<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
NGC 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO NGC CORPORATION
APPEARS 1000 LOUISIANA, SUITE 5800
HERE] HOUSTON, TEXAS 77002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, MAY 22, 1998
To The Stockholders:
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of NGC
Corporation (the "Company" or "NGC") will be held on Friday, May 22, 1998 at
10:00 a.m., local time, at the Hyatt Regency Hotel, Imperial Ballroom, 1200
Louisiana, Houston, Texas 77002, for the following purposes:
1. To elect thirteen directors to serve until the 1999 Annual Meeting
of Stockholders;
2. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998; and
3. To transact such other business as may properly come before such
meeting or any adjournment(s) or postponement(s) thereof.
The close of business on March 25, 1998, has been fixed as the record
date for the determination of stockholders entitled to receive notice of and to
vote at the Annual Meeting or any adjournment(s) or postponement(s) thereof.
You are cordially invited to attend the Annual Meeting. WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POST-PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
Kenneth E. Randolph
Secretary
March 30, 1998
<PAGE>
NGC CORPORATION
1000 LOUISIANA, SUITE 5800
HOUSTON, TEXAS 77002
(713) 507-6400
_______________________
PROXY STATEMENT
________________________
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company (the "Board of Directors" or the "Board") for use at the Annual
Meeting to be held on Friday, May 22, 1998 at 10:00 a.m., local time, at the
Hyatt Regency Hotel, Imperial Ballroom, 1200 Louisiana, Houston, Texas 77002,
or at any adjournment(s) or postponement(s) thereof. This Proxy Statement, the
Notice of Annual Meeting, the proxy card, and the Company's Annual Report to
Stockholders for the year-ended December 31, 1997, including financial
statements, will be first sent or given to the Company's stockholders on or
about April 3, 1998. The Annual Report does not constitute a part of the proxy
soliciting material.
QUORUM AND VOTE REQUIRED
The presence of a majority of the shares of the common stock, par value
$0.01 per share, of the Company ("Common Stock"), represented in person or by
proxy at the Annual Meeting will constitute a quorum. Under Delaware law, the
total votes received, including abstentions, would be counted in determining the
number of shares present at a meeting. Thus, shares represented by proxies that
are marked "abstain" will be counted as shares present for purposes of
determining the presence of a quorum on all matters. Also, proxies relating to
"street name" shares that are voted by brokers on only one of the proposals will
nevertheless be treated as shares present for purposes of determining the
presence of a quorum on all matters. A "broker non-vote" occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item.
ELECTION OF DIRECTORS. A plurality of votes cast in person or by proxy by
the holders of Common Stock is required to elect a director. Accordingly, under
Delaware law and the Company's Certificate of Incorporation and Bylaws,
abstentions and broker non-votes would have no effect on the election of
directors. Stockholders may not cumulate their votes in the election of
directors.
RATIFICATION OF AUDITORS. Ratification of the selection of auditors
requires the affirmative vote of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote at the Annual Meeting.
Under Delaware law, an abstention would have the same legal effect as a vote
against this proposal, but a broker non-vote would not be counted for purposes
of determining whether a majority had been achieved.
<PAGE>
NO APPRAISAL RIGHTS
Under applicable Delaware law, none of the holders of Common Stock have
appraisal rights in connection with any proposal to be acted upon at the Annual
Meeting.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors has fixed the close of business on March 25, 1998,
as the record date ("Record Date") for determining holders of outstanding shares
of Common Stock entitled to notice of and to vote at the Annual Meeting or any
adjournment(s) or postponement(s) thereof. As of the Record Date, there were
outstanding 151,524,970 shares of Common Stock, each share of which is entitled
to one vote. Common Stock is the only class of outstanding securities of the
Company entitled to notice of and to vote at the Annual Meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. Proxies may
be solicited by mail, telecopy, telegraph or telex, or by directors, officers or
regular employees of the Company, in person or by telephone. The Company has
retained ChaseMellon Shareholder Services, L.L.C. to assist in the solicitation
of proxies for a fee of approximately $2,750. The Company will reimburse
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses for forwarding solicitation material to the
beneficial owners of Common Stock.
Questions concerning the proposals to be acted upon at the Annual Meeting
should be directed to the Company's Secretary at (713) 507-6400. Additional
copies of this Proxy Statement or the proxy card may be obtained from the
Company's Secretary at its principal office. The mailing address of the
Company's principal executive office is 1000 Louisiana, Suite 5800, Houston,
Texas 77002.
REVOCATION OF PROXIES
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy by (i) the execution and submission of
a revised proxy, (ii) by written notice to the Secretary of the Company, or
(iii) by voting in person at the Annual Meeting. In the absence of such
revocation, shares represented by proxies will be voted at the Annual Meeting.
VOTING OF PROXIES
The persons named as proxies on the proxy card accompanying this Proxy
Statement were designated by the Board of Directors. Any proxy given pursuant
to such solicitation and received in time for the Annual Meeting will be voted
as specified in such proxy. Unless otherwise instructed or unless authority to
vote is withheld, proxies will be voted FOR the election of the nominees to the
Board of Directors, FOR ratification of the engagement of Arthur
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<PAGE>
Andersen LLP, and in accordance with the judgment of the persons named in the
proxy on such other matters as may properly come before such meeting or any
adjournment(s) or postponement(s) thereof.
FORM 10-K
Stockholders may obtain, without charge, a copy of the Company's 1997
Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
For copies, please contact the Investor Relations Department at the Company's
principal executive office address: NGC Corporation, 1000 Louisiana, Suite 5800,
Houston, Texas 77002.
DATED: March 30, 1998
3
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March 25, 1998, by (i) each person who is known
by the Company to own beneficially 5% or more of Common Stock, (ii) each
director or nominee for director of the Company, (iii) each executive officer of
the Company named in the Summary Compensation Table, and (iv) all directors and
executive officers of the Company as a group. Share amounts and percentages
shown for each individual or group in the table are adjusted to give effect to
the exercise of all options and warrants exercisable by such individual or group
within 60 days of March 25, 1998.
NUMBER OF SHARES/(1)/ PERCENT OF CLASS/(2)/
---------------- ----------------
BG Holdings, Inc./(3)/.............. 38,789,876 25.8
5444 Westheimer
Houston, Texas 77056
BG plc /(3)(4)/..................... 38,789,876 25.8
100 Thames Valley Park Drive
Reading
Berkshire RG6 1PT
NOVA Gas Services (U.S.) Inc./(3)/.. 38,789,876 25.8
690 Mechanic Street
Leominster, Massachusetts 01453
NOVA Corporation/(3)(5)/............ 38,789,876 25.8
801 Seventh Avenue, S.W.
Calgary, Alberta T2P 2N6
Chevron U.S.A. Inc./(3)(6)/......... 38,789,876 25.8
1301 McKinney
Houston, Texas 77010
Chevron Corporation/(3)(6)(7)/...... 38,789,876 25.8
575 Market Street
San Francisco, California 94104
C.L. Watson/(8)/.................... 8,944,822 5.8
1000 Louisiana, Suite 5800
Houston, Texas 77002
Thomas M. Matthews/(9)/............. 1,000 *
Stephen W. Bergstrom/(10)/.......... 2,196,991 1.4
John U. Clarke/(9)/................. 3,000 *
Kenneth E. Randolph/(11)/........... 1,184,003 *
Stephen J. Brandon.................. ___ ___
4
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NUMBER OF SHARES/(1)/ PERCENT OF CLASS/(2)/
---------------- ----------------
Frank J. Chapman.................... ___ ___
Paul Nicholas Woollacott............ ___ ___
Jeffrey M. Lipton/(12)/............. 7,263 *
Jack S. Mustoe...................... ___ ___
A. Terence Poole.................... 3,023 *
Darald W. Callahan.................. ___ ___
Peter J. Robertson................... ___ ___
Patricia A. Woertz................... ___ ___
Daniel L. Dienstbier................. 8,520 *
J. Otis Winters/(13)/................ 13,034 *
Executive Officers and Directors of
the Company as a Group (19
persons)/(8)(9)(10)(11)(12)(13)/.... 12,402,319 8.1
_________________________________
* Less than 1%.
(1) Unless otherwise noted, each of the persons has sole voting and investment
power with respect to the shares reported.
(2) Based upon 151,524,970 shares of Common Stock outstanding at March 25,
1998.
(3) BG Holdings, Inc. ("BG Holding"), NOVA Gas Services (U.S.) Inc. ("NOVA
Gas"), and Chevron U.S.A. Inc. ("Chevron") are parties to the NGC
Stockholders Agreement (defined herein), which provides that, among other
things, the parties thereto will vote their Common Stock, subject to certain
conditions, to elect as the thirteen directors of NGC, three designees of BG
Holding, three designees of NOVA Gas, three designees of Chevron, two
officers of NGC nominated by the Board and two independent directors
nominated by the Board. Approximately 76.8%, or 116,369,628 shares of
Common Stock are subject to the NGC Stockholders Agreement. See "-Proposal
1 - Election of Directors - Stockholders Agreement."
(4) BG plc, through subsidiaries, indirectly owns 100% of the capital stock of
BG Holding. Consequently, BG plc may be deemed to beneficially own all of
the shares of Common Stock owned of record by BG Holding.
(5) NOVA Corporation ("NOVA"), through subsidiaries, indirectly owns 100% of the
capital stock of NOVA Gas. Consequently, NOVA may be deemed to beneficially
own all of the shares of Common Stock owned of record by NOVA Gas.
(6) Excludes 7,815,363 shares of NGC Series A Participating Preferred Stock
("Preferred Stock") held of record by Chevron. Each share of Preferred
Stock may be converted into one share of Common Stock at the option of
Chevron upon the occurrence of certain events or automatically upon the sale
by Chevron to a non-affiliate.
(7) Chevron Corporation beneficially owns 100% of the capital stock of Chevron.
Consequently, Chevron Corporation may be deemed to beneficially own all of
the shares of Common Stock and Preferred Stock owned of record by Chevron.
