have become increasingly unpopular
in recent years.
The negative effects of poison pill rights plans on the trading value of
companies' stock have been the subject of extensive research. A 1986 study
(covering 245 companies adopting poison pills between 1983 and July 1986) was
prepared by the Office of the Chief Economist of the U.S. Securities and
Exchange Commission on the effect of poison pills on the wealth of target
shareholders. It states that "empirical tests, taken together, show that
poison pills are harmful to target shareholders, on net." A 1992 study by
Professor John Pound of Harvard's Corporate Research Project and Lilli A.
Gordon of the Gordon Group found a correlation between high corporate
performance and the absence of poison pills.
We believe that such an important corporate governance practice that can
have a significant adverse impact on shareholder value should be eliminated or,
at the very least, be voted on by shareholders.
We therefore submit this shareholder proposal based on our belief that the
unilateral and undeniable undemocratic adoption of the rights plan by the
Company is unjustified, that the continued existence of such a rights plan by
the Company is unjustified and not in the best interests of the shareholders.
We believe that the shareholder rights plan should either be redeemed or voted
on by shareholders.
We urge you to vote FOR this resolution!
Management's Comments
In adopting a shareholder protection rights plan (the "Rights Plan"), the
Company's goal is to protect the interest of the Company and all shareholders.
The Rights Plan is designed to protect against attempts to acquire the Company
for an inadequate price and to protect against abusive practices that do not
treat all shareholders equally. Such practices can, and are often intended to,
pressure shareholders into tendering their investments prior to realizing the
full value or total potential of such investments. The Rights Plan is intended
to create an incentive for a potential acquiror to negotiate in good faith with
the Board. The Rights Plan strengthens the ability of the Board to fulfill its
<PAGE> 41
fiduciary responsibilities with the opportunity to evaluate the fairness of any
unsolicited offer and the credibility of the bidder. Of course, in deciding
whether to redeem the rights in connection with any unsolicited offer, the
Board will be bound by its fiduciary obligations to act in the best interests
of the Company and its shareholders.
The Board of Directors adopted the Rights Plan in November 1995 following
its review of comprehensive analytical materials presented to the Board by
outside legal counsel and face-to-face presentations made by such legal counsel
to the Board. Based on such review and the advice of such firm, the Board
believes that the adoption and continuing existence of the Rights Plan is in
the best interests of the Company and shareholders and will not deter a
suitably financed offer that is made at a fair price to all shareholders. The
success of any such offer will of course depend on various factors, including
the source of the bidder's financing. More than 1,000 U.S. corporations,
including other companies engaged in businesses similar to the Company's have
adopted shareholder protection plans similar to the Rights Plan, including
Western Atlas, Inc., Litton Industries Inc., McDermott International Inc.,
McDonnell Douglas Corp., Reebok International Ltd., Philip Morris Cos. Inc.,
Georgia-Pacific Corp. and Walt Disney Co.
Under Delaware law, the Board has the responsibility to manage and direct
the Company's business and affairs, and the Board believes that the adoption of
the Rights Plan was a valid exercise of that responsibility. The Board
believes that the decision to redeem the rights should be made in the context
of a specific acquisition proposal. To do so at this time would be to strip
the Company's shareholders of protection in the event of an unsolicited offer
and, in the Board's view, potentially reduce the long-term value for all
shareholders.
Vote Needed for Approval of the Proposal
Approval of this proposal requires an affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled
to vote. Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders. Broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
Board Recommendation
The Board recommends that stockholders vote AGAINST Proposal 5, and the
accompanying proxy will be so voted, unless a contrary specification is made.
<PAGE> 42
PROPOSAL 6
STOCKHOLDER'S PROPOSAL CONCERNING NON-EMPLOYEE RETIREMENT PLANS
Mr. Paul Griffith of 4591 Columbia Road, North Olmsted, Ohio, who owns 792
shares of the Company's Common Stock has informed management that he will
propose the resolution set forth below at the Annual Meeting.
The Stockholder's Proposal
Non-Employee Retirement Plans Resolution
"RESOLVED, That the shareholders of Consolidated Natural Gas ("Company") hereby
request that the Company's Board of Directors in the future refrain from
providing pension or other retirement benefits to non-employee or outside
directors unless such benefits are first submitted to the shareholders for
approval."
