<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
NORTH CAROLINA NATURAL GAS CORPORATION
- --------------------------------------------------------------------------------
(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> 2
[NCGC LOGO]
150 Rowan Street/Post Office Box 909
Fayetteville, North Carolina 28302-0909
-----------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 13, 1998
-----------------------------------------------------------------------
December 5, 1997
Fayetteville, North Carolina
TO THE STOCKHOLDERS:
Notice is hereby given that in accordance with the By-Laws, the Annual
Meeting of the Stockholders of North Carolina Natural Gas Corporation (the
"Company") will be held at the Radisson Prince Charles Hotel, 450 Hay Street,
Fayetteville, North Carolina, at 10:00 A.M., on the 13th day of January 1998,
for the following purposes:
1. To elect three Directors to serve for a term of three years.
2. To consider and vote upon an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock of the
Company from 12,000,000 shares of common stock, $2.50 par value, to 24,000,000
shares of common stock, $2.50 par value.
3. To transact such other business as may properly come before the meeting.
Only Stockholders of record on November 26, 1997 are entitled to vote at
the Annual Meeting and any adjournment thereof.
/s/ SALLY T. SOWERS
SALLY T. SOWERS,
Secretary
- --------------------------------------------------------------------------------
Each Stockholder Who Does Not Expect to Attend is Urged to Date and Sign the
Enclosed Proxy and Return it Promptly in the Enclosed Envelope Which Requires No
Postage if Mailed in the United States.
<PAGE> 3
NORTH CAROLINA NATURAL GAS CORPORATION
150 ROWAN STREET/POST OFFICE BOX 909
FAYETTEVILLE, NORTH CAROLINA 28302-0909
910-483-0315
DECEMBER 5, 1997
------------------------------------
Proxy Statement
------------------------------------
This proxy statement is furnished to Stockholders by the management of the
Company for solicitation of proxies for use at the Annual Meeting of
Stockholders on Tuesday, January 13, 1998, at 10:00 A.M. at the Radisson Prince
Charles Hotel, 450 Hay Street, Fayetteville, North Carolina, and at all
adjournments thereof, for the purposes set forth in the attached Notice of
Annual Meeting of Stockholders. The accompanying proxy is for use at the meeting
if a Stockholder either will be unable to attend in person or will attend but
wishes to vote by proxy. The proxy may be revoked by the Stockholder at any time
before it is exercised by filing with the Secretary of the Company an instrument
revoking it, filing a duly executed proxy bearing a later date or by attending
the meeting and electing to vote in person. All shares of the Company's Common
Stock represented by valid proxies received pursuant to this solicitation, and
not revoked before they are exercised, will be voted in the manner specified
therein. If no specification is made, the proxies will be voted in favor of (1)
electing three Directors for three-year terms expiring in 2001, and (2)
amendment of the Company's Certificate of Incorporation to increase the number
of authorized shares of common stock from 12,000,000 to 24,000,000 shares.
The Annual Report for the twelve-month period ended September 30, 1997, is
enclosed herewith.
This proxy is solicited on behalf of the Board of Directors of the Company
and the cost of solicitation has been or will be borne by the Company. The
approximate date this proxy material is first being sent to Stockholders of the
Company is December 5, 1997. The solicitation is being made by mail. In
addition, arrangements may be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to their principals
and the Company will reimburse them for their expense in so doing. It may be
that further solicitation of proxies will be made by telephone or oral
communication with some Stockholders of the Company following the original
solicitation. All such further solicitation will be made by officers and regular
clerical employees of the Company who will not be additionally compensated
therefor.
RECORD DATE AND VOTING SECURITIES
Only common Stockholders of record at the close of business on the 26th day
of November 1997 are entitled to vote at the Annual Meeting. On that date, the
Company had outstanding and entitled to vote 6,670,203 shares of common stock,
$2.50 par value ("Common Stock"). Each issued and outstanding share of Common
Stock entitles the Stockholder to one vote. No Stockholder has the right to vote
cumulatively for the election of directors. As of September 30, 1997, no
Stockholder, to the knowledge of the Company, is the beneficial owner of 5% or
more of the Company's Common Stock.
PROPOSAL ONE. ELECTION OF DIRECTORS
The Board of Directors of the Company consists of nine persons and is
divided into three classes, with the term of office of each class ending in
successive years. The terms of the Directors of Class I expire with this Annual
Meeting of Stockholders. Each of the three nominees for Class I, if elected,
will serve three years until the 2001 Annual Meeting and until their successors
have been elected and qualified. The current Directors of Classes II and III
will continue in office until the 1999 and 2000 Annual Meetings, respectively.
The persons named in the enclosed form of proxy will vote for the election
of the three nominees named below unless authority so to vote is withheld. In
the event any of the nominees should become unable to serve
<PAGE> 4
as a Director, the proxy will be voted in accordance with the best judgment of
the person or persons acting under it. The election of each nominee requires the
affirmative vote of a majority of the shares of Common Stock cast in the
election of Directors. The proxies solicited hereby will be voted FOR the
election of the three nominees listed below unless otherwise specified in the
proxy.
