DEF 14A 1 a09-10111_1def14a.htm DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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  o

 

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

Southern Union Company

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

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(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

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)

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Date Filed:

 

 

 

 



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5444 Westheimer Road

Houston, Texas  77056

 

April 16, 2009

 

Dear Stockholder:

 

You are cordially invited to attend the 2009 Annual Meeting of Stockholders of Southern Union Company to be held at 11:00 a.m. (Eastern Time) on Thursday, May 28, 2009, at The Regency, 540 Park Avenue, New York, New York 10021.  A notice of the meeting, a Proxy Statement and a proxy card containing information about the matters to be acted upon are enclosed.

 

At this year’s Annual Meeting, you will be asked to vote on election of eleven directors, ratification of PricewaterhouseCoopers LLP’s appointment as the Company’s independent registered public accounting firm for the year ending December 31, 2009, and approval of the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan.

 

Whether or not you plan to attend the meeting on May 28, 2009, please review our proxy materials and either mark, sign and date the enclosed proxy card or submit your proxy or voting instruction card, as applicable, by telephone or through the Internet. Instructions for each type of voting are included in the Notice of Internet Availability of Proxy Materials that you received and in this proxy statement. If you attend the meeting and prefer to vote at that time, you may do so.  Your prompt cooperation will be appreciated.

 

On behalf of the Board of Directors,

 

 

 

Sincerely,

 

 

 

 

GEORGE L. LINDEMANN

 

Chairman of the Board and Chief Executive Officer

 



Table of Contents

 

TABLE OF CONTENTS

 

Notice of Annual Meeting of Stockholders

i

 

 

Defined Terms

iii

 

 

Questions and Answers

1

 

 

Proposal One - To Elect Eleven Directors

5

Nominees for Election

5

Vote Required and Board Recommendation

7

 

 

Proposal Two - To Ratify the Appointment of PricewaterHouseCoopers LLP as Independent Registered Public Accounting Firm

8

Description of Proposal Two

8

Vote Required and Board Recommendation

8

 

 

Proposal Three - To Approve the Adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan

9

Description of Proposal Three

9

Introduction

9

Proposed Amendments

9

Summary Description of the Stock and Incentive Plan

10

New Plan Benefits

12

Vote Required and Board Recommendation

12

 

 

Corporate Governance

13

 

 

Meetings and Committees of The Board

16

 

 

Audit Committee Report

18

 

 

Compensation Committee Report

19

 

 

Compensation Discussion and Analysis

21

 

 

2008 Executive Compensation

30

Summary Compensation Table

31

Grants of Plan-Based Awards

32

Outstanding Equity Awards at December 31, 2008

34

Option Exercises and Stock Vested

36

Non-Qualified Deferred Compensation

36

Potential Payments upon Termination or a Change of Control

37

 

 

2008 Director Compensation

47

 

 

Security Ownership of Certain Beneficial Owners and Management

50

 

 

Section 16(A) Beneficial Ownership Reporting Compliance

51

 

 

Other Business

51

 

 

The Company’s 2008 Annual Report

52

 

 

Appendix I - Third Amended and Restated 2003 Stock and Incentive Plan

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5444 Westheimer Road

Houston, Texas  77056

 

Notice of Annual Meeting of Stockholders

 

To be Held May 28, 2009

 

To the holders of common stock of SOUTHERN UNION COMPANY:

 

The 2009 Annual Meeting of Stockholders of Southern Union Company, a Delaware corporation, will be held at The Regency, 540 Park Avenue, New York, New York 10021:

 

DATE/TIME

 

Thursday, May 28, 2009

 

11:00 a.m.  (Eastern Time)

 

PURPOSE

 

To consider the following Company business matters:

 

·      The election of eleven directors to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified (Proposal One);

 

·      The ratification of the appointment of PricewaterhouseCoopers LLP as Southern Union’s independent registered public accounting firm for the year ending December 31, 2009 (Proposal Two);

 

·      The approval of the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan (Proposal Three); and

 

·      The transaction of such other business as may properly come before the Annual Meeting or any adjournment thereof.

 

Your Board of Directors unanimously recommends that you vote FOR the election of each of the eleven nominees to the Board of Directors named in Proposal One and FOR Proposals Two and Three, as further described in this Proxy Statement.

 

DOCUMENTS

 

Pursuant to new rules promulgated by the SEC, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a Proxy Statement, a proxy card and our 2008 Annual Report and by notifying you of the availability of our proxy materials on the Internet. This proxy statement and our 2008 Annual Report are available at www.sug.com/proxy_2009. Our 2008 Annual Report, including our Form 10-K for the year ended December 31, 2008, does not form a part of the material for the solicitation of proxies.

 

PLACE

 

The Regency

540 Park Avenue

New York, New York 10021

 

For directions to the Annual Meeting, please contact the Secretary of the Company at (713) 989-2000.

 

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RECORD DATE

 

Holders of record of the Company’s common stock at the close of business on April 7, 2009 will be entitled to vote at the Annual Meeting or any adjournment thereof.  A complete list of stockholders of record entitled to vote at the Annual Meeting will be maintained in the Company’s principal executive office at 5444 Westheimer Road, Houston, Texas 77056 for ten days prior to the Annual Meeting and will also be available at the Annual Meeting.

 

VOTING

 

Holders entitled to vote may do so in any of the following manners:

 

·      By marking, signing, dating and returning a proxy card.  To vote for the Company’s nominees, mark, sign, date, and return the enclosed proxy card in the accompanying postage pre-paid envelope;

 

·      Via the Internet or telephone in accordance with the instructions on your proxy card; or

 

·      In person by attending the Annual Meeting. We will distribute written ballots to any stockholder who wishes to vote in person at the Annual Meeting.

 

You may revoke your proxy by filing with the Secretary of the Company a written revocation or a duly executed proxy card bearing a later date.  If you are present at the meeting, you may revoke your proxy and vote in person on each matter brought before the meeting.

 

 

 

By Order of the Board of Directors,

 

 

 

 

ROBERT M. KERRIGAN, III

 

 

 

Vice President, Assistant General Counsel and Secretary

 

Houston, Texas

April 16, 2009

 

Important Notice Regarding the Availability of Proxy Materials for the 2009 Annual Meeting.

Our Proxy Statement and 2008 Annual Report are available at www.sug.com/proxy_2009.

 

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Defined Terms

 

The following terms used in this Proxy Statement shall have the meanings set forth below.

 

“1992 Plan” means Southern Union’s 1992 Long Term Stock and Incentive Plan.

 

“401(k) Plan” means Southern Union’s Savings Plan.

 

“Amended Bonus Plan” means Southern Union’s Amended and Restated Executive Incentive Bonus Plan.

 

“Annual Meeting” means the annual meeting of stockholders of the Company to be held May 28, 2009.

 

“Board” or “Board of Directors” means Southern Union’s Board of Directors.

 

“Bylaws” means Southern Union’s Bylaws (as amended through January 3, 2007).

 

“Company” or “Southern Union” means Southern Union Company, a Delaware corporation.

 

“COSO” means The Committee of Sponsoring Organizations of the Treadway Commission.

 

“Directors’ Plan” means Southern Union’s Directors’ Deferred Compensation Plan.

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

 

“Kasowitz Firm” means Kasowitz, Benson, Torres & Friedman, LLP.

 

“NYSE” means the New York Stock Exchange.

 

“Panhandle” means Panhandle Eastern Pipe Line Company, LP, a Delaware limited partnership.

 

“Panhandle Energy” means Panhandle, its affiliates and subsidiaries.

 

“Proxy Statement” means this proxy statement.

 

“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Senior Executives” means all officers with the rank of Vice President or higher and all employees of the Company earning a base salary of $175,000 or more.

 

“Stock and Incentive Plan” means Southern Union’s 2003 Stock and Incentive Plan, as amended and restated by the Third Amended and Restated 2003 Stock and Incentive Plan.

 

“Supplemental Plan” means Southern Union’s Supplemental Deferred Compensation Plan.

 

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5444 Westheimer Road

Houston, Texas 77056

 


 

PROXY STATEMENT

 


 

The Southern Union Board of Directors is furnishing you with this Proxy Statement to solicit proxies on its behalf to be voted at the 2009 Annual Meeting of Stockholders of Southern Union Company or any adjournment thereof.  The Annual Meeting will be held at 11:00 a.m., Eastern Time, Thursday, May 28, 2009 at The Regency, 540 Park Avenue, New York, New York 10021.

 

This Proxy Statement, the Notice of the Annual Meeting and the enclosed proxy card are being mailed to stockholders on or about April 17, 2009. These same materials are available at www.sug.com/proxy_2009.  All properly executed written proxies that are received by the Board of Directors will be voted as directed by the stockholders at the Annual Meeting. Each person who is a Southern Union stockholder of record at the close of business on April 7, 2009, the record date, is entitled to vote at the Annual Meeting or any adjournments thereof.

 

Questions and Answers

 

Q:      Why did you send me this Proxy Statement?

 

A:       We sent this Proxy Statement and the enclosed proxy card to you because our Board of Directors is soliciting your proxy to vote at the 2009 Annual Meeting. This Proxy Statement summarizes information concerning the matters to be presented at the meeting and related information that will help you make an informed vote at the meeting. This Proxy Statement and the accompanying proxy card are first being mailed to stockholders on or about April 17, 2009.

 

Q:      When and where is the Annual Meeting?

 

A:       The Company’s Annual Meeting of Stockholders will be held at 11:00 a.m., Eastern Time, Thursday, May 28, 2009, at The Regency, 540 Park Avenue, New York, New York 10021.

 

Q:      Who is entitled to attend and vote at the Annual Meeting?

 

A:       Stockholders as of the close of business on the record date, April 7, 2009, are entitled to attend and vote at the Annual Meeting or any adjournment thereof.  Each share of common stock is entitled to one vote.

 

Q:      How do proxies work?

 

A:       The Board of Directors is asking for your proxy. Giving us your proxy means that you authorize us to vote your shares at the Annual Meeting in the manner you direct.  You may vote for all, some, or none of our director nominees.  You may also vote for or against the other items or abstain from voting. If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of our director nominees, for the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm and for the adoption of the Southern Union Third Amended and Restated 2003 Stock and Incentive Plan.

 

Q:      How do I vote?

 

A:       You may:

 

·      Vote by marking, signing, dating and returning a proxy card.  To vote for the Company’s nominees, mark, sign, date, and return the enclosed proxy card in the accompanying envelope;

 

·      Vote via the Internet by following the voting instructions on the proxy card or the voting instructions provided by your broker, bank or other holder of record.  Internet voting procedures are designed to authenticate your

 

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identity, allow you to vote your shares and confirm that your instructions have been properly recorded.  If you submit your vote by Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers and telephone companies;

 

·      Place your vote by telephone by following the instructions on the proxy card or the instructions provided by your broker, bank or other holder of record; or

 

·      Vote in person by attending the Annual Meeting. We will distribute written ballots to any stockholder who wishes to vote in person at the Annual Meeting.

 

Q:      Do I have to vote?

 

A:       No. However, your vote is important and we strongly encourage you to mark, sign, date and promptly return the enclosed proxy card so that your shares may be voted in accordance with your wishes and so the presence of a quorum may be assured. Voting promptly, regardless of the number of shares you hold, will aid the Company in reducing the expense of additional proxy solicitation.  Voting your shares by the enclosed proxy card does not affect your right to vote in person in the event you attend the Annual Meeting.  You may vote for all, some, or none of the Company’s director nominees. You may abstain with respect to or vote “FOR” or “AGAINST” the other proposals.

 

Q:      What does it mean if I receive more than one proxy card?

 

A:       If you hold your shares in multiple registrations, or in both registered and street name, you will receive a proxy card for each account. Please mark, sign, date, and return all proxy cards you receive.  If you choose to vote by phone or Internet, please vote each proxy card you receive. Only your latest dated proxy for each account will be voted.

 

Q:      Will my shares be voted if I do not sign and return my proxy card?

 

A:       They could be, but not for the approval of the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan. If your shares are held in street name and you do not instruct your broker, bank or other nominee how to vote your shares, pursuant to NYSE rules, your broker, bank or nominee may either use its discretion to vote your shares on “routine matters” or leave your shares unvoted.  For any “non-routine matters” being considered at the meeting (such as the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan), your broker or other nominee would not be able to vote on such matters. If your shares are held in street name, your broker, bank or nominee will include a voting instruction card with this Proxy Statement.  We strongly encourage you to vote your shares by following the instructions provided on the voting instruction card.  Please return your proxy card to your broker, bank or other nominee and contact the person responsible for your account to ensure that a proxy card is voted on your behalf.

 

Q:      Can I change my vote?

 

A:       Yes.  At any time before the persons named on your proxy card vote your shares of common stock at the Annual Meeting as you have instructed, you can change or revoke your vote if the Company’s Secretary receives a written notice from you or a subsequently signed and dated proxy card.

 

Q:      What will I likely be voting on?

 

A:       There are three proposals that are expected to be voted on at the Annual Meeting:

 

·      The election of eleven members of our Board of Directors;

 

·      The ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009; and

 

·      The approval of the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan.

 

As of the date this Proxy Statement was printed, the Company was not aware of any additional matters to be raised at the Annual Meeting.

 

Q:      What are the Board’s recommendations?

 

A:       The Board of Directors recommends a vote:

 

·      FOR the election of each of the directors nominated by the Company;

 

·      FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2009; and

 

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·      FOR the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan.

 

Q:      What constitutes a quorum?

 

A:       As of the record date, 124,047,269 shares of common stock were issued and outstanding.  A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the purpose of adopting proposals at the Annual Meeting.  If you vote, then your shares will be considered part of the quorum.  Abstentions and “broker non-votes” will be treated as present for purposes of determining a quorum for the Annual Meeting.

 

Q:      What is a broker non-vote?

 

A:       Under the rules that govern brokers who have record ownership of shares that they hold in street name for their clients who are the beneficial owners of the shares, brokers have the discretion to vote such shares on routine matters but do not have discretion to vote such shares on non-routine matters.  Broker non-votes generally occur when shares held by a broker nominee for a beneficial owner are not voted with respect to a proposal because the nominee has not received voting instructions from the beneficial owner and lacks discretionary authority to vote the shares.  Brokers normally have discretion to vote on routine matters, such as uncontested director elections and ratification of independent registered public accounting firms, but not on non-routine matters, such as stockholder proposals, contested director elections or amendments to stock and incentive plans.  Thus, if your shares are held in street name and you do not provide instructions as to how your shares are to be voted on the approval of the amendments to Southern Union’s Stock and Incentive Plan, your broker or other nominee will not be able to vote your shares on such matter. We urge you to provide instructions to your broker or nominee so that your votes may be counted on this important matter. You should vote your shares by following the instructions provided on the voting instruction card and returning your proxy card to your broker, bank or other nominee to ensure that a proxy card is voted on your behalf.

 

Q:      How many votes are needed to approve each item in this Proxy Statement?

 

A:       Election of Directors. The eleven director nominees receiving the highest number of affirmative votes cast will be elected to fill the seats on the Board.  Abstentions and broker non-votes have no effect on the outcome of the election of directors under Proposal One.

 

Ratification of auditor selection. The affirmative vote of a majority of the stock having voting power represented at the Annual Meeting in person or by proxy is necessary for this proposal to be approved.  Any shares not voted as a result of an abstention or a broker non-vote effectively will be treated as a vote against Proposal Two because they will count in determining whether the shares are present, but not as a vote for Proposal Two.

