-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WC0h5kIOLnliATlIbvygUgtmeK6QrKhBjTc+Ly3ds0ZWaoaWL2OxFsf2IhOVg1A1 FZ210yoXWMeTt3moq/BcEQ== 0000950144-98-013556.txt : 19981207 0000950144-98-013556.hdr.sgml : 19981207 ACCESSION NUMBER: 0000950144-98-013556 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990112 FILED AS OF DATE: 19981204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH CAROLINA NATURAL GAS CORP CENTRAL INDEX KEY: 0000072596 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 560646235 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-10998 FILM NUMBER: 98763814 BUSINESS ADDRESS: STREET 1: 150 ROWAN ST STREET 2: PO BOX 909 CITY: FAYETTEVILLE STATE: NC ZIP: 28301-4993 BUSINESS PHONE: 9194830315 MAIL ADDRESS: STREET 1: PO BOX 909 CITY: FAYETTEVILLE STATE: NC ZIP: 28302-0909 DEF 14A 1 NORTH CAROLINA NATURAL GAS PROXY MATERIALS 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NORTH CAROLINA NATURAL GAS CORPORATION - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials: [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 2 (NCNG LOGO) 150 Rowan Street/Post Office Box 909 Fayetteville, North Carolina 28302-0909 - -------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 12, 1999 ----------------------------------------------------------------------- December 4, 1998 Fayetteville, North Carolina TO THE STOCKHOLDERS: You are invited to attend the 1999 Annual Meeting of Stockholders of North Carolina Natural Gas Corporation on Tuesday, January 12, 1999. The Annual Meeting will be held at the Radisson Prince Charles Hotel, 450 Hay Street, Fayetteville, North Carolina, at 10:00 A.M. The Annual Meeting will be held for the following purposes: 1. To elect three directors to serve for three-year terms; and 2. To transact any other business as may properly come before the Annual Meeting. Only Stockholders of record at the close of business on November 27, 1998 are entitled to vote at the Annual Meeting and any adjournment thereof. Please promptly complete, date, sign, and return the enclosed proxy in the enclosed preaddressed envelope. You may revoke your proxy at any time before it is voted at the Annual Meeting. Also we request that you review the President's letter in the Company's accompanying Annual Report which includes information regarding the pending Agreement and Plan of Merger under the terms of which North Carolina Natural Gas Corporation will be acquired by Carolina Power & Light Company. This proposed merger is further discussed in Note 11 of the Notes to Consolidated Financial Statements on Page 32 of the Company's Annual Report. You will receive additional materials regarding this proposed merger at a later date. For the Board of Directors, /s/ Sally T. Sowers SALLY T. SOWERS Corporate Secretary 3 NORTH CAROLINA NATURAL GAS CORPORATION 150 ROWAN STREET / POST OFFICE BOX 909 FAYETTEVILLE, NORTH CAROLINA 28302-0909 910-483-0315 DECEMBER 4, 1998 ------------------------------------ Proxy Statement ------------------------------------ GENERAL INFORMATION The Annual Meeting of Stockholders ("Annual Meeting") of North Carolina Natural Gas Corporation (the "Company") will be held at 10:00 a.m. on Tuesday, January 12, 1999, at the Radisson Prince Charles Hotel, 450 Hay Street, Fayetteville, North Carolina for the purposes set forth in the Notice of Annual Meeting of Stockholders. The 1998 Annual Report to Stockholders has been mailed to Stockholders with this Proxy Statement and proxy beginning on December 4, 1998. This Proxy Statement is furnished to Stockholders in connection with the solicitation by the Board of Directors of proxies to be used at the Annual Meeting and at any and all adjournments of the Annual Meeting for the purposes set forth in the attached Notice of Annual Meeting of Stockholders. The accompanying proxy is for use at the meeting if a Stockholder either will be unable to attend in person or will attend but wishes to vote by proxy. The proxy may be revoked by the Stockholder at any time before it is exercised by (1) filing with the Corporate Secretary of the Company an instrument revoking it, (2) filing a duly executed proxy bearing a later date, or (3) by voting in person at the Annual Meeting. All shares of the Company's Common Stock represented by valid proxies properly signed and received pursuant to this solicitation, and not revoked before they are exercised, will be voted in the manner specified on the proxy. If no specification is made, the proxies will be voted in favor of electing three Directors for three-year terms expiring in 2002. The enclosed proxy is being solicited by mail on behalf of the Board of Directors of the Company and the cost of solicitation has been or will be borne by the Company. In addition, arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy material to their principals, and the Company will reimburse them for their expenses in so doing. It may be that further solicitation of proxies will be made by telephone or oral communication with some Stockholders of the Company following the original solicitation. All further solicitation will be made by officers and regular clerical employees of the Company who will not be additionally compensated