All of the nominees are currently Directors of the Company and each has
served continuously as a Director of the Company since the year indicated. The
Company is not aware of any reason why any nominee would be unable to serve.
The following table sets forth the names and ages of the Nominees For
Election As Directors and Continuing Directors, their principal occupation
during the past five years and other data regarding them, including Company
securities beneficially owned at November 26, 1997, based on information
received from the respective Nominees and Continuing Directors.
INFORMATION CONCERNING DIRECTORS
<TABLE>
<CAPTION>
SHARES
DIRECTOR PRINCIPAL OCCUPATION AND DIRECTORSHIPS IN BENEFICIALLY
NAME AGE SINCE OTHER PUBLIC COMPANIES WHERE APPLICABLE OWNED(1)(2)
---- --- -------- ------------------------------------------------------- ------------
<S> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS
George T. Clark, Jr. 69 1978 Attorney at Law, Wilmington, North Carolina 8,183
Robert T. Johnson 61 1994 Retired Partner, Arthur Andersen LLP, Atlanta, Georgia 2,664
William H. Prestage 62 1988 President, Prestage Farms, Clinton, North Carolina. 12,500
Directorship: Smithfield Foods, Inc.
CONTINUING DIRECTORS
Paul A. DelaCourt 63 1989 Chairman, The North Carolina Enterprise Corporation; 7,750
(Term Expires 1999) Chairman and Director, Quick-10 Corporation.
Directorships: Golden Corral Corporation; and
Investor's Management Corporation.
Frank B. Holding, Jr. 36 1995 President of First Citizens BancShares, Inc. and First 1,500
(Term Expires 1999) Citizens Bank, Raleigh, North Carolina 1994-date; Area
Executive, First Citizens Bank, Charlotte, North
Carolina, 1992-1994. Directorship: First Citizens
BancShares, Inc.
James E.S. Hynes 57 1993 Chairman of the Board of Hynes Sales Co. Inc., 3,306
(Term Expires 2000) manufacturers representatives, Charlotte, North
Carolina. Directorship: Ruddick Corporation
John O. McNairy 49 1995 President and CEO of Tidewater Transit Co., Inc. and 42,907
(Term Expires 1999) Harvey Enterprises & Affiliates, Kinston, North
Carolina, 1981-date; Chairman of the Board of
Stackhouse, Inc., Goldsboro, North Carolina, 1994-date.
Directorship: Wachovia Bank of NC, NA
Richard F. Waid 69 1981 Managing Director, The Robinson-Humphrey Company, 14,954
(Term Expires 2000) Investment Banking & Securities Broker/Dealer, Atlanta,
Georgia, 1992-date. Directorship: Iverson Technology
Corp.
Calvin B. Wells 61 1981 Chairman, President and Chief Executive Officer of the 21,361
(Term Expires 2000) Company
All Directors and Officers as a Group, including those named above (23 persons) 161,433
</TABLE>
- ---------------
(1) As reported to the Company by the Directors and nominees and executive
officers (including shares held by spouses, minor children, affiliated
companies, partnerships and trusts over which the named person has
beneficial ownership). The percentage of outstanding shares owned
beneficially by each person named above is less than 1%. All Directors and
Officers as a group owned 2.4%.
(2) Includes full shares acquired through the Dividend Reinvestment Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF ITS NOMINEES FOR DIRECTOR NAMED ABOVE.
2
<PAGE> 5
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
Meetings of the Board of Directors are held regularly each quarter,
including an organizational meeting following the conclusion of the Annual
Meeting of Stockholders. Special meetings of the Directors are called as
necessary. The Board of Directors held four meetings in fiscal year 1997.
The Company has two standing committees of the Board of Directors, an Audit
Committee and a Personnel and Compensation Committee. The Company does not have
a Nominating Committee.
The Audit Committee, which consists of Messrs. Holding, McNairy, Prestage
and Waid, is responsible for approval of the services performed by the Company's
independent accountants and for review of the objectivity of its financial
reporting. It meets with appropriate Company financial personnel and independent
public accountants in connection with its review of the financial statements to
be included in the Company's Annual Report to Stockholders. This Committee also
recommends to the Board the appointment of the independent public accountants to
serve as auditors for the following year in examining the accounts of the
Company. This Committee met one time during fiscal year 1997.
The Personnel and Compensation Committee, which consists of Messrs. Clark,
DelaCourt, Hynes, and Johnson, approves changes in the Company's pension plan
and makes recommendations to the Board with respect to compensation of the
officers of the Company. This Committee met two times during fiscal year 1997.
During the past fiscal year, no member of the Board of Directors attended
fewer than 75% of the Directors' meetings or 75% of the meetings of committees
of the Board of Directors on which he served.