(8) Includes 7,083,531 shares held of record by Wincrest Ventures L.P., a
limited partnership, of which Mr. Watson and his wife are the sole
shareholders of the corporate general partner and of which his wife and
certain trusts (the "Trusts") established by Mr. Watson for the benefit of
his three minor children, of which Mr. Watson or his wife are the sole
trustees, and a corporation, of which Mr. Watson and the Trusts are the sole
shareholders, are the sole limited partners (the "Family Limited
Partnership"). Mr. Watson may be deemed to beneficially own all of the
shares of Common Stock held by the Family Limited Partnership. The number
of shares also includes 85,326 shares of Common Stock that are owned by
certain trusts established by Mr. Watson for the benefit of his wife, his
three minor children and himself. Mr. Watson is the sole trustee of these
trusts. Mr. Watson may be deemed to beneficially own all of the shares of
Common Stock held by such trusts. Also includes 1,775,965 shares of Common
Stock issuable upon the exercise of employee stock options held by Mr.
Watson that are exercisable within 60 days of March 25, 1998. The number of
shares does not include approximately 2,127
5
<PAGE>
shares of Common Stock held by the Trustee of the NGC Corporation Profit
Sharing/401(k) Savings Plan (the "401(k) Plan") as of December 31, 1997, for
the account of Mr. Watson. Participants in the 401(k) Plan have no voting or
investment power with respect to such shares until their distribution to
such participants upon termination of their employment. In addition,
participants may elect to take cash in lieu of shares of Common Stock upon
termination of their employment.
(9) The number of shares does not include approximately 646 and 401 shares,
respectively, of Common Stock held by the Trustee of the 401(k) Plan as of
December 31, 1997, for the accounts of Messrs. Matthews and Clarke,
respectively. Participants in the 401(k) Plan have no voting or investment
power with respect to such shares until their distribution to such
participants upon termination of their employment. In addition,
participants may elect to take cash in lieu of shares of Common Stock upon
termination of their employment.
(10) Includes 580,563 shares of Common Stock that is owned by trusts established
by Mr. Bergstrom for the benefit of his two minor children. Mr.
Bergstrom's father is the sole trustee of such trusts. Mr. Bergstrom
disclaims beneficial ownership of all of the shares of Common Stock held by
such trusts. Also includes 16,760 shares of Common Stock issuable upon the
exercise of employee stock options held by Mr. Bergstrom that are
exercisable within 60 days of March 25, 1998. The number of shares does
not include approximately 2,357 shares of Common Stock held by the Trustee
of the Company's 401(k) Plan as of December 31, 1997 for the account of Mr.
Bergstrom. Participants in the 401(k) Plan have no voting or investment
power with respect to such shares until their distribution to such
participants upon termination of their employment. In addition,
participants may elect to take cash in lieu of shares of Common Stock upon
their termination of employment.
(11) Includes 26,776 shares of Common Stock issuable upon the exercise of
employee stock options held by Mr. Randolph that are exercisable within 60
days of March 25, 1998. The number of shares does not include
approximately 2,175 shares of Common Stock held by the Trustee of the
Company's 401(k) Plan as of December 31, 1997 for the account of Mr.
Randolph. Participants in the 401(k) Plan have no voting or investment
power with respect to such shares until their distribution to such
participants upon termination of their employment. In addition,
participants may elect to take cash in lieu of shares of Common Stock upon
termination of their employment.
(12) Includes 800 shares of Common Stock owned by Mr. Lipton's wife.
(13) Includes 6,806 shares of Common Stock held by Mr. Winters and 6,228 shares
issuable to Mr. Winters upon the exercise of an immediately exercisable
warrant.
6
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Thirteen directors are to be elected at the Annual Meeting. A plurality of
the votes cast in person or by proxy by the holders of Common Stock is required
to elect a director. Accordingly, under Delaware law and the Company's
Certificate of Incorporation and Bylaws, abstentions and broker non-votes would
have no effect on the election of directors. Stockholders may not cumulate
their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual Meeting,
the persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
Certain stockholders of the Company are parties to a Stockholders Agreement
entered into in connection with the Chevron Combination (defined herein) that
contains certain provisions with respect to the designation and election of
directors. See "-Stockholders Agreement."
All of the thirteen nominees for director are currently directors of the
Company. The following table sets forth information regarding the names, ages
and principal occupations of the current directors and/or nominees, other
directorships held by them in certain companies and, if applicable, the length
of their continuous service as a director of the Company.
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DIRECTORS AND/OR NOMINEES AND DIRECTORSHIPS AGE AS OF 4/1/98 DIRECTOR SINCE
<S> <C> <C> <C>
C.L. Watson Chairman of the Board and Chief Executive 48 1995
Officer of NGC; Director of Baker Hughes
Incorporated
Thomas M. Matthews President of NGC 54 1997
Stephen W. Bergstrom (1) Senior Vice President of NGC and 40 1995
President and Chief Operating Officer of
Natural Gas Clearinghouse
Stephen J. Brandon Executive Director of BG plc 50 1996
Frank J. Chapman Managing Director, Exploration and 44 1998
Production, of BG plc
Paul Nicholas Woollacott Managing Director, Europe and North 50 1996
America, of BG plc
Jeffrey M. Lipton President of NOVA; Director of NOVA, 55 1995
NOVA Gas Transmission, Ltd. and
Methanex Corporation
Jack S. Mustoe Senior Vice President, General Counsel and 50 1998
Corporate Environmental Officer of NOVA
A. Terence Poole Senior Vice President and Chief Financial 55 1996
Officer of NOVA; Director of Methanex
Corporation
Darald W. Callahan Senior Vice President of Chevron Chemical 55 1996
Company
Peter J. Robertson Vice President of Chevron Corporation and 51 1996
President of Chevron U.S.A. Production Company
Patricia A. Woertz President of Chevron International Oil 45 1998
Company and Vice President of Logistics
and Trading of Chevron Products Company
Daniel L. Dienstbier Private Investments 57 1995
J. Otis Winters Chairman, PWS Group, Inc. (consulting 65 1993
firm); Director of Walden Residential
Properties, Inc. and AMX Corporation
</TABLE>
- - -----------------------------
(1) Mr. Bergstrom is an Advisory Director. The Company's Bylaws provide for an
Advisory Director who is entitled to attend all meetings of the Board but
may not vote on any matters before the Board.
8
<PAGE>
In addition to the principal occupations and directorships of the directors
described above, the named nominees were engaged or are engaged (as applicable)
in the past five years in the principal occupations set forth below.
C.L. WATSON serves as Chairman of the Board, Chief Executive Officer and a
Director of NGC. He also served as President of NGC from March 1995 to December
1996. Mr. Watson served as Chairman and as a member of the Natural Gas
Clearinghouse ("Clearinghouse") Management Committee from May 1989 through March
1995, and as Chief Executive Officer and President of Clearinghouse from
September 1985 through March 1995. Mr. Watson also serves as a member of the
Board of Directors of Baker Hughes Incorporated.
THOMAS M. MATTHEWS joined the Company in December 1996 as President of NGC.
Prior to his employment with NGC, Mr. Matthews was President and Chief Executive
Officer of Texaco Natural Gas from January 1996 through November 1996 and a Vice
President of Texaco, Inc. from November 1993 through November 1996. Mr.
Matthews also served as President of Texaco Refining and Marketing, Inc. from
December 1993 through December 1995. He joined Texaco U.S.A. as Vice President-
Gas in 1989. Prior to joining Texaco, Mr. Matthews spent eight years with
Tenneco as President of Tennessee Gas Pipeline Company and Executive Vice
President of Tenneco Gas, and also sixteen years with Exxon in various domestic
and international engineering, management and executive positions, having last
served as Vice President, Exxon Gas.
STEPHEN W. BERGSTROM serves as Senior Vice President and as an Advisory
Director of NGC, and as President and Chief Operating Officer of Clearinghouse.
He served as a Director of NGC from March 1995 to May 1997. He served as
Executive Vice President of Clearinghouse and a member of the Clearinghouse
Management Committee from May 1989 through March 1995. In addition, Mr.
Bergstrom served as Senior Vice President, Gas Marketing and Supply, of
Clearinghouse from May 1987 through May 1990, and as Vice President, Gas Supply,
of Clearinghouse from July 1986 through May 1987. Prior to his employment with
Clearinghouse, Mr. Bergstrom served as Vice President, Gas Supply, of Enron Gas
Marketing, a subsidiary of Enron Corporation.
STEPHEN J. BRANDON has served as Executive Director of BG plc since
February 1997. He also held the same position at British Gas plc (a predecessor
of BG plc) from August 1995 through February 1997. From 1987 through July 1995,
Mr. Brandon was employed by General Electric Company where he served as Vice
President responsible for Southeast Asian operations from 1993 through July
1995.
FRANK J. CHAPMAN has served as Managing Director, Exploration and
Production, of BG plc since November 1996. Prior to joining BG plc in 1996, Mr.
Chapman spent eighteen years with Shell Corporation in various engineering and
management positions, having last served as General Manager responsible for
Shell U.K.'s Central North Sea interests.
PAUL NICHOLAS WOOLLACOTT has served as Managing Director, Europe and North
America, of BG plc since July 1997. He served as Managing Director, Power
Generation and Investment,
9
<PAGE>
of BG plc from February 1997 through June 1997. Mr. Woollacott also held the
same position at British Gas plc (a predecessor of BG plc) from October 1994 to
February 1997. From January 1992 through September 1994, Mr. Woollacott was
employed by Southern Electric plc where he served as Chief Executive Officer of
Southern Electric Power Generation.
JEFFREY M. LIPTON has served as President of NOVA from September 1994 to
the present, as Senior Vice President and Chief Financial Officer of NOVA from
February 1994 to September 1994 and as Senior Vice President of Novacor
Chemicals Inc., an indirect subsidiary of NOVA, from December 1993 to February
1994. Prior to joining NOVA in December 1993, Mr. Lipton served as Vice
President, Corporate Plans, of E.I. du Pont de Nemours & Co. ("du Pont") from
January 1993 to December 1993, and Vice President, Corporate Marketing and
Continuous Improvement, of du Pont from October 1990 to January 1993. He also
served as a member of the Clearinghouse Management Committee from January 1994
through March 1995.