 

Approval of the Adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan. The affirmative vote of a majority of the stock having voting power represented at the Annual Meeting in person or by proxy is necessary for this proposal to be approved.  The NYSE rules also require that at least 50% of the outstanding shares of common stock be voted on this proposal.  Broker non-votes do not count as votes for or against this proposal.  Any shares not voted as a result of an abstention effectively will be treated as a vote against Proposal Three because they will count in determining whether the shares are present, but not as a vote for Proposal Three.

 

Q:       Who will tabulate the votes?

 

A:       A representative from Computershare, the Company’s transfer agent, will tabulate the votes and the Company’s Secretary and a representative of its Corporate and Securities Counsel, Locke Lord Bissell & Liddell LLP, will act as inspectors of the election.

 

Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election. The inspectors will also determine whether a quorum is present at the Annual Meeting.

 

The shares represented by the proxy cards received, properly marked, dated, signed, and not revoked, will be voted at the Annual Meeting.  If the proxy card specifies a choice with respect to any matter to be acted on, the shares will be voted in accordance with that specified choice.  Any proxy card that is returned signed but not marked will be voted FOR each of the directors nominated by the Company, FOR the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm, FOR the approval of the adoption of Southern Union’s Third Amended and Restated 2003 Stock and Incentive Plan, and as the proxy holder deems desirable for any other matters that may come before the Annual Meeting.  Broker non-votes will not be considered as voting with respect to any matter for which the broker does not have voting authority.

 

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A broker will not have discretionary authority to vote shares with respect to Proposal Three. If your shares are held in street name, your broker, bank or nominee will include a voting instruction card with this Proxy Statement. You should vote your shares by following the instructions provided on the voting instruction card.

 

Q:       Is my vote confidential?
 

A:       Yes.  Proxy cards, ballots and voting tabulations that identify individual stockholders are confidential.  Only the inspectors of election and certain employees associated with processing proxy cards and counting the vote have access to your card.  Additionally, all comments directed to management (whether written on the proxy card or elsewhere) will remain confidential, unless you ask that your name be disclosed.

 

Q:      Who pays the solicitation expenses for this Proxy Statement and related Company materials?

 

A:       Southern Union will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to owners of common stock.

 

Q:      May I access this year’s Proxy Statement and Annual Report via the Internet?

 

A:       Yes. This Proxy Statement and our 2008 Annual Report, which includes our Form 10-K for the year ended December 31, 2008, are available on our website at www.sug.com/proxy_2009.

 

Q:      How do I obtain a copy of the Company’s materials related to corporate governance?

 

A:       Our Corporate Governance Principles, charters of each standing Board committee and other materials related to our corporate governance can be found on the Corporate Governance section of our website at www.sug.com.  In addition, this information is available in print free of charge to any stockholder who requests it by contacting the Company’s Secretary at 5444 Westheimer Road, Houston, Texas 77056.

 

Q.      When are the 2010 stockholder proposals due?

 

A:       Under the rules of the SEC, in order to be considered for inclusion in next year’s proxy statement, all stockholder proposals must be submitted in writing by December 17, 2009 to Southern Union Company, 5444 Westheimer Road, Houston, Texas 77056, Attention: Secretary. The notice should contain the text of any proposal, the name and address of the stockholder as it appears in the books of the Company, the number of common shares of the Company that are beneficially owned by the stockholder, and any material interest of the stockholder in such business.  If a stockholder submits a proposal for consideration at the 2010 annual meeting after December 17, 2009, the Company’s proxy for the 2010 annual meeting may confer discretionary authority to vote on such matter without any discussion of such matter in the proxy statement for the 2010 annual meeting.  Under the Bylaws, in order to be considered at the 2010 annual meeting, any stockholder proposal (other than a director nomination, which is addressed below) must be delivered to the Company’s Secretary at the principal executive offices of the Company not less than 120 calendar days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of stockholders (on January 28, 2010 assuming a May 28, 2009 Annual Meeting); provided, however, that if the Board of Directors schedules the annual meeting for a date more than 30 calendar days prior to the anniversary of the preceding year’s annual meeting, a stockholder’s notice shall be deemed timely if it is delivered not later than the close of business on the 10th calendar day following the day on which public announcement of the date of such meeting is first made.

 

Q:      How does a stockholder nominate someone to be considered for election as a director of Southern Union?

 

A:       Any member of the Board of Directors or any stockholder or group of stockholders entitled to vote in an election meeting and who is a stockholder of record at the time of making any such notice may recommend any person as a nominee for director of Southern Union by submitting such recommendation or notice of nomination in writing to the Corporate Governance Committee through its Chairman at the principal executive offices of the Company not less than 120 calendar days before the anniversary of the date of the Company’s proxy statement released to stockholders in connection with the previous year’s annual meeting (for the 2010 meeting, such notice must be received by December 17, 2009)  (the “Notice”).  In cases where the Company changes its annual meeting date by more than 30 calendar days from year to year, or intends to hold an election meeting at a time other than at the annual meeting, the Notice must be received by the Chairman of the Corporate Governance Committee no later than the close of business on the 10th calendar day following the date on which notice of the date of the annual meeting or election meeting is publicly disclosed.

 

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Proposal One

 

To Elect Eleven Directors

 

Nominees for Election

 

(Item 1 on the proxy card).

 

There are eleven nominees for election to the Board of Directors.  Except for Messrs. Beasley and Egan, each of the director nominees was elected by our stockholders at our 2008 Annual Meeting.  Messrs. Beasley and Egan are being nominated pursuant to the Company’s agreement with the Sandell Group (as hereinafter defined), as more particularly described below.  While it is the Company’s current intent to expand the Board to twelve members, at this time, the Company’s Corporate Governance Committee has not made a recommendation to the Board with respect to a nominee to replace Mr. Adam M. Lindemann, who informed the Chairman of the Company’s Corporate Governance Committee on March 26, 2009 of his intention not to stand for reelection in order to devote more time to his other business interests.

 

The Board of Directors has determined that ten of the eleven director nominees, Messrs. Beasley, Brodsky, Denius, Egan, Gitter, Jacobi, McCarter, Rountree and Scherer and Ms. Barzuza are “independent,” as that term is defined in the NYSE director independence standards.  Further, each of the independent directors meets the additional independence criteria set forth in the Company’s Corporate Governance Guidelines.  Each director to be elected pursuant to this Proposal One will hold office until the 2010 annual meeting of stockholders.  In any event, a director elected pursuant to this Proxy Statement will hold office until his or her successor is elected and is qualified, or until such director’s earlier death, resignation, retirement, disqualification or removal.

 

Information about the nominees for election as directors appears below:

 

George L. Lindemann has been Chairman of the Board, Chief Executive Officer and a director since 1990.  Mr. Lindemann also served as the Company’s President from November 2005 until May 2008.  He was Chairman of the Board and Chief Executive Officer of Metro Mobile CTS, Inc. from its formation in 1983 until its sale to Bell Atlantic Corp. in April 1992.  He has been President and a director of Cellular Dynamics, Inc., the managing general partner of Activated Communications Limited Partnership, a family investment entity, since 1982.  Age:  73.

 

Michal Barzuza has been an Associate Professor of Law at the University of Virginia School of Law, where she has offered courses in corporate governance, corporate law policy and corporations.  Prior to joining the University of Virginia in 2005, Ms. Barzuza was the John M. Olin Research Fellow in Law & Economics at the Harvard Law School, Olin Center for Law, Economics and Business.  Director since 2008.   Age:  38.

 

Stephen C. Beasley has been the Chief Executive Officer of Eaton Group Inc., an executive solutions and strategic investment company since 2008. From 2003 to 2007, he served as President of El Paso Corporation’s Eastern Pipeline Group where he held the positions of Chairman and President for both Tennessee Gas Pipeline Company and ANR Pipeline Company.  He also served as a member of El Paso Corporation’s nine-member Corporate Executive Committee.  From 1975 to 2002, Mr. Beasley held a number of U.S. and international positions for El Paso, Tenneco, and FMC Corporation in the areas of executive management, sales, marketing, and international development.  Mr. Beasley currently serves on the board of directors of Williams Pipeline Partners L.P. and previously served on the board of directors of C Sixty Inc., a privately-held nano-biotechnology company. Nominee for Director in 2009.  Age: 57.

 

David Brodsky has been a private investor for over five years.  He was Chairman of the Board of Directors of Total Research Corporation from July 1998 to November 2001.  Mr. Brodsky is currently a member of the board of directors and chairman of the Audit Committee of Harris Interactive Inc.  Director since 2002.  Age:  71.

 

Michael J. Egan has been a principal in Egan Consulting since 2002.  From 1997 to 2001, he served as Executive Vice President of Exelon Corporation and President of Exelon Services.  Prior to its merger with Unicom Corp. to form Exelon Corporation, Mr. Egan served as Senior Vice President & Chief Financial Officer of PECO Energy Corp and as Chairman of AmerGen Energy Company, LLC.  In addition, throughout his career, Mr. Egan has held various senior management and executive positions with Exelon Corporation, PECO Energy Corp., Aristech Chemical Corporation and Atlantic Richfield Company and its affiliates.  Nominee for Director in 2009.  Age:  55.

 

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Frank W. Denius has been Chairman Emeritus of the Company since 1990 and during such time has been engaged primarily in the private practice of law in Austin, Texas.  Prior to 1990, Mr. Denius had been Chairman of the Board and President of the Company.  Director since 1976.  Age:  84.

 

Kurt A. Gitter, M.D. has been an ophthalmic surgeon in private practice in New Orleans, Louisiana since 1969.  He has also been a Clinical Professor of Ophthalmology at Louisiana State University since 1978, an Assistant Professor of Ophthalmology at Tulane University since 1969 and is a past president of the Macula Society.  Dr. Gitter has previously served on the Boards of Escalon Medical Corporation, Metro Mobile CTS, Inc. and Akorn, Inc.  Director since 1995.  Age:  72.

 

Herbert H. Jacobi has been Honorary Chairman of the Supervisory Board of HSBC Trinkaus & Burkhardt KGaA, a German private bank, since 2004, after serving as Chairman since 1998.  He was Chairman of the Managing Partners of Trinkaus & Burkhardt KGaA from 1981 to 1998.  He was a managing partner of Berliner Handels-und Frankfurter Bank from 1977 until 1981 and an Executive Vice President of Chase Manhattan Bank from 1975 to 1977.  He is currently a director of DIC Deutsche Investors’ Capital AG.  He is Honorary President of German-American Federation Steuben-Schurz e.V.   Mr. Jacobi is also a director of the Palm Beach Civic Association. Mr. Jacobi previously served as a director of Gillette Company.  Director since 2004.  Age:  74.

 

Thomas N. McCarter, III has been a private investor and a general partner in W.P. Miles Timber Properties for over five years. Mr. McCarter is the retired chairman of Stillrock Management, Inc.  Mr. McCarter is Chairman of Ramapo Land Company, a director of the Institute of Scientific Investment and Governance (Tokyo, Japan) and serves on the advisory boards of Runnymede Capital Management, Inc. and the Whitehead Institute.  Director since 2005.  Age:  79.

 

George Rountree, III has been an attorney in private practice in Wilmington, North Carolina since 1962.  He has been a senior partner in the law firm of Rountree, Losee & Baldwin, LLP and its predecessors since 1965.  Mr. Rountree has served in both the North Carolina State Senate, including as a minority whip, and the State House of Representatives and as legislative counsel to North Carolina Governor James E. Holshouser, Jr.  Mr. Rountree currently serves as Lead Independent Director and as chairman of the Compensation Committee of MMC Energy, Inc. and previously served as a director of Metro Mobile CTS, Inc.  In June 2004, Mr. Rountree was inducted into the North Carolina Bar Association General Practice Hall of Fame.  Director since 1990.  Age:  75.

 

Allan D. Scherer has been a private investor in both real estate and oil and gas since 1987.  From 1978 to 1987, he was Vice President of the Palm Beach Polo & Country Club, a 2,000-acre real estate and equestrian development in West Palm Beach, Florida.  He was a consultant to Gulf & Western Corporation in its development of the Casa de Campo resort in the Dominican Republic from 1973 to 1978, and was President and Chief Executive Officer of privately-held McGrath-Shank Company, developers of the Belmont Shore and Alamitos Bay properties in Southern California, from 1955 to 1973.  Director since 2005.  Age:  77.

 

Information Regarding the Company’s Agreement with the Sandell Group

 

On December 5, 2008, Castlerigg Master Investments Ltd. (“Castlerigg” and, collectively with Sandell Asset Management Group, Castlerigg International Limited and Castlerigg Holdings Limited, the “Sandell Group”), delivered to us a notice of intention to nominate persons for election as directors (the “Sandell Nomination Letter”).  The Sandell Nomination Letter indicated that the Sandell Group planned to seek representation on our Board by nominating a slate of four directors (Stephen Beasley, Michael Egan, Keith Gollust and Nick Graziano) for election as directors at the Annual Meeting and to solicit proxies on behalf of such nominees.

 

On March 5, 2009, the Company and the Sandell Group entered into an agreement (the “Settlement Agreement”) to settle a potential proxy contest pertaining to the election of directors to the Company’s Board at the Annual Meeting.

 

Pursuant to the Settlement Agreement, among other things, the Company has agreed to:

 

·

 

take all necessary action to nominate and recommend a vote in favor of each of Stephen C. Beasley and Michael J. Egan (the “Sandell Nominees”) for election as directors of the Company at the Company’s 2009 and 2010 annual meetings of stockholders;

·

 

place each of the Sandell Nominees on a committee of the Board; and

·

 

not increase the size of the Board to more than twelve directors prior to the 2011 Annual Meeting except in connection with a business combination transaction.

 

Pursuant to the Settlement Agreement, among other things, the Sandell Group has agreed to:

 

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·

 

withdraw its notice to the Company of its intention to nominate certain individuals for election at the Annual Meeting and will not commence any efforts related to solicitation of proxies for the Annual Meeting;

·

 

vote in favor of the director nominees (including the Sandell Nominees) recommended by the Board at the Company’s 2009 and 2010 annual meetings of stockholders;

·

 

observe a standstill period until one hundred thirty days prior to the anniversary of the filing of the Company’s proxy statement in respect of the 2010 annual meetings of stockholders (subject to adjustment as set forth in the Settlement Agreement) during which time the Sandell Group will not, among other things, seek or propose to influence or control the management or policies of the Company; and

·

 

not offer or pay any remuneration to the Sandell Nominees, including contingent remuneration, from and after the election of the Sandell Nominees.

 

In the event that the Sandell Group were to own less than 5% of the Company’s outstanding common stock, the Sandell Nominees must offer to resign from the Board.  In addition, under certain circumstances related to their relationship with the Sandell Group or other third parties, the Sandell Nominees must offer to resign from the Board.

 

We filed the Settlement Agreement as Exhibit 10.1 to our current report on Form 8-K filed with the SEC on March 5, 2009.  You may find more information regarding the terms of our settlement with the Sandell Group by reference to the Settlement Agreement.  The foregoing description of the Settlement Agreement is qualified in its entirety by reference to the full text of the Settlement Agreement included in our Form 8-K.

 

Vote Required and Board Recommendation

 

The eleven nominees with the greatest number of affirmative votes duly cast at the Annual Meeting will be elected as directors.  Shares represented by executed proxy cards will be voted, if authority to do so is not withheld, for the election of the eleven nominees named above.  Abstentions and broker non-votes will have no effect on the election of nominees to the Board of Directors.

 

Each of the nominees named above was recommended by the Corporate Governance Committee for election to the Board of Directors by the stockholders.

 

All nominees named above have indicated their willingness to serve, if elected; however, if at the time of the Annual Meeting, any nominee is unable or unwilling to serve, shares represented by properly executed proxies will be voted at the discretion of the persons named in those proxies for such other persons as the Board may designate.  Should no substitute be designated, votes will be cast according to the judgment of George L. Lindemann and Thomas N. McCarter, III.