DIRECTORS' COMPENSATION
The Company's standard arrangement for compensation of Directors is payment
of $1,250 per month as a Director's retainer fee and $600 for attendance at each
meeting of the Board or a committee. Salaried officers of the Company also
serving on the Board of Directors receive no additional compensation for their
services as members of the Board of Directors. Under the North Carolina Natural
Gas Corporation Directors' Deferred Compensation Plan (the "Deferred
Compensation Stock Plan") approved by the Stockholders January 14, 1997,
nonemployee directors have the right to elect to receive payment of deferred
Directors' Fees in shares of the Company's Common Stock. Each $1.00 of
Directors' Fees which a Director elects to defer pursuant to the Deferred
Compensation Stock Plan will create a credit of common stock units equal to
$1.15 worth of the Company's Common Stock. All such deferred amounts of
Directors' Fees under the Deferred Compensation Stock Plan will be treated as if
they had been invested in shares of the Company's Common Stock by converting the
Directors' Fees to common stock units for credit to the Director's memorandum
account. The value of the payment made to a Participating Director when the
deferral period ends shall depend on the market price of the Company's Common
Stock at that time.
On January 14, 1997, the Stockholders approved the North Carolina Natural
Gas Corporation Directors' Retirement Compensation Stock Plan (the "Stock
Retirement Plan") which replaced the Cash Retirement Plan for Directors. Under
the Stock Retirement Plan, a memorandum account for each Eligible Director shall
be maintained for bookkeeping purposes by the Company and was initially credited
with a number of common stock units calculated by dividing the present value
(using a 7% discount rate) of the Director's future retirement benefit as of
December 31, 1996 under the Cash Retirement Plan by the average of daily closing
prices on the New York Stock Exchange of the Company's Common Stock during the
period October 1, 1996 through December 31, 1996. In subsequent years, an
Eligible Director's memorandum account shall be credited with dividend
equivalents as and to the same extent that dividends are declared on the
Company's Common Stock, with such dividend equivalents being converted into
additional common stock units. The Eligible Director's interest in the
memorandum account becomes fully vested upon his completion of ten years of
service on the Board of Directors of the Company. Any Eligible Director who
ceases service on the Board of Directors after five years but before completion
of ten years of service will have the number of common stock units in his
memorandum account reduced on a pro rata basis to reflect the number of years
actually served.
3
<PAGE> 6
Any Eligible Director who ceases to serve on the Board of Directors prior to the
completion of five years of service shall forfeit any common stock units
credited to his memorandum account.
EXECUTIVE COMPENSATION AND STOCK OPTION INFORMATION
The following table sets forth all compensation paid or accrued to the
Company's chief executive officer and the four other most highly compensated
executive officers of the Company whose total annual salary and bonuses exceeded
$100,000 for the fiscal years 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMP.(1) AWARDS COMPENSATION
- --------------------------- ---- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Calvin B. Wells 1997 $258,318 $144,693 $ 0 $ 0 $ 0
Chairman, President and 1996 255,358 0 0 0 0
Chief Executive Officer 1995 246,412 0 121,788 0 0
Gerald A. Teele 1997 172,989 55,235 59,170 0 0
Senior Vice President, Treasurer 1996 171,108 0 44,050 0 0
and Chief Financial Officer 1995 165,064 0 28,417 0 0
Terrence D. Davis 1997 124,601 42,081 62,880 0 0
Vice President -- Operations 1996 123,400 0 0 0 0
and Industrial Sales 1995 118,331 0 0 0 0
E.J. Mercier, Jr. 1997 99,885 37,053 62,109 0 0
Vice President -- Customer 1996 98,683 0 20,495 0 0
Service 1995 95,697 0 19,853 0 0
Stuart B. Dixon 1997 91,554 23,262 59,170 0 0
Vice President -- Government 1996 90,233 0 0 0 0
Relations 1995 86,957 0 20,298 0 0
</TABLE>
- ---------------
(1) Represents the difference between the price paid by the named executive
officers for Common Stock of the Company purchased from the Company upon the
exercise of stock options and the fair market value of such Common Stock and
cash paid for dividend equivalents accrued from the grant date to the
exercise date.
(2) Represents amounts earned under the Company's Annual Incentive Plan during
Fiscal Year 1997 and paid during Fiscal Year 1998.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows the aggregated stock options exercised in the
fiscal year ended September 30, 1997 and the stock option values for the named
executive officers at September 30, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald A. Teele............. 2,800 $48,860 0 0 $ 0 $ 0
Terrence D. Davis........... 2,850 53,509 2,850 0 52,440 0
E.J. Mercier Jr............. 3,100 50,345 0 0 0 0
Stuart B. Dixon............. 2,800 48,860 0 0 0 0
</TABLE>
- ---------------
(1) Represents the difference between the market value of the shares on the date
of exercise of the options and the exercise price.
(2) Represents the closing price for the Company's Common Stock on September 30,
1997 of $32.50 less the exercise price for all outstanding options to the
named individual.
4
<PAGE> 7
ANNUAL INCENTIVE PLAN
The Annual Incentive Plan ("AIP") as adopted by the Board of Directors in
1996 became effective October 1, 1996 for the Company's 1997 Fiscal Year.
Officers and key employees who have the opportunity to make significant
contributions to the Company's performance are eligible to receive AIP incentive
awards based upon the financial performance of the Company, performance of the
individual participant and the base salary of each participant. The Board of
Directors has the right to suspend or terminate the AIP at any time.