JACK S. MUSTOE has served as Senior Vice President, General Counsel and
Corporate Environmental Officer of NOVA since October 1994. Mr. Mustoe served
as Senior Vice President, General Counsel and Corporate Secretary of NOVA from
September 1993 to October 1994 and as Vice President, General Counsel and
Corporate Secretary of NOVA from 1988 to September 1993.
A. TERENCE POOLE has served as Senior Vice President and Chief Financial
Officer of NOVA since September 1994. Mr. Poole served as Senior Vice
President, Corporate Development and Controller, of NOVA from March 1994 through
August 1994, and from September 1993 to March 1994, Mr. Poole held the same
position at NOVA Alberta. From 1988 to August 1993, Mr. Poole served as Vice
President and Controller of NOVA Alberta.
DARALD W. CALLAHAN has served as Senior Vice President of Chevron Chemical
Company, a subsidiary of Chevron, since October 1991, and served as President of
Warren Petroleum Company, an unincorporated division of Chevron, from December
1987 through September 1991. Mr. Callahan has been employed by Chevron
Corporation and its affiliates since 1964.
PETER J. ROBERTSON has served as a Vice President of Chevron Corporation
since September 1994, and as President of Chevron U.S.A. Production Company
since March 1997. He served as Vice President, Strategic Planning and Quality,
of Chevron Corporation from October 1994 through September 1996. Mr. Robertson
served as President of Warren from October 1991 through September 1994. Prior
thereto, he served as Vice President, Finance, of Chevron U.S.A. from October
1989 through September 1991. Mr. Robertson has been employed by Chevron
Corporation and its affiliates since 1973.
PATRICIA A. WOERTZ has served as President of Chevron International Oil
Company and Vice President of Logistics and Trading for Chevron Products Company
since January 1996. Ms. Woertz served as President of Chevron Canada Limited
from October 1993 through December 1995. Prior thereto, she served as Chevron
Corporation's Strategic Planning Manager from 1991 through September 1993. Ms.
Woertz has been employed by Chevron Corporation and its predecessors and
affiliates since 1977. She also serves on the Board and chairs the
10
<PAGE>
Refining, Marketing and Transportation Committee of the Western States Petroleum
Association.
DANIEL L. DIENSTBIER has over thirty years of experience in the oil and gas
industry. He served as President and Chief Operating Officer of American Oil &
Gas Corp. from October 1993 through July 1994, President and Chief Operating
Officer of Arkla, Inc. from July 1992 through October 1993, and President of
Jule, Inc., a private company involved in energy consulting and joint venture
investments in the pipeline, gathering and exploration and production
industries, from February 1991 through June 1992. Prior thereto, Mr. Dienstbier
served as President and Chief Executive Officer of Dyco Petroleum Corp., and
Executive Vice President of Diversified Energy from February 1989 through
February 1991. In addition, he served as President of the Gas Pipeline Group of
Enron Corp. from July 1984 through July 1988. Presently, Mr. Dienstbier is
pursuing private investments. Mr. Dienstbier also serves as a member of the
board of directors of Lariat Petroleum Incorporated, a privately-held oil and
gas exploration company based in Tulsa, Oklahoma. In the past, Mr. Dienstbier
has served as a member on the Board of Directors of several public companies,
including American Oil & Gas Corp., Arkla, Inc., Enron Corp., and Midwest
Resources.
J. OTIS WINTERS is a co-founder and Chairman of PWS Group, Inc. (formerly
known as Pate, Winters & Stone, Inc.), a consulting firm, and has served in such
position since 1990. Mr. Winters was formerly Executive Vice President and
Director of the Williams Companies, and Executive Vice President and Director of
the First National Bank of Tulsa. He has also served as a member of the Board of
Directors of several public companies, including, during 1997, the Board of
Directors of Liberty Bancorp, Inc.
The Board of Directors recommends that stockholders vote "FOR" the election
of the nominees to the Board of Directors.
STOCKHOLDERS AGREEMENT
On August 31, 1996, NGC and Chevron consummated a strategic combination of
NGC with substantially all of Chevron's midstream assets, and entered into
certain strategic alliances (the "Chevron Combination"). In connection with the
Chevron Combination, BG Holding, NOVA Gas and Chevron entered into a
Stockholders Agreement effective August 31, 1996 (the "NGC Stockholders
Agreement"). The parties to the NGC Stockholders Agreement have agreed to vote
their Common Stock, subject to certain conditions, to cause the Board of
Directors to consist of thirteen directors to be nominated as follows: (i) each
of the BG Group, NOVA Group and Chevron Group (as such terms are defined in the
NGC Stockholders Agreement) may nominate: (A) three directors as long as it
remains a Class A Group (as defined below); (B) two directors as long as it
remains a Class B Group (as defined below); and (C) one director as long as it
remains a Class C Group (as defined below); (ii) two members shall be officers
of NGC nominated by the Board of Directors; (iii) two members shall be
independent directors nominated by the Board of Directors; and (iv) all other
members, if any, shall be nominated and elected in accordance with applicable
law.
11
<PAGE>
Pursuant to the NGC Stockholders Agreement: (i) a "Class A Group" is
defined as a Group (as defined in the NGC Stockholders Agreement), that owns
collectively at least 34,760,890 shares of Common Stock; (ii) a "Class B Group"
is defined as a Group that owns collectively at least 23,173,926 shares of
Common Stock but less than 34,760,890 shares of Common Stock; and (iii) a "Class
C Group" is defined as a Group that owns collectively at least 11,586,963 shares
of Common Stock but less than 23,173,926 shares of Common Stock. Currently,
each of the BG Group, NOVA Group and Chevron Group is a Class A Group under the
NGC Stockholders Agreement, and, therefore, entitled to designate three
directors to serve on the Board of Directors based on its ownership of Common
Stock. The BG Group has designated Messrs. Stephen J. Brandon, Frank J. Chapman
and Paul Nicholas Woollacott as directors of the Company. The NOVA Group has
designated Messrs. Jeffrey M. Lipton, Jack S. Mustoe and A. Terence Poole as
directors of the Company. The Chevron Group has designated Messrs. Darald W.
Callahan and Peter J. Robertson and Ms. Patricia A. Woertz as directors of the
Company. The Board of Directors has designated Company officers Messrs. C.L.
Watson and Thomas M. Matthews as directors and Messrs. Daniel L. Dienstbier and
J. Otis Winters as independent directors.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, the Company's Board of Directors held four meetings. Each
director attended at least 75% of the aggregate of the total number of meetings
of the NGC Board of Directors (held during the period for which he has been a
director) and the total number of meetings held by all committees of the Board
on which he served (during the periods that he served). The Company's Board of
Directors currently has the following committees:
EXECUTIVE COMMITTEE. The Executive Committee, which is currently comprised
of Messrs. Watson, Brandon, Lipton and Robertson, met four times during 1997.
The Executive Committee has been delegated the authority to approve any actions
that the Board of Directors could approve, except to the extent restricted by
law, the NGC Bylaws or the NGC Restated Certificate of Incorporation. Subject
to the rights of the parties to the NGC Stockholders Agreement, the Executive
Committee is responsible for recommending to the Board of Directors nominees for
election or appointment to the Board of Directors of the Company. This
committee is also responsible for maintaining an effective working relationship
between the Board of Directors and management of the Company.
AUDIT COMMITTEE. The Audit Committee, which is currently comprised of
Messrs. Dienstbier and Winters, met five times during 1997. The Audit Committee
is responsible for meeting with the auditors, internal auditors and senior
executives of the Company to review and inquire into matters affecting the
financial reporting of the Company and recommending to the Board of Directors
the auditors to be recommended for appointment at the annual stockholders
meeting.
FINANCE COMMITTEE. The Finance Committee, which is currently comprised of
Messrs. Bergstrom, Poole, Winters and Woollacott and Ms. Woertz, met four times
during 1997. The Finance Committee is responsible for meeting with management
of the Company to review the
12
<PAGE>
financing plans and objectives of the Company, the Company's annual Securities
and Exchange Act filings and all prospectuses and other offering memoranda of
the Company. John U. Clarke, Senior Vice President and Chief Financial Officer
of the Company, is an ex-officio member of the Finance Committee.
COMPENSATION AND HUMAN RESOURCES COMMITTEE. The Compensation and Human
Resources Committee (the "Compensation Committee"), which is currently comprised
of Messrs. Dienstbier, Chapman, Callahan, Mustoe and Matthews, met five times
during 1997. The Compensation Committee reviews recommendations for the
appointment of persons to senior executive positions; reviews and approves
corporation compensation and benefits strategy; determines terms of employment
and compensation for senior executives; and is responsible for the proper and
orderly administration of the Company's retirement and savings plan (other than
matters relating to the funding and investment of the plan's trust funds). This
committee is also responsible for the compensation of the Board of Directors.
OPTIONS COMMITTEE. The Options Committee, which is currently comprised of
Messrs. Dienstbier and Winters, met four times during 1997. The Options
Committee is responsible for recommending awards under the NGC Corporation
Employee Equity Option Plan and the NGC Corporation Amended and Restated 1991
Stock Option Plan.
RISK AND ENVIRONMENT COMMITTEE. The Risk and Environment Committee, which
is currently comprised of Messrs. Dienstbier, Callahan, Chapman, Matthews and
Mustoe, met two times during 1997. The Risk and Environment Committee is
responsible for overseeing the Company's environmental and occupational health
and safety practices. Stephen A. Furbacher, Senior Vice President of the Company
and President of Warren Petroleum Company, Limited Partnership, is an ex-officio
member of the Risk and Environment Committee.