The Stockholder's Supporting Statement
The Company's Board of Directors should play a vital and independent role in
helping to determine corporate policy and strategy. It should actively monitor
senior management so they faithfully implement these policies and strategies.
In that, Directors owe their fundamental allegiance to the shareholders of the
corporation -- the owners who elect them -- and not to management.
Certain business or financial relationships can negatively affect the
ability of Directors to oversee policy. This is especially true for so-called
outside or independent Directors who are not employee/Directors and who should
bring a degree of objectivity to Board deliberations.
According to the 1994 proxy statement, the company offers a retirement or
pension plan for non-employee Directors who had at least four years of service.
Under the plan they will receive an annual retirement benefit (for life) equal
to the annual Board retainer in effect at the time of the Director's retirement
from the Board. That retainer is now a generous $24,000. The proxy also
indicated that Director's are also entitled to expense reimbursements and that
Board committee chairs receive an additional annual fee of $3,000.
While non-employee or outside Directors should be entitled to reasonable
compensation for their time and expertise, additional compensation in the form
of retirement benefits (which are 100% of the Director's base compensation) can
compromise their independence and impartiality. Such generous and unnecessary
extra compensation for outside Directors of the Company can be management's way
to insure unquestionable loyalty. These types of retirement benefits can
become another device to enhance and entrench management's control over
corporate policy, instead of management being responsible to the company's
owners.
<PAGE> 43
Because of our strong concern for maximizing the ability of Boards of
Directors to act in shareholder's interest, we feel that the long-term best
interests of the Company are not well served by current Board Policies. The
vast majority of Directors at various corporations are undoubtedly covered by
generous retirement policies at their principal place of employment. They need
not be "double-dipping" at this Company or any other!
We urge you to support this Proposal.
Management's Comments
The proponent is critical of retirement benefits being offered to outside
Directors and believes that these benefits may jeopardize the independence of
outside Directors in carrying out their duties on behalf of stockholders;
however, the proponent offers no substantiation for this belief. In addition,
the proponent states that outside Directors may be covered by other retirement
plans at other companies. This is not relevant in determining whether the
Company's overall compensation of outside Directors is reasonable, which the
proponent agrees is appropriate for the contribution that outside Directors
make to the Company.
To attract and retain these high caliber, talented and experienced
individuals to serve as outside Directors, the Company must provide a
competitive total compensation package for its outside Directors. Retirement
benefits are a common element of outside Director compensation packages at
large corporations. The Conference Board reports that for companies similar in
size to CNG by sales, 69% of the companies that it surveyed provided retirement
benefits for their outside Directors.
The Board has determined that payment of annual retainers to outside
Directors who have served a minimum of four years and who agree to remain
available to consult with management after their retirement from the Board is
appropriate; this is within the authority of the Board. This program, and other
programs which are described elsewhere in this Proxy Statement, provide an
incentive to the Board to remain in service to the Company long enough to gain
experience and knowledge of the Company's business, and to remain available
after retirement. The benefits to which outside Directors are entitled
recognize the ever-increasing time commitment, diligence and risks associated
with Board service. For these reasons, we recommend a vote against this
proposal.
Vote Needed for Approval of the Proposal
Approval of this proposal requires an affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled
to vote. Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders. Broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
<PAGE> 44
Board Recommendation
The Board recommends that stockholders vote AGAINST Proposal 6, and the
accompanying proxy will be so voted, unless a contrary specification is made.
PROPOSAL 7
STOCKHOLDER'S PROPOSAL CONCERNING CHANGE OF CONTROL AGREEMENTS
Mr. James J. Johnston of 5155 Logans Ferry Road, Murrysville, Pennsylvania, who
owns 1,708 shares of the Company's Common Stock has informed management that he
will propose the resolution set forth below at the Annual Meeting.
The Stockholder's Proposal
Change of Control Agreements Resolution
"RESOLVED, That the stockholders of Consolidated Natural Gas ("Company")
request that the Board of Directors in the future abstain from entering into
agreements providing executive compensation contingent on a change in control
of the Company unless such agreements or arrangements are specifically
submitted to the stockholders for approval."