 

Our Board of Directors unanimously recommends a vote FOR the election of each of the nominees named above to the Board of Directors.

 

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Proposal Two

 

To Ratify the Appointment of PricewaterHouseCoopers LLP
as Independent Registered Public Accounting Firm

 

Description of Proposal Two

 

(Item 2 on the proxy card).

 

The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company to audit its consolidated financial statements and the effectiveness of its internal controls over financial reporting for 2009, and the Board of Directors has determined that it would be desirable to request that the stockholders ratify such appointment.

 

PricewaterhouseCoopers LLP has served as the independent registered public accounting firm of the Company and its subsidiaries since 1990.  PricewaterhouseCoopers LLP is considered by the Audit Committee and by the management of the Company to be well qualified.  Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions from stockholders.

 

Stockholder ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm is not legally required.  Nevertheless, at the recommendation of the Audit Committee, the Board of Directors has directed that the appointment of PricewaterhouseCoopers LLP be submitted for stockholder ratification as a matter of good corporate practice.  If the stockholders do not ratify the appointment of PricewaterhouseCoopers LLP at the Annual Meeting, the Audit Committee will reconsider whether to retain PricewaterhouseCoopers LLP.  Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Southern Union and its stockholders.

 

Vote Required and Board Recommendation

 

The proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009 requires the affirmative vote of a majority of the stock having voting power represented at the Annual Meeting in person or by proxy.  Any shares not voted as a result of an abstention or a broker non-vote effectively will be treated as a vote against this proposal because they will count in determining whether the shares are present, but not as a vote for this proposal.

 

Our Board of Directors unanimously recommends a vote FOR ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009.

 

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Proposal Three

 

To Approve the Adoption of Southern Union’s
Third Amended and Restated 2003 Stock and Incentive Plan

 

Description of Proposal Three

 

(Item 3 on the proxy card)

 

Introduction

 

In September 2003, the Board of Directors, upon the recommendation of the Compensation Committee, unanimously approved and adopted the 2003 Stock and Incentive Plan and directed that it be submitted to the stockholders for approval. Southern Union’s stockholders approved the 2003 Stock and Incentive Plan at the annual meeting of stockholders held on November 4, 2003. In response to subsequent changes to the Internal Revenue Code and in the nature of the Company’s business, in March 2005, the Board of Directors, upon the recommendation of the Compensation Committee, unanimously approved and adopted the Amended and Restated 2003 Stock and Incentive Plan and directed that it be submitted to the stockholders for approval. Southern Union’s stockholders approved the Amended and Restated 2003 Stock and Incentive Plan at the annual meeting of stockholders held on May 9, 2005.  In February 2006, the Board of Directors, upon recommendation of the Compensation Committee, unanimously approved and adopted the Second Amended and Restated 2003 Stock and Incentive Plan and directed that it be submitted to the stockholders for approval.  Southern Union’s stockholders approved the Second Amended and Restated 2003 Stock and Incentive Plan at the annual meeting of stockholders held on May 2, 2006 and the Massachusetts Department of Public Utilities (“MDPU”) (f/k/a Massachusetts Department of Telecommunications and Energy) approved it in November 2006.  The Company has operations in the State of Massachusetts requiring approval of the MDPU for certain transactions that could affect the Company’s common stockholders’ equity.  The MDPU’s approval is required for the increase in the aggregate number of shares that may be issued pursuant to the Third Amended and Restated 2003 Stock and Incentive Plan and the Company intends to seek promptly such approval.  The Third Amended and Restated 2003 Stock and Incentive Plan will become effective upon the later of stockholder approval and receipt of MDPU approval.

 

The purpose of the Stock and Incentive Plan is to align the interests of the participants with those of other Southern Union stockholders through equity-based compensation alternatives, thereby promoting the long-term financial interests of the Company and enhancing long-term stockholder return.  The Stock and Incentive Plan is intended to enhance the Company’s ability to recruit, motivate and retain the caliber of personnel essential for the Company’s success and to provide them with incentive compensation opportunities that are competitive with those of similar companies.

 

Proposed Amendments

 

Adoption of the Third Amended and Restated 2003 Stock and Incentive Plan will effectuate the following amendments to this plan:

 

·

 

Increase from 9,000,000 to 11,000,000 the aggregate number of shares of stock that may be issued under the Stock and Incentive Plan;

 

 

 

·

 

Increase from 1,500,000 to 5,000,000 the aggregate number of shares of stock that may be issued pursuant to stock awards, performance units and other equity-based rights (of the 11,000,000 aggregate authorized shares described above);

 

 

 

·

 

Increase from 8,995,000 to 10,995,000 the aggregate number of shares of stock that may be issued pursuant to awards of incentive stock options (of the 11,000,000 aggregate authorized shares described above);

 

 

 

·

 

Prohibit generally the repricing of stock appreciation rights, in addition to stock options, without the consent of the holders of such stock appreciation rights and the majority of the stockholders of the Company represented at a stockholder meeting; and

 

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·

 

Provide the Compensation Committee with increased discretion to determine the form of annual awards of restricted stock and/or stock options to non-employee directors, subject to the existing cap of 5,000 shares of Company restricted stock or the equivalent value.

 

As of the date hereof, we have 3,955,388 shares available for issuance, of which 159,577 may be issued in the form of stock awards, performance units or other equity-based rights.  While we currently have a sufficient number of total shares of common stock available for issuance, we are close to our plan limit on awards in the form of stock awards, performance units and other equity-based rights.  Adoption of the Third Amended and Restated 2003 Stock and Incentive Plan would result in 5,955,388 shares being available for issuance, of which 3,659,577 would be available for issuance in the form of stock awards, performance units or other equity-based rights.

 

The increased aggregate number of shares, including the increase in the number of shares of common stock that may be issued pursuant to stock awards, performance units and other equity-based rights and the increase in the number of incentive stock options that may be issued will provide the Company’s Compensation Committee with a sufficient number of shares as well as greater flexibility in administering the Company’s long-term incentive program, thereby allowing the Compensation Committee to evaluate a number of factors and choose among a variety of equity incentive vehicles.

 

Summary Description of the Stock and Incentive Plan

 

The following is a brief summary of the material features of the Stock and Incentive Plan. This summary is qualified in its entirety by reference to the text of the Third Amended and Restated 2003 Stock and Incentive Plan, a copy of which is attached as Appendix I and is available without charge upon written request to the Secretary of the Company.

 

Administration and Operation

 

The Stock and Incentive Plan is administered by a committee of directors (each of whom is a “non-employee director” for purposes of Rule 16b-3 promulgated by the SEC and an “outside director” for purposes of section 162(m) of the Internal Revenue Code) that is designated from time to time by the Board. Currently, the Compensation Committee, composed of Messrs. Rountree, Brodsky and Scherer, has been charged with the responsibility of administering the Company’s stock-based compensation programs, and it serves as the administration committee for the Stock and Incentive Plan.

 

Subject to certain restrictions that are set forth in the Stock and Incentive Plan, the Compensation Committee has complete and absolute authority to make any and all decisions regarding the administration of the Stock and Incentive Plan including the authority to construe and interpret the plan and awards under the plan, establish administrative rules and procedures, select award recipients, determine the types of awards, establish the terms, conditions and other provisions of awards and amend awards. Subject to certain restrictions that are set forth in the Stock and Incentive Plan, the Compensation Committee may delegate any of its authority and responsibility to management, except for determinations and decisions regarding awards to be made, which must be made by the Compensation Committee itself.

 

Eligibility

 

The persons eligible to receive awards under the Stock and Incentive Plan include all of the employees, directors, officers and agents of, and other service providers to, the Company and its affiliates and subsidiaries (which is 50% owned indirectly by the Company), including Citrus Corp.

 

Shares Available for Issuance

 

Under the Second Amended and Restated 2003 Stock and Incentive Plan, the Company is authorized to issue up to  9,000,000 shares of common stock, of which 1,500,000 may be in the form of stock awards, performance units or other equity based rights.  As amended by the Third Amended and Restated 2003 Stock and Incentive Plan, the number of shares of common stock authorized and available for issuance would be increased from 9,000,000 to 11,000,000.  Of the 11,000,000 shares, no more than 5,000,000 of the shares would be available for issuance pursuant to awards in the form of stock awards, performance units or other equity-based rights, as described below, and no more than 10,995,000 shares would be available for issuance pursuant to awards of incentive stock options. If the shares of common stock that are subject to an award are not issued or cease to be issuable because the award is terminated, forfeited or expires unexercised, those shares will then become available for future awards. The number of shares authorized and available for issuance under the Stock and Incentive Plan is subject to adjustment in the event of a stock split, stock dividend, recapitalization, spin-off or similar action.

 

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Types and Terms of Awards

 

Awards under the Stock and Incentive Plan may take the form of stock options (either incentive stock options or non-qualified options), stock appreciation rights, stock bonus awards, restricted stock, performance units or other equity-based rights. Subject to certain restrictions that are set forth in the Stock and Incentive Plan, the Compensation Committee has complete and absolute authority to set the terms, conditions and provisions of each award, including the size of the award, the exercise or base price, the vesting and exercisability schedule (including provisions regarding acceleration of vesting and exercisability) and termination and forfeiture provisions.

 

The Compensation Committee is subject to the following specific restrictions regarding the types and terms of awards made under the Stock and Incentive Plan:

 

·

 

No participant may receive awards covering more than 500,000 shares in any calendar year;

 

 

 

·

 

The exercise price for a stock option may not be less than 100% of the fair market value of the stock on the date of grant; and

 

 

 

·

 

No award may be granted more than ten years after the effective date of the initial 2003 Stock and Incentive Plan (i.e., September 28, 2013).

 

No stock option (or stock appreciation right upon the adoption of the Third Amended and Restated 2003 Stock and Incentive Plan) can be “repriced” without the consent of the stockholders and of the holder if the effect would be to reduce or increase the exercise price per share. For this purpose, “repricing” includes a tandem cancellation and regrant or any other amendment or action that would have substantially the same effect as decreasing the exercise price.

 

Annual Awards to Non-Employee Directors

 

The Stock and Incentive Plan provides that each non-employee director will receive annually (i) a restricted stock award totaling 2,000 shares (or such lesser or greater amount (but not to exceed 5,000 shares) as the Compensation Committee, in its discretion, may determine, (ii) options having a value as of the grant date equal to the value of an award contemplated by (i) above, or (iii) a combination of awards of shares of restricted stock and options, which combination has a value equal to the value of an award contemplated by (i) above.  Upon the adoption of the Third Amended and Restated 2003 Stock and Incentive Plan, the Compensation Committee will have increased discretion to determine the form of annual awards of restricted stock and/or stock options to non-employee directors (as described in the previous sentence).

 

Change in Control

 

If the applicable award agreement so provides, upon certain events constituting a change in control of the Company, as specified in the Stock and Incentive Plan immediately prior to the occurrence of the change in control, all options and stock appreciation rights subject to the award will become immediately exercisable, the expiration of the restrictions applicable to any restricted stock grant made under the award shall immediately be accelerated, and such other results shall take place with respect to other awards as may be set forth in the relevant award agreement.

 

Amendments and Termination

 

To the extent permitted by law, the Board, without the consent or approval of any plan participant, may amend, suspend or terminate the Stock and Incentive Plan so long as that action does not adversely affect the rights of any holder under any award then outstanding. Without the approval of the stockholders, however, in general, the Board may not amend the Stock and Incentive Plan to increase the number of shares available for issuance or to modify the requirements regarding eligibility in the Stock and Incentive Plan. No awards will be granted under the Stock and Incentive Plan after the tenth anniversary of the effective date of the initial 2003 Stock and Incentive Plan (i.e., September 28, 2013).

 

Federal Income Tax Consequences

 

The following is a brief description of the material U.S. federal income tax consequences associated with awards under the Stock and Incentive Plan.  It is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. Tax consequences in other countries may vary.

 

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Stock Options. There will generally be no federal income tax consequences to either the Company or the participant upon the grant of a stock option. If the option is a non-qualified stock option, the participant will realize ordinary income at exercise equal to the excess of the fair market value of the stock acquired over the exercise price and the Company will receive a corresponding deduction. Any gain or loss realized upon a subsequent disposition of the stock will generally constitute capital gain.

 

If the option is an incentive stock option, the participant generally will not realize taxable income on exercise, but the excess of the fair market value of the stock acquired over the exercise price may give rise to “alternative minimum tax.”

 

When the stock is subsequently sold, the participant will recognize income equal to the difference between the sales price and the exercise price of the option. If that sale occurs after the expiration of two years from the date of the grant and one year from the date of exercise, the income will constitute long-term capital gain. If the sale occurs prior to that time, the participant will recognize ordinary income to the extent of, in general, the lesser of the gain realized upon the sale or the difference between the fair market value of the acquired stock at the time of exercise and the exercise price; any additional gain will constitute capital gain. The Company generally will be entitled to a deduction in an amount equal to the ordinary income, if any, that the participant recognizes.

 

Restricted Stock. Generally, restricted stock is not taxable to a participant at the time of grant, but instead is included in ordinary income (at its then fair market value) when the restrictions lapse. The Company is entitled, in general, to a tax deduction in an amount equal to the ordinary income recognized by the participant except to the extent that such participant’s total compensation for the taxable year exceeds one million dollars, in which case such deduction may be limited by section 162(m) of the Internal Revenue Code unless any such grant of restricted stock is made pursuant to a performance-based benchmark established by the Compensation Committee.

 

Other Awards. In the case of other awards, the participant generally will recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or the date of delivery of the underlying shares and the Company generally will be entitled to a corresponding tax deduction.

 

If an award under the Stock and Incentive Plan constitutes a deferral of compensation subject to the requirements of section 409A of the Internal Revenue Code, and if the award fails to meet those requirements or to be operated in accordance with those requirements, the recipient of the award will realize taxable income, generally, at the time of the deferral (or, if later, at the time the award ceases to be subject to a substantial risk of forfeiture), and an interest charge and additional 20% tax will also apply. It is anticipated, however, that any awards under the Stock and Incentive Plan that are subject to the requirements of section 409A will be made and administered in accordance with those requirements.

 

New Plan Benefits

 

In general, the awards that will be granted to eligible participants under the Stock and Incentive Plan are subject to the discretion of the Compensation Committee and, therefore, are not determinable at this time.  See the “Grants of Plan-Based Awards” table on pages 32-33 and the “Director Compensation Table” on page 47 for a summary of plan-based awards granted in 2008.

 

Vote Required and Board Recommendation

 

The proposal to adopt the Third Amended and Restated 2003 Stock and Incentive Plan requires the affirmative vote of a majority of the stock having voting power represented at the Annual Meeting in person or by proxy, provided that at least 50% of the outstanding common stock is voted on the proposal. Broker non-votes do not count as votes for or against this proposal.  Any shares not voted as a result of an abstention effectively will be treated as a vote against Proposal Three because they will count in determining whether the shares are present, but not as a vote for Proposal Three.

 

The Board of Directors unanimously recommends a vote FOR the adoption of the Third Amended and Restated 2003 Stock and Incentive Plan.

 

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Corporate Governance

 

Corporate Governance Guidelines

 

The Company is committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining the Company’s integrity in the marketplace. The Company has adopted a code of ethics and business conduct for directors, officers and employees, known as the Code of Ethics and Business Conduct (the “Code”). The Company also has adopted Corporate Governance Guidelines, which, in conjunction with the Certificate of Incorporation, Bylaws and Board committee charters, form the framework for governance of the Company. All of these documents are available at www.sug.com by first clicking on “Corporate Governance” and then on “Governance Documents”.