COMPENSATION OF DIRECTORS
Each non-employee director of NGC is paid an annual retainer of $22,000
plus $1,250 per board or committee meeting attended. In addition, each such
director is entitled to reimbursement for his reasonable out-of-pocket expenses
incurred in connection with travel to and from, and attendance at, meetings of
the NGC Board of Directors or committees thereof. Each non-employee director
also has the option to receive shares of Common Stock, in lieu of cash, in
payment of their annual retainer and meeting fees pursuant to the terms of the
NGC Corporation Non-Employee Director Compensation Plan. Each director of NGC,
other than Messrs. Watson, Matthews and Bergstrom, is a non-employee director
for purposes of such plan. The annual retainer and meeting fees payable to the
BG Holding and Chevron representatives on the NGC Board of Directors are
currently paid directly to BG Holding and Chevron, respectively.
In addition to the annual retainer and board or committee fees described
above, the Chairman of the Audit Committee and the Chairman of the Compensation
Committee are each paid an annual retainer of $16,000, as well as a committee
meeting fee of $3,000 for each meeting of the Audit Committee and Compensation
Committee that they chair. Messrs. Winters
13
<PAGE>
and Dienstbier are currently the respective chairmen of the Audit Committee and
Compensation Committee.
CERTAIN TRANSACTIONS AND OTHER MATTERS
For a description of certain transactions with management and others,
certain business relationships, indebtedness of management and compliance with
Section 16(a) of the Securities Exchange Act of Securities Exchange Act of 1934.
See "-Executive Compensation - Employment Agreements," "Certain Relationships
and Related Transactions," "Indebtedness of Management" and "Section 16(a)
Beneficial Ownership Reporting Compliance."
14
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned by the individual who serves as NGC's Chief Executive
Officer and the four most highly compensated persons of NGC at the end of 1997
(the "Named Executive Officers") in combined salary and bonus earned in 1997, as
well as amounts earned by or awarded to such individuals for services rendered
in all capacities to NGC or Clearinghouse, as the case may be, during 1996 and
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------------------- SHARES
FISCAL CASH OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION/(1)/ STOCK OPTIONS COMPENSATION/(2)/
- - ----------------- ---- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Watson 1997 $856,359 $ 500,000/(3)/ ___ 112,893 $ 22,463
Chairman of the Board 1996 $609,612 $2,518,018/(4)/ ___ 456,748/(4)/ $ 68,461
and Chief Executive Officer 1995 $600,600 $1,993,600/(5)/ ___ ___ $ 69,620
of NGC Corporation $ 116,703/(6)/
Thomas M. Matthews 1997 $600,000 $ 300,000/(3)/ ___ 115,793 $ 16,000
President of NGC 1996 $ 50,000 ___ ___ 59,802 $ 7,500
Corporation 1995 ___ ___ ___ ___ ___
Stephen W. Bergstrom 1997 $490,992 $ 350,000/(3)/ ___ 67,737 $ 16,000
Senior Vice President of 1996 $304,812 $ 509,009/(4)/ ___ 185,749/(4)/ $ 37,981
NGC Corporation and 1995 $300,312 $ 483,400/(5)/ ___ ___ $ 31,763
President of Clearinghouse $ 76,000/(6)/
John U. Clarke 1997 $183,178 $ 100,000/(3)/ ___ 55,152 $ 264,834
Senior Vice President and 1996 ___ ___ ___ ___ ___
Chief Financial Officer of 1995 ___ ___ ___ ___ ___
NGC Corporation
Kenneth E. Randolph 1997 $250,008 $ 135,000/(3)/ ___ 28,227 $ 21,000
Senior Vice President, 1996 $242,904 $ 267,074/(5)/ ___ 27,090 $ 31,790
General Counsel and 1995 $227,100 $ 104,200/(5)/ ___ 26,620 $ 23,543
Secretary of NGC
Corporation
</TABLE>
_________________________
(1) No Named Executive Officer received perquisites that exceeded the lesser of
either $50,000 or 10% of total annual salary and bonus.
(2) During 1997, 1996, and 1995, respectively, Messrs. Watson, Matthews,
Bergstrom, Clarke and Randolph, received Company contributions to their
respective savings plan accounts of $16,000, $16,000, $16,000, $14,834 and
$16,000, respectively; $22,500, $7,500, $22,500, $-0-, and $22,500,
respectively; and $20,490, $-0-, $20,490, $-0-, and $17,760, respectively.
During 1996 and 1995, respectively, Messrs. Watson, Bergstrom and Randolph,
received excess savings plan payments of $45,961, $15,481 and $9,290,
respectively; and $33,795, $11,273 and $5,783, respectively. No excess
savings plan payments were received in 1997. Life insurance premiums of
$6,463 and $15,335 were paid by NGC in 1997 and by Clearinghouse in 1995, on
Mr. Watson's behalf. No life insurance premium was paid on Mr.
15
<PAGE>
Watson's behalf in 1996. A life insurance premium of $5,000 was paid on Mr.
Randolph's behalf in 1997. Amount shown for Mr. Clarke includes a $250,000
sign-on bonus.
(3) Each of the Named Executive Officers is party to an employment agreement
with the Company. Bonus awards for 1997, which were paid in 1998, were
determined under the terms of the Company's Incentive Compensation Plan,
subject to the minimum guaranteed bonus provisions of such employment
agreements. See "-Employment Agreements." The bonus shown for 1997 for Mr.
Randolph also includes a bonus amount of $35,000 that related to bonuses
that were approved by the Board of Directors in 1996 to be paid in 1997 to
certain employees who were involved with the Chevron Combination, provided
that such employees were employed by the Company on July 1, 1997.
(4) Messrs. Watson and Bergstrom's respective employment agreements that expired
in May 1997 (the "Old Employment Agreements") entitled them to certain
guaranteed bonus amounts under the Company's Above Base Incentive
Compensation Plan (the "ABIC Plan") based on the operating profits of the
Company. Messrs. Watson and Bergstrom's bonus awards for 1996, as
determined under the Old Employment Agreements and the ABIC Plan, which also
expired in May 1997, were $6,927,000 and $1,716,750, respectively. Of such
bonus amounts, Mr. Watson elected to receive $2,500,000 in cash and
$4,427,000 in the form of 220,008 stock options with an exercise price of
$2.028 per share. Mr. Bergstrom elected to receive $500,000 in cash and
$1,216,750 in the form of 60,469 stock options with an exercise price of
$2.028 per share. The number of stock options awarded to Messrs. Watson and
Bergstrom in lieu of a portion of their December 1996 bonus awards was
determined based on a fair market value of $22.15, which was equal to the
average closing price of the Company's Common Stock for the month of
December 1996. Bonus amounts for 1996 also include a mid-year bonus equal
to 3% of the Named Executive Officer's base salary at July 1, 1996, which
was also paid to all employees of NGC. Messrs. Watson and Bergstrom's July
1996 bonus amounts were $18,018 and $9,009, respectively.
(5) Bonus awards in 1996 and 1995 were based on the provisions of the ABIC Plan.
Bonus amounts for 1996 also include a mid-year bonus equal to 3% of the
Named Executive Officer's base salary at July 1, 1996, which was also paid
to all employees of NGC. Mr. Randolph's July 1996 bonus amount was $7,074.
In addition, Mr. Randolph's bonus for 1996 also includes a bonus amount of
$35,000 that was paid in 1996 in connection with the Chevron Combination, as
described in footnote 3 above.
(6) Bonus awarded in 1995, paid in 1996.
16
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information with respect to stock
option grants made to the Named Executive Officers during 1997 under the NGC
Corporation Employee Equity Option Plan (the "EEP") and/or the NGC Corporation
Amended and Restated 1991 Stock Option Plan (the "Stock Option Plan"). No stock
appreciation rights were granted during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES % TOTAL MARKET ASSUMED ANNUAL RATE OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE ON PRICE APPRECIATION FOR OPTION TERM/(2)/
OPTIONS EMPLOYEES IN PRICE DATE OF EXPIRATION ---------------------------------------
NAME GRANTED FISCAL 1997/(1)/ $/SHARE GRANT DATE 0% 5% 10%
- - ---- --------- ---------------- ------- -------- ---------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles L. Watson 112,893 4.9% $18.00 $18.00 11/13/07 __ $1,277,960 $3,238,603
Thomas M. Matthews 40,532 1.8% $ 5.664 $18.00 11/13/07 $500,003 $958,830 $1,662,759
75,261 3.3% $18.00 $18.00 11/13/07 __ $851,955 $2,159,040
Stephen W. Bergstrom 67,737 3.0% $18.00 $18.00 11/13/07 __ $766,783 $1,943,196
John U. Clarke 16,560 0.7% $ 2.028 $17.125 04/14/07 $250,006 $428,353 $ 701,975
19,776 0.9% $17.125 $17.125 04/14/07 -- $212,984 $ 539,743
18,816 0.8% $18.00 $18.00 11/13/07 -- $212,997 $ 539,781
Kenneth E. Randolph 28,227 1.2% $18.00 $18.00 11/13/07 __ $319,530 $ 809,758
</TABLE>
_________________________
(1) Each of the Named Executive Officers is entitled to receive certain annual
market value stock option grants during the term of their respective
employment agreements. See "-Employment Agreements.".
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore not intended to forecast possible
future appreciation, if any, of the price of Common Stock.
17
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth for the Named Executive Officers,
information regarding options held by them at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES STOCK OPTIONS OR EQUITY IN-THE-MONEY STOCK
ACQUIRED ON OPTIONS AT 12/31/97 OPTIONS AT 12/31/97/(1)/
EXERCISE OF VALUE ---------------------------- -----------------------------
NAME OPTIONS REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Watson __ __ 1,775,965 532,394 $26,901,445 $5,337,964
Thomas M. Matthews __ __ __ 175,595 -- $1,404,994
Stephen W. Bergstrom __ __ 16,760 236,726 $ -0- $2,088,326
John U. Clarke __ __ __ 55,152 -- $ 263,632
Kenneth E. Randolph __ __ 26,776 55,161 $ 144,186 $ 72,101
</TABLE>
________________________________
(1) Value based on the closing price of $17.50 on the New York Stock
Exchange - Composite Tape for NGC Common Stock on December 31, 1997.