therefor. RECORD DATE AND VOTING SECURITIES Only common Stockholders of record at the close of business on the 27th day of November 1998, are entitled to vote at the Annual Meeting. On that date, the Company had outstanding and entitled to vote 10,129,053 shares of common stock, $2.50 par value ("Common Stock"). A majority of the outstanding shares of Common Stock, represented in person or by proxy, will constitute a quorum for transacting business. Each issued and outstanding share of Common Stock entitles the Stockholder to one vote. No Stockholder has the right to vote cumulatively for the election of directors. As of September 30, 1998, no Stockholder, to the knowledge of the Company, is the beneficial owner of 5% or more of the Company's Common Stock. PROPOSAL ONE. ELECTION OF DIRECTORS The Board of Directors of the Company consists of nine persons and is divided into three classes, with the term of office of each class ending in successive years. The terms of the Directors of Class II expire at the 1999 Annual Meeting. Each of the three nominees for Class II, if elected, will serve three years until the 2002 Annual Meeting and until their successors have been elected and qualified. The current Directors of Classes III and I will continue in office until the 2000 and 2001 Annual Meetings, respectively. 4 The persons named in the enclosed form of proxy will vote for the election of the three nominees named below unless you otherwise specify on the proxy. In the event any of the nominees should become unable to serve as a Director, or any other matters are properly brought before the Annual Meeting, the proxy will be voted in accordance with the best judgment of the person or persons acting under it. The election of each nominee requires the affirmative vote of a majority of the shares of Common Stock cast in the election of Directors. The proxies solicited hereby will be voted FOR the election of the three nominees listed below unless otherwise specified in the proxy. Votes at the Annual Meeting will be counted by elections inspectors appointed by the Company. All of the nominees are currently Directors of the Company and each has served continuously as a Director of the Company since the year indicated. The Company is not aware of any reason why any nominee would be unable to serve. The following table presents certain information, including Company securities beneficially owned on November 27, 1998, about these Nominees and the other Directors whose terms of office will continue after the Annual Meeting, based upon information received from the respective Nominees and other Directors. INFORMATION CONCERNING DIRECTORS
SHARES DIRECTOR PRINCIPAL OCCUPATION AND DIRECTORSHIPS IN BENEFICIALLY NAME AGE SINCE OTHER PUBLIC COMPANIES WHERE APPLICABLE OWNED (1)(2) ---- --- -------- ------------------------------------------------------ ------------- NOMINEES FOR ELECTION AS DIRECTORS Paul A. DelaCourt 64 1989 Chairman, The North Carolina Enterprise Corporation; 11,625 Chairman and Director, Quick-10 Corporation. Directorships: Golden Corral Corporation; and Investors Management Corporation. Frank B. Holding, Jr. 37 1995 President of First Citizens BancShares, Inc. and First 2,250 Citizens Bank, Raleigh, North Carolina 1994-date; Area Executive, First Citizens Bank, Charlotte, North Carolina, 1992-1994; Directorship: First Citizens BancShares, Inc. John O. McNairy 50 1995 President and CEO of Tidewater Transit Co., Inc. and 66,998 Harvey Enterprises & Affiliates, Kinston, North Carolina, 1981 -- date. Directorship: Wachovia Bank of NC, NA. CONTINUING DIRECTORS George T. Clark, Jr. 70 1978 Retired Attorney, Wilmington, North Carolina 12,731 (Term Expires 2001) James E.S. Hynes 58 1993 Chairman of the Board of Hynes Sales Co. Inc., 5,179 (Term Expires 2000) manufacturers representatives, Charlotte, North Carolina. Directorship: Ruddick Corporation Robert T. Johnson 62 1994 Retired Partner, Arthur Andersen LLP, Atlanta, Georgia 5,170 (Term Expires 2001) William H. Prestage 63 1988 President, Prestage Farms, Clinton, North Carolina. 19,500 (Term Expires 2001) Directorship: Smithfield Foods, Inc. Richard F. Waid 70 1981 Managing Director, The Robinson-Humphrey Company, 23,585 (Term Expires 2000) Investment Banking & Securities Broker/Dealer, Atlanta, Georgia, 1992-date. Directorship: Iverson Technology Corp. Calvin B. Wells 62 1981 Chairman, President and Chief Executive Officer of the 32,043 (Term Expires 2000) Company All Directors and Officers as a Group, including those named above (23 persons) 256,066