The Stockholder's Supporting Statement
The Company has contingency employment agreements with Messrs. Davidson, Chief
Executive Officer; Gifford, President, CNG Energy Services; Hunt, President,
CNG Producing; Johnson, Chief Financial Officer; and Timms, President, CNG
Transmission, dated November 14, 1989, which provide special severance
compensation if there is a change in control of the Company. These agreements,
commonly known as "golden parachutes," provide that if an officer resigns or is
fired under certain circumstances within three years after a change in control
of the Company, these executives shall receive severance payments equal to 2.99
times their respective annual compensation prior to the severance. However,
the most recent Company proxy statement does not explain what a "defined change
of control of the Company" means.
These employment agreements with the "golden parachute" provisions were
adopted without consideration by the Company's shareholders. If the Company
were to become the target of a takeover, these golden parachutes would
introduce a personal consideration for managers that potentially conflicts
with their fiduciary responsibility to shareholders. We believe this may cause
managers to act in a manner that encourages a takeover, regardless of whether
it maximizes stockholder value.
We believe that the issue of whether the Company should, in the future,
provide management with golden parachutes is of such importance that
stockholders should approve this decision. We believe stockholder approval is
one of the best ways available to address potential conflicts of interest that
may arise between the board and top executives on one hand, and stockholders on
the other hand, when a change of control is threatened.
<PAGE> 45
For the reasons stated above, we urge you to VOTE FOR this proposal.
Management's Comments
Contrary to the proponent's assertion that change-in-control severance
compensation provisions in employment contracts create a conflict of interest
between management's personal concerns and its responsibilities to the Company,
the Board of Directors believes that the security offered by such severance
provisions permits executives to remain focused and objective during a
threatening situation and to act promptly and decisively in the Company's best
interest. The Board recognizes that its officers may be involved in evaluating
or negotiating any offer or proposal which could result in a change of control
of the Company, and the Board believes such officers should be in a position
free from personal financial and employment considerations to evaluate or
negotiate any such change of control. Requiring stockholder approval of
severance agreements weakens the Board's flexibility to act promptly and
competitively within the industry in attracting and retaining experienced
executives, thereby potentially depriving the Company and its stockholders of
the leadership necessary for the maximization of long-term stockholder value.
In addition, the existence of special severance compensation provisions do not
affect the legal responsibilities of the Company's officers and directors to
stockholders with regard to maximizing stockholder value or any other duty or
responsibility to stockholders. The Board of Directors believes that severance
agreements offered at its discretion enhance the current value of the Company
by positively influencing its future value.
The Board of Directors believes that reasonable severance arrangements
related to a change of control also benefit the Company by enhancing its
ability to recruit, retain and motivate executives. The Board believes that
the severance provisions under the agreements are competitive with those of the
Company's competition; this is within the authority of the Board. Adoption of
the shareholder's proposal would adversely affect the Company's ability to
recruit top executives.
In summary, the Board of Directors believes that the limitations on the
Board's flexibility imposed by the implementation of this proposal would be an
unnecessary impediment to effective action by the Board and the goal of
maximizing stockholder value.
Vote Needed for Approval of the Proposal
Approval of this proposal requires an affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled
to vote. Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders. Broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
<PAGE> 46
Board Recommendation
The Board recommends that stockholders vote AGAINST Proposal 7, and the
accompanying proxy will be so voted, unless a contrary specification is made.
PROCEDURE FOR SUBMISSION OF 1997 STOCKHOLDER PROPOSALS
Proposals by stockholders for inclusion in the 1997 Annual Meeting Proxy
Statement must be received by the Corporate Secretary, Consolidated Natural Gas
Company, CNG Tower, 625 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3199,
prior to December 2, 1996. All such proposals are subject to the applicable
rules and requirements of the Securities and Exchange Commission.
OTHER BUSINESS
The Board of Directors does not intend to bring any business before the Meeting
other than that listed in the foregoing Notice and is not aware of any business
intended to be presented to the Meeting by any other person. Should other
matters properly come before the Meeting, the persons named in the accompanying
proxy will vote said proxy in such manner as they may, in their discretion,
determine.
Laura J. McKeown
Secretary
March 22, 1996
<PAGE> 47
Appendix A
(a) Article FOURTH of the Restated Certificate of Incorporation of the Company
is hereby amended in its entirety to read as follows:
"FOURTH. 1. The corporation shall be authorized to issue Four Hundred
Five Million (405,000,000)(1) shares of all classes of
capital stock, of which Four Hundred Million
(400,000,000)(1) shall be shares of Common Stock,
Two Dollars and Seventy-Five Cents ($2.75) par value
("Common Stock"), and Five Million (5,000,000)(1) shares
shall be shares of Preferred Stock, One Hundred Dollars
($100.00) par value ("Preferred Stock").
2. Shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is hereby
authorized to create and provide by resolution for the
issuance of shares of Preferred Stock in series and, by
filing a certificate pursuant to the applicable law of the
State of Delaware (hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the
number of shares to be included in each such series, and to
fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board of Directors with respect to
each series shall include, but not be limited to,
determination of the following:
(A) the maximum number of shares to constitute such
series, which may subsequently be increased or
decreased (but not below the number of shares of such
series then outstanding) by resolution of the Board of
Directors, the distinctive designation thereof and the
stated value thereof if different than the par value
thereof;
_______________
(1)Discrete Common Stock and Preferred Stock portions are subject to separate
approval by the stockholders. If only the Common Stock proposal is
approved, then the number of shares of capital stock authorized will be
402,500,000 and the number of Preferred Stock will remain at 2,500,000; if
only the Preferred Stock proposal is approved, then the number of capital
stock authorized will be 205,000,000 and the number of Common Stock will
remain at 200,000,000.
<PAGE> 48
(B) whether the shares of such series shall have voting
powers and, if any, the terms of such voting powers;
(C) the dividend rate or rates, if any, on the shares of
such series or the manner in which such rate or rates
shall be determined, the conditions and dates upon
which such dividends shall be payable, and the
preference or relation which such dividends shall bear
to the dividends payable on any other class or classes
or on any other series of capital stock and whether
such dividends shall be cumulative or noncumulative;
(D) whether the shares of such series shall be subject to
redemption by the corporation, and, if made subject to
redemption, the times, prices and other terms,
limitations, restrictions or conditions of such
redemption;
(E) the relative amounts, and the relative rights or
preferences, if any, of payment in respect of shares
of such series which the holders of shares of such
series shall be entitled to receive upon the
liquidation, dissolution or winding-up of the
corporation;
(F) whether or not the shares of such series shall be
subject to the operation of a retirement or sinking
fund and, if so, the extent to which and the manner in
which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of
such series for retirement or to other corporate
purposes, and the terms and provisions relative to the
operation of such retirement or sinking fund;
(G) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any
other class, classes or series, or other securities,
whether or not issued by the corporation, and if so
convertible or exchangeable, the price or prices or
the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
<PAGE> 49
(H) the limitations and restrictions, if any, to be
effective while any shares of such series are
outstanding upon the payment of dividends or the
making of other distributions on, and upon the
purchase, redemption or other acquisition by the
corporation of, the Common Stock or any other class or
classes of stock of the corporation ranking junior to
the shares of such series either as to dividends or
upon liquidation, dissolution or winding-up of the
corporation;
(I) the conditions or restrictions, if any, upon the
creation of indebtedness of the corporation or upon
the issuance of any additional stock (including
additional shares of such series or of any other
class) ranking on a parity with or prior to the shares
of such series as to dividends or distribution of
assets upon liquidation, dissolution or winding-up of
the corporation; and
(J) any other preference, relative, participating,
optional or other special rights, and the
qualifications, limitations or restrictions thereof,
as shall not be inconsistent with law, this
Article FOURTH or any resolution of the Board of
Directors pursuant hereto.
3. Each share of the Common Stock shall be equal in all
respects to every other share of the Common Stock. The
Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof.
4. Except as provided herein, at all meetings of the
stockholders of the corporation the holders of shares of
Common Stock shall be entitled to one vote for each share
of Common Stock held by them respectively except as herein
otherwise expressly provided. The holders of shares of the
Preferred Stock shall have no right to vote and shall not
be entitled to notice of any meeting of stockholders of the
corporation or to participate in any such meeting except as
otherwise expressly provided herein or in a Preferred Stock
Designation, and except for those purposes, if any, for
which said rights cannot be denied or waived under some
mandatory provision of law which shall be controlling.
<PAGE> 50
Any action required to be taken or which may be taken at
any annual or special meeting of the stockholders of the
corporation may be taken without a meeting, without prior
notice and without a vote, if, in addition to any
affirmative consent otherwise required by applicable law, a
consent in writing, setting forth the action so taken,
shall be signed by the holders of seventy-five percent or
more of the issued and outstanding shares of stock of the
corporation entitled to vote thereon. Prompt notice of the
taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those
stockholders who have not consented in writing.
