<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NATIONAL GAS & ONLY COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NATIONAL GAS & OIL COMPANY
------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
------------------------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of NATIONAL
GAS & OIL COMPANY, an Ohio Corporation (hereinafter referred to as "Company"),
has been called and will be held in the General Offices of the Company at 1500
Granville Road, Newark, Ohio on May 21, 1998, at 10:00 A.M., local time, for the
following purposes:
(1) To elect three directors to serve for a period of three years or until
their respective successors are duly elected and qualified.
(2) To ratify the appointment of Price Waterhouse LLP to audit the
financial statements of the Company and its subsidiaries for the year
ending December 31, 1998.
(3) To transact such other business as may properly come before the
meeting.
All of the above matters are more fully described in the accompanying Proxy
Statement.
The Board of Directors has fixed the close of business on March 31, 1998,
as the record date for determining the shareholders entitled to notice of and to
vote at the meeting and any adjournment thereof, and only holders of Common
Shares of the Company of record at the close of business on such date will be
entitled to notice thereof or to vote thereat.
If you cannot attend the meeting in person, please execute, date and return
the enclosed proxy in the envelope provided, with postage prepaid for mailing
within the United States.
By Order of the Board of Directors
Todd P. Ware
Vice President, CFO,
and Secretary
Dated: April 1, 1998
<PAGE>
NATIONAL GAS & OIL COMPANY
PROXY STATEMENT
APRIL 1, 1998
-----------------------------------
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
-----------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies from holders of the outstanding
Common Shares of NATIONAL GAS & OIL COMPANY for the annual meeting of
shareholders of the Company to be held in the General Offices of the Company at
1500 Granville Road, Newark, Ohio 43055, on May 21, 1998, at 10:00 A.M., local
time, for the purposes set forth in the accompanying notice of the meeting. The
Company's telephone number is (740) 344-2102.
Any proxy delivered in the accompanying form may be revoked by the person
executing the same, in writing or in open meeting, at any time before the
authority hereby granted is exercised. Proxies received which are properly
executed will be voted at the meeting or any adjournment thereof as specified
therein by the shareholders, but if no specification is made, such proxies will
be voted for the election of the three nominees for Director named herein and
for the ratification of Price Waterhouse LLP as the Company's independent
auditor.
If any other matters are properly brought before the meeting, or if a
nominee for election as a Director named in the proxy statement is unable to
serve or will not serve, the persons named in the proxy or their substitutes
will vote in accordance with their best judgment on such matters or for such
substitute nominee as the Directors may recommend.
The cost of solicitation of proxies will be borne by the Company. Such
solicitation will be made by mail and in addition may be made by Officers and
employees of the Company, personally or by telephone or telegram. Forms of
proxies and proxy materials may also be distributed through brokers, custodians
and other like parties to the beneficial owners of shares. Proxy materials will
be first sent to shareholders on or about April 24, 1998.
Only the holders of Common Shares of record at the close of business on
March 31, 1998, which is the record date for the annual meeting of shareholders
fixed by the Board of Directors, are entitled to notice of and to vote at the
meeting or any adjournment thereof. On March 31, 1998, the Company had
outstanding 7,156,913 Common Shares, each share having one vote.
Under Ohio law and the Company's Code of Regulations, the three nominees
receiving the greatest number of votes shall be elected as directors. Shares as
to which the authority to vote is withheld and broker non-votes are not counted
toward the election of the individual nominees specified on the form of proxy.
For purposes of determining whether a majority vote has been obtained for the
ratification of independent accountants, abstentions and broker non-votes will
have the same effect as votes against such proposals.
Under the applicable Ohio statute, if notice in writing is given by any
shareholder to the President, a Vice President, or Secretary of the Company not
less than forty-eight hours before the time fixed for holding a meeting for the
election of Directors that he desires the voting at such election to be
cumulative, and if an announcement of the giving of such notice is made upon the
convening of the meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, then each shareholder would have cumulative
voting rights. If cumulative voting is requested as herein described, each
shareholder would have a number of votes equal to the number of Directors to be
elected (3) multiplied by the number of shares owned by him and would be
entitled to cast all his votes for any one or more candidates as he sees fit.