 

The Corporate Governance Guidelines, Certificate of Incorporation, Bylaws, Board committee charters and the Code are also available upon request, free of charge, by calling the Company at (713) 989-2000 or by written request to Southern Union Company, 5444 Westheimer Road, Houston, Texas, 77056, Attn: Secretary.

 

On an annual basis, each Director and executive officer is required to complete a Directors’ and Officers’ Questionnaire that includes disclosure of any transactions with the Company in which the Director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest.  In addition, each member of the Board conducts an annual self-evaluation with respect to the Board and any Board committees on which he or she serves.

 

Director Independence

 

In accordance with NYSE rules, the Board determines the independence of each Director and nominee for election as a Director in accordance with guidelines adopted by the Board, which include all elements of independence set forth in the NYSE listing standards.

 

Southern Union’s Corporate Governance Guidelines require that a majority of the Board be composed of “independent directors,” as defined by the listing standards of the NYSE and the Company’s Corporate Governance Guidelines.  The Corporate Governance Guidelines provide that, absent other considerations, a director will be deemed to be independent if:

 

·

 

neither the director nor any member of the director’s immediate family has been employed by, or received direct compensation (other than director’s fees, pension payments or other form of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service) from the Company or any of its affiliates during the past three years (compensation received by an immediate family member for service as a non-executive employee is not considered in determining independence under this test);

 

 

 

·

 

neither the director nor any member of the director’s immediate family is, or in the past three years has been, affiliated with or employed (or, in the case of an immediate family member, employed in a professional capacity) by a present or former internal or external auditor of the Company or any of its affiliates;

 

 

 

·

 

neither the director nor any member of the director’s immediate family is, or in the past three years has been, part of an interlocking directorate in which an executive officer of the Company serves on the compensation committee of another company that concurrently employs such director of the Company, or a member of such director’s immediate family, as an executive officer;

 

 

 

·

 

neither the director nor any member of the director’s immediate family is, or in the past three years has been, an executive officer (or, in the case of the director, an employee) of a company that makes payments to, or receives payments from, the Company for property or services in an annual amount that exceeds 1% of such other company’s consolidated gross revenues; and

 

 

 

·

 

neither the director nor any member of the director’s immediate family is, or in the past three years has been, an officer or director of a non-profit organization that has received charitable contributions from the Company or any of its subsidiaries or affiliates in an annual amount in excess of the greater of $100,000 or 1% of such organization’s gross revenues.

 

An “immediate family member” includes the director’s spouse, parents, children, siblings, in-laws and anyone (other than domestic employees) who shares the director’s home.

 

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The Board has determined that each of Messrs. Brodsky, Denius, Gitter, Jacobi, McCarter, Rountree and Scherer and Ms. Barzuza is, and each of Mr. Beasley and Mr. Egan, upon election to the Board will be, an “independent director” under the current listing standards of the NYSE and the Corporate Governance Guidelines and each of the Compensation, Corporate Governance and Audit Committees are composed entirely of independent directors under the NYSE listing standards and the Company’s Corporate Governance Guidelines.  In addition, each of the members of the Audit Committee is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act.  In so doing, the Board determined that each of these individuals met the “bright line” independence standards of the NYSE listing standards and the director independence criteria set forth in the Company’s Corporate Governance Guidelines.

 

In addition, the Board considered transactions and relationships between each director or any member of his or her immediate family and the Company.  The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent.

 

Lead Independent Director

 

Thomas N. McCarter, III has served as the Lead Independent Director since the 2007 annual meeting.  Mr. McCarter presided over executive sessions of the independent directors, assisted in setting their respective agendas and acted as a liaison between these groups and the chairman.  During 2008, the independent directors met as a group five times.  These meetings were conducted, without any management director or employees of the Company present (except by invitation), to discuss matters related to the oversight of the Company, compliance with NYSE and SEC rules, and the performance of management.

 

Stockholders and other parties of interest who wish to communicate with the independent directors or the Lead Independent Director may do so in writing to Southern Union Company, 5444 Westheimer Road, Houston, Texas 77056, Attention: Lead Independent Director, c/o Secretary.

 

All such correspondence is reviewed by the Secretary’s office, which enters pertinent information into a log for tracking purposes and forwards the material to the applicable director.

 

Communications with the Board

 

The Board of Directors has established a process for interested parties to communicate with the Board.  Such communication should be in writing, addressed to the Board or an individual director, c/o Secretary, Southern Union Company, 5444 Westheimer Road, Houston, Texas 77056.  The Secretary will forward all communications to the addressee.

 

Code of Ethics

 

The Board of Directors believes that Southern Union’s Code and its Corporate Governance Guidelines, together with the Board committee charters and the Company’s Certificate of Incorporation and Bylaws, provide an effective framework for the governance of Southern Union.

 

The Company, by and through the Audit Committee of the Board of Directors, has adopted the Code, which is designed to reflect commentaries and interpretations of the Sarbanes-Oxley Act, NYSE rules, other applicable laws, rules and regulations as well as best practices.  The Code applies to all directors, officers and employees.  Any amendment to, or waiver from, the Corporate Governance Guidelines or Code will be promptly posted on the Company’s website at www.sug.com.

 

The Corporate Governance Guidelines address the makeup and functioning of the Board, qualifications for directors, standards for director independence determinations, the composition and responsibilities of committees, director access to management and independent advisors, director compensation, director orientation and continuing education, annual self-evaluation of the Board and its committees, and directors’ and management succession.  The Board of Directors recognizes that effective corporate governance is an ongoing process and the Board, either directly or through the Corporate Governance Committee, will review the Company’s Corporate Governance Guidelines annually, or more frequently if deemed necessary.

 

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Review, Approval or Ratification of Transactions with Related Persons.

 

On October 28, 2004, the Board unanimously adopted resolutions regarding the Company’s policies and procedures for the review, approval or ratification of certain transactions between directors or members of their immediate families and the Company.  The Company’s policy is that any transaction in which a director (or an immediate family member) has an interest that is in conflict or potential conflict with the interests of the Company shall be prohibited, unless the Board unanimously and affirmatively determines that:

 

·                  the transaction was fully disclosed to the Board prior to the date on which the parties propose to enter into such transaction;

 

·                  the transaction is in the best interests of the Company; and

 

·                  the transaction is not material to the Company or to the director (or his or her immediate family members or affiliates, as applicable);

 

·                  the transaction would not compromise the director’s independence, either under the federal securities laws or the listing standards established by the NYSE; and

 

·                  the amount of the transaction is less than $120,000 and would not otherwise be required to be disclosed in the Company’s proxy statement or other filing mandated by the SEC.

 

In 2005, the Company issued the Conflict of Interest Policy regarding the procedures for notification and clarification of potential conflicts of interest between the Company and its employees and Board members.  This policy provides that employees and Board members are expected to act in the best interests of the Company at all times and to avoid actual or apparent conflicts of interest.  Further, the policy mandates that if a relationship or other conflict of interest exists or may potentially exist, then it must be disclosed to the Company’s Chief Ethics Officer who will determine whether a conflict exists and work to resolve any potential or actual conflict of interest in accordance with the Company’s Code.  Any substantive waiver or exception to the conflict of interest policy granted for executive officers or directors will promptly be disclosed to stockholders to the extent required by applicable law or stock exchange rules or regulations.  Pursuant to the Company’s Code, directors, officers and employees are specifically to avoid:

 

·                  any actual or apparent conflict between their own personal interests and the interests of the Company;

 

·                  taking actions or having personal interests that may interfere with the effective performance of work for the Company;

 

·                  taking, for their own benefit, opportunities discovered through their use of corporate assets or information;

 

·                  using corporate property, information or position for personal gain; and

 

·                  securities transactions based on material, non-public information learned through their positions with the Company.

 

Transactions with Related Persons

 

Eric D. Herschmann was appointed as President and Chief Operating Officer of the Company in May 2008.  Mr. Herschmann previously served as Senior Executive Vice President of the Company from November 2005 until May 2008 and as the Company’s Interim General Counsel from January 2005 until October 2007. Mr. Herschmann also continues to serve as a partner of, and to be compensated by, the Kasowitz Firm, which provides legal services to the Company and certain of its affiliates. Compensation to Mr. Herschmann by the Kasowitz Firm, where he has been a partner since 1996, is solely at the discretion of the Kasowitz Firm.

 

During 2008, the Kasowitz Firm billed the Company and its affiliates an aggregate of $18,005,842 for legal services, including a monthly retainer and reimbursement of expenses.  Mr. Herschmann continues to perform legal work for the Company.  While the Company anticipates that the Kasowitz Firm will continue to provide legal services to the Company and its affiliates, we believe that the fees payable to the Kasowitz Firm in 2009 will decline as a result of the resolution of certain litigation matters.  In addition, the Company expects that the monthly retainer of $225,000 that was paid to the Kasowitz Firm in 2008 will be significantly reduced or eliminated in 2009.

 

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Meetings and Committees of The Board

 

Board of Directors

 

Currently, the Board of Directors is comprised of ten directors, each of whom serves a one-year term or until his or her successor is duly elected and qualified.  The size of the Board will be expanded to eleven members at the Annual Meeting.

 

The Board of Directors held 13 meetings and acted by unanimous written consent on four occasions during 2008.  During 2008, all directors attended at least 75% of the total number of meetings of the Board and any committees on which they served while they were a director and a member of such committee.  All directors are expected to attend the Annual Meeting.  Other than Mr. Scherer, each Board member who was a director at the time of the 2008 Annual Meeting attended that meeting

 

BOARD COMMITTEES

 

Corporate Governance Committee

 

The Corporate Governance Committee is currently composed of independent directors Messrs. Jacobi (Chairman) and Gitter and Ms. Barzuza.  By virtue of his status as Lead Independent Director, Mr. McCarter serves as an “ex officio” non-voting member of the Corporate Governance Committee.  The Corporate Governance Committee met four times during 2008.  This Committee oversees all matters of corporate governance for Southern Union, including Board nominee evaluations, recommendations of nominees to the full Board and ongoing review of the Company’s Corporate Governance Guidelines and compliance therewith.  The Board of Directors has adopted a charter for the Corporate Governance Committee, which is available at www.sug.com.

 

Nomination of Directors

 

In evaluating and determining whether to nominate a candidate for a position on the Company’s Board, the Corporate Governance Committee will consider the criteria outlined in the Corporate Governance Committee’s charter, which include experience, skill, background, integrity and independence.  The Corporate Governance Committee will also determine whether the candidate meets the minimum qualifications listed in the Company’s Corporate Governance Guidelines, which include the candidate’s reputation, record of accomplishment, knowledge and experience, commitment to the Company, number of other board memberships and willingness to become a stockholder of the Company.  In evaluating candidates for nomination, the Corporate Governance Committee utilizes a variety of methods.  The Corporate Governance Committee regularly assesses the size of the Board, whether any vacancies are expected due to retirement or otherwise and the need for particular expertise on the Board.  Candidates may come to the attention of the Corporate Governance Committee from current Board members, stockholders, professional search firms or officers.  The Corporate Governance Committee will review all candidates in the same manner regardless of the source of the recommendation.

 

The Corporate Governance Committee will consider stockholder recommendations of candidates when the recommendations are properly submitted in accordance with the procedures proscribed in our Bylaws and outlined on page 4 in the Questions and Answers section of this Proxy Statement.  Any stockholder recommendations that are submitted under such procedures should include the candidate’s name and qualifications for Board membership and should be addressed to Southern Union Company, 5444 Westheimer Road, Houston, Texas 77056, Attention: Secretary.  In order to be considered for the 2010 annual election of directors, nominations must be received by the Secretary no later than December 17, 2009.

 

Investment Committee

 

The Investment Committee is currently composed of independent directors Messrs. Gitter (Chairman), Denius and Rountree.  The Investment Committee met three times during 2008.  By virtue of his status as Lead Independent Director, Mr. McCarter serves as an “ex officio” non-voting member of the Investment Committee.  The Investment Committee has the authority to make decisions regarding the Company’s benefit plans.  Such duties include the selection and monitoring of trustees and recordkeepers, review of investment selection and performance and compliance with applicable regulations. The Board of Directors has adopted a charter for the Investment Committee, which is available at www.sug.com.

 

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Finance Committee

 

The Finance Committee is currently composed of independent directors Messrs. Denius (Chairman), McCarter and Scherer.  The Finance Committee met seven times during 2008.  The Finance Committee has oversight responsibilities relating to the Company’s financing activities, corporate finance and operating and capital budget review, approval and monitoring.  The Board of Directors has adopted a charter for the Finance Committee, which is available at www.sug.com.

 

Audit Committee

 

The Audit Committee is currently composed of independent directors Messrs. Brodsky (Chairman), Jacobi and McCarter.  The Audit Committee met seven times during 2008.  The Board has determined that Messrs. Brodsky, Jacobi and McCarter are all “audit committee financial experts” within the meaning of the current rules of the SEC.

 

The purpose of the Audit Committee is to assist the Board of Directors in its general oversight of the Company’s financial reporting, internal controls and audit functions.  The Audit Committee operates under a written charter adopted by the Board of Directors, which is available at www.sug.com.  The Audit Committee Charter confers upon the Audit Committee the power to appoint the Company’s independent registered public accounting firm and the sole authority to review their charges for services; the responsibility to review the scope and results of the audits performed and the adequacy and operation of the Company’s internal audit function; and the duty to perform such other functions with respect to the Company’s accounting, financial and operating controls as deemed appropriate by the Audit Committee or the Board.  Management has the primary responsibility for the following:  preparing, presenting and maintaining the integrity of the Company’s financial statements; establishing and maintaining accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)); establishing and maintaining internal controls over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal controls over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal controls over financial reporting.  PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, is responsible for performing an independent integrated audit of the Company’s consolidated financial statements and for issuing a report thereon in accordance with the standards of the Public Company Accounting Oversight Board (United States), as well as expressing an opinion on the effectiveness of internal control over financial reporting based on criteria established in Internal Control-Integrated Framework, issued by the COSO.  In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements in the Company’s Annual Report for the period ended December 31, 2008.  Such review included a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

Service Fees Paid to the Independent Registered Public Accounting Firm

 

The Audit Committee, with the ratification of the stockholders, engaged PricewaterhouseCoopers LLP to perform an annual audit of the Company’s consolidated financial statements and the effectiveness of its internal controls over financial reporting as of and for the year ended December 31, 2008.

 

The following table sets forth information on fees billed by PricewaterhouseCoopers LLP:

 

Fee Category

 

Year Ended
12/31/2008

 

Year Ended
12/31/2007

 

Audit Fees

 

$

3,952,000

(1)

$

3,960,000

 

Audit-related Fees

 

687,500

(2)

1,132,000

 

Tax Fees

 

148,000

(3)

428,000

 

All Other Fees

 

1,500

(4)

1,500

 

Total Fees

 

$

4,789,000

 

$

5,521,500

 

 


(1)   Represents fees incurred in 2008 for professional services rendered for the Company’s 2008 integrated annual audit of approximately $2.95 million and fees of $1.002 million for completion of the Company’s 2007 integrated annual audit and attestation of management’s assessment of internal controls.  Fees related to quarterly financial statement reviews and to audits

 

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required by Federal regulatory bodies and statutory audits, including fees related to the audit of Panhandle and related entities, are included in the fees related to the integrated audit.

 

(2)   Represents fees associated with the audit of the 2004-2006 historical financial statements of Southern Union Gas Services, Ltd., the comfort letters associated with the issuance by the Company of $100 million of senior notes in February 2008 and the issuance by Panhandle of $400 million of senior notes in June 2008, and the SAS 70 audit of the Company’s centralized data center.