5. From time to time, and without limitation of other rights
and powers of the corporation as provided by law, the
corporation may reclassify its capital stock and may create
or authorize one or more classes or kinds of stock ranking
prior to or on a parity with or subordinate to the
Preferred Stock or may increase the authorized amount of
the Preferred Stock or of the Common Stock or of any other
class of stock of the corporation or may amend, alter,
change or repeal any of the rights, privileges, terms and
conditions of shares of the Preferred Stock or of any
series thereof then outstanding or of shares of the Common
Stock or of any other class of stock of the corporation,
upon the vote, given at a meeting called for that purpose
in accordance with the provisions of paragraph 6 hereof, of
the holders of a majority of the shares of stock then
entitled to vote thereon or upon such other vote of its
stockholders then entitled to vote thereon as may be
provided by law; provided that the consent of the holders
of shares of the Preferred Stock (or of any series thereof)
required by the provisions hereof or of any Preferred Stock
Designation, if any such consent be so required, shall have
been obtained, and provided further that the rights,
privileges, terms and conditions of shares of the Common
Stock shall not be subject to amendment, alteration, change
or repeal without the consent (given in writing or by vote
at a meeting called for that purpose in accordance with the
provisions of paragraph 6 hereof) of the holders of a
majority of the total number of shares of the Common Stock
then outstanding.
<PAGE> 51
6. Notice of any meeting of stockholders of the corporation,
or of the holders of any class or series of stock, required
or authorized hereunder or by law, setting forth the
purpose or purposes of such meeting, shall be mailed by the
corporation, not less than ten (10) days nor more than
sixty (60) days prior to such meeting, to all stockholders
(at their respective addresses appearing on the books of
the corporation) entitled to vote thereat of record as of a
date fixed by the Board of Directors of the corporation for
the purpose of determining the stockholders entitled to
notice of and to vote at such meeting, unless such notice
shall have been waived, either before or after the holding
of such meeting, by all stockholders entitled to notice
thereof and to vote thereat. Any action authorized to be
taken at a meeting called for that purpose in accordance
with the provisions of this paragraph 6 may be taken either
at a special meeting or at any regular or annual meeting,
provided that notice of such proposed action is included in
the notice of such regular or annual meeting. Except where
some mandatory provision hereof, of a Preferred Stock
Designation or of law shall be controlling, no other,
longer or additional notice need be given of any such
meeting and all holders of shares of Preferred Stock of the
corporation, by becoming such, hereby consent to the
holding of any such meeting upon notice given as
hereinbefore provided and thereby waive, to the full extent
permitted by law, any right to require the giving of or to
receive any such other, longer or additional notice.
7. The corporation may, at any time, and from time to time,
upon order of the Board of Directors, issue and dispose of
any of its authorized and unissued shares of Preferred and
Common Stock, or any securities convertible into Common
Stock, for such consideration as may be fixed by the Board
of Directors; and no holder of Common Stock of the
corporation, and no holder of Preferred Stock of the
corporation unless otherwise expressly provided for in the
Preferred Stock Designation with respect to such series of
Preferred Stock, shall have any preemptive right to
subscribe for any shares of stock of any class, series or
kind whatsoever, whether now or hereafter authorized, or
securities convertible into such stock, and whether issued
for cash, property, services, by way of dividends or
otherwise."
<PAGE> 52
(b) Subsection (j) of Section 4 of Article FIFTH of the Restated Certificate
of Incorporation of the Company is hereby amended in its entirety to read
as follows:
"(j) "Subsidiary" shall mean any corporation a majority of the voting
shares of which are at the time owned by the Company or by other
subsidiaries of the Company."
(c) The sixth paragraph of Article TENTH of the Restated Certificate of
Incorporation of the Company is hereby amended in its entirety to read as
follows:
"When and as authorized by the affirmative vote of the holders of a
majority of the outstanding Common Stock of the corporation entitled to
vote thereon at a meeting duly called for that purpose, or when authorized
by the written consent of the stockholders in accordance with the
provisions set forth in Section 4 of Article FOURTH hereof, together with
such vote of the Preferred Stock as may be required by Article FOURTH
hereof or by any Preferred Stock Designation, to sell, lease or exchange
all or substantially all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may consist in whole or in
part of money or other property, including shares of stock in, and/or
other securities of, any other corporation or corporations, as the Board
of Directors shall deem expedient and for the best interests of the
corporation."