Article Two, Section 2.03 of the Company's Code of Regulations prescribes
the method for a shareholder to nominate a candidate for election to the Board
of Directors. Generally, nominations, other than those made by or on behalf of
the existing Board of Directors of the Company, for election at an annual
meeting of shareholders must be made in writing, delivered or mailed by
first-class U.S. mail, postage prepaid, to the Secretary of the Company on or
before the later of (i) February 1 immediately preceding such annual meeting or
(ii) the sixtieth (60th) day prior to the first anniversary of the most recent
annual meeting of shareholders held for the election of Directors. Such
nomination must set forth (i) the name, age, business or residence address of
each nominee, (ii) the principal occupation or employment of each nominee, and
(iii) the number of Common Shares of the Company owned beneficially and/or of
record by each nominee and the length of time any such Common Shares have been
so owned. As of the date of this Proxy Statement, no persons have been so
nominated for election at this Annual Meeting.
CERTAIN BENEFICIAL OWNERS
2
<PAGE>
The following table sets forth certain information with respect to those
persons known to the management of the Company to be the beneficial owners of
more than 5% of the outstanding Common Shares of the Company as of March 1,
1998.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
Name and Address of Sole Voting & Shared Voting & Percent
Beneficial Owner Investment Power Investment Power of Class
- ------------------ ---------------- ---------------- --------
<S> <C> <C> <C>
The Trust Company of
New Jersey, Jersey
City, New Jersey 633,485(1) -0- 8.85%
</TABLE>
(1) Information provided to the Company by The Trust Company of New Jersey, on
Schedule 13G dated March 5, 1998, which holds the shares as Trustee for two
pension plans. The Trust Company of New Jersey certifies the shares were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing the control of
the issuer.
<TABLE>
<S> <C> <C> <C>
Dimensional Fund
Advisors Inc.
Santa Monica, California 429,728(2) -0- 6.00%
</TABLE>
(2) Information provided to the Company by Dimensional Fund Advisors Inc., on
Schedule 13G dated February 13, 1997, has been adjusted to reflect the two
percent (2%) stock dividend paid on December 22, 1997. Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to
have beneficial ownership of National Gas & Oil stock, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
THE BOARD OF DIRECTORS
Under the Company's Code of Regulations, the Board of Directors is divided
into three classes consisting of not less than three nor more than four
Directors each. The class to be elected in 1998 consists of three Directors.
The following nominees are proposed for election as Directors to serve for
a period of three years or until their successors are elected and qualified:
David C. Easley, Patrick J. McGonagle, and Graham R. Robb. Messrs. Easley,
McGonagle and Robb are incumbent Directors. Management does not contemplate
that any of the nominees named will be unable to serve.
In the event that one or more of the nominees named is unable or is
unwilling to accept, or is unavailable for, such election for any reason, the
persons named in the proxies received in the accompanying form or their
substitutes shall have authority, unless such authority is withheld, to vote or
refrain from voting according to their judgment for other individuals as
Directors in lieu thereof and in such cases, such proxies will be voted for such
substitute nominees as the Directors may recommend. If Directors are to be
elected by cumulative voting, the persons named in such proxies shall have
authority to distribute their votes among the nominees as they shall determine
in the exercise of their judgment.
NOMINEES FOR ELECTION AS DIRECTORS
David C. Easley - 55
Mr. Easley was elected President of the Precise Corporation, Racine,
Wisconsin, a manufacturer of high speed precision spindles for milling, drilling
and grinding in 1994. Previously, Mr. Easley was Executive Vice President, a
position he held in excess of five years. Mr. Easley is also a Director of the
Bank of Elmwood, Racine, Wisconsin. Mr. Easley has served as a Director of the
Company since 1986 and his term as a Director expires in 1998.