The AIP is administered by the Personnel and Compensation Committee of the
Board of Directors (the "Committee") which, with approval of the Board of
Directors, may amend or modify the AIP. The Company's Chief Executive Officer
("CEO") assists the Committee in administering the AIP, with the exception of
any decisions pertaining to the CEO's performance and compensation under the
AIP. Participants are approved by the Committee, based upon the CEO's
recommendations, and will be selected prior to each fiscal year by the
Committee. For Fiscal Year 1998, twenty key employees have been selected to
participate in the AIP. Participants selected by the Committee to participate in
the AIP are grouped into tiers based on the scope of their job responsibilities
with such tiers being used to determine target and maximum incentive award
levels. Target and maximum incentive award levels are established by the
Committee for each participant tier based on a percentage of the base salary for
each participant.
Under the AIP, annual incentive awards are granted upon the achievement of
a combination of Company and individual objectives as established by the
Committee. While all participants will have some portion of their incentives
tied to Company objectives, the weight placed on individual objectives will vary
based on each participant's job accountabilities and the degree to which
quantifiable individual objectives can be set and measured. An AIP incentive
award, if any, to be granted to the CEO for the 1998 Fiscal Year will be
determined by the Committee solely by reference to the Company objectives.
Company objectives are selected and weighted by the Committee based on their
importance to overall Company success and to provide a balance among operating
and financial priorities.
The Company and individual performance objectives are stated in terms of
minimum, target and stretch goals. Results that are at or below the performance
threshold for a performance measure earn no incentive award. Likewise, results
that are at or above the stretch performance level earn the maximum incentive
award. Where results fall between the threshold and target or target and stretch
performance levels, straight-line interpolation will be used to calculate actual
incentives earned.
At the conclusion of each plan year (fiscal year), reviews of each AIP
participant's actual performance versus individual objectives will be made by
the CEO or supervising personnel and results will be reported to the Committee.
The actual incentive award earned by a participant, if any, is the sum of the
incentives earned for actual performance against each Company and individual
objective, as the participant's incentive potential is allocated among
objectives based on their relative weights.
LONG-TERM INCENTIVE PLAN
The North Carolina Natural Gas Corporation Long-Term Incentive Plan
("LTIP") is a performance share plan which was approved by the Stockholders on
January 14, 1997. The Plan uses shares of Common Stock and cash awards
equivalent to the accrued dividends on earned shares of Common Stock as the form
of incentive award. Performance shares and dividend equivalents may be earned
only for accomplishment of specific Company performance measures established for
each plan cycle during the term of the LTIP.
At the beginning of each plan year (which is a fiscal year commencing
October 1), the Directors' Personnel and Compensation Committee ("Committee")
selects the senior officers of the Company having the opportunity to make a
significant contribution to the Company's long-term performance who are eligible
to participate in the LTIP for the plan cycle. The plan cycle is the period over
which the Company's performance shall be measured to determine whether any LTIP
award shall be paid and in what amount. The plan cycle shall typically be five
plan years, commencing with the first day of the first fiscal year (October 1,
1996), with the exception of two special plan cycles which cover the periods of
Fiscal Year 1997 through 1999 and Fiscal Year 1997 through 2000.
5
<PAGE> 8
The Committee approves target awards for each LTIP participant, stated as a
percentage of the participant's base salary. Those target awards shall be
converted into a target number of "performance shares" for each LTIP participant
by dividing the participant's target award by the average price of one share of
Common Stock for the twelve months preceding the plan cycle. The maximum number
of performance shares that may be earned by a participant is equal to two times
the participant's target number of performance shares.
The actual number of performance shares earned by participants depends upon
the Company's actual results during the plan cycle versus established
performance measures. The Committee selects performance measures based upon
their relevance in measuring the Company's financial and market performance
versus that of the Company's industry peers. For each plan cycle, the Committee
selects performance measures and assigns weights on the basis of each
performance measure's importance to the long-term success of the Company. For
plan cycles represented by Fiscal Years 1997 through 1999, 1997 through 2000 and
1997 through 2001, the performance measures and weights to be used are: (i)
total Stockholder return (the annualized rate of return for the plan cycle
reflecting stock price appreciation plus the reinvestment of dividends and the
compounding effect of dividends paid on reinvested dividends) for the Company
over the period of each plan cycle as compared to the results achieved by the
Committee-selected group of peer gas distribution companies for the same period
(50% weight); and (ii) average return on equity (the average percentage return
on equity for all years in the plan cycle. Return on equity for a particular
year is net income divided by the average of common equity at the beginning and
end of the fiscal year) for the Company over the period of each plan cycle as
compared to the results achieved by the same group of peer gas distribution
companies for the same period (50% weight).
The Committee also establishes for each plan cycle the performance range
applicable to each performance measure and the amount of incentive compensation
that shall be paid at various levels of achievement of the performance measures.
For each performance measure, the Committee establishes a performance range
which includes three specific performance levels: threshold, target and stretch.
No payout of a LTIP award shall be made unless "threshold" performance for one
or more of the selected performance measures is attained by the Company for the
plan cycle. Company results that are at or above the stretch performance range
earn the maximum number of performance shares by participants. Where results
fall between threshold and target or target and stretch range for a performance
measure, straight-line interpolation is used to calculate actual performance
shares earned with performance shares being rounded off to the nearest whole
number of shares.