 

(3)   Tax fees in 2008 are related to services for like-kind exchange consultation and tax return review.

 

(4)   Fee for use of accounting research software.

 

The Audit Committee charter requires pre-approval of all audit, audit-related, tax and other non-audit services (including the fees and terms thereof) to be provided to the Company by its independent registered public accounting firm, other than non-audit services not recognized to be non-audit services at the time of the engagement that meet the de minimus exceptions described in Section 10A(i)(1)(B)(i) of the Securities Exchange Act, provided that they are approved by the Audit Committee prior to the completion of the audit.  The Audit Committee pre-approved all audit, audit-related, tax and other non-audit fees for the year ended December 31, 2008. As part of its approval process, the Audit Committee considered whether the provision of the non-audit services described above was compatible with maintaining the independence of PricewaterhouseCoopers LLP.  Representatives of PricewaterhouseCoopers LLP, as part of their independence standards, certified to the Audit Committee that the non-audit services did not impair their independence.

 

Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

 

Audit Committee Report

 

The Audit Committee has met and held discussions with management and the independent registered public accounting firm.  Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm.  The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees), as amended, including their judgments about the quality, and not just the acceptability, of the Company’s accounting policies as applied to its financial reporting.

 

In addition, the Audit Committee discussed with the independent registered public accounting firm their independence from the Company and its management, including the matters in the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with audit committees concerning independence, and also considered whether the provision of any non-audit services is compatible with maintaining such independence.

 

During 2008, management worked to establish, evaluate and maintain the Company’s system of internal controls over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act and related regulations.  The Audit Committee was kept apprised of the progress of management on this evaluation and provided oversight and advice to management during the process.

 

For 2008, the Audit Committee retained Mahoney Cohen & Company to perform certain of the Company’s internal audit functions based on the Audit Committee’s 2005 decision to outsource internal audit activities to provide more independent and objective oversight of this critical function.  Company-employed internal audit personnel performed testing of the Company’s internal controls as required under the Sarbanes-Oxley Act.  For 2009, the Audit Committee has determined again to outsource certain of the Company’s internal audit functions that are not related to testing of the Company’s internal controls.  Testing of the Company’s internal controls, as required under the Sarbanes-Oxley Act, will continue to be performed by Company-employed internal audit personnel.

 

The Audit Committee has discussed with the Company’s internal auditors and the independent registered public accounting firm the overall scope and plans for their respective audits.  The Audit Committee meets regularly with the outside internal auditors, Company-employed internal audit personnel and the independent registered public accounting firm, with and without representatives of management, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s accounting principles.

 

In performing all of these functions, the Audit Committee acts only in an oversight capacity and necessarily relies on the work and assurances of the Company’s management and independent registered public accounting firm which, in its

 

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report, expresses an opinion on whether or not the Company’s annual financial statements conform, in all material respects, with accounting principles generally accepted in the United States and on management’s assessment of the effectiveness of the Company’s internal control over financial reporting.  In reliance on the opinions and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, the inclusion of the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on February 26, 2009.

 

 

Audit Committee

 

 

 

David Brodsky, Chairman

 

Herbert H. Jacobi

 

Thomas N. McCarter, III

 

Compensation Committee

 

The Compensation Committee is currently composed of independent directors Messrs. Rountree (Chairman), Brodsky and Scherer.  In addition, by virtue of his status as Lead Independent Director, Mr. McCarter serves as an “ex officio” non-voting member of the Compensation Committee.  The Board of Directors has adopted a charter for the Compensation Committee, which is available at www.sug.com.  The Compensation Committee met six times during 2008.  The Committee determines:

 

·                  the appropriate level of compensation for the Company’s Named Executive Officers, including the Chief Executive Officer, and all other Senior Executives;

·                  administers and determines grants to be made under the Stock and Incentive Plan;

·                  administers the Amended Bonus Plan; and

·                  reviews and recommends to the Board any changes to director compensation.

 

The Compensation Committee has responsibility to determine and approve Senior Executives’ compensation.  The Compensation Committee may delegate its authority to a subcommittee comprised of one or more members of the Compensation Committee and may consult with other independent directors, management and outside consultants engaged by the Compensation Committee in the exercise of its duties.

 

During 2008, the Compensation Committee, in consultation with the Company’s other independent directors and the Committee’s external compensation advisor, determined all compensation matters impacting the Company’s Chief Executive Officer and, in certain instances, submitted compensation matters to the other independent directors for final approval.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the Compensation Committee has been or is an officer or employee of the Company. None of our executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on our Board of Directors or Compensation Committee. No member of our Board of Directors is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company.

 

Compensation Committee Report

 

The following report of the Compensation Committee of the Board of Directors shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules, except for the required disclosure in this Proxy Statement, or subject to the liabilities of Section 18 of the Securities Exchange Act, except to the extent that the Company specifically incorporates such report by reference into any filing made by the Company under the Securities Act or the Securities Exchange Act.

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and the Compensation Committee’s advisors. Based on

 

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such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and this Proxy Statement.

 

 

Compensation Committee

 

 

 

George Rountree, III, Chairman

 

David Brodsky

 

Allan D. Scherer

 

Thomas N. McCarter, III (ex-officio)

 

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Compensation Discussion and Analysis

 

The Compensation Committee of the Board of Directors (for purposes of this “Compensation Discussion and Analysis,”  the “Committee”) has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy and strategy.  The Committee determines that total compensation paid to Senior Executives, including the Named Executive Officers (identified below under “2008 Executive Compensation”), is fair, reasonable and competitive.  Generally, the types of compensation and benefits provided to the Named Executive Officers are similar to those provided to other Senior Executives.

 

Compensation Philosophy and Strategy

 

The compensation philosophy and strategy of Southern Union and its affiliates are designed to recognize the value of their people, reward results honorably obtained, identify and retain effective leadership and reinforce the values of the Company.

 

The principles that guide the Company’s compensation philosophy and strategy include:

 

·                  compensation that drives achievement of the Company’s strategic and tactical goals in a manner consistent with Company values;

 

·                  compensation programs and components that differ across business segments to drive each segment’s unique business strategy;

 

·                  compensation programs that support successful recruiting, development and retention of the Company’s human resources;

 

·                  competitive compensation structures and opportunities within the Company’s respective targeted labor markets, focused on mid-range compensation levels as measured among peer group organizations, with adjustments from mid-range to support Company objectives;

 

·                  compensation that rewards dedication to achieving results through focused hard work, flexibility and commitment, individual ownership and accountability and innovation enhancing efficiency, profitability and performance; and

 

·                  compensation that communicates recognition of exceptional performance and dissatisfaction with substandard performance.

 

Components of Compensation

 

The Company uses a variety of forms of compensation to drive achievement of Company goals and motivate and retain key employees, as described below.  The Committee, in conjunction with the Company’s other independent directors, senior management and external advisors, considers the function of each element of compensation in developing compensation programs for specific business units and compensation packages for Senior Executives.

 

Component of Pay

 

Purpose

 

 

 

Base Salary

 

·

Pay for:

 

 

 

Experience

 

 

 

Expertise/ knowledge

 

 

 

Advancement in role

 

 

 

External comparability

 

 

 

 

Short-Term Incentive

 

·

Motivate near-term “drivers” of stockholder value

 

 

 

Short-term financial and operational performance

 

 

 

Execution of strategic objectives

 

 

 

Individual contributions to team results

 

 

·

Provide timely recognition of performance and accomplishments

 

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Long-Term Incentive

 

·

Directly align rewards with stockholder returns and share performance

 

 

·

Create a significant retention mechanism for difficult-to-replace employees

 

 

·

Provide a unifying reward structure across the Company

 

 

·

Support entrepreneurial and long-term, strategic perspectives

 

 

 

 

Benefits

 

·

Provide the access and means for employees to build financial security

 

 

·

Reward service and retention

 

 

·

Encourage individual ownership and accountability for personal financial security

 

 

·

Pursue tax-advantaged compensation where available

 

 

·

Provide adequate and competitive severance benefits for certain termination events

 

Role of the  Committee

 

The Committee administers the Company’s compensation programs consistent with the compensation philosophy and strategy, leveraging the various components of compensation.  As set forth in its charter, the  Committee reviews at least annually all components of compensation for Named Executive Officers, officers with the rank of Vice President or higher and employees having an annual salary in excess of $175,000. At the end of 2008, the group of Senior Executives totaled approximately 44 employees.  In addition, the  Committee acts throughout the course of the year to address new hires, promotions and other compensation adjustments with respect to Senior Executives.

 

The Committee seeks the recommendation of senior management with respect to adjustments to base salary for, and both short- and long-term incentive awards to, Senior Executives other than Named Executive Officers.  Compensation decisions with respect to Named Executive Officers, including the  Chief Executive Officer are made by the Committee, based on its judgment of performance, external market data and advice from its external compensation advisor.  The  Committee has historically consulted, and expects to continue to consult, with the  Chief Executive Officer and senior management, as well as external compensation advisors, in the exercise of its duties.  Notwithstanding such consultation, the Committee retains absolute discretion over all compensation decisions with respect to Senior Executives, including the other Named Executive Officers.

 

In general, at the  Committee’s request, the Chief Executive Officer’s role with respect to compensation of the other Named Executive Officers may include:

 

·                  discussion of the competitive benchmarking data prepared by the Committee’s external compensation advisor with respect to the other Named Executive Officers;

 

·                  consultation with the Committee on performance measures, target goals and short-term incentive awards applicable to the other Named Executive Officers under the Company’s Annual Incentive Plan;(1)

 

·                  review of the rationale and guidelines for the Company’s annual long-term incentive program and recommendation of grant structure and awards for the other Named Executive Officers to the Committee; and

 

·                  provision of information to the Committee regarding the job performance and overall responsibilities of the other Named Executive Officers.

 

The Chief Executive Officer does not possess the right to call a meeting of the Committee, but the Committee would likely convene a meeting at his request.  The Chief Executive Officer may request a meeting with the Committee’s external compensation advisor at any time.

 

The Committee believes that the performance on which the Named Executive Officers’ compensation is based should be assessed on an annual basis and over a longer period of time to ensure that their work supports both the Company’s

 


(1) For 2008, with the exception of the Chairman of the Board and Chief Executive Officer and the President and Chief Operating Officer, who participated in the Amended Bonus Plan, each of the other Named Executive Officers participated on the same performance measures and target goals as other Senior Executives under the Company’s Annual Incentive Plan.

 

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current and long-term strategic objectives.  Therefore, compensation decisions take into account a variety of factors, including:

 

·

Company operating and financial performance metrics;

·

Company share performance (both EPS and trading price);

·

a subjective evaluation of each Named Executive Officer’s current performance (including his or her contributions to the Company’s strategic objectives);

·

retention value;

·

past contributions; and

·

future potential.

 

While the subjective evaluation of individual performance and contributions of Named Executive Officers is not formula driven, consideration is given to a range of performance and contribution criteria, along with external benchmarking, overall role and responsibilities and internal equity.  The individual performance and contribution criteria may include:

 

·

work ethic;

·

job knowledge/technical skills;

·

achievement of financial metrics (EPS, EBIT and budget);

·

achievement of defined operational goals;

·

achievement of strategic aims and targets;

·

achievement and contribution to special projects and transactions;

·

advancement in role/responsibility;

·

management of personnel/department;

·

problem analysis and mitigation;

·

utilization of human capital and material resources;

·

initiation of, and response to, change, crisis and deadlines;

·

management of the Company’s risk profile;

·

planning and organizational ability;

·

key decision-making;

·

time management;

·

communication and team development; and

·

personal actions and a positive attitude.

 

Merit increases to base salary and awards under the Company’s short-term incentive programs tend to be based on Company operating and financial measures and individual performance in the immediately preceding year.  Awards under the Company’s long-term incentive programs also reflect judgments as to prior performance and desire for employee retention as well as a desire to use a portion of compensation to further align senior management with the shareholders.

 

As in prior years, the Committee, in 2008, directed the preparation of detailed “tally sheets” for eleven of our most senior officers.  The tally sheets included:

 

·                             a summary of total annual compensation, including salary, cash incentive, stock awards, benefits and perquisites;

·                             a review of total outstanding share-based awards, both vested and unvested; and

·                             current estimates of Company liabilities under various termination scenarios.

 

In general, the tally sheets serve as an informational tool designed to provide the Committee with full detail concerning all elements of compensation awarded to our most senior officers to provide an evaluation of internal equity, focus on the impact of changes to individual compensation items on the total compensation package, provide information on each Senior Executive’s ownership stake in the Company and note any accelerated payments or vesting rights upon termination or a change of control.  The Committee did not directly use the tally sheets as a basis to determine or modify the compensation of the Named Executive Officers.

 

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Role of the External Compensation Advisor

 

The Committee engaged Hewitt Associates LLC (“Hewitt”) as its external compensation advisor for 2008.  Hewitt has served as the Committee’s external advisor since 2006.  Hewitt’s primary tasks for 2008 included advising the Committee in its consideration of employment agreements for the Named Executive Officers, change in control severance agreements for certain key Senior Executives and evaluation of the following components of the Company’s compensation program as benchmarked against industry and general peer organizations:

 

Segment

 

Assessment Components

 

Basis of Comparison

 

 

 

 

 

Executive Compensation

 

·        Cash compensation

·        Bonus measures and targets

·        Stock grants and long-term performance compensation

·        Prevalence of supplemental benefits, key perquisites and employment and change in control severance agreements

 

·        Individual valuations of approximately 20 executive positions

·        Each executive role compared to a comparable role at peer organizations

 

In addition to the items described above, Hewitt also provided additional executive and director compensation advisory services throughout the year, including additional competitive market pay analyses, updates on current trends in compensation, annual director fees, director equity awards, plan design advice, and compensation advisory support for legal, regulatory and accounting concerns, including participation in the preparation of the Company’s 2008 Compensation Discussion and Analysis.

 

While Hewitt did not make any specific compensation determinations with respect to the Named Executive Officers, Hewitt did advise the  Committee on specific compensation actions with respect to the Named Executive Officers and made a recommendation with respect to value ranges of long-term incentive grants as well as the form of such equity compensation.

 

Hewitt was engaged by, and reports directly to, the  Committee.  Both Hewitt and the  Committee acknowledge that, in order to perform the services requested by the Committee, Hewitt needs to obtain information and data from, and otherwise interact with, management.  Management did not, however, direct Hewitt’s activities and any additional services to be performed by Hewitt at management’s suggestion were subject to the approval of the  Committee.  The  Committee has again retained Hewitt as its external compensation advisor for 2009.

 

2008 Peer Analysis

 

In addition to such factors as company and individual performance, the  Committee also considers the competitiveness of the Company’s compensation programs as compared to its “peer group”.  At the request of the  Committee, Hewitt compared “total compensation” (base salary, short-term incentives and long-term incentives), both as to amount and form, for specified Company officer positions to comparable positions at the following companies in the energy industry:

 

·   Atmos Energy Corporation

·   CenterPoint Energy

·   El Paso Corporation

·   Enbridge, Inc.

·   Equitable Resources, Inc.

 

 

·   Kinder Morgan Partners

·   MDU Resources Group

·   National Fuel Gas

·   NiSource Inc.

·   ONEOK, Inc.

 

 

·   Questar Corporation

·   Spectra Energy Corp

·   The Williams Companies

·   TransCanada Corp.

 

 

 

The Company considers this peer group to be representative of the diverse natural gas business segments in which the Company competes for talent.