Patrick J. McGonagle - Age 43
Mr. McGonagle is President and Chief Executive Officer of National Gas &
Oil Company and its operating subsidiaries, positions he has held since February
19, 1993. Previously, Mr. McGonagle was Vice President and General Counsel for
a period in excess of five years. Mr. McGonagle has served as a Director of the
Company since 1995 and his term as a Director expires in 1998.
Graham R. Robb - Age 68
Mr. Robb is the retired Vice President and a Director of The Oxford Oil
Company, Zanesville, Ohio, producers of oil and gas. Mr. Robb is a Past
President of the Ohio Oil and Gas Association, a statewide association serving
the oil and gas industry. Mr. Robb has served as a Director of the Company
since 1992 and his term as Director expires in 1998.
DIRECTORS CONTINUING IN OFFICE
James H. Cameron - Age 61
3
<PAGE>
Mr. Cameron is President of Cameron Drilling Co., Inc. an operating company
and producers of oil and gas, a position he has held in excess of five years.
Mr. Cameron has served as Director of the Company or its predecessor since 1978
and his term as a Director of the Company expires in 2000.
M. Howard Petricoff - Age 48
Mr. Petricoff is a partner in the law firm of Vorys, Sater, Seymour and
Pease, Columbus, Ohio, a position he has held in excess of five years. Mr.
Petricoff represents the Ohio Oil and Gas Association, oil and gas producers,
industrial firms and serves an appointment as Special Assistant Ohio Attorney
General for energy matters. Mr. Petricoff was elected as a Director of the
Company in August 1995 to fill an unexpired term and his term as a Director
expires in 2000.
William H. Sullivan, Jr. - Age 59
Mr. Sullivan was elected Chairman of the Board of National Gas & Oil
Company in May 1995. Additionally, Mr. Sullivan is the Senior Partner of
Waterland Operating Company, Rowayton, Connecticut, a real estate investment
company, and is Senior Partner of Monmouth Ocean Realty Trust, a R.E.I.T.
located in Rowayton, Connecticut, positions he has held in excess of five years.
Mr. Sullivan has served as a Director of the Company or its predecessor since
1978 and his term as a Director of the Company expires in 2000.
Alan A. Baker - Age 66
Mr. Baker is the retired chairman of Halliburton Energy Services, Houston,
Texas, having served with Halliburton for 41 years. Prior to being named
chairman in 1993, Mr. Baker was president and, in 1992, chairman and chief
executive officer of Halliburton Energy Services Group. Mr. Baker was elected
as a Director of the Company in August 1995 to fill an unexpired term and his
term as a Director of the Company expires in 1999.
Richard O. Johnson - Age 69
Mr. Johnson is the President and majority shareholder of J.J. Agro, Inc.,
Zanesville, Ohio. which invests in various business opportunities. Mr. Johnson,
in excess of five years, had been the President and majority stockholder of Clay
City Beverages, Inc., a Pepsi Cola bottler and distributor in Zanesville, Ohio.
The Pepsi Cola bottler and distributor assets were sold by Clay City Beverages
in 1991. Mr. Johnson is a Director of Bankfirst of Ohio, the First National
Bank, and Muskingum Livestock Sales Company of Zanesville, Ohio. Mr. Johnson
has served as a Director of the Company since 1984 and his term as a Director of
the Company expires in 1999.
Thomas E. Stewart - Age 47
Mr. Stewart is the Executive Vice President of the Ohio Oil and Gas
Association, a state-wide trade association serving the oil and gas industry, a
position he has held since September 1991. Mr. Stewart is a Registered
Legislative Agent representing the oil and gas industry before the state and
federal government and their respective agencies. Since 1985 Mr. Stewart also
has been the President of Stewart Drilling Co., Inc., Mt. Vernon, Illinois, a
family owned holding company for company held oil and gas working interests.