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Executive officers, directors and
greater than 10% stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon
review of the copies of such forms furnished to the Company, or upon written
representations that no Form 5's were required, the Company believes that all
persons subject to these reporting requirements filed the required reports on a
timely basis.
INDEBTEDNESS OF MANAGEMENT
No director, executive officer, nominee for election as a director or 5%
stockholder was indebted to NGC for an amount exceeding $60,000 during 1997.
EMPLOYMENT AGREEMENTS
C.L. WATSON EMPLOYMENT AGREEMENT. NGC entered into a five-year employment
agreement with C.L. Watson effective as of May 15, 1997, pursuant to which the
Company agreed to employ Mr. Watson as Chairman and Chief Executive Officer of
the Company. Mr. Watson's employment agreement entitles him to receive a base
salary of $999,000, subject to increase as determined by the Board of Directors.
Mr. Watson's employment agreement also entitles him to be a participant in the
NGC Corporation Incentive Compensation Plan (the "Incentive Compensation Plan"),
the NGC Corporation Deferred Compensation Plan (the "Deferred Compensation
Plan"), the EEP and the Stock Option Plan. Mr. Watson is also entitled to
participate in all benefit programs for senior management employees as the Board
determines, which include, but are not limited to, all split dollar agreements
(the "Insurance Trust Agreements") between the Company and the Watson 1996
Family Trust, the Company's Charitable Donation Plan and NGC's Alternative
Benefits for Senior Executives Plan. Under the terms of his employment
agreement, Mr. Watson is entitled to receive a guaranteed Incentive Compensation
Plan bonus of at least $500,000 per year during the five-year term. As a
participant in the Incentive Compensation Plan, he also has the annual
opportunity to earn up to 200% of his base salary, dependent upon certain
corporate financial and individual performance objectives. At his election, Mr.
Watson may also direct that all or part of his incentive compensation be
allocated by the Company to, or expended directly for, charitable contributions
of his selection and/or payments of insurance premiums pursuant to the Insurance
Trust Agreements. Mr. Watson may also elect, to the extent any incentive
compensation in excess of the minimum guaranteed amount of $500,000 is payable
under the Incentive Compensation Plan in any year, to receive stock options of
equal value in lieu of a cash payment. "Equal value" for such purpose, is
determined by an independent consultant selected by the Board of Directors.
Mr. Watson's employment agreement also provides that each year during the term
of his agreement, he is to receive market value stock option grants under the
Stock Option Plan with a five-year projected value of $1,500,000 (assuming a 15%
annual growth rate in the price of
19
<PAGE>
NGC's Common Stock). Accordingly, Mr. Watson received options to purchase
112,893 shares of Common Stock with an exercise price of $18.00 per share on
November 13, 1997. See "-Stock Option Grants." If Mr. Watson completes the term
of his employment agreement or if Mr. Watson does not complete the term due to a
"constructive termination" (as defined in his employment agreement), he will be
fully vested with regard to all stock options previously granted to him
(irrespective of the date of grant of such stock options and irrespective of the
vesting schedule otherwise applicable to such stock options). Mr. Watson's
employment agreement also provides that in the event of his separation from
employment for any reason, that he will be fully vested with regard to all stock
options previously granted to him in lieu of incentive compensation payable in
cash, to which he was otherwise entitled under the Incentive Compensation Plan.
If Mr. Watson is terminated without cause prior to May 14, 2002, he is entitled
to receive 2.99 times the average of his annual base salary and Incentive
Compensation Plan bonus over the three calendar years preceding the calendar
year in which he is terminated. On May 15, 2000, Mr. Watson may elect to serve
only as Chairman of the Company, in which event his duties will be
correspondingly adjusted as mutually agreed by him and the Board of Directors.
Should he elect to serve only as Chairman, he will be entitled to receive his
then current base salary and only the $500,000 minimum guaranteed bonus amount
under the Incentive Compensation Plan, except as otherwise determined by the
Board. The employment agreement contains non-compete provisions in the event of
Mr. Watson's termination of employment.
THOMAS M. MATTHEWS EMPLOYMENT AGREEMENT. NGC entered into a five-year
employment agreement with Thomas M. Matthews effective as of December 1, 1996,
pursuant to which NGC agreed to employ Mr. Matthews as President of NGC. Mr.
Matthews's employment agreement entitles him to receive a base salary of
$600,000, subject to increase as determined by the Board of Directors. Mr.
Matthews is also entitled to receive a guaranteed bonus of $300,000 per annum
during the five-year primary term of his employment agreement, and, as a
participant in the Incentive Compensation Plan, the annual opportunity to earn
up to 200% of his base salary, dependent upon certain corporate financial and
individual performance objectives. Mr. Matthews is entitled to participate in
the Incentive Compensation Plan, the Deferred Compensation Plan, the Alternative
Benefits for Senior Executives Plan, the EEP and the Stock Option Plan. If Mr.
Matthews is terminated due to "constructive termination" (as defined in his
employment agreement), or for any other reason other than his voluntary
resignation or discharge for cause prior to December 1, 2001, he is entitled to
receive his base salary and guaranteed bonus for the remainder of the primary
term or two years from the date of termination, whichever is later, and any
employee stock options granted to him during the term of his employment
agreement shall become vested as of the date of such termination, but only up to
the percentage that would have been vested as of the end of the term of his
agreement. Mr. Matthews's employment agreement also provided for an initial
grant of discounted stock options under the EEP with an immediate in-the-money
value of $1,000,000. Mr. Matthews received options
20
<PAGE>
to purchase 59,802 shares of Common Stock with an exercise price of $2.028 per
share on December 1, 1996. In addition, Mr. Matthews's employment agreement
provides that he is to receive market value stock option grants under the Stock
Option Plan during each year of his employment agreement with a five-year
projected value of $1,000,000 (assuming a 15% annual growth rate in the price of
NGC's Common Stock). Accordingly, Mr. Matthews received options to purchase
75,261 shares of Common Stock with an exercise price of $18.00 per share on
November 13, 1997. See "-Stock Option Grants." The employment agreement contains
non-compete provisions in the event of Mr. Matthews's termination of employment.
STEPHEN W. BERGSTROM EMPLOYMENT AGREEMENT. NGC entered into a three-year
employment agreement with Stephen W. Bergstrom effective as of May 15, 1997,
pursuant to which the Company agreed to employ Mr. Bergstrom as Senior Vice
President of the Company and President and Chief Operating Officer of
Clearinghouse. Mr. Bergstrom's employment agreement entitles him to receive a
base salary of $600,000, subject to increase as determined by the Board of
Directors. Mr. Bergstrom's employment agreement also entitles him to be a
participant in the Incentive Compensation Plan, the Deferred Compensation Plan,
the EEP and the Stock Option Plan. Mr. Bergstrom is also entitled to
participate in all benefit programs for senior management employees as the Board
determines, which include, but are not limited to, all split dollar agreements
between the Company and Mr. Bergstrom (or any irrevocable trust created by Mr.
Bergstrom), the Company's Charitable Donation Plan and NGC's Alternative
Benefits for Senior Executives Plan. Under the terms of his employment
agreement, Mr. Bergstrom is entitled to receive a guaranteed Incentive
Compensation Plan bonus of at least $350,000 per year during the three-year
term. As a participant in the Incentive Compensation Plan, he also has the
annual opportunity to earn up to 200% of his base salary, dependent upon certain
corporate financial and individual performance objectives. Mr. Bergstrom may
also elect to receive, in lieu of his minimum guaranteed bonus amount, stock
options of equal value in lieu of a cash payment. "Equal value" for such
purpose, is determined by an independent consultant selected by the Board of
Directors. Mr. Bergstrom's employment agreement also provides that each year
during the term of his agreement, he is to receive market value stock option
grants under the Stock Option Plan with a five-year projected value of $900,000
(assuming a 15% annual growth rate in the price of NGC's Common Stock).
Accordingly, Mr. Bergstrom received options to purchase 67,737 shares of Common
Stock with an exercise price of $18.00 per share on November 13, 1997. See
"-Stock Option Grants." If Mr. Bergstrom completes the term of his employment
agreement or if Mr. Bergstrom does not complete the term due to a "constructive
termination" (as defined in his employment agreement), he will be fully vested
with regard to all stock options previously granted to him (irrespective of the
date of grant of such stock options and irrespective of the vesting schedule
otherwise applicable to such stock options). Mr. Bergstrom's employment
agreement also provides that in the event of his separation from employment for
any reason, that he will be fully vested with regard to all stock options
previously granted to him in lieu of incentive compensation payable in cash, to
which he was otherwise entitled under the Incentive Compensation Plan. If Mr.
Bergstrom is terminated without cause prior to May 14, 2000, he is entitled to
receive 2.99 times the average of his annual base salary and Incentive
Compensation Plan bonus over the three calendar years preceding the calendar
year in which he is terminated. The employment agreement contains non-compete
provisions in the event of Mr. Bergstrom's termination of employment.
JOHN U. CLARKE EMPLOYMENT AGREEMENT. NGC entered into a five-year
employment agreement with John U. Clarke effective April 22, 1997, pursuant to
which NGC agreed to employ Mr. Clarke as Senior Vice President and Chief
Financial Officer. Mr. Clarke's employment agreement entitles him to receive a
base salary of $250,000, subject to increase as
21
<PAGE>
determined by the Board of Directors. Mr. Clarke is also entitled to receive a
guaranteed bonus of $100,000 per annum during the term of his employment
agreement. As a participant in the Incentive Compensation Plan, Mr. Clarke also
has the annual opportunity to earn additional bonus amounts dependent upon
certain corporate financial and individual performance objectives. In addition,
Mr. Clarke is entitled to participate in the Deferred Compensation Plan,
Alternative Benefits for Senior Executives Plan, the EEP and the Stock Option
Plan. If Mr. Clarke completes the term of his employment agreement or if he is
terminated due to "constructive termination" (as defined in his employment
agreement) or for any other reason other than his voluntary resignation or
discharge for cause prior to April 22, 2002, he is entitled to receive a cash
payment within thirty days of either such event of $5,000,000 less any
compensation received prior to termination and less the value of any already
exercised or vested options exercisable, provided that such payment shall not be
greater than 2.99 times the sum of his base salary plus guaranteed annual bonus
at the time of termination, if such payment results from his constructive
termination. In addition, any employee stock options granted to him during the
term of his employment agreement shall become vested as of the date of such
termination, and shall be exercisable for a period of one year thereafter. Mr.