- --------------- (1) As reported to the Company by the Directors and nominees and executive officers (including shares held by spouses, minor children, affiliated companies, partnerships and trusts over which the named person has beneficial ownership). The percentage of outstanding shares owned beneficially by each person named above is less than 1%. All Directors and Officers as a group owned 2.5%. (2) Includes full shares acquired through the Dividend Reinvestment Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION OF ITS NOMINEES FOR DIRECTOR NAMED ABOVE. 2 5 COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE Meetings of the Board of Directors are held regularly each quarter, including an organizational meeting following the conclusion of the Annual Meeting of Stockholders. Special meetings of the Directors are called as necessary. The Board of Directors held seven meetings in fiscal year 1998. The Company has two standing committees of the Board of Directors, an Audit Committee and a Personnel and Compensation Committee. The Company does not have a Nominating Committee. The Audit Committee, which consists of Messrs. Holding, McNairy, Prestage and Waid, is responsible for approval of the services performed by the Company's independent accountants and for review of the objectivity of its financial reporting. It meets with appropriate Company financial personnel and independent public accountants in connection with its review of the financial statements to be included in the Company's Annual Report to Stockholders. This Committee also recommends to the Board of Directors the appointment of the independent public accountants to serve as auditors for the following year in examining the accounts of the Company. This Committee met one time during fiscal year 1998. The Personnel and Compensation Committee, which consists of Messrs. Clark, Holding, Hynes, and Johnson, approves changes in the Company's pension plan and other significant benefit plans and makes recommendations to the Board with respect to compensation of the officers of the Company. This Committee met two times during fiscal year 1998. During the past fiscal year, no member of the Board of Directors attended fewer than 75% of the Directors' meetings or 75% of the meetings of committees of the Board of Directors on which he served. DIRECTORS' COMPENSATION Nonemployee Directors of the Company receive a retainer of $1,250 per month and a $700 fee for each Board or committee meeting they attend. Salaried officers of the Company who serve on the Board of Directors receive no additional compensation for their services as members of the Board of Directors. Under the North Carolina Natural Gas Corporation Directors' Deferred Compensation Plan (the "Deferred Compensation Stock Plan") approved by the Stockholders January 14, 1997, nonemployee Directors have the right to elect to receive payment of deferred Directors' Fees in shares of the Company's Common Stock. Each $1.00 of Directors' Fees which a Director elects to defer pursuant to the Deferred Compensation Stock Plan will create a credit of common stock units equal to $1.15 worth of the Company's Common Stock. All deferred amounts of Directors' Fees under the Deferred Compensation Stock Plan will be treated as if they had been invested in shares of the Company's Common Stock by converting the Directors' Fees to common stock units for credit to the Director's memorandum account. The value of the payment made to a Participating Director when the deferral period ends will depend on the market price of the Company's Common Stock at that time. On January 14, 1997, the Stockholders approved the North Carolina Natural Gas Corporation Directors' Retirement Compensation Stock Plan (the "Stock Retirement Plan") which replaced the Cash Retirement Plan for Directors. Under the Stock Retirement Plan, a memorandum account for each Eligible Director is maintained for accounting purposes by the Company and was initially credited with a number of common stock units calculated by dividing the present value (using a 7% discount rate) of the Director's future retirement benefit as of December 31, 1996 under the Cash Retirement Plan by the average of daily closing prices on the New York Stock Exchange of the Company's Common Stock during the period October 1, 1996 through December 31, 1996. In subsequent years, an Eligible Director's memorandum account is being credited with dividend equivalents as and to the same extent that dividends are declared on the Company's Common Stock, with such dividend equivalents being converted into additional common stock units. The Eligible Director's interest in the memorandum account becomes fully vested upon his completion of ten years of service on the Board of Directors of the Company or upon a change in control of the Company. Except as a result of a change in control, any Eligible Director who ceases service on the Board of Directors after five years but before completion of ten years of service will have the number of common stock units in his memorandum account reduced on a pro rata basis to reflect the number of years actually served and any 3 6 Eligible Director who ceases to serve on the Board of Directors prior to the completion of five years of service shall forfeit any common stock units credited to his memorandum account. EXECUTIVE COMPENSATION AND STOCK OPTION INFORMATION The following table sets forth all compensation paid or accrued to the Company's chief executive officer and the four other most highly compensated executive officers of the Company whose total annual salary and bonuses exceeded $100,000 for the fiscal years 1998, 1997 and 1996. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------ ------------ OTHER RESTRICTED ANNUAL STOCK ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMP.(2) AWARDS COMPENSATION(3) - --------------------------- ---- -------- -------- -------- ------------ --------------- Calvin B. Wells 1998 $257,000 $ 69,521 $ 0 $ 0 $3,262 Chairman, President and 1997 257,000 144,693 0 0 0 Chief Executive Officer 1996 254,750 0 0 0 0 Gerald A. Teele 1998 179,500 29,819 0 0 1,925 Senior Vice President, Treasurer 1997 172,000 55,235 59,170 0 0 and Chief Financial Officer 1996 171,500 0 44,050 0 0 Terrence D. Davis 1998 143,500 25,987 70,788 0 1,904 Senior Vice President -- 1997 124,000 42,081 62,880 0 0 Operations 1996 123,000 0 0 0 0 and Marketing E. J. Mercier, Jr. 1998 106,800 24,451 0 0 1,387 Vice President -- Customer 1997 99,300 37,053 62,109 0 0 Service 1996 98,175 0 20,495 0 0 Ronald J. Josephson 1998 97,500 12,483 0 0 1,269 Vice President -- Financial 1997 87,500 18,016 13,440 0 0 Services 1996 36,372 0 0 0 0
- --------------- (1) Represents amounts earned under the Company's Annual Incentive Plan during Fiscal Years 1998 and 1997, and paid during Fiscal Years 1999 and 1998. (2) Represents the difference between the price paid by the named executive officers for Common Stock of the Company purchased from the Company upon the exercise of stock options and the fair market value of such Common Stock and cash paid for dividend equivalents accrued from the grant date to the exercise date, plus in respect of Mr. Josephson, payment in 1997 of $13,440 in relocation expenses. (3) Represents amounts paid as matching contributions by the Company to the named officers under the Company's 401(k) Plan. 4 7 AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table shows the aggregated stock options exercised in the fiscal year ended September 30, 1998 and the stock option values for the named executive officers at September 30, 1998.
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END OPTIONS AT FY-END SHARES ACQUIRED VALUE --------------------------- ---------------------------- ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE --------------- ----------- ----------- ------------- ------------ ------------- Terrence D. Davis............ 4,275 $70,788 0 0 0 0
- --------------- (1) Represents the difference between the market value of the shares on the date of exercise of the options and the exercise price. ANNUAL INCENTIVE PLAN Under the Annual Incentive Plan ("AIP") adopted by the Board of Directors in 1996, officers and key employees who have the opportunity to make significant contributions to the Company's performance are eligible to receive AIP incentive awards based upon the financial performance of the Company, performance of the individual participant and the base salary of each participant. The Board of Directors has the right to suspend or terminate the AIP at any time. The AIP is administered by the Personnel and Compensation Committee of the Board of Directors (the "Committee") which, with approval of the Board of Directors, may amend or modify the AIP. The Company's Chief Executive Officer ("CEO") assists the Committee in administering the AIP, with the exception of any decisions pertaining to the CEO's performance and compensation under the AIP. Participants are approved by the Committee, based upon the CEO's recommendations, and will be selected prior to each fiscal year by the Committee. For Fiscal Year 1999, nineteen key employees have been selected to participate in the AIP. Participants selected by the Committee to participate in the AIP are grouped into tiers based on the scope of their job responsibilities with such tiers being used to determine target and maximum incentive award levels. Target and maximum incentive award levels are established by the Committee for each participant tier based on a percentage of the base salary for each participant. Under the AIP, annual incentive awards are granted upon the achievement of a combination of Company and individual objectives as established by the Committee. While all participants will have some portion of their incentives tied to Company objectives, the weight placed on individual objectives will vary based on each participant's job accountabilities and the degree to which quantifiable individual objectives can be set and measured. An AIP incentive award, if any, to be granted to the CEO for the 1999 Fiscal Year will be determined by the Committee solely by reference to the Company objectives. Company objectives are selected and weighted by the Committee based on their importance to overall Company success and to provide a balance among operating and financial priorities. The Company and individual performance objectives are stated in terms of minimum, target and stretch goals. Results that are at or below the performance threshold for a performance measure earn no incentive award. Likewise, results that are at or above the stretch performance level earn the maximum incentive award. Where results fall between the threshold and target or target and stretch performance levels, straight-line interpolation is used to calculate actual incentives earned. At the conclusion of each plan year (fiscal year), reviews of each AIP participant's actual performance versus individual objectives will be made by the CEO or supervising personnel and results will be reported to the Committee. The actual incentive award earned by a participant, if any, is the sum of the incentives earned for actual performance against each Company and individual objective, as the participant's incentive award potential is allocated among objectives based on their relative weights. 