Mr. Stewart was elected as a Director at the 1996 Annual Meeting and his term as
a Director of the Company expires in 1999.
CERTAIN RELATED PARTY TRANSACTIONS
In 1997, The Oxford Oil Company ("Oxford Oil"), which is owned by John
W. Straker, Jr., and which Mr. Graham R. Robb serves as a Director, received
$2,804,803 for 923,635 Mcf for gas purchased by Producers Gas Sales, Inc.
("Producers Gas"), a subsidiary of the Company, as agent for end use natural
gas customers. During 1997, Cameron Drilling Co., Inc., in which Mr. Cameron
is a partner and President, received $353,751 for 177,131 Mcf for gas
purchased by Producers Gas as agent for end use natural gas customers. The
Company's purchased gas terms are approved by the Executive Committee and
Board of Directors and are consistent for all like gas producers.
During 1997, Oxford Oil received $30,080 from NGO Development for joint
venture drilling programs and received $3,824 from NGO Development for joint
venture drilling program operating expenses. Oxford also received $11,099 for
6,024 Mcf for gas purchased by NGO Development.
All of the purchases and sales by the Company's subsidiaries were made on
terms as favorable as those available from independent third parties.
M. Howard Petricoff is a Partner of Vorys, Sater, Seymour and Pease, which
rendered legal services to the Company during 1997 in the amount of $194,097.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held four (4) regular meetings during 1997. Each
member of the Board of Directors who is not an Officer of the Company receives
$1,500 for each meeting attended. Directors who are also Officers of the Company
do not receive any fee for services performed as Directors or as members of the
Committees of the Board. All Directors are reimbursed expenses for attended
meetings. Mr. William H. Sullivan, Jr., Chairman of the Board and Executive
Committee, is compensated at an annual rate of $40,000 for his services as
Chairman of the Board and Executive Committee.
4
<PAGE>
The Company maintains an Executive Committee which acts for and on behalf
of the Board of Directors in the management, business and affairs of the Company
during intervals between meetings of the Board of Directors. The Executive
Committee, elected annually, is also responsible for capital expenditure,
business development and nominating activities of the Board. The Executive
Committee is comprised of three (3) Directors: William H. Sullivan, Jr.,
Chairman, James H. Cameron, and Graham R. Robb. The Committee held two (2)
meetings during 1997. Non-officer members of the Executive Committee receive
$500 per meeting attended for their services on the Executive Committee.
The Audit Committee, comprised of outside Directors elected annually, met
three (3) times with representatives of Price Waterhouse LLP to review
accounting and auditing matters. The Committee has the responsibilities of
recommending the selection of the independent auditors for each year; consulting
with the independent auditors regarding the scope and plan of audit, adequacy of
internal controls, fees, non-audit services performed and reporting such
findings to the Board of Directors. Members are James H. Cameron, Chairman,
Richard O. Johnson and Thomas E. Stewart, each of whom is compensated at the
rate of $800 per meeting attended.
The Employees' Retirement Plan, Salary Deferral Plan and Group Medical
and Dental Welfare Plan are administered by the Retirement/Employee Benefits
Committee comprised of three (3) Directors: Richard O. Johnson, Chairman,
Alan A. Baker and M. Howard Petricoff, who are elected annually by the Board.
The Retirement/Employee Benefits Committee held one (1) meeting in 1997.
Non-officer members are compensated at the rate of $500 per meeting attended.
The Incentive/Compensation Committee administers the salary administration
program, management and employee incentive programs and the Company Contribution
Plan. (See "Executive Compensation" below.) The Committee, comprised of three
(3) outside Directors: David C. Easley, Chairman, Alan A. Baker and Graham R.
Robb, is elected annually by the Board. The Incentive/Compensation Committee
met four (4) times in 1997. Non-officer members are compensated at the rate of
$500 per meeting attended.
The Finance Committee is comprised of three (3) Directors: William H.