 

Performance of a regression analysis with respect to the peer group was determined not to be statistically significant.  Therefore, Hewitt also provided the Company with information from its general industry database, focusing on companies with annual revenues comparable to that of the Company. The companies used for this general industry review were as follows:

 

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·

Alberto-Culver Company

·

BorgWarner Inc.

·

Chicago Bridge and Iron Company

·

Del Monte Foods Co.

·

Ecolab Inc.

·

Goodrich Corporation

·

Martin Marietta Materials, Inc.

·

McCormick & Company, Inc.

·

Molson Coors Brewing Corp.

·

Nalco Company

·

Polaris Industries Inc.

·

The Packaging Corporation

·

The Scotts Miracle-Gro Company

·

Vulcan Materials Company

·

W.R. Grace & Co.

 

Although results varied by individual, the survey found that the Named Executive Officers, as well as most of the Senior Executives included in the analysis, fell within the middle half of their respective benchmarks in total compensation, consistent with the Company’s compensation philosophy and strategy.  The total compensation of Mr. Herschmann, however, represented a significant deviation from the benchmarking data provided by the Committee’s external compensation advisor.  The deviation was approved by the Compensation Committee in consultation with the Chief Executive Officer and Hewitt based primarily on the fact that the benchmarked positions did not adequately correspond to or accurately represent the level of responsibility or overall function of Mr. Herschmann within the organization.  As a result of this analysis, the  Committee approved a total compensation package for Mr. Herschmann that was more similar to that of a chief executive officer rather than the chief operating officer benchmarked positions evaluated by the external compensation advisor.  In making a determination with respect to Mr. Herschmann’s total compensation, the Committee was aware of Mr. Herschmann’s continued employment with the Kasowitz Firm.

 

Compensation of the Chief Executive Officer

 

Subject to the terms and conditions of the employment agreements described below, the compensation of the Chief Executive Officer is reviewed and evaluated by the  Committee with the assistance of its external compensation advisor.  In 2008, the Committee elected to submit certain compensation decisions with respect to the compensation of the Chief Executive Officer to the Company’s other independent directors for final approval and may do so in the future.  The compensation of the Chief Executive Officer is based on factors similar to those utilized for the other Named Executive Officers, but also includes consideration of the Chief Executive Officer’s dual role as the Chairman of the Board and Chief Executive Officer, his unique role as primary architect of the Company’s strategic vision, as well as his responsibility for achievement of the Company’s operational goals.  In addition to the foregoing, the Committee evaluated certain other strategic, operational and financial goals in setting the compensation of the Chief Executive Officer.  The specific elements of compensation for the Chief Executive Officer and any differences in his compensation as compared to the other Named Executive Officers are discussed below.

 

Employment Agreements

 

During 2008, the Company entered into employment agreements with each of its Named Executive Officers and Change-in-Control Severance Agreements with approximately twenty additional officers. The employment agreements establish certain elements of such Named Executive Officers’ compensation, including base salary, eligibility and terms of short-term annual incentive bonus awards and eligibility and terms of long-term incentive equity awards, as well as compensation and benefits, if any, due upon termination of employment. Each employment agreement has a three-year term with successive one-year renewals, subject to non-renewal by either party.

 

The particular events chosen to trigger benefits upon termination of employment are based on common practices within our peer group for executive severance protections.  The termination benefits are intended to be consistent with competitive compensation practices and to protect stockholder value by (x) attracting and retaining senior management, and (y) in the context of a change in control, ensuring that executives consider all appropriate opportunities to increase stockholder value.

 

More specifically, the employment agreements provide that the base salary of each Named Executive Officer at the time of the agreement cannot be reduced for the entire term of the employment agreement, that eligibility for an annual cash bonus, subject to achievement of defined financial and operational goals, cannot be for amounts less than the Named Executive Officer’s current target percentage and that, in the event long-term equity awards are approved by the Committee, the Named Executive Officers shall participate in such awards at levels commensurate with the equity awards granted in December 2007 under the Company’s equity award plan or otherwise consistent with the level, type and terms of such equity awards to other officers of the Company.

 

If the employment of any of the Named Executive Officers is terminated (x) other than for cause (as defined in the employment agreements) by the Company or (y) for good reason (as defined in the employment agreements) by a Named Executive Officer, the Company, in addition to certain other benefits described in the employment agreement, will

 

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make a lump sum cash severance payment to the Named Executive Officer equal to a multiple of the Named Executive Officer’s annual base salary and annual incentive bonus.  Under the terms of the employment agreements, the annual bonus amount shall be the higher of (i) the Named Executive Officer’s target bonus for the year in which such termination occurs or (ii) the average bonus received by the Named Executive Officer during the three fiscal years of the Company then ended.  For purposes of the employment agreements, Messrs. Lindemann and Herschmann would receive a severance payment at a 3x multiple while Messrs. Bond and Marshall and Ms. Gaudiosi would each receive a 2x multiple.

 

In addition, in the event of termination of employment by the Company other than for cause or by the Named Executive Officer for good reason in the context of a change in control (as defined in the employment agreements), the Named Executive Officer would be entitled to full vesting of outstanding equity incentive compensation awards (to the extent not already vested pursuant to the Company’s stock and incentive plans) and to certain gross-up payments in respect of excise taxes, if any, imposed by section 4999 of the Internal Revenue Code.  The Company does not anticipate including such gross-up payment reimbursement provisions in employment agreements or change in control agreements that the Company may enter into in the future.

 

Under the terms of the employment agreements, payments by the Company to any Named Executive Officer in connection with termination of employment would generally be conditioned upon delivery of a release of claims against the Company. The employment agreements also contain certain non-competition, non-solicitation and confidentiality provisions. The monetary value of the employment agreements under various termination scenarios is described under “Potential Payments upon Termination or a Change of Control” herein.

 

Base Salary/Annual Merit Adjustments

 

Subject to the terms and conditions of the employment agreements, base salaries for the Named Executive Officers are determined at the discretion of the Committee, in consultation with the Chief Executive Officer, the President and Chief Operating Officer and Hewitt, as applicable, and are based on the various factors enumerated above.  The Committee considers adjustments to base salary for Named Executive Officers on an annual basis and may do so more frequently upon a change of circumstances.  Such changes include promotion into a senior executive role or an expansion of responsibilities.  Base compensation for such executives may in certain circumstances be adjusted less frequently than annually.

 

With respect to the Named Executive Officers, the following base salary or merit adjustment actions were taken during 2008:

 

The base salaries of Messrs. Lindemann and Herschmann remained at their 2007 levels of $1 million and $950,000, respectively.  The base salaries of both Mr. Marshall and Ms. Gaudiosi remained at $450,000 for 2008 in light of significant promotional increases awarded in 2007.

 

Mr. Bond received a salary increase of $31,000 in February 2008 as part of the Committee’s annual merit review.  This increase raised Mr. Bond’s base salary to $550,000 and represented an amount greater than the 3.8% annual merit increase target approved by the Committee.  The increased base compensation merit award was designed to recognize additional demands placed on Mr. Bond as a result of his interim responsibilities as the senior executive of the Southern Union Gas Services business segment, a position held by Mr. Bond until the hiring of a new senior executive for the Southern Union Gas Services business segment in August 2008.

 

In recognition of the current challenging economic environment, no merit increases have been awarded in 2009 to Named Executive Officers, including Messrs. Lindemann and Herschmann.

 

Short-Term Incentive Awards

 

All of the Company’s short-term incentive plans are approved by the Committee and, in the case of the Amended Bonus Plan discussed below, by the Company’s stockholders.  With the exception of Messrs. Lindemann and Herschmann, certain employees of the Company’s Southern Union Gas Services business segment and members of collective bargaining units, all of the Company’s employees (including Messrs. Bond and Marshall and Ms. Gaudiosi) are eligible for an annual cash bonus under the Southern Union Company Annual Incentive Plan.

 

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Southern Union Company Annual Incentive Plan

 

Under the Southern Union Company Annual Incentive Plan, the Committee approves separate annual financial performance thresholds for corporate employees and employees of each business segment as the basis for funding bonus pools.  Applicable financial performance thresholds for 2008 included a “stretch” earnings per share (“EPS”) metric for corporate employees, intended to align employee and stockholder interests, and both Company EPS and a business segment earnings before interest and taxes (“EBIT”) based metric for business segment employees, intended to drive achievement of business segment operating plans.  Pools may fund at 50% of the target amount for 90% achievement of the performance target, up to a maximum funding of 120% for results in excess of the performance target.  Under the plan, cash bonuses are typically paid in the first quarter of each year for performance in the previous year.  In 2008, corporate employees and the business segments achieved from 55% to 403% of their target goals.

 

For 2008, Mr. Marshall and Ms. Gaudiosi had a Company EPS target of $1.82 with a stretch EPS target of $1.85 for eligibility for a 100% bonus target payout under the incentive plan.  With respect to Mr. Bond, 50% of his bonus opportunity was tied to the Company EPS target and the remaining 50% was tied to the EBIT-based performance target of the Company’s Panhandle Energy business unit.  For 2008, Panhandle Energy had a plan EBIT-based target of $399,599,000(2) and a stretch EBIT-based target of $406,179,000.  Messrs. Bond and Marshall and Ms. Gaudiosi each had bonus percentage opportunities of 50% of base salary.

 

After taking into consideration certain selected items and in recognition of the current economic environment, the Committee exercised its discretion to limit the payout of the corporate target bonuses to 100% and Panhandle Energy’s payout to 105% for purposes of the Annual Incentive Plan.  For 2008, the Company’s reported EPS was in excess of $2.26 and Panhandle Energy’s EBIT-based result was $457,207,000 or 112.6% of targeted performance resulting in eligibility for the maximum payout of 120% of target bonuses.  While Mr. Bond’s bonus calculated based on his combined corporate and Panhandle Energy performance metrics was $281,875, the Committee used its discretion to award him a bonus of $225,000 or 40.91% of his base salary.  This reflected a desire on the part of the Committee to make equal bonus awards to the Named Executive Officers participating in the Annual Incentive Plan.  The targeted bonus for each of Mr. Marshall and Ms. Gaudiosi was $225,000 or 50% of his/her annual base salary as of December 31, 2008 and they each received a bonus payment in such amount.

 

For 2009, the Committee has approved retaining a Company plan EPS target, which target contains a stretch EPS component for eligibility for a 100% bonus target payout.  Additionally, the Committee has approved the continuation of customer service and operational metrics as part of the performance objectives of the Company’s Missouri Gas Energy and New England Gas Company divisions, the addition of target metrics with respect to capital and operating budget metrics for the Company’s Transportation and Storage segment and the inclusion of target metrics with respect to operating and maintenance budgets and system loss for the Company’s Gathering and Processing segment. Satisfaction of these performance thresholds is considered realistic but not guaranteed.  Notwithstanding achievement of the defined foregoing financial performance targets, the Committee retains discretion over ultimate bonus awards and the amounts thereof.  In the exercise of this discretion, the Committee may apply certain individual performance and contribution factors.  Specific 2009 target information is neither related to nor in any way material to an understanding of 2008 compensation.

 


(2) In order to evaluate incentive compensation targets with respect to the Panhandle Energy EBIT-based calculations contained herein, the Company attributed 100% of the net income of Citrus Corp. (“Citrus”) to Panhandle Energy although the Company only owns 50% of Citrus and reports only 50% of Citrus net income as EBIT to the Company through equity earnings and not on a consolidated basis.  This calculation process allows the Company to include Citrus’ results, providing an equitable evaluation of bonus awards to all Panhandle Energy employees, including employees of Florida Gas Transmission Company, LLC, a wholly owned subsidiary of Citrus under the Southern Union Annual Incentive Plan. This allocation process accounts for El Paso’s interest.

 

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Amended Bonus Plan

 

In 2008, Messrs. Lindemann and Herschmann participated in the Company’s Amended Bonus Plan.  The Committee sets an annual financial performance goal for Eligible Executives (as that term is defined in the Amended Bonus Plan), as permitted under the Amended Bonus Plan and in compliance with the performance-based compensation exemption under Internal Revenue Code section 162(m). Cash and equity bonuses paid in accordance with such plan, which limits quarterly payments to not more than 3.0% of Consolidated Net Income (as that term is defined in the Amended Bonus Plan) and annual payments to not more than 1.5% of Consolidated Net Income, are intended to constitute “qualified performance-based compensation” for purposes of Internal Revenue Code section 162(m), such that awards thereunder are not subject to the $1 million limit on deductibility.  For 2008, both Messrs. Lindemann and Herschmann were named Eligible Executives and had targeted bonus payouts of 200% of their base compensation or $2 million and $1.9 million, respectively.  The Committee set a 2008 Consolidated Net Income goal of $150 million for the Eligible Executives.

 

The Amended Bonus Plan provides for significant discretion to the Committee to approve, disapprove or reduce a bonus award, even if the designated Consolidated Net Income goal is achieved.  As part of its exercise of negative discretion, the Committee is permitted to consider additional factors and goals related to Company strategic, operational and financial performance, achievement of which are determinative in the evaluation of whether to award a bonus payment or to reduce an otherwise payable bonus amount.  For 2008, the Committee designated certain strategic and operational goals that would be considered in determining whether the bonus awards for the Eligible Executives should be adjusted in the Committee’s discretion, including achievement of goals set forth in the Company’s Outlook for 2008 filed with the SEC on Form 8-K on March 6, 2008, and communicated these goals to the Eligible Executives.

 

The Committee determined that the Eligible Executives had achieved the 2008 Consolidated Net Income goal.  The Committee also determined that the strategic, operational and financial goals designated for the Eligible Executives had been satisfied.  As such, the Committee awarded Messrs. Lindemann and Herschmann bonuses of $2 million and $1.9 million, respectively.

 

The bonuses for which Messrs. Lindemann and Herschmann are eligible are significantly greater than those applicable to the other Named Executive Officers, although generally within the benchmarked ranges for chief executive officers.  This recognizes the value of these executives to the development and achievement of the Company’s strategic goals, while encouraging superior performance by virtue of a greater percentage of the executives’ total compensation being “at-risk”.

 

Both Messrs. Lindemann and Herschmann have been named Eligible Executives under the Amended Bonus Plan for 2009 and the Committee has set a financial performance target for Eligible Executives to receive bonus payments under the terms of the Amended Bonus Plan.  The Committee has also outlined certain additional factors and goals related to Company strategic, operational and financial performance, achievement of which are determinative in the exercise of the Committee’s discretion of whether to award a bonus payment even if the targeted financial goal has been achieved.  Satisfaction of the performance threshold is considered realistic but not guaranteed.

 

One Time Awards

 

In addition to short-term incentive awards under Company plans, the Committee may, in its discretion, authorize one-time awards payable in cash or equity.  No such awards were made to Named Executive Officers in 2008.

 

Long-Term Incentive Awards

 

Long-term incentive awards are subject to the Company’s stockholder-approved Stock and Incentive Plan, as may be amended from time to time.  Under the plan, awards may be made to directors, officers, employees and agents of, and other providers of services to, the Company in the form of incentive options, non-statutory options, stock appreciation rights (“SARs”), stock awards, performance units and other equity-based rights, all as described in the plan.  In December 2008, the Committee authorized a grant of long-term incentive awards to certain Company officers and non-officer personnel.