KEY EMPLOYEE STOCK OPTION PLAN
The Key Employee Stock Option Plan (the "Plan") was authorized by the Board
of Directors and Stockholders in 1990. Specified key employees of the Company
are eligible to receive an option to purchase shares of Common Stock of the
Company. The purpose of the Plan is to attract and retain individuals of
outstanding ability and to encourage such key employees to acquire an ownership
in the Company. As of September 30, 1997, unexercised options on 2,850 shares of
Common Stock are outstanding. Because of the adoption of the Long-Term Incentive
Plan in January 1997 described above, the Board of Directors will not grant
additional options under the Key Employee Stock Option Plan.
For outstanding options, the option price per share in each case is 90% of
the "fair market value" of a share of the Company's Common Stock on the date the
option is granted as determined under the terms of the Plan. Payment of the
purchase price upon exercise of an option must be made in cash. However, the
Company shall pay to any employee exercising an option a sum equal to 50% of the
dividends which would have been payable on the shares of Common Stock covered by
the option during the period from the grant of the option to the exercise date
of the option. Proceeds received by the Company upon the exercise of options
will be used for general corporate purposes.
An option may not be exercised until five years following the date of grant
and shall then be exercisable only during the next two-year period (the "Option
Period"). An option will terminate upon the earliest to occur of: (i) expiration
of the Option Period; (ii) termination of the employee's employment during the
five-
6
<PAGE> 9
year period following the date of grant for any reason other than death,
disability or retirement under the Pension Plan; or (iii) three months following
termination of the employee's employment for any reason during the Option
Period. In the event of termination of employment during the five-year period
following the date of grant due to death, disability or retirement, the employee
(or, in the event of death, his beneficiary or estate) shall immediately become
entitled to exercise the option for a period of three months as to a portion of
the shares equal to the number of full calendar months between the date of grant
and the date of termination divided by sixty. The Plan also provides for a
forfeiture at the discretion of the Committee of an employee's rights to
purchase a portion of the shares subject to an option in certain cases where the
employee is demoted or his responsibilities are reduced during the five years
following the date of grant, and allows the Committee to provide that any option
granted will otherwise expire or terminate prior to the expiration of the Option
Period upon the occurrence of other events specified by the Committee.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "ESPP") was adopted by the Board of
Directors and approved by Stockholders in 1990. The purpose of the ESPP is to
encourage employees of the Company to purchase Common Stock in the Company and
thereby increase employee interest in the successful operations of the Company
and allow the Company's employees to share in the economic growth and success of
the Company through stock ownership.
The ESPP is administered by a committee of four (4) or more individuals who
are Directors or employees of the Company. The ESPP provides for the reservation
of 300,000 shares, as adjusted for the October 1992 stock split, of the
Company's Common Stock available to all eligible employees of the Company.
Eligible employees of the Company are those employees who have completed
twelve (12) months of continuous service with the Company and meet the minimum
work hours per week. Such employees may authorize a payroll deduction of any
amount between 2% and 6% of their compensation, including bonuses and overtime,
for the purchase of the Company's Common Stock. Any payroll deduction designated
by an employee must be in whole multiples of 1% and any Common Stock purchased
from the Company on behalf of an employee shall be purchased once a year at a
price equal to 90% of the lesser of the average of five (5) trading days ending
on:
(a) the first day of the offering period, or
(b) the last day of the offering period.
The offering period shall be each twelve (12) month period commencing on January
1.
The Board of Directors has the right to amend or terminate the ESPP at any
time. The ESPP was originally scheduled to terminate January 1, 1994. However,
in September 1993, the Board of Directors amended the ESPP to extend the
termination date to the earlier of (a) January 1, 1999, or (b) the date on which
all or substantially all of the shares of Common Stock authorized for issuance
under the ESPP have been purchased.
EMPLOYEE RETIREMENT PLANS
The Company has a defined benefit retirement plan (the "Retirement Plan")
which covers all full-time employees upon their attaining age 21 and completing
one year of service. The Company also has a pension restoration plan (the
"Restoration Plan") which provides certain employees with retirement benefits
they otherwise would have received under the Retirement Plan formula but which
may not be paid to them under the Retirement Plan due to limitations on benefits
imposed by the Internal Revenue Code. Collectively, these plans are referred to
herein as the "Retirement Plans".
The Retirement Plan is wholly paid for by the Company which has established
a trust with a bank as trustee to which contributions are made from time to time
by the Company and from which the benefits under
7
<PAGE> 10
the Retirement Plan are paid. The Restoration Plan is administered by the
Company and the benefits thereunder are payable from the Company's general
funds.
A participant in the Retirement Plans becomes fully vested prior to normal
retirement at age 65 upon the completion of five years of service. Benefits are
also provided under the Retirement Plans in the event of early retirement or
disability retirement at or after age 55 and the completion of at least 20 years
of service. Benefits under the Retirement Plans are based upon application of a
formula to the specified average compensation and years of credited service (up
to a maximum of 20 years) at normal retirement age. Compensation covered by the
Retirement Plans consists of W-2 wages plus certain deferred compensation, the
total of which approximates the total of amounts shown in the Summary
Compensation Table.