Sullivan, Jr., Chairman, David C. Easley and M. Howard Petricoff. The
Committee, elected annually, is responsible for the Company's Investment Program
administration, investment of Company assets and the funding of business
development activities and did not meet in 1997. Investment considerations
during 1997 were considered by the full Board of Directors at their regular
meetings and through phone conversations with committee members. Non-officer
members are compensated at the rate of $500 per meeting attended.
During 1997, each Director attended all of the meetings of the Board of
Directors and any committee on which such Director served.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company shares beneficially owned by the Directors of the Company and by all
Directors, nominees for election as Directors and Executive Officers as a group
as of March 1, 1998:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
Sole Voting & Shared Voting & Percent
Name Investment Power Investment Power of Class
-------- ---------------- ---------------- --------
<S> <C> <C> <C>
Alan A. Baker 359 2,101 (1)
James H. Cameron 208,496 82,098 (2) 4.06%
David C. Easley 6,521 (3) -0- (1)
Richard O. Johnson 164,765 -0- 2.30%
Patrick J. McGonagle 2,385 (4) 45 (5) (1)
M. Howard Petricoff 973 1,865 (1)
Graham R. Robb 4,804 -0- (1)
Thomas E. Stewart 1,050 -0- (1)
William H. Sullivan, Jr. 104,825 (6) 31,391 (7) 1.90%
All Directors, nominees and Executive
Officers as a group (14 persons) 494,178 (8) 117,500 (9) 8.60%
</TABLE>
(1) Less than 0.2%
(2) Owned by Mr. Cameron's wife or as Joint Tenants.
(3) Does not include 332,514 shares as to which Mr. Easley holds a proxy to
vote, which shares are beneficially owned by a family partnership in which
Mr. Easley's wife is a partner.
(4) Includes 1,799 shares held in trust under the Company's Salary Deferral
Plan.
(5) Shares held in trust under the Company's Salary Deferral Plan.
(6) Includes shares held by Mr. Sullivan as Guardian for his brother.
(7) Includes shares held by Mr. Sullivan as Trustee for various members of his
family, or Mr. Sullivan's wife.
(8) Includes 5,011 shares held in trust under the Company's Salary Deferral
Plan.
(9) Includes 45 shares held in trust under the Company's Salary Deferral Plan.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the three years ended December 31,
1997, compensation paid by the Company to Patrick J. McGonagle, President and
Chief Executive Office of the Company. No other Executive Officer of the
Company earned compensation in excess of $100,000 in 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
All Other
Name and Compensation
Principal Position Year Salary($) Bonus($)(1) ($)(2)
- ------------------ ---- --------- ----------- --------
<S> <C> <C> <C> <C>
Patrick J. McGonagle 1997 120,398 13,060 385
President & CEO 1996 115,754 22,569 380
1995 111,666 15,077 366
</TABLE>
(1) Cash bonuses paid under the Management Incentive Plan and Company
Contribution Plan are calculated and paid in the year immediately following the
year in which such bonuses are earned. Bonuses are included in the table for
the year in which they are earned. Each year's bonus includes a $100 bonus paid
to all employees of the Company. Distribution of a bonus to Mr. McGonagle was
from the Management Incentive Plan in 1997, 1996 and 1995. (See "Compensation
Committee Report on Executive Compensation").
(2) The amount reported represents the premiums paid by the Company during 1997,
1996 and 1995, respectively, with respect to term life insurance for the benefit
of Mr. McGonagle.