(d) The phrase "Except as provided in subparagraph (B) of paragraph 10 of
Article FOURTH hereof, the" in the eighth paragraph of Article TENTH of
the Restated Certificate of Incorporation of the Company is hereby deleted
and replaced by the word "The".
(e) The reference to "Section 10(A) of Article FOURTH" in the second paragraph
of Article THIRTEENTH of the Restated Certificate of Incorporation of the
Company is hereby amended to refer to "Section 4 of Article FOURTH".
NOTE: YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN AND RETURN
PROXY CARD, OR ATTEND THE MEETING AND VOTE IN PERSON.
<PAGE> 1
EXHIBIT F
March 18, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Consolidated Natural Gas Company, et al.,
SEC File Number 70-8667
Dear Sirs:
The following opinion is rendered in accordance with the requirements of
Exhibit F to Form U-1 of the Securities and Exchange Commission ("SEC") with
respect to the transactions proposed by Consolidated Natural Gas Company
("Consolidated"), a Delaware corporation, and its various subsidiary companies
("Subsidiaries") in the application-declaration at SEC File No. 70-8667, as
amended ("Application"). Such proposed transactions encompass up to $7 billion
in Consolidated external financing, $1.5 billion in intra-system financing, and
up to $2 billion in parent company guarantees.
I have examined the certificate of incorporation and bylaws of
Consolidated, the corporate minutes relating to the proposed approximate five
year financing authorization of Consolidated and its Subsidiaries ending on
March 31, 2001, the Application, and such other documents as I have deemed
necessary for the purpose of rendering this opinion. I have also relied upon
information provided by counsels for the Subsidiaries respecting the
transactions proposed by each such Subsidiary in the Application. It is
anticipated that most of the financings between Consolidated and its
Subsidiaries will hereafter occur pursuant to the exemptive provisions of
recently expanded Rule 52 under the Public Utility Holding Company Act of 1935.
<PAGE> 2
Based on such examination and information and relying thereon, I am of the
opinion that when the SEC shall have permitted the Application to become
effective and any state filings and approvals indicated as required by counsel
for the Subsidiaries are obtained, all requisite action will have been taken by
Consolidated and its Subsidiaries which are parties to the Application, except
the actual carrying out thereof.
In the event the proposed transactions are consummated in accordance with
the Application, I am of the opinion that:
(a) All state laws applicable to the proposed transactions will have
been complied with;
(b) Consolidated and the Subsidiaries are validly organized and duly
existing;
(c) (i) The short-term debt and long-term debt of Consolidated
proposed to be issued and sold during the five year
authorization period of the Application will be valid and
binding obligations in accordance with their terms;
(ii) The capital stock of Consolidated proposed to be issued and
sold during the five year authorization period of the
Application will be validly issued, fully paid and
nonassessable, and the holders dthereof will be entitled to
the rights and privileges appertaining thereto in the charter
or other document defining such rights and privileges;
(ii) Consolidated will, and with respect to transactions effected
through the CNG System money pool other Subsidiaries will,
legally acquire the interests in open account advances of the
Utility Subsidiaries (as defined in the Application), and such
short-term debt will be valid and binding obligations of the
respective issuers, in accordance with the proposed
transaction;
(d) When an amendment changing the authorized shares of Consolidated's
or a Subsidiary's capital stock as permitted by the Application is
duly adopted by the stockholders of Consolidated or the Subsidiary,
as the case may be, and Consolidated's or the Subsidiary's
Certificate of Incorporation has been duly filed and recorded in
the respective state of incorporation, then the Certificate of
Incorporation will have been legally and validly amended, and the
<PAGE> 3
holders of Consolidated's or the Subsidiary's securities, as the
case may be, will be entitled to the rights and privileges
appertaining to thereto set forth in the Certificate of
Incorporation as so amended;
(e) The guarantees and other credit support arrangements entered into
by Consolidated and the Non-utility Subsidiaries (as defined in the
Application) with respect to obligations of their respective
subsidiary companies will be valid and binding obligations of
Consolidated or the Non-utility Subsidiary, as the case may be, in
accordance with their terms;
(f) The consummation of the proposed transactions will not violate the
legal rights of the holders of any securities issued by
Consolidated or by an associate company thereof.
I hereby consent to the use of this opinion in connection with the
Application-Declaration.
Very truly yours,
N. F. Chandler
Attorney