 

The long-term incentive awards made in December 2008 took on a variety of forms, including grants of non-statutory options to Mr. Lindemann, restricted stock and non-statutory options to Mr. Herschmann and, to other recipients, grants of restricted units that will settle in cash and SARs that will ultimately be settled in stock.  The vesting/restriction lapse schedule of the awards provide pro-rata vesting/restriction lapse on each of the first three anniversaries of the grant date.  The exercise price for the non-statutory options and the SARs equaled the closing price of the Company’s stock on the date of grant.  All of the awards contain an acceleration of vesting/restriction lapse in the event of a change of control of

 

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the Company and the awards of Messrs. Lindemann and Herschmann also contain acceleration of vesting/restriction lapse in the event of their death, disability or termination without cause.  In addition, the awards to Messrs. Lindemann and Herschmann provide that a termination of employment other than for cause of Mr. Lindemann and/or Mr. Herschmann shall not result in any termination, forfeiture or reduction of the exercise period of the non-statutory options granted thereunder.  The 2008 long-term incentive awards to the Named Executive Officers were as follows:

 

Name

 

Restricted Stock

 

Stock Options

 

Cash Restricted Units

 

SARs

 

 

 

 

 

 

 

 

 

 

 

George L. Lindemann

 

 

 

500,000

 

 

 

 

 

Eric D. Herschmann

 

207,066

 

292,934

 

 

 

 

 

Richard N. Marshall

 

 

 

 

 

23,195

 

95,336

 

Robert O. Bond

 

 

 

 

 

23,195

 

95,336

 

Monica M. Gaudiosi

 

 

 

 

 

23,195

 

95,336

 

 

The Committee believes that the vehicles utilized with respect to the long-term incentive awards provided a clear and effective combination of retention incentive, stock performance incentive and stockholder alignment.  As part of the review process, the Committee determined that, for its Named Executive Officers, grants utilizing a variety of vehicles to deliver long-term incentive compensation reflected the prevalent trends within its energy industry peer group and offered a balance of performance and retention incentive.  In addition, the award vehicles chosen by the Committee took into consideration the varying accounting, tax and regulatory impacts associated with long-term incentive compensation.

 

The equity awards to Messrs. Lindemann and Herschmann were at a significantly higher value than the awards to the other Named Executive Officers, although generally within the benchmarked ranges for chief executive officers, in recognition of the value of these executives to the development and achievement of the Company’s strategic goals.  In particular, the 2008 equity award to Mr. Lindemann, which, unlike his 2007 award, is comprised solely of stock options, reflects a focus on performance compensation and represents a decrease in equity award value as compared to his December 2007 grant.  Mr. Lindemann’s 2008 equity award is at the lower end of the benchmark range for equity awards to chief executive officers.  In making an equity award to Mr. Lindemann, the Committee considered his current significant equity ownership, which serves to align him with stockholder interests, and determined to include an equity award as part of his 2008 compensation based on benchmarking data.  The vehicles used for the awards to Mr. Herschmann promote stock ownership, as compared to the restricted units awarded to the other Named Executive Officers, which are settled in cash.

 

It is the Committee’s intention that grants be considered annually in the fourth quarter, although such awards are not guaranteed.  The eligible employee population and specific form of awards may vary from year to year and the 2008 grants reflected awards to an increased population of key non-officer personnel.  The Committee will continue to monitor and consider the types of awards, vesting requirements, eligible employee pool and applicable accounting, tax and regulatory impacts of long-term incentive awards on an annual basis.  The Committee has given the Named Executive Officers authority to grant off-cycle individual awards to non-officer personnel based on defined limits on individual grant values and total value of all off-cycle awards.  Examples of the circumstances under which individual grants may be awarded are hiring activity, retention arrangements and transactional awards.

 

Benefits; Perquisites

 

The Company provides for the benefit of its employees a full range of usual and customary employee benefits.  These include medical, dental and vision insurance; life, accidental death and dismemberment and short-term disability insurance; as to certain business segments, pension and retiree medical coverage; and a 401(k) plan, supplemented as to certain employees by additional employer contributions to a “retirement power account” (“RPA”). RPA percentages applicable to Named Executive Officers range from 4.5% to 12.05% and are contributed on base salary and bonus compensation up to $225,000.  The Company match and RPA percentages vary across business segments but generally vest in equal percentages over the employee’s first five years of service.  In addition, employees receive typical vacation, personal days, sick leave and holidays.  Terminated employees may be eligible for severance payments not to exceed one year’s base salary.  Employees transferring between Company locations or new hires may be offered relocation benefits.  Benefit programs vary by business segment and may also be subject to the terms of applicable collective bargaining agreements.  These benefits are available to employees generally; no plans exist for the sole benefit of Senior Executives or Named Executive Officers.  The Company also maintains a supplemental deferred compensation plan for corporate employees at or above the director level; the Company does not offer matching in respect of deferred amounts.

 

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In 2007, at the request of the Committee, Hewitt performed an evaluation of the Company’s benefits programs based on a peer group of nine companies with prominent gas transmission businesses.  Hewitt found the Company’s benefits to be slightly below the average indexes of peer group companies, driven in part by the absence of Company-sponsored non-qualified retirement benefit programs.  As a result of this evaluation, the Company made certain changes to the 401(k) plan at Panhandle in 2008, instituted a retiree medical program for its corporate employees and continues to evaluate the Company’s overall retirement programs.

 

In addition, under the Company’s Board-approved aircraft policy, Mr. Lindemann and his spouse are encouraged to use corporate aircraft for personal travel to ensure their safety and security.

 

Tax and Accounting Implications

 

As part of its role, the Committee reviews and considers the deductibility of executive compensation under section 162(m) of the Internal Revenue Code, which provides that the Company may not deduct compensation of more than $1,000,000 paid to certain individuals.  The  Committee generally structures and administers executive compensation plans and arrangements so that they will not be subject to the deduction limit of section 162(m) of the Internal Revenue Code. The  Committee may from time to time approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs in the interest of stockholders. For example, restricted stock awards described above received by certain employees may not be deductible for federal income tax purposes, depending on the amount and other types of compensation received by such employees.

 

Conclusion

 

The Committee believes that the compensation awarded in 2008 embodies the Company’s compensation philosophy and strategy.  The Company’s compensation actions supported numerous strategic, structural, competitive and personnel transitions during the past year.  The Company will continue to take the actions necessary to support its performance-based and stockholder-aligned philosophy in future years.

 

2008 Executive Compensation

 

Named Executive Officers

 

The Named Executive Officers of the Company are set forth below. Each holds the offices indicated until his or her successor is chosen and qualified at the regular meeting of the Board of Directors to be held immediately following the 2009 Annual Meeting of Stockholders, or until such officer’s earlier death, resignation, retirement, disqualification or removal.

 

George L. Lindemann, 73, is Chairman of the Board and Chief Executive Officer of Southern Union. Mr. Lindemann has held the positions of Chairman and Chief Executive Officer since 1990.  Mr. Lindemann also served as the President of Southern Union from November 2005 until May 2008.

 

Eric D. Herschmann, 45, is President and Chief Operating Officer of Southern Union, a position he has held since May 2008.  Mr. Herschmann served as Senior Executive Vice President from November 2005 until May 2008.  Mr. Herschmann also acted as Interim General Counsel of the Company from January 2005 until October 2007.  Mr. Herschmann has served as outside counsel for the Company since 1997 and as its national litigation counsel since 1999.  He continues to retain his partnership interest in the Kasowitz Firm, where he has been a partner since 1996.

 

Richard N. Marshall, 51, is Senior Vice President and Chief Financial Officer of Southern Union, a position he has held since November 2006. Mr. Marshall served as Treasurer of Southern Union from 2001 until being named to his current position. Prior to 2001, he was Vice President, rates and regulatory affairs, for the Company’s Pennsylvania natural gas distribution division.

 

Robert O. Bond, 49, is Senior Vice President, pipeline operations of Southern Union, a position he has held since September 2005, and President and Chief Operating Officer of Southern Union’s integrated natural gas pipeline operations, a position he has held since April 2005. From November 2004 until being named to his current position, he served as Senior Vice President, Chief Commercial Officer for Panhandle.  Since joining Panhandle in February 2000, he had served as Executive Director of Commercial Optimization, Vice President of Optimization, Vice President of Marketing and Senior Vice President of Marketing.

 

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Monica M. Gaudiosi, 46, is Senior Vice President & General Counsel of Southern Union.  Ms. Gaudiosi has been a Senior Vice President since September 2005 and General Counsel since October 2007.  Ms. Gaudiosi served as Associate General Counsel from her hiring in 2005 until being named General Counsel.   From 1998 until joining Southern Union in 2005, she held various legal positions with General Electric Capital Corporation, including strategic transaction counsel for GE Commercial Finance and general counsel of the Vendor Financial Services commercial equipment leasing division.

 

Summary Compensation Table

 

The table below summarizes the total compensation awarded or attributable to each of the Named Executive Officers for the year ended December 31, 2008. When setting total compensation for each of the Named Executive Officers, the Compensation Committee reviews each element of current compensation for all of the Named Executive Officers, including equity and non-equity based compensation.

 

Each of the Named Executive Officers was eligible to receive a bonus payment for the year ended December 31, 2008 under either the Annual Incentive Plan or the Amended Bonus Plan.  The bonus amounts paid under either the Annual Incentive Plan or the Amended Bonus Plan are tied to performance objectives and are listed under “Non-Equity Incentive Plan Compensation” in the table below.  Such amounts were determined by the Compensation Committee at its February 26, 2008 meeting and, to the extent not deferred by the executive, were paid on March 13, 2009.

 

Name and
Principle

 

 

 

Salary

 

Bonus

 

Stock
Awards

 

Option
Awards

 

Non-Equity
Incentive Plan
Compensation

 

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings

 

All Other
Compensation

 

Total

 

Position

 

Year

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)(1)

 

(f)(2)

 

(g)

 

(h)

 

(i)

 

(j)

 

George L. Lindemann
Chairman of the Board and Chief Executive Officer

 

2008
2007
2006

 

1,000,000
999,999
1,500,000

 

-0-
-0-
7,500,000

 

331,039
13,556
-0-

 

852,306
33,942
-0-

 

2,000,000
2,000,000
750,000

(3)



 

386,867
400,024
701,939

(4)

4,570,212
3,447,521
10,451,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric D. Herschmann

President & Chief Operating Officer

 

2008
2007
2006

 

950,000
949,999
-0-

 

-0-
-0-
5,000,000

 

592,136
35,230
2,497,801

 

758,329
30,423
792,790

 

1,900,000
1,900,000
-0-

(3)



 

21,663
19,771
13,993

(5)(6)

4,222,128
2,935,423 8,304,584

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard N. Marshall

Senior Vice President and Chief Financial Officer

 

2008
2007
2006

 

450,000
354,614
189,715

 

-0-
-0-
-0-

 

66,466
69,204
6,793

 

186,609
81,497
19,593

 

225,000
180,000
144,000

 



 

38,813
34,011
36,365

(7)

966,888
719,326
396,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert O. Bond

Senior Vice President, Pipeline Operations

 

2008
2007
2006

 

541,654
513,884
499,999

 

-0-
-0-
-0-

 

83,186
78,429
573

 

526,174
364,382
280,183

 

225,000
350,000
250,000

 



 

20,920
16,058
16,798

(8)

1,396,934
1,322,753
1,047,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monica M. Gaudiosi

Senior Vice President & General Counsel

 

2008
2007
2006

 

450,000
394,759
346,731

 

-0-
-0-
250,000

 

139,889
240,597
46,671

 

254,882
149,723
68,258

 

225,000
200,500
157,483

 



 

21,738
17,010
13,641

(9)

1,091,509
1,002,599
882,784

 

 

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(1)

 

For a description of the assumptions made in calculating the proportionate share of the grant date fair value of restricted stock recognized in this period in accordance with FAS 123(R), see Notes 2 and 24 to the Company’s footnotes to its audited financial statements included in its Form 10-K for the year ended December 31, 2008. There were no forfeitures during this time period.

(2)

 

For a description of the assumptions made in calculating the proportionate share of the grant date fair value of the options recognized in this period in accordance with FAS 123(R), see Notes 2 and 24 to the Company’s footnotes to its audited financial statements included in its Form 10-K for the year ended December 31, 2008. There were no forfeitures during this time period.

(3)

 

This amount represents the Named Executive Officer’s qualified performance-based compensation for purposes of IRC section 162(m) for the year ended December 31, 2008.

(4)

 

Of this amount, $2,520 relates to life insurance premiums paid by the Company, $9,673 relates to Company matching contributions to Mr. Lindemann’s 401(k), $19,550 relates to non-discretionary Company contributions to his RPA and $355,124 relates to the incremental cost for personal use of Company aircraft by Mr. Lindemann and his spouse. The incremental cost to the Company of the personal use of Company aircraft is calculated based on the actual variable operating costs to the Company. Variable operating costs include fuel costs, mileage, maintenance, crew travel expenses, catering and other miscellaneous variable costs. The fixed costs that do not change based on usage, such as pilot salaries, the lease costs of the Company aircraft, hangar expense and general taxes and insurance, are excluded from the incremental cost calculation. The Company has adopted a Corporate Aircraft Policy that encourages Mr. Lindemann and his spouse to use Company aircraft for all business and non-business purposes for their personal security and safety.

(5)

 

Of this amount, $8,793 relates to Company contributions to the officer’s 401(k) plan, $10,350 relates to non-discretionary Company contributions to the officer’s RPA and $2,520 relates to life insurance premiums paid by the Company.

(6)

 

Not included in this amount is $18,005,842 in legal fees (including a monthly retainer and reimbursement of expenses) for which the Kasowitz Firm billed the Company in 2008. Mr. Herschmann is a partner of, and is compensated by, the Kasowitz Firm, which provides legal services to the Company and certain of its affiliates.

(7)

 

Of this amount, $8,830 relates to Company contributions to the officer’s 401(k) plan, $27,715 relates to non-discretionary Company contributions to the officer’s RPA and $2,268 relates to life insurance premiums paid by the Company.

(8)

 

Of this amount, $8,050 relates to Company contributions to the officer’s 401(k) plan, $10,350 relates to non-discretionary Company contributions to the officer’s RPA and $2,520 relates to life insurance premiums paid by the Company.

(9)

 

Of this amount, $9,422 relates to Company contributions to the officer’s 401(k) plan, $10,350 relates to non-discretionary Company contributions to the officer’s RPA and $1,966 relates to life insurance premiums paid by the Company.

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding all short-term (non-equity) and long-term (equity) incentive plan awards that were made to the Named Executive Officers during 2008. This information supplements the dollar value disclosure of stock, option and non-equity incentive awards in the Summary Compensation Table by providing additional details about such awards. Non-equity incentive plan awards are awards that are not subject to FAS 123(R) and are intended to serve as an incentive for performance to occur over a specified period, typically a year.  Generally, equity incentive-based awards are subject to a performance condition or a market condition as those terms are defined by FAS 123(R); none of the Company’s equity incentive-based awards granted during 2008 were subject to market conditions.