Clarke's employment agreement also provided for a cash sign-on bonus of $250,000
and an initial grant of discounted stock options under the EEP with an immediate
in-the-money value of $250,000. Mr. Clarke received options to purchase 16,560
shares of Common Stock with an exercise price of $2.028 per share on April 14,
1997. In addition, Mr. Clarke's employment agreement provides that he is to
receive market value stock option grants under the Stock Option Plan during each
year of his employment agreement with a five-year projected value of $250,000
(assuming a 15% annual growth rate in the price of NGC's Common Stock).
Accordingly, Mr. Clarke received options to purchase 18,816 shares of Common
Stock with an exercise price of $18.00 per share on November 13, 1997. See
"-Stock Option Grants." The employment agreement contains non-compete provisions
in the event of Mr. Clarke's termination of employment.
KENNETH E. RANDOLPH EMPLOYMENT AGREEMENT. NGC entered into a three-year
employment agreement with Kenneth E. Randolph effective January 1, 1997,
pursuant to which NGC agreed to employ Mr. Randolph as Senior Vice President and
General Counsel. Mr. Randolph's employment agreement entitles him to receive a
base salary of $250,000, subject to increase as determined by the Board of
Directors. Mr. Randolph is also entitled to receive a guaranteed bonus of
$100,000 per annum during the term of his employment agreement. As a
participant in the Incentive Compensation Plan, Mr. Randolph also has the annual
opportunity to earn additional bonus amounts dependent upon certain corporate
financial and individual performance objectives. In addition, Mr. Randolph is
entitled to participate in the Deferred Compensation Plan, the Alternative
Benefits for Senior Executives Plan, the EEP and the Stock Option Plan. If Mr.
Randolph is terminated due to "constructive termination" (as defined in his
employment agreement) or for any other reason other than his voluntary
resignation or discharge for cause prior to January 1, 2000, (i) he is entitled
to receive his base salary and guaranteed bonus for the remainder of the primary
term, or two years from the date of termination, whichever is later, and (ii)
any employee stock options granted to him during the term of his employment
agreement shall become vested as of the date of such termination, but only up to
the percentage that would have been vested as of the end of the term of his
agreement. In addition, Mr. Randolph's employment agreement provides that he is
to receive market value stock option
22
<PAGE>
grants under the Stock Option Plan during each year of his employment agreement
with a five-year projected value of $375,000 (assuming a 15% annual growth rate
in the price of NGC's Common Stock). Accordingly, Mr. Randolph received options
to purchase 28,227 shares of Common Stock with an exercise price of $18.00 per
share on November 13, 1997. See "-Stock Option Grants." The employment agreement
contains non-compete provisions in the event of Mr. Randolph's termination of
employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Caldwell Nyberg Interests, Inc. ("CNI") assisted Cushman & Wakefield, Inc.
("Cushman & Wakefield") as a cooperating broker in securing the Company's office
headquarters lease. In 1997, CNI was paid a participating brokerage fee by
Cushman & Wakefield in the amount of $354,926. C.L. Watson, Chairman of the
Board and Chief Executive Officer of the Company, owns a 50% passive investment
interest in CNI.
COMPENSATION COMMITTEE/OPTIONS COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION. The Compensation Committee and the Options Committee of the NGC
Board of Directors made decisions regarding compensation for executive officers
in 1997. The base compensation, bonus amounts and certain stock option grants
for 1997 for each of Messrs. Watson, Matthews, Bergstrom, Clarke and Randolph
were established pursuant to the terms of their respective employment
agreements. See "-Employment Agreements."
At certain times during 1997, the NGC Compensation Committee was comprised
of five of the following directors: Messrs. Brandon, Callahan, Dienstbier,
Lipton, Jespersen, Matthews and Winters. In August 1997, the Compensation
Committee was reconstituted, at which time Messrs. Lipton and Winters were
removed and replaced by Messrs. Jespersen and Matthews. Thus, at December 31,
1997, the Compensation Committee consisted of Messrs. Dienstbier, Brandon,
Callahan, Jespersen and Matthews. The Options Committee is comprised of Messrs.
Dienstbier and Winters. Messrs. Brandon, Callahan, Dienstbier, Lipton,
Jespersen and Winters have never been officers or employees of the Company. Mr.
Matthews, who became a member of the Compensation Committee in August 1997, is
President of the Company. Mr. Brandon serves as Executive Director of BG plc.
Mr. Callahan serves as Senior Vice President of Chevron Chemical Company. As of
December 31, 1997, Mr. Jespersen served as Senior Vice President of NOVA and as
President of NOVA Gas International Ltd. During his tenure on the Compensation
Committee, Mr. Lipton served as President of NOVA. Affiliates of each of NOVA,
BG plc and Chevron are the three largest stockholders of NGC. NGC has engaged
in various transactions with NOVA, BG plc and Chevron, and their respective
affiliates, as described below.
BUSINESS RELATIONSHIPS WITH NOVA; NOVA'S OTHER GAS SERVICE BUSINESSES.
Various business relationships between NOVA and NGC, together with NOVA's
operations as a major natural gas services company, may present conflicts of
interest as NOVA and NGC each pursue business opportunities.
NCL JOINT VENTURE. In February 1994, Clearinghouse, through its wholly-
owned subsidiary, NGC Canada Inc. ("NGC Canada"), and NOVA Gas International
Ltd. ("NOVA Gas
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Ltd.") formed Novagas Clearinghouse Ltd. ("NCL") to market, exchange, gather,
process, purchase, sell, transport and store natural gas and natural gas liquids
("NGLs") in Canada. During 1997, the Company restructured the ownership of NCL.
Effective March 31, 1997, NGC assumed full control of NCL's gas and gas liquids
marketing business and NOVA assumed full ownership of NCL's gathering and
processing and pool aggregation businesses. As a result of this restructuring,
NGC is currently pursuing its Canadian energy marketing and midstream asset
business through NGC Canada.
OTHER NOVA BUSINESSES. NOVA, through its subsidiaries, joint ventures and
other affiliates, is a major international gas services company that engages in
the transmission, gathering, processing, storage and marketing of natural gas,
together with related activities. NOVA's natural gas transportation operations
currently include its 13,800 mile Alberta pipeline system, which collects and
transports gas for use in Alberta and for delivery to connecting pipeline
systems for export to eastern Canada and the United States. In 1997, this system
transported 4.5 trillion cubic feet of natural gas. NOVA also owns 50% of the
Foothills Pipeline System, which transported 935 billion cubic feet of Western
Canadian natural gas to major markets in the United States during 1997. NOVA
also produces and markets various petrochemicals in Canada and the United
States. NOVA purchases large amounts of petroleum products, natural gas and NGLs
as fuel or feedstock for its petrochemical operations. Further, NOVA engages in
NGL extraction, transportation, storage, and marketing and related activities.
These operations and NOVA's pursuit of additional gas services
opportunities overlap with the Company's operations and strategy. There are no
contractual limits on NOVA's ability to compete with the Company. Under the
terms of the NGC Stockholders Agreement, BG Holding, NOVA Gas and Chevron agreed
that each of them may have interests in other business ventures that are or may
be competitive with the activities of NGC and that, to the fullest extent
permitted by law, nothing in the NGC Stockholders Agreement will limit the
current or future business activities of the parties thereto or their
affiliates, whether or not such activities are competitive with those of NGC.
Accordingly, conflicts of interest may arise between NOVA and NGC as they each
pursue natural gas services business opportunities. These conflicts may be
resolved in favor of NOVA.
On January 26, 1998, NOVA and TransCanada Pipeline Limited announced an
agreement to merge the companies. The merger will create the fourth largest
energy services company in North America. Immediately following the merger, NOVA
Chemicals will be split off as a separate public company. The NGC Common Stock
owned by NOVA has been, and following the split will continue to be, held by an
indirect wholly owned subsidiary of NOVA Chemicals. The merger and split are
currently anticipated to occur in the second quarter of 1998.
BUSINESS RELATIONSHIPS WITH BG PLC AND CENTRICA PLC; OTHER BG PLC AND
CENTRICA PLC GAS SERVICES BUSINESSES. In February 1997, British Gas plc
("British Gas") completed a demerger transaction, which created two separate
publicly traded companies: BG plc ("BG plc") and Centrica plc ("Centrica"). BG
plc is the parent corporation of BG Holding, which is the record-holder of NGC
Common Stock. Centrica owns British Gas's former interests in the Accord Energy
Limited ("Accord") joint venture with NGC. Various business relationships
between BG, Centrica and the Company, together with BG's and Centrica's
operations as major natural gas service companies, may present conflicts of
interest as BG, Centrica and NGC each separately pursues business opportunities.
ACCORD JOINT VENTURE. Effective May 2, 1997, Centrica and the Company
completed the restructuring of Accord in which certain common stock interests in
Accord were converted to
24
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participating preferred stock interests. Centrica and the Company currently own
75% and 25%, respectively, of the participating preferred stock of Accord. The
participating preferred stock has (a) the right to receive cumulative dividends
on a priority to other corporate distributions by Accord, and (b) limited voting
rights. In addition, Centrica has the option to purchase the Company's
participating preferred stock at any time after July 1, 2000, and the Company
has the right to acquire Centrica's participating preferred stock during the
period January 1, 2001 through March 1, 2001, at a formula based price.