The table below illustrates the amount of annual, normal retirement
benefits payable under the Retirement Plans based upon application of the plan
formula to the specified average compensation and years of credited service at
normal retirement age, allowing for reasonable increases in existing
compensation levels. These amounts, which do not reflect reductions which would
result from joint and survivor elections, are in addition to Social Security
benefits or other amounts that would be paid at normal retirement age.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ----------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$100,000 $ 37,500 $ 50,000 $ 50,000 $ 50,000 $ 50,000
150,000 56,250 75,000 75,000 75,000 75,000
200,000 75,000 100,000 100,000 100,000 100,000
250,000 93,750 125,000 125,000 125,000 125,000
300,000 112,500 150,000 150,000 150,000 150,000
400,000 150,000 200,000 200,000 200,000 200,000
</TABLE>
Anticipated years of credited service under the Retirement Plans for the
individuals named in the Summary Compensation Table are as follows: Calvin B.
Wells, 27 years; Gerald A. Teele, 31 years; Terrence D. Davis, 19 years; E.J.
Mercier, Jr. , 44 years; and Stuart B. Dixon, 14 years.
Benefit amounts are computed on a straight-line annuity basis.
EXECUTIVE EMPLOYMENT AGREEMENTS
IN THE EVENT OF CHANGE IN CONTROL
The Company has Employment Agreements ("Agreements") with ten (10) of its
executive officers holding the rank of corporate vice president or higher. The
purpose of such Agreements is to encourage retention of its present senior
executive officers and provide assurance that such officers are able to devote
their full attention and energies to the Company's business in the face of
potentially disruptive and distracting circumstances that may arise upon an
attempted or actual change in control or takeover of the Company. The Agreements
provide for the payment of certain severance benefits only in the event of a
termination of employment following a change in control of the Company. A
"Change in Control" is deemed to have occurred if (i) the Company consolidates
or merges into or with another corporation as a result of which the Company is
not the surviving corporation, or (ii) a majority of the outstanding shares of
the Company are acquired by any other corporation, person or group.
Each covered officer is entitled to such benefits in the event his
employment with the Company or its successor is terminated within a period of
three (3) years following a Change in Control unless such termination is (i) due
to his death or retirement, (ii) by the Company for "cause" or due to his
"disability", or (iii) by the officer other than for "Good Reason". Such
benefits consist of severance pay in an amount equal to the executive's salary
in effect at the time of Change in Control for a maximum period of two (2) years
and eleven (11) months plus participation in any pension or retirement plans,
life insurance, health and accident insurance, and disability benefits normally
due the employee, provided that if the terminated executive obtains employment
with another employer, the amount of compensation due the terminated employee by
the Company or its successor will be reduced by the salary paid by the other
employer. With respect to all individuals who have such Agreements, the average
of their current annual salaries is $116,760.
8
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no executive officer-director interlocks where an executive of
the Company serves on the Compensation Committee of another company that has an
executive officer serving on the Company's Board of Directors. Messrs. George T.
Clark, Jr., Paul A. DelaCourt, James E.S. Hynes and Robert T. Johnson serve as
the Directors' Personnel and Compensation Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
The Company's Directors and executive officers, and persons who own more
than 10% of the Company's Common Stock, are required under the Securities
Exchange Act of 1934 to file reports of ownership and changes in ownership of
Company Common Stock with the Securities and Exchange Commission and the New
York Stock Exchange.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's Directors and executive
officers, the Company believes that during the 1997 fiscal year, its Directors
and executive officers complied with all applicable Section 16(a) filing
requirements.
REPORT OF PERSONNEL AND COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Personnel and Compensation Committee is responsible for recommending to
the Board of Directors the compensation level of the Chief Executive and other
officers of the Company. This Committee is comprised of four independent outside
directors who are not eligible to participate in any compensation program
available to officers or employees of the Company.
The Committee's compensation philosophy is based on the following
principles:
(1) Compensation of the Company's executives is to be motivational and
emphasize the key financial and operating objectives that have the ultimate goal
of enhancing Stockholder value while fulfilling the Company's responsibilities
as a regulated North Carolina utility;
(2) The levels of compensation shall reflect consideration of the level of
job responsibility, Company and individual performance, experience, and industry
peer comparisons;
(3) Executive compensation is to be competitive in order to attract and
retain qualified employees. In addition to monetary payments, the Company shall
award stock ownership to executives based on performance in order to better
align the interests of executives with those of Stockholders;
(4) The Committee shall set compensation for its executives outside the
presence of the executives concerned.
The compensation of executive officers consists primarily of a base salary,
the Annual Incentive Plan, and the Long-Term Incentive Plan. The Annual
Incentive Plan is designed to attract and retain capable individuals to serve as
officers and key employees of the Company, and to motivate these employees to
achieve operating results exceeding industry peers and to control operating
expenses while producing above average returns for Stockholders. The Long-Term
Incentive Plan is designed to focus the participants' attention on the long-term
creation of Stockholder value that exceeds the Company's industry peers while
promoting ownership of the Company's Common Stock among the Company's senior
officers, thereby increasing management's linkage to Stockholder interests.