 

32



Table of Contents

 

 

 

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)

 

Estimated Future Payouts Under
Equity Incentive Plan Awards

 

All other
Stock
Awards:
Number
of
Shares
of Stock

 

All Other
Option
Awards:
Number
of
Securities
Under-
lying

 

Exercise
or Base
Price of
Option

 

Grant
Date
Fair
Value of
Stock
and

 

 

 

Grant

 

Threshold

 

Target

 

Maximum

 

Threshold

 

Target

 

Maximum

 

or Units

 

Options

 

Awards

 

Option

 

Name

 

Date

 

($)

 

($)

 

($)

 

($)

 

($)

 

($)

 

(#)

 

(#)

 

($/Sh)

 

Awards

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

(k)

 

(l)

 

George L. Lindemann

 

 

 

2,000,000

 

2,000,000

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

(3)

12.55

 

1,550,134

 

Eric D. Herschmann

 

 

 

1,900,000

 

1,900,000

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

207,066

(4)

 

 

 

 

2,598,678

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

292,934

(3)

12.55

 

908,174

 

Richard N. Marshall

 

 

 

112,500

 

225,000

 

270,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

23,195

(5)

 

 

 

 

302,463

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95,336

(6)

12.55

 

295,567

 

Robert O. Bond

 

 

 

137,550

 

275,000

 

330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

23,195

(5)

 

 

 

 

302,463

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95,336

(6)

12.55

 

295,567

 

Monica M. Gaudiosi

 

 

 

112,500

 

225,000

 

270,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

23,195

(5)

 

 

 

 

302,463

 

 

 

12/15/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95,336

(6)

12.55

 

295,567

 

 


(1)                                   Represents threshold, target and maximum payout levels under the Annual Incentive Plan or, as to Messrs. Lindemann and Herschmann, the Amended Bonus Plan, for 2008 performance. The actual amount of incentive bonus paid to each Named Executive Officer with respect to 2008 performance is reported under the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. Additional information regarding the design of the Annual Incentive Plan and Amended Bonus Plan is included in the Compensation Discussion and Analysis beginning on page 21. In certain limited and unique circumstances, with the exception of Messrs. Lindemann and Herschmann, whose maximum bonus is restricted in accordance with the Amended Bonus Plan, the Compensation Committee may make incentive bonus awards in excess of any estimated maximum payout amounts.  In 2008, the Compensation Committee did not make any incentive bonus awards in excess of the estimated maximum payout amounts.

 

(2)                                   The maximum incentive bonus payable to any executive participating in the Amended Bonus Plan is 1.5% of the Company’s adjusted consolidated net income from continuing operations for the related year, as that term is defined in the Amended Bonus Plan.  For the year ended December 31, 2008, the Compensation Committee determined that the Company had exceeded the targeted consolidated net income; Mr. Lindemann received a bonus of $2,000,000 and Mr. Herschmann received a bonus of $1,900,000.  Any and all bonus awards made under the Amended Bonus Plan are payable in whole or in part at the sole discretion of the Compensation Committee.

 

(3)                                   Non-Statutory Stock Options.

 

(4)                                   Restricted Stock.

 

(5)                                   Cash Restricted Units (settled in cash).

 

(6)                                   Stock Appreciation Rights.

 

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Table of Contents

 

Outstanding Equity Awards at December 31, 2008

 

 

 

OPTION AWARDS

 

STOCK AWARDS

 

 

 

Number of Securities
Underlying Unexercised
Options

 

Option
Exercise 

 

Option

 

Number of
Shares or Units
of Stock That

 

Market Value of
Shares or Units
of Stock That
Have Not

 

 

 

Exercisable

 

Unexercisable

 

Price

 

Expiration

 

Have Not Vested

 

Vested

 

Name

 

(#)

 

(#)

 

($)

 

Date

 

(#)

 

($)

 

(a)

 

(b)

 

(c)

 

(e)

 

(f)

 

(g)

 

(h)

 

George L. Lindemann

 

258,078

 

-0-

 

13.50

 

12/09/2009

 

 

 

 

 

 

 

 

 

441,469

(1)

28.48

 

12/17/2017

 

 

 

 

 

 

 

 

 

500,000

(2)

12.55

 

12/15/2018

 

58,022

(3)

756,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric D. Herschmann

 

262,500

 

-0-

 

23.62

 

6/27/2015

 

 

 

 

 

 

 

100,000

 

-0-

 

23.63

 

12/30/2015

 

 

 

 

 

 

 

91,876

 

183,753

(4)

28.48

 

12/17/2017

 

 

 

 

 

 

 

 

 

292,934

(2)

12.55

 

12/15/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,682

(5)

504,413

 

 

 

 

 

 

 

 

 

 

 

207,066

(6)

2,700,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard N. Marshall

 

6,615

 

1,654

(7)

16.83

 

02/06/2014

 

 

 

 

 

 

 

513

 

170

(8)

24.06

 

07/26/2015

 

 

 

 

 

 

 

12,866

 

6,433

(9)

28.07

 

12/28/2016

 

 

 

 

 

 

 

12,895

 

25,790

(10)

28.48

 

12/17/2017

 

 

 

 

 

 

 

 

 

95,336

(11)

12.55

 

12/15/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

262

(12)

3,416

 

 

 

 

 

 

 

 

 

 

 

2,027

(13)

26,432

 

 

 

 

 

 

 

 

 

 

 

5,430

(14)

70,807

 

 

 

 

 

 

 

 

 

 

 

23,195

(15)

302,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert O. Bond

 

13,230

 

3,308

(16)

16.83

 

02/06/2014

 

 

 

 

 

 

 

75,000

 

25,000

(17)

22.68

 

11/11/2015

 

 

 

 

 

 

 

15,834

 

7,919

(18)

28.07

 

12/28/2016

 

 

 

 

 

 

 

20,148

 

40,297

(19)

28.48

 

12/17/2017

 

 

 

 

 

 

 

 

 

95,336

(11)

12.55

 

12/15/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,494

(20)

32,522

 

 

 

 

 

 

 

 

 

 

 

8,483

(24)

110,618

 

 

 

 

 

 

 

 

 

 

 

23,195

(15)

302,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monica M. Gaudiosi

 

1,024

 

341

(21)

24.06

 

07/26/2015

 

 

 

 

 

 

 

18,750

 

6,250

(22)

22.68

 

11/11/2015

 

 

 

 

 

 

 

15,834

 

7,919

(18)

28.07

 

12/28/2016

 

 

 

 

 

 

 

12,895

 

25,790

(10)

28.48

 

12/17/2017

 

 

 

 

 

 

 

 

 

95,336

(11)

12.55

 

12/15/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

525

(23)

6,846

 

 

 

 

 

 

 

 

 

 

 

2,494

(20)

32,522

 

 

 

 

 

 

 

 

 

 

 

5,430

(25)

70,807

 

 

 

 

 

 

 

 

 

 

 

23,195

(15)

302,463

 

 

34



Table of Contents

 


(1)

 

These employee stock options awarded on December 17, 2007 vest in full on December 17, 2012.

 

 

 

(2)

 

These employee stock options awarded on December 15, 2008 will vest in equal annual installments on the first, second and third anniversaries of the grant date.

 

 

 

(3)

 

The restrictions on these restricted shares awarded on December 17, 2007 expire in full on December 17, 2012.

 

 

 

(4)

 

Of these remaining employee stock options, 91,876 will vest on December 15, 2009 and 91,877 will vest on December 15, 2010.

 

 

 

(5)

 

The restrictions on 19,340 of these restricted shares will expire on December 17, 2009 and the restrictions on 19,341 restricted shares will expire on December 17, 2010.

 

 

 

(6)

 

The restrictions on these restricted shares awarded on December 15, 2008 will expire in equal annual installments on the first, second and third anniversaries of the grant date.

 

 

 

(7)

 

The remaining employee stock options vested on March 1, 2009.

 

 

 

(8)

 

These remaining employee stock options will vest on July 26, 2009.

 

 

 

(9)

 

Stock appreciation rights will be settled in shares of common stock at an exercise price of $28.07 per share, which was equal to the closing price on the grant date. The remainder of the award will vest on December 28, 2009.

 

 

 

(10)

 

Stock appreciation rights will be settled in shares of common stock at an exercise price of $28.48 per share, which was equal to the closing price on the grant date. The award will vest in equal annual installments of 12,895 on December 17, 2009 and December 17, 2010.

 

 

 

(11)

 

Stock appreciation rights will be settled in shares of common stock at an exercise price of $12.55 per share, which was equal to the closing price on the grant date. The award will vest in equal annual installments on the first, second and third anniversaries of the December 15, 2008 grant date.

 

 

 

(12)

 

The restrictions on these restricted shares expire on July 26, 2009.

 

 

 

(13)

 

The restrictions on the cash restricted units awarded on December 28, 2006 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on such dates. Restrictions on the remaining cash restricted units under this award will expire on December 28, 2009.

 

 

 

(14)

 

The cash restricted units awarded on December 17, 2007 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on such dates. Restrictions on the remaining cash restricted units under this award will expire as to 2,715 units on December 17, 2009 and 2,715 units on December 17, 2010.

 

 

 

(15)

 

The cash restricted units awarded on December 15, 2008 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on such dates. Restrictions on the award will expire in equal annual installments on the first, second and third anniversaries of the grant date.

 

 

 

(16)

 

The remaining 3,308 employee stock options associated with this award vested on March 1, 2009.

 

 

 

(17)

 

These remaining unvested employee stock options associated with this award will vest on November 11, 2009.

 

 

 

(18)

 

Stock appreciation rights will be settled in shares of common stock at an exercise price of $28.07 per share, which was equal to the closing price on the grant date. The remainder of this award will vest on December 28, 2009.

 

 

 

(19)

 

Stock appreciation rights will be settled in shares of common stock at an exercise price of $28.48 per share, which was equal to the closing price on the grant date. The award will vest in equal annual installments of 20,148 on December 17, 2009 and 20,149 on December 17, 2010.

 

 

 

(20)

 

The restrictions on the cash restricted units awarded on December 28, 2006 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on such dates. Restrictions on the remaining 2,494 cash restricted units under this award will expire on December 28, 2009.

 

 

 

(21)

 

These remaining employee stock options will vest on July 26, 2009.

 

 

 

(22)

 

These remaining employee stock options will vest on November 11, 2009.

 

 

 

(23)

 

The restrictions on these restricted shares will expire on July 26, 2009.

 

 

 

(24)

 

The cash restricted units awarded on December 17, 2007 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock

 

35



Table of Contents

 

 

 

valued at the closing price of the Company’s common stock on such dates. Restrictions on the remaining cash restricted units under this award will expire as to 4,241 units on December 17, 2009 and 4,242 units on December 17, 2010.

 

 

 

(25)

 

The cash restricted units awarded on December 17, 2007 permit the recipient to receive, on predetermined dates upon expiration of applicable restrictions, cash in an amount equal to a specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on such dates. Restrictions on the remaining cash restricted units under this award will expire as to 2,715 units on December 17, 2009 and 2,715 units on December 17, 2010.

 

Option Exercises and Stock Vested

 

 

 

OPTION AWARDS

 

STOCK AWARDS

 

 

 

Number of Shares
Acquired on
Exercise

 

Value Realized on
Exercise

 

Number of Shares
Acquired on
Vesting

 

Value Realized on
Vesting

 

Name

 

(#)

 

($)

 

(#)

 

($)

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

George L. Lindemann

 

214,290

 

2,197,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric D. Herschmann

 

 

 

 

 

19,340

(1)

253,741

 

 

 

 

 

 

 

 

 

 

 

Richard N. Marshall

 

 

 

 

 

262

(1)

6,702

 

 

 

 

 

 

 

2,714

(2)

35,608

 

 

 

 

 

 

 

2,026

(2)

25,811

 

 

 

 

 

 

 

 

 

 

 

Robert O. Bond

 

 

 

 

 

4,241

(2)

55,642

 

 

 

 

 

 

 

2,494

(2)

31,774

 

 

 

 

 

 

 

 

 

 

 

Monica M. Gaudiosi

 

 

 

 

 

525

(1)

13,430

 

 

 

 

 

 

 

4,700

(1)

112,142

 

 

 

 

 

 

 

2,494

(2)

31,774

 

 

 

 

 

 

 

2,714

(2)

35,608

 

 


(1)

 

This grant of restricted stock settled on the date of the expiration of the restrictions, resulting in the delivery of shares to the Named Executive Officer.

 

 

 

(2)

 

This grant of cash restricted units settled on the date of expiration of the restrictions, resulting in the delivery of cash in an amount equal to the specified number of shares of the Company’s common stock valued at the closing price of the Company’s common stock on the date the restrictions expired.

 

Non-Qualified Deferred Compensation

 

Pursuant to the Company’s non-qualified supplemental retirement plan, certain executives, including Named Executive Officers, may defer salary and bonus earned under the Southern Union Company Amended Supplemental Deferred Compensation Plan.  Deferral elections are made by eligible executives in December of each year for amounts to be earned in the following year. An executive may defer all or a portion of his or her salary and bonus under this plan. The investment options available to an executive under the deferral program vary, but include Company stock and publicly available mutual funds. Any distribution of holdings in Company stock under the non-qualified supplemental retirement plan must be made in Company stock in an amount of shares equal to the aggregate balance in the plan at the time of distribution.

 

 

 

Executive
Contributions in
2008

 

Company
Contributions in
2008

 

Aggregate
Earnings or
Losses in 2008

 

Aggregate
Withdrawals/
Distributions

 

Aggregate
Balance at
December 31,
2008

 

Name

 

($)

 

($)

 

($)

 

($)

 

($)

 

(a)

 

(b)(1)

 

(c)

 

(d)(2)

 

(e)

 

(f)

 

George L. Lindemann

 

303,388

 

-0-

 

(2,022,718

)

-0-

 

1,765,338

 

Eric D. Herschmann(3)

 

-0-

 

-0-

 

-0-

 

-0-

 

-0-

 

Richard N. Marshall

 

77,677

 

-0-

 

(207,640

)

-0-

 

310,682

 

Robert O. Bond(3)

 

-0-

 

-0-

 

-0-

 

-0-

 

-0-

 

Monica M. Gaudiosi(3)

 

-0-

 

-0-

 

-0-

 

-0-

 

-0-

 

 

36



Table of Contents

 


(1)

 

All amounts reported as contributions by the executives have been reported as compensation for the year ended December 31, 2008 in the Summary Compensation Table. Contributions made to these holdings in 2008 represent pre-tax contributions from the Named Executive Officer’s base salary and bonus compensation (otherwise reported as base and incentive bonus compensation in the Summary Compensation Table), do not represent other compensation paid by the Company and are not currently matched in any form by the Company.

 

 

 

(2)

 

Represents aggregate earnings or losses on the market value of the Named Executive Officer’s holdings under the Company’s non-qualified supplemental retirement plan. Any returns on the funds contributed pursuant to this plan (whether positive or negative) are solely due to market conditions. Named Executive Officers who make deferral elections under the non-qualified supplemental retirement plan are not entitled to receive payments of cash interest from the Company. Moreover, deferrals may only be invested in Company stock or available mutual funds for which earnings are calculated on a market value basis.  The value of the deferrals is calculated and available to the participating executives daily based on that day’s market price for Company stock or the publicly available mutual fund shares.

 

 

 

(3)

 

The Named Executive Officer either does not participate, or is not eligible to participate, in the Southern Union Company Amended Supplemental Deferred Compensation Plan.

 

Potential Payments upon Termination or a Change of Control

 

As described in the Compensation Discussion and Analysis, the Company has entered into employment agreements with each of the Named Executive Officers and maintains plans that provide for certain compensation in the event their employment terminates or upon a change in control.  The amount of compensation that would have been payable to each Named Executive Officer effective December 31, 2008 is listed in the tables below.  Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be different.

 

37



Table of Contents

 

George L. Lindemann

 

Executive Benefits and
Payments
as of December 31, 2008

 

Voluntary
Termination

 

Normal
Retirement
(55 years
old and 20
years of
service)

 

Other than
for Cause;
For Good
Reason

 

For Cause
Termination

 

Other than for
Cause; for
Good Reason
(following
Change of
Control)

 

Change-of-
Control
Only

 

Death

 

Disability

 

Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance(1)

 

 

 

$

9,000,000

 

 

$

9,000,000

 

 

 

 

Short-term Incentive(2)

 

 

 

$

2,000,000

 

 

$

2,000,000

 

 

$

2,000,000

 

$

2,000,000

 

Long-term Incentives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock Unexpired and Accelerated(3)