OTHER BG PLC, CENTRICA PLC BUSINESSES. BG plc, through its subsidiaries
and affiliates, is a major international gas services company that engages in
energy-related activities, including the transmission, gathering, processing,
storing and marketing of natural gas and related activities. Centrica markets
gas in the United Kingdom. These operations and BG plc's and Centrica's pursuit
of additional opportunities overlap with the Company's operations and strategy.
There are no contractual limits on BG plc's or Centrica's ability to compete
with the Company. Under the terms of the NGC Stockholders Agreement, BG
Holding, NOVA Gas and Chevron agreed that each of them may have interests in
other business ventures that may be competitive with the activities of NGC and
that, to the fullest extent permitted by law, nothing in the NGC Stockholders
Agreement shall limit the current or future business activities of the parties
thereto or their affiliation, whether or not such activities are competitive
with those of NGC. Accordingly, conflicts of interest may arise between BG plc,
Centrica and NGC as they each pursue business opportunities. These conflicts
may be resolved in favor of BG plc or Centrica.
BUSINESS RELATIONSHIPS WITH CHEVRON; CHEVRON'S OTHER BUSINESSES. Various
business relationships between Chevron and NGC, together with Chevron's
operations as a major vertically integrated energy company, may present
conflicts of interest as Chevron and NGC each pursue business opportunities.
ANCILLARY AGREEMENTS AND STRATEGIC ALLIANCES CONTEMPLATED BY THE
COMBINATION. In connection with the Chevron Combination, NGC and Chevron, or
affiliates thereof, entered into certain supply, sales and service agreements
pursuant to which, among other things, NGC has (i) the obligation to
purchase and the right to market substantially all natural gas and natural gas
liquids produced or controlled by Chevron in the United States (except Alaska)
and to supply natural gas and natural gas liquids feedstock to Chevron
refineries and Chevron Chemical plants in the United States, (ii) the right to
participate in existing and future opportunities to provide electricity to
United States facilities of Chevron and Chevron Chemical, as well as to purchase
or market excess electricity generated by such facilities, and (iii) the right
to process substantially all of Chevron's processable natural gas in those
geographic areas where it is economically feasible for NGC to provide such
service. During 1997, NGC purchased $2.2 billion of natural gas, natural gas
liquids and crude oil produced or controlled by Chevron, and sold $744 million
of natural gas, natural gas liquids and crude oil to Chevron refineries and
Chevron Chemical plants in the United States.
25
<PAGE>
In December 1996, NGC, through its wholly-owned subsidiary, Warren
Petroleum Company, Limited Partnership ("Warren"), entered into a partnership
agreement with Chevron and an affiliate of Chevron, to own, operate and expand a
gas processing, fractionation and gas gathering system situated near Venice,
Louisiana. In 1997, the partnership was reorganized as a limited liability
company, Venice Energy Services Company, L.L.C. ("VESCO") and an affiliate of
Shell Corporation was admitted as an additional member in exchange for its
commitment of certain off-shore reserves to VESCO. The transaction reduced NGC's
interest in VESCO from 37% to approximately 32% at December 31, 1997. The VESCO
members have entered into a definitive agreement with Koch Energy Services
Company ("Koch") pursuant to which Koch will contribute a cryogenic gas
processing unit to VESCO in exchange for an approximate 10% interest in the
limited liability company. The transaction, which is expected to close in the
second quarter of 1998, will reduce NGC's interest in VESCO to approximately
23%. NGC operates the facility and has commercial responsibility for product
distribution and sales.
In October 1997, NGC Canada entered into a midstream asset business
arrangement with Chevron Canada Resources ("CCR") involving CCR's gathering,
processing and fractionation assets located in the Western Canadian Sedimentary
Basin. Pursuant to the arrangement, NGC Canada will invest capital to attract
third-party business opportunities associated with CCR's midstream assets.
OTHER CHEVRON BUSINESS. Chevron Corporation, the parent company of
Chevron, is a major vertically integrated oil and gas company, and is the sixth
largest oil and gas company (by revenues) in the world. Chevron Corporation,
through its subsidiaries, affiliates and joint ventures, is involved in
exploration and production of oil and gas, gas gathering, gas and NGL
transportation and storage, refining and distribution (wholesale and retail).
Accordingly, Chevron's Corporation's present operation and its pursuit of
additional gas services opportunities overlap with NGC's operations and
strategy. There are no contractual limits on Chevron Corporation's ability to
compete with NGC. Under the terms of the NGC Stockholders Agreement, BG
Holding, NOVA Gas and Chevron agreed that each of them may have interests in
other business ventures that are or may be competitive with the activities of
NGC and that, to the fullest extent permitted by law, nothing in the NGC
Stockholders Agreement shall limit the current or future business activities of
the parties thereto or their affiliates, whether or not such activities are
competitive with those of NGC. Accordingly, conflicts of interest may arise
between Chevron Corporation, and its affiliates, and NGC as they each pursue
natural gas services business opportunities. These conflicts may be resolved in
favor of Chevron Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NGC's executive compensation program was designed to help NGC attract,
motivate and retain the executive resources that NGC needs in order to maximize
its return to stockholders. NGC attempts to provide its executives with a total
compensation package that at expected levels of performance is competitive with
those provided to executives who hold comparable positions or have similar
qualifications in other organizations of NGC's size. To meet this overall
26
<PAGE>
objective, NGC's executive compensation program was structured and implemented
by the Compensation Committee to provide competitive compensation opportunities
and various incentive award payments based on Company and personal performance.
The fundamental philosophy is to relate the amount of compensation "at risk" for
an executive directly to his or her contributions to the Company's success in
achieving superior performance objectives.
During 1997, NGC's executive compensation program consisted of three main
components: (1) base salary; (2) potential for an annual bonus based on overall
Company performance as well as individual performance; and (3) the opportunity
to earn stock-based incentives, which were intended to encourage the achievement
of superior results over time and to align executive officer and shareholder
interests. The second and third elements constitute the "at risk" portion of
the compensation program. Mr. Watson's employment agreement contains a
provision for incentive compensation payments through Mr. Watson's participation
in the Company's Incentive Compensation Plan of up to 200% of his base salary
(currently $999,000), subject to a minimum guaranteed bonus of $500,000. Under
the terms of the Incentive Compensation Plan, 75% of Mr. Watson's potential
bonus award is based on corporate financial performance objectives. Mr.
Watson's employment agreement also provides that each year during the term of
his agreement, he is to receive market value stock option grants under the Stock
Option Plan with a five-year projected value of $1,500,000 (assuming a 15%
annual growth rate in the price of NGC's Common Stock). Accordingly, a
significant portion of Mr. Watson's annual bonus opportunity as well as Mr.
Watson's opportunity to realize compensation from stock-based incentives is "at
risk."
BASE SALARY. The amount of each NGC executive officer's base salary was a
function of such executive officer's position and individual experience and
performance. Each executive officer's individual performance was measured
against expectations related to such executive officer's attainment of
predetermined goals. With respect to base salary, the Compensation Committee's
philosophy was to link merit increases to achievement of the Company's business
goals and to measure such merit increases against that of a broad group of
energy industry companies of similar size.
Each year the Compensation Committee meets to review and discuss industry
survey data regarding general merit increases in order to determine base salary
increases for the Company's executive officers. In order to determine merit
increases in 1997, the Compensation Committee used national data for executives
and exempt personnel. For fiscal year 1997 the Compensation Committee approved
merit increases of 3% of base pay for all employees, including the Company's
executive officers.
BONUS PAYMENTS. During 1997, the Company's mechanism for awarding annual
bonuses to its executive officers was the Incentive Compensation Plan. The
Incentive Compensation Plan is used to provide incentive payments to all non-
union employees of the Company other than those who are participants in the NGC
Corporation Commercial Incentive Plan. The NGC Corporation Commercial Incentive
Plan is limited to non-officer employees who are involved directly in trading
and day-to-day commercial activities.
27
<PAGE>
The basis for the payment of annual bonuses under the Incentive
Compensation Plan is a combination of attaining certain corporate financial
objectives recommended by the Chief Executive Officer and approved by the
Compensation Committee (i.e., net income, cash-flow, return on equity, etc.) and
personal objectives. The Company's executive officers' annual bonus potential
is based 75% on achieving corporate financial objectives and 25% on achieving
personal objectives. Non-officer employees of the Company may have a different
ratio between corporate and individual objectives depending on the nature of
their responsibilities.
The amount of money available for annual bonus payments depends on the
financial performance of the Company. That is, each of the Company's financial
objectives is described in terms of "threshold, target and maximum." If the
annual budget is achieved for a certain objective, the "target" level for bonus
purposes is considered to have been achieved. Threshold is a certain percentage
of target (i.e., budget) and maximum is a certain percentage over target (i.e.,
over-budget). This approach is used to assess each of the financial objectives
to determine the amount of the available "bonus pool."
Under the Incentive Compensation Plan, the executive officers of the
Company have the opportunity to earn from 30% to 50% of their base salary if
corporate results are achieved at the plan's threshold level, from 60% to 100%
at target levels and from 120% to 200% at maximum levels.
In 1997, corporate financial performance objectives were not achieved and
therefore the Incentive Compensation Plan was not funded. Individual bonuses
were paid to executive officers only at the minimum guaranteed levels that were
specified in their respective employment agreements. After considering
competitive employment conditions, the Compensation Committee authorized the
payment of bonuses to other employees who were participants in the Incentive
Compensation Plan at reduced levels considering only the individual performance
objectives portion of each employee's bonus potential.
STOCK OPTION GRANTS. The Company has the EEP and the Stock Option Plan for
certain key employees, including executive officers. The purpose of these plans
is to assist in securing and retaining employees of ability by making it
possible to offer them an incentive, in the form of a proprietary interest in
the Company, to join or continue in the service of the Company, and to increase
their efforts on the Company's behalf. Levels for stock option grants are
established based on an employee's position and performance. During 1997, the
Options Committee was responsible for recommending stock option awards. Stock
option grants were awarded to all executive officers of the Company during 1997.