Transition Program
The Company's Board of Directors has adopted a benefit plan providing
severance payments to employees of the Company if their employment with the
Company is terminated following the acquisition by an unaffiliated
corporation, entity or person of 25% or more of the voting stock or assets of
the Company (a "change of control"). Certain executives of the Company,
including Mr. McGonagle, are entitled to receive 12 months' regular salary
in the event of (i) the termination of his employment by the Company for any
reason within a period of two years following the date of a change of
control, (ii) the termination of his employment by the Company for any reason
prior to, but in anticipation of a change of control, or (iii) the voluntary
termination of employment by him within two years following the date of a
change of control if he is offered a lesser position, suffers a decrease in
compensation or reduction in benefits or is required to relocate the
principal place of providing services to the Company to a location more than
25 miles from the principal offices of the Company. In addition, the
executives, including Mr. McGonagle, are entitled to receive lump sum
payments from the Company upon the occurrence of a change of control. The
amount of such payments is dependent upon the purchase price paid for common
shares of the Company in the transaction which resulted in a change of
control. Employees are not entitled to any benefits under the plan unless a
change of control occurs.
Retirement Plans
During 1997, the Company maintained several qualified and non-qualified
defined contribution and defined benefit plans for the benefit of employees of
the Company and its operating subsidiaries. The plans are open to all eligible,
full-time employees who are at least 21 years of age and have completed one (1)
year of service.
Employees' Retirement Plan - The Company through its subsidiaries maintains
a Retirement Plan for all eligible, full-time employees. The Retirement Plan is
a defined benefit plan based on the total compensation paid to an employee
throughout his employment as a participant of the Plan. Retirement benefits are
accrued on an annual basis for all participating employees at a rate of 1.90% of
total compensation. For Mr. McGonagle, retirement benefits are accrued based
upon salary and bonus paid each year. The sum of annual accruals represents the
employee's annual normal retirement (age 65) benefit. Mr. McGonagle has 12
years of service credited to him under the Retirement Plan.
The following table shows the estimated annual straight life benefit
payable at normal retirement based on an average annual compensation over a
certain number of years of service. The amounts listed in the table are not
subject to any reduction for Social Security benefits.
<TABLE>
<CAPTION>
AVERAGE ANNUAL YEARS OF SERVICE
COMPENSATION 20 25 30 35 40
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 9,500 $11,875 $14,250 $16,625 $ 19,000
$ 50,000 $19,000 $23,750 $28,500 $33,250 $ 38,000
$ 75,000 $28,500 $35,625 $42,750 $49,875 $ 57,000
$100,000 $38,000 $47,500 $57,000 $66,500 $ 76,000
$125,000 $47,500 $59,375 $71,250 $83,125 $ 95,000
$150,000 $57,000 $71,250 $85,500 $99,750 $114,000
</TABLE>
6
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, this Report and the graph
set forth on page 8 shall not be incorporated by reference into any such
filings.
Compensation Philosophy and Components of Compensation
The Company's compensation program is administered by the
Incentive/Compensation Committee (the "Committee") of the Board of Directors.
The Committee, which is comprised of three (3) non-employee directors, generally
makes all decisions on compensation paid to the Company's employees, including
the executive officers. All decisions by the Committee relating to the
compensation of the Company's executive officers are reviewed and given final
approval by the full Board of Directors. During 1997, no decisions of the
Committee were modified or rejected in any material way by the full Board. The
goal of the Committee in establishing the compensation of the Company's
executive officers is to reward individual contributions and achievements and
above-average Company performance. In so doing, the Committee believes that the
Company will be able to attract and retain exceptional executive talent and
create a performance-oriented environment that will motivate executives to
achieve Company and individual goals.
In 1992, the Company retained an independent compensation consultant to
assess the Company's compensation program and to compare the Company's
compensation against that of other companies in the natural gas industry. The
independent consultant recommended, and the Board of Directors approved, a
compensation program comprised of base salary and incentive compensation.
Beginning in 1992, the base salary component of any executive's compensation,
including Mr. McGonagle's compensation, is determined in accordance with a
Salary Administration Plan which categorizes employees, including executive
officers, into relative job positions. The category into which any particular
job position is classified is determined based upon competitive levels,
organizational structure and reporting relationships, the nature of each
position and the perceived internal value of each position. Each category is
assigned a salary range containing a minimum, midpoint and maximum salary
figure. It is anticipated that the minimum, midpoint and maximum salary figures
will be adjusted periodically to reflect, for example, competitive trends in the
industry, changes in the Company's organization and Company fiscal performance.