On recommendation of the Personnel and Compensation Committee and approval
of the Board of Directors, Mr. Wells' base salary remained the same for Fiscal
Year 1997 as his base salary for Fiscal Year 1996. This compensation level was
set based on the factors indicated above, including compensation of individuals
holding similar positions in other gas distribution companies, return on equity,
other financial and operating performance indicators, and certain qualitative
factors. The performance of the Company's
9
<PAGE> 12
Common Stock and total return for the most recent five-year period of his
leadership as Chief Executive Officer is shown on the performance graph below.
This report is submitted by members of the Personnel and Compensation
Committee: Paul A. DelaCourt, Chairman; George T. Clark, Jr.; James E.S. Hynes;
and Robert T. Johnson.
PERFORMANCE GRAPH
The graph below compares the yearly change in the cumulative total
Stockholder return for NCNG Common Stock as compared with the S&P Utilities and
a peer group of companies. This graph assumes investment of $100 in Common Stock
in each of the indices on September 30, 1992 and reinvestment of all subsequent
dividends.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) NCNG S&P Utilities Peer Group
<S> <C> <C> <C>
1992 100 100 100
1993 135 124 125
1994 117 108 110
1995 119 138 125
1996 167 148 151
1997 191 169 179
</TABLE>
The members of the peer group referred to in the performance graph above
are AGL Resources, Atmos Energy Corp., Bay State Gas, Berkshire Gas Co.,
Brooklyn Union Gas Co., Cascade Natural Gas Corp., Colonial Gas Co., Connecticut
Energy Corp., Connecticut Natural Gas Corp., Corning Natural Gas, CTG Resources,
Inc., Delta Natural Gas Co. Inc., Energy West Inc., Energynorth Inc., Essex
County Gas Co., Fall River Gas Co., Indiana Energy Inc., Laclede Gas Co., Mobile
Gas Service Corp., New Jersey Resources, Northwest Natural Gas Co., NUI Corp.,
Pacific Enterprises, Pennsylvania Enterprises, Inc., Peoples Energy Corp.,
Piedmont Natural Gas Co., Providence Energy Corp., Public Service Co. of NC,
Roanoke Gas Co., Southern Union, South Jersey Industries, Washington Gas Light
Co., and Yankee Energy System, Inc.
10
<PAGE> 13
PROPOSAL TWO. AMENDMENT OF THE FOURTH ARTICLE OF THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Board adopted, subject to Stockholders' approval, an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 12,000,000 to 24,000,000 shares, for the reasons
discussed below. A copy of the proposed amendment of the Certificate of
Incorporation is attached to this Proxy Statement as Appendix A.
The Company currently has 12,000,000 authorized shares of Common Stock, par
value $2.50 per share, of which 6,667,499 shares were outstanding at September
30, 1997. In addition, there are currently 302,000 shares reserved for issuance
under the Company's Dividend Reinvestment Plan, 75,000 shares for the Key
Employee Stock Option Plan, 221,000 shares for the Employee Stock Purchase Plan,
150,000 shares for the Long-Term Incentive Plan, 75,000 shares for the
Directors' Deferred Compensation Stock Plan, 35,000 shares for the Directors'
Retirement Compensation Stock Plan, and 4,474,000 shares for the Shareholder
Rights Plan.
The Board believes that it is desirable to increase the number of
authorized shares of Common Stock for a number of reasons, including having the
shares available for Common Stock dividends or stock splits, the Shareholder
Rights Plan and for other lawful purposes deemed proper by the Directors. Having
such additional authorized shares of Common Stock available for issuance will
give the Company greater flexibility and will allow such shares to be issued
without the expense and delay of a special Stockholders' meeting, unless such
action is required by applicable law or the rules of any stock exchange on which
the Company's securities may then be listed.
The Company has only one class of stock, i.e., Common Stock, par value
$2.50 per share. All of such shares are voting shares and have the same voting
rights. However, none of such shares confer any preemptive rights on the holders
thereof to purchase or receive any additional shares of the Company's Common
Stock or any other securities or rights or options for the Company's securities
authorized or acquired by the Company in the future. The Board of Directors may
issue the Common Stock for such consideration as may be fixed by the Board and
for any corporate purpose without further action by the Stockholders, except as
may be required by law. Each share of Common Stock has equal dividend rights and
participates equally upon liquidation.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD WITH RESPECT TO PROPOSAL TWO.
Under North Carolina law, the affirmative vote of the holders of a majority
of the shares of Common Stock entitled to vote at the Meeting is required to
adopt this Proposal Two. Shares of Common Stock that are voted as an abstention
shall be treated as voting against Proposal Two and broker nonvotes shall have
no effect on the outcome of the vote on Proposal Two.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL TWO.
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected the firm of Arthur
Andersen LLP to continue as independent accountants for the Company and its
wholly-owned subsidiaries, Cape Fear Energy Corporation, NCNG Cardinal Pipeline
Investment Corporation, NCNG Energy Corporation, and NCNG Pine Needle Investment
Corporation, for the fiscal year beginning October 1, 1997. Arthur Andersen LLP
has acted for the Company in such capacity since 1959.