The majority of such grants were made pursuant to provisions of the executive
officers' respective employment agreements.
COMPENSATION OF CHIEF EXECUTIVE OFFICER; EMPLOYMENT AGREEMENT. Mr. Watson
entered into an employment agreement with the Company effective May 15, 1997,
which provides Mr. Watson an initial annual base salary of $999,000, subject to
increase. Under the terms of his employment agreement, Mr. Watson's base salary
is increased at such times and in such amounts, if any, as may be determined by
the Board of Directors.
28
<PAGE>
In addition to his base salary, Mr. Watson's employment agreement also
provides for incentive compensation payments through Mr. Watson's participation
in the Company's Incentive Compensation Plan. Such payments are based on
individual performance and the profitability of the Company. Mr. Watson has the
opportunity to earn up to 200% of his base salary under the terms of the
Incentive Compensation Plan. In February 1998, Mr. Watson received a bonus of
$500,000, which was determined in accordance with the guaranteed minimum bonus
provision of Mr. Watson's employment agreement. Under the terms of his
employment agreement, Mr. Watson is also entitled to receive, at a minimum each
year during the term of his agreement, market value stock option grants under
the Stock Option Plan with a five-year projected value of $1,500,000 (assuming a
15% annual growth rate in the price of NGC's Common Stock). In November 1997,
Mr. Watson received a grant of 112,893 options with an exercise price of $18.00
per share, which was the contractual minimum award under his employment
agreement.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to public companies for certain compensation over $1,000,000 paid to the
Company's Chief Executive Officer and four other most highly compensated
executive officers, as reported in this Proxy Statement. Excluded from the
limitation is compensation that is "performance based." For compensation to be
performance based, it must meet certain criteria, including being based on
predetermined objective standards approved by shareholders. In general, the
Company believes that compensation relating to options granted under its market
value Stock Option Plan should be excluded from the $1,000,000 limitation.
Compensation relating to the Company's Incentive Compensation Plan and the
Commercial Incentive Plan do not currently qualify for exclusion from
limitation, given the discretion that is provided to the Compensation Committee
under such plans in determining the actual amount of such awards. The Committee
believes that maintaining the discretion to evaluate the performance of the
Company's management is an important part of its responsibilities and inures to
the benefit of the Company's shareholders. The Committee, however, will
continue to take into account the potential application of Section 162(m) with
respect to incentive compensation awards and other compensation decisions made
by it in the future.
29
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All amounts paid or accrued during fiscal year 1997 under the above-
described plans and programs are included in the preceding tables. Except for
Mr. Matthews, who was appointed to the Compensation Committee in August 1997, no
member of the NGC Compensation Committee was an officer or employee of NGC, or
any of its subsidiaries during 1997.
COMPENSATION AND HUMAN RESOURCES COMMITTEE /1/
Daniel L. Dienstbier, Chairman
Stephen J. Brandon
Darald W. Callahan
C. Kent Jespersen
Thomas M. Matthews
Jeffrey M. Lipton
J. Otis Winters
OPTIONS COMMITTEE
Daniel L. Dienstbier, Chairman
J. Otis Winters
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown on the following page was prepared by Standard
& Poors Compustat, a division of McGraw-Hill, Inc., using data from the Standard
& Poors Compustat Database for use in this Proxy Statement. /2/ As required by
applicable rules of the SEC, the graph was prepared based upon the following
assumptions:
1. One hundred dollars was invested in Common Stock, the S&P 500 and
the Peer Group (as defined below) on November 10, 1993.
2. The returns of each component company in the Peer Group are
weighed based on the market capitalization of such company at the beginning
of the measurement period.
3. Dividends are reinvested on the ex-dividend dates.
___________________
/1/ Messrs. Lipton and Winters were replaced as members of the Compensation
Committee in August 1997 by Messrs. Jespersen and Matthews, respectively.
/2/ The Company was formed through a strategic business combination (the
"Trident Combination"), consummated on March 14, 1995 between Clearinghouse and
Trident NGL Holding, Inc. ("Trident"), under which Trident was renamed NGC
Corporation. The performance graph reflects Trident's stockholder return
performance for the period commencing November 10, 1993, the date of Trident's
initial public offering and sale of common stock, and ending March 14, 1995, the
closing date of the Trident Combination, and the Company's stockholder return
performance for the period commencing March 14, 1995 through December 31, 1997.
30
<PAGE>
The companies that comprise the Company's Peer Group for fiscal year-ended
December 31, 1997 (the "New Peer Group") are Aquila Gas Pipeline Corporation,
Enron Corp., KN Energy Inc., Mitchell Energy & Development Corporation and
Western Gas Resources Inc. The Company's previous peer group (the "Old Peer
Group") also included Tejas Gas Corporation ("Tejas") and Delhi Gas Pipeline
(USX-Delhi Group) ("Delhi"). Both Tejas and Delhi were acquired during 1997,
and as a result, their common stock is no longer traded.
31
<PAGE>
TOTAL SHAREHOLDER RETURNS
[GRAPH APPEARS HERE]
YEARS ENDING
[GRAPH LEGEND APPEARS HERE]
TOTAL SHAREHOLDER RETURNS
-------------------------
(DIVIDENDS REINVESTED)
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY NAME/INDEX DEC. 93 DEC. 94 DEC. 95 DEC. 96 DEC. 97
- - -----------------------------------------------------------------------------
NGC Corporation -9.62 -10.18 -15.02 162.79 -24.52
S&P 500 Index 1.26 1.32 37.58 22.96 33.36
New Peer Group -6.99 -0.59 24.15 18.01 5.28
Old Peer Group -5.20 -23.28 18.61 32.97 24.26
INDEX RETURNS
YEARS ENDING
BASE
PERIOD
COMPANY NAME/INDEX 10-NOV-93 DEC. 93 DEC. 94 DEC. 95 DEC. 96 DEC. 97
- - -----------------------------------------------------------------------------
NGC Corporation 100 90.38 81.18 68.98 181.28 136.83
S&P 500 Index 100 101.26 102.60 141.15 173.56 231.47
New Peer Group 100 93.01 92.46 114.80 135.47 142.60
Old Peer Group 100 94.80 72.73 86.26 114.70 142.53
32
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen, LLP as
independent auditors of the Company for the fiscal year ending December 31,
1998, and recommends ratification by the stockholders of such appointment. Such
ratification requires the affirmative vote of a majority of the shares of Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting. Under Delaware law, an abstention would have the same legal effect as
a vote against this proposal, but a broker non-vote would not be counted for
purposes of determining whether a majority has been achieved. The persons named
in the accompanying proxy intend to vote for ratification of such appointment
unless instructed otherwise on the proxy.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of Arthur Andersen, LLP as the Company's
independent auditors without the approval of the stockholders of the Company
whenever the Board of Directors deems such termination necessary or appropriate.
A representative of Arthur Andersen, LLP is expected to attend the Annual
Meeting and will have the opportunity to make a statement, if such
representative desires to do so, and will be available to respond to appropriate
questions.
The Board of Directors recommends that stockholders for "FOR" ratification
of the appointment of Arthur Andersen, LLP as independent auditors.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material and for presentation at the Company's 1999 Annual Meeting of
Stockholders must forward such proposal to the Secretary of the Company at the
address indicated on the first page of this Proxy Statement so that the
Secretary receives it no later than November 30, 1998.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) or postponement(s)
thereof, it is intended that the enclosed proxy will be voted in accordance with
the judgment of the persons named in the proxy.
BY ORDER OF THE BOARD OF DIRECTORS,
Kenneth E. Randolph
Secretary
MARCH 30, 1998
33
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- - --------------------------------------------------------------------------------
PROXY
NGC CORPORATION
1000 LOUISIANA, SUITE 5800
HOUSTON, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NGC CORPORATION
The undersigned hereby appoints C.L. Watson, Thomas M. Matthews and Kenneth
E. Randolph, and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse side, all the shares of Common Stock of NGC
Corporation held of record by the undersigned on March 25, 1998 at the Annual
Meeting of Stockholders to be held at the Hyatt Regency Hotel, Imperial
Ballroom, 1200 Louisiana, Houston, Texas, 77002 at 10:00 A.M. on Friday, May 22,
1998, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2. THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO
VOTE IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED ON REVERSE SIDE)
................................................................................
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. Please Mark [X]
your vote as
indicated in
the example
1. ELECTION OF DIRECTORS C.L. Watson, Thomas M. Matthews, Stephen J. Brandon, Frank J. Chapman,
Paul Nicholas Woollacatt, Jeffrey M. Lipton, Jack S. Mustoe,
A. Terence Poole, Darald W. Callahan, Peter J. Robertson, Patricia A.
Woertz, Daniel L. Dienstbler, J. Otis Winters.
FOR all nominees WITHHOLD
listed to the right AUTHORITY (INSTRUCTION: To withhold authority to vote for any individual
(except as marked to the to vote for all nominees nominee, strike a line through the nominee's name in the list above.)
contrary) listed to the right
[_] [_]
2. Proposal to ratify the appointment of Arthur Andersen LLP as independent 3. In their discretion, the proxies are authorized
auditors for the Company for the fiscal year ending December 31, 1998. to vote upon such other business as may
properly come before the meeting or any
adjournment thereof.
FOR AGAINST ABSTAIN
[_] [_] [_] CHECK IF YOU PLAN TO ATTEND [_]
THE ANNUAL MEETING
_____ Please sign exactly as name appears hereon. When
| shares are held by joint tenants, both should
| sign. When signing as attorney, trustee or
guardian, please give full title as such. If a
corporation, please sign full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Dated:______________________________________, 1998
__________________________________________________
(SIGNATURE OF SHAREHOLDER)
__________________________________________________
(SIGNATURE OF SHAREHOLDER)
....................................................................................................................................
FOLD AND DETACH HERE
</TABLE>