The level of compensation earned by each employee within the range of that
employee's job category will vary depending upon the level of experience and
individual performance of the employee.
In 1992, the incentive component of compensation was determined under a
Management Incentive Plan (the "Incentive Plan") pursuant to which managers and
executive officers received bonuses based upon the Company's return on assets
("ROA") and return on equity ("ROE"). Beginning in 1993, only the ROE component
will be used in the determination of the bonus amount. Objectives of the
Incentive Plan include providing Company shareholders with a reasonable return
on their investment, tying remuneration more closely to Company performance and
enhancing overall competitiveness of compensation at the Company in a variable
instead of fixed manner. Participation in the Incentive Plan is limited to
those individuals who significantly affect the operating results of the Company,
as recommended by the CEO.
Specific awards under the Incentive Plan are calculated by means of a
formula which targets consolidated ROE. The target for ROE is recommended to
the Committee by the CEO, taking into account the fiscal structure of the
Company, economic and industry conditions, anticipated performance, shareholder
value and competitive industry practices. Actual ROE is to be determined by the
Company's independent auditors. No incentive compensation will be awarded
unless the ROE target has been satisfied.
The formula established from the target is then applied to each
participant's base salary. Officers, including Mr. McGonagle, are eligible to
receive a maximum incentive award of twenty percent (20%) of base salary,
depending on organizational performance. Other participants generally are
eligible to receive a maximum incentive award of ten percent (10%) or three
percent (3%) of base salary contingent on organizational performance.
The Company also has in effect a Company Contribution Plan ("Contribution
Plan") designed to recognize overall performance of all eligible, full-time
employees of the Company and its operating subsidiaries. The Contribution Plan
is administered by the Committee, the members of which, with the Board of
Directors, determine annually the amount of the total cash contribution to be
distributed to eligible employees in the following year. The amount to be
distributed each year is based upon corporate performance and is at the sole
discretion of the Board of Directors. It is the intention of the Committee that
no employee receive in any one year awards under both the Incentive Plan and the
Contribution Plan. Therefore, any individual who is a participant in both plans
will receive an award under the plan that provides for the greater award to that
individual in that year.
COMPENSATION COMMITTEE
David C. Easley, Chairman, Alan A. Baker, Graham R. Robb
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Robb serves as a Director of The Oxford Oil Company. The Oxford Oil
Company received $2,804,803 for 923,635 Mcf for gas purchased by Producers Gas
Sales, Inc., a subsidiary of the Company, as agent for end use natural gas
customers. In addition, Oxford Oil received $30,080 from NGO Development for a
joint venture drilling program and received $3,824 from NGO Development for
joint venture drilling program operating expenses.
7
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, S&P 500, AND NATURAL GAS (DIVERSIFIED) INDUSTRY INDEX
The following graph sets forth a comparison of five year cumulative total
return among the common shares of the Company, the S&P 500 Index and the Edward
D. Jones & Co. Natural Gas (Diversified) Industry Index (the "Natural Gas
Index") for the fiscal years indicated. Information reflected on the graph
assumes an investment of $100 on December 31, 1992, in each of the common shares
of the Company, the S&P 500 and the Natural Gas Index. Cumulative total return
assumes reinvestment of dividends. The Natural Gas Index represents stock price
performance of 23 natural gas companies chosen by Edward D. Jones & Co. having
at least thirty percent but not more than ninety percent of their operating
revenues from the distribution of natural gas. The Company is among the 23
companies included in the Natural Gas Index.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
The Natural S&P
Company Gas Index 500
------- --------- ---
<S> <C> <C> <C>
1992 $100 $100 $100
1993 $133 $115 $110
1994 $142 $102 $112
1995 $117 $135 $153
1996 $114 $200 $203
1997 $161 $213 $252
</TABLE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent certified public
accountants for the fiscal year ended December 31, 1997. Its representatives
are expected to be present at the Annual Meeting and will have an opportunity to
make a formal statement and be available to respond to appropriate questions.