Before each professional service was rendered by Arthur Andersen LLP, it
was approved by, and the possible effect on the independence of the accountants
was considered by, the Audit Committee of the Board of Directors. An invitation
has been extended to the firm of Arthur Andersen LLP to attend the Annual
Meeting of Stockholders with the opportunity to make a statement and to answer
appropriate questions. A representative of the firm has indicated he will attend
the meeting.
11
<PAGE> 14
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting
and included in the proxy statement and form of proxy relating to that meeting
must be received by the Company at its principal executive offices not later
than August 1, 1998.
ANNUAL REPORT
Pursuant to regulations of the Securities and Exchange Commission (SEC),
the Company is required to file with the SEC an Annual Report on Form 10-K
within 90 days of the end of each fiscal year. ON OR AFTER DECEMBER 31, 1997,
UPON WRITTEN REQUEST ADDRESSED TO SALLY T. SOWERS, SECRETARY OF NORTH CAROLINA
NATURAL GAS CORPORATION, POST OFFICE BOX 909, 150 ROWAN STREET, FAYETTEVILLE,
NORTH CAROLINA 28302-0909, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO, WILL BE FORWARDED WITHOUT CHARGE TO THE STOCKHOLDER MAKING
SUCH REQUEST.
OTHER MATTERS
The management of the Company knows of no other matters which may come
before the meeting. However, if any matters other than those referred to above
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their best
judgment.
By order of the Board of Directors this 5th day of December 1997.
Sally T. Sowers, Secretary
12
<PAGE> 15
APPENDIX A
RESOLVED: That the Fourth Article of the Certificate of Incorporation of
North Carolina Natural Gas Corporation, as heretofore amended, is further
amended to read as follows:
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is TWENTY-FOUR MILLION (24,000,000) shares of common stock
of the par value of Two Dollars Fifty Cents ($2.50) each amounting to SIXTY
MILLION DOLLARS ($60,000,000.00).
No stockholders as such shall be entitled as a matter of right to subscribe
for, purchase or receive any shares of the stock of any class or any rights or
options of the Corporation which it may issue or sell, whether out of the number
of shares authorized by this Certificate of Incorporation or by amendment
thereof or out of the shares of the stock of the Corporation acquired by it
after the issuance thereof, nor shall any stockholder be entitled as a matter of
right to subscribe for, purchase or receive any bonds, debentures or other
securities which the corporation may issue or sell that shall be convertible
into or exchangeable for stock of any class or to which shall be attached or
appertain any warrant or warrants or other instrument or instruments that shall
confer upon the holder or owner of such obligation the right to subscribe for,
purchase or receive from the corporation any shares of its capital stock. But
all such additional issues of stock, rights and options, or of bonds, debentures
or other securities convertible into or exchangeable for stock or to which
warrants shall be attached or appertain or which shall confer upon the holder
the right to subscribe for, purchase or receive any shares of stock, may be
issued and disposed of by the Board of Directors to such person, firms or
corporations and upon such terms as in their absolute discretion they may deem
advisable.
A-1
<PAGE> 16
APPENDIX B
PROXY PROXY
NORTH CAROLINA NATURAL GAS CORPORATION
Proxy for Annual Meeting of Stockholders
This Proxy is Solicited on Behalf of the Board of Directors of the Company
The signatory stockholder hereby appoints Calvin B. Wells and Sally T. Sowers,
or either of them, with full power of substitution as attorneys and proxies to
vote all of the shares of COMMON STOCK of North Carolina Natural Gas
Corporation held or owned by said stockholder at the Annual Meeting of
Stockholders on January 13, 1998, and at any adjournments thereof, as follows
on the reverse.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS
SPECIFIED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSALS
ONE AND TWO.
Stockholders should sign exactly as name appears on the reverse. Any person
signing in a fiduciary capacity will please enclose proof of his appointment
unless such proof has already been furnished. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
HAS YOUR ADDRESS CHANGED?
- ------------------------------------
- ------------------------------------
- ------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 17
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
NORTH CAROLINA NATURAL GAS CORPORATION
RECORD DATE SHARES:
_____________
1. Election of Directors.
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
George T. Clark, Jr., Robert T. Johnson, and William H. Prestage
Instruction: To withhold authority to vote for any nominee, mark the "For
All Except" box and strike a line through the nominee's name in the list
provided above.)
2. Approval of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock of the Company from
12,000,000 shares of common stock, $2.50 par value, to 24,000,000 shares of
common stock, $2.50 par value.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon any other business which may properly come before
the meeting or any adjournment thereof.
Mark box at right if address change has been noted on the reverse side of
this card. [ ]
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
__________________________________________
Date
__________________________________________
Stockholder sign here
__________________________________________
Co-owner sign here
- ------------------------------------------------------------------------------
DETACH CARD
NORTH CAROLINA NATURAL GAS CORPORATION
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign and date the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
January 13, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
North Carolina Natural Gas Corporation