On the recommendation of the Audit Committee and ratification by the
shareholders, the Company's Board of Directors appointed Price Waterhouse LLP as
auditors for the fiscal year ended December 31, 1997, and audit and non-audit
services during the year were approved by the Audit Committee, which considered
the effect of the performance of such services on the independence of said firm.
The Company's Board of Directors has proposed that the ratification of the
appointment of the independent certified public accountants for the current
fiscal year be submitted to the shareholders. On the recommendation of the
Company's Audit Committee, the Board of Directors appointed Price Waterhouse LLP
as independent certified public accountants for the fiscal year ending December
31, 1998, and recommends that the appointment of Price Waterhouse be ratified by
the shareholders.
SHAREHOLDERS PROPOSALS
Proposals submitted by shareholders for inclusion in the 1998 proxy
materials must be received by the Company not later than December 15, 1998.
1997 ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31,
1997, has been sent to shareholders; said Annual Report and the financial
statements contained therein are not, and are not in any respect intended to be,
part of the proxy soliciting material.
THE COMPANY WILL ALSO PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, TO EACH
SHAREHOLDER WHOSE PROXY IS SOLICITED HEREBY, UPON WRITTEN REQUEST OF SUCH
SHAREHOLDER TO TODD P. WARE, VICE PRESIDENT, CFO & SECRETARY, AT NATIONAL GAS &
OIL COMPANY, 1500 GRANVILLE ROAD, P. O. BOX 4970, NEWARK, OHIO 43058-4970.
TODD P. WARE
Vice President, CFO,
and Secretary
8
<PAGE>
PROXY
NATIONAL GAS & OIL COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Alan A. Baker, David C. Easley and Richard O.
Johnson, or any of them with full power of substitution in each, proxies to vote
(including authority to vote cumulatively) and act with respect to all Common
Shares of the undersigned in NATIONAL GAS & OIL COMPANY, an Ohio Corporation, at
the Annual Meeting of its shareholders to be held in the General Offices of the
Company at 1500 Granville Road, Newark, Ohio, on May 21, 1998, at 10:00 A.M.,
local time, and at any and all adjournments thereof in accordance with the
following instructions:
1. THE ELECTION OF / / FOR all nominees listed below / / WITHHOLD AUTHORITY
DIRECTORS (except as marked to the to vote for all
contrary below). nominees listed
below.
For a term of three years: DAVID C. EASLEY, PATRICK J. MCGONAGLE AND GRAHAM R.
ROBB.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE PRINT
THAT NOMINEE'S NAME BELOW.)
- --------------------------------------------------------------------------------
2. PROPOSAL for the ratification of the appointment of Price Waterhouse LLP to
audit the financial statements of the Company and its subsidiaries for the year
ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
(Please date and sign on reverse side)
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2. THIS PROXY, IF RECEIVED
PRIOR TO THE MEETING PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NOT
OTHERWISE SPECIFIED, THE PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND 2. IF ANY
OTHER MATTERS ARE BROUGHT BEFORE THE MEETING, OR IF A NOMINEE FOR ELECTION AS A
DIRECTOR NAMED IN THE PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL
NOT SERVE, THE PERSONS NAMED IN THIS PROXY OR THEIR SUBSTITUTES WILL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGMENT ON SUCH MATTERS OR FOR SUCH SUBSTITUTE
NOMINEE AS THE DIRECTORS MAY RECOMMEND.
IMPORTANT: Please sign exactly as your names appear on this Proxy. Where
shares are held jointly, both holders should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If signer is a corporation, execute in full corporate name by authorized
officer.
Date: , 1998
-------------------------------
---------------------------------------------
(Signature of Stockholder)
---------------------------------------------
(Signature of Stockholder)
9