5 8 LONG-TERM INCENTIVE PLAN The North Carolina Natural Gas Corporation Long-Term Incentive Plan ("LTIP") is a performance share plan which was approved by the Stockholders on January 14, 1997. The Plan uses shares of Common Stock and cash awards equivalent to the accrued dividends on earned shares of Common Stock as the form of incentive award. Performance shares and dividend equivalents may be earned only for accomplishment of specific Company performance measures established for each plan cycle during the term of the LTIP. At the beginning of each plan year (which is a fiscal year commencing October 1) the Directors Personnel and Compensation Committee ("Committee") selects the senior officers of the Company having the opportunity to make a significant contribution to the Company's long-term performance who are eligible to participate in the LTIP for the plan cycle. The plan cycle is the period over which the Company's performance shall be measured to determine whether any LTIP award shall be paid and in what amount. The plan cycle shall typically be five plan years, commencing with the first day of the first fiscal year (October 1, 1996), with the exception of two special plan cycles which cover the periods of Fiscal Year 1997 through 1999 and Fiscal Year 1997 through 2000. The Committee approves target awards for each LTIP participant, stated as a percentage of the participant's base salary. Those target awards shall be converted into a target number of "performance shares" for each LTIP participant by dividing the participant's target award by the average price of one share of Common Stock for the twelve months preceding the plan cycle. The maximum number of performance shares that may be earned by a participant is equal to two times the participant's target number of performance shares. The actual number of performance shares earned by participants depends upon the Company's actual results during the plan cycle versus established performance measures. The Committee selects performance measures based upon their relevance in measuring the Company's financial and market performance versus that of the Company's industry peers. For each plan cycle, the Committee selects performance measures and assigns weights on the basis of each performance measure's importance to the long-term success of the Company. For plan cycles represented by Fiscal Years 1997 through 1999, 1997 through 2000, 1997 through 2001, and 1998 through 2002, the performance measures and weights to be used are (i) total Stockholder return (the annualized rate of return for the plan cycle reflecting stock price appreciation plus the reinvestment of dividends and the compounding effect of dividends paid on reinvested dividends) for the Company over the period of each plan cycle as compared to the results achieved by the Committee-selected group of peer gas distribution companies for the same period (50% weight); and (ii) return on average equity (the percentage return on average equity for all years in the plan cycle. Return on average equity for a particular year is net income divided by the average of common equity at the beginning and end of the fiscal year) for the Company over the period of each plan cycle as compared to the results achieved by the same group of peer gas distribution companies for the same period (50% weight). The Committee shall also establish for each plan cycle the performance range applicable to each performance measure and the amount of incentive compensation that shall be paid at various levels of achievement of the performance measures. For each performance measure, the Committee establishes a performance range which includes three specific performance levels: threshold, target and stretch. No payout of a LTIP award shall be made unless "threshold" performance for one or more of the selected performance measures is attained by the Company for the plan cycle. Company results that are at or above the stretch performance range earn the maximum number of performance shares by participants. Where results fall between threshold and target or target and stretch range for a performance measure, straight-line interpolation will be used to calculate actual performance shares earned with performance shares being rounded off to the nearest whole number of shares. KEY EMPLOYEE STOCK OPTION PLAN The Key Employee Stock Option Plan (the "Plan") was authorized by the Board of Directors and Stockholders in 1990. Specified key employees of the Company are eligible to receive an option to purchase shares of Common Stock of the Company. Because of the adoption of the Long-Term Incentive Plan in 1997 6 9 described above, the Board of Directors will not grant additional options under the Key Employee Stock Option Plan. Unissued shares in the Plan have been cancelled. As of September 30, 1998, unexercised options on 3,900 shares of stock were outstanding. For outstanding options, the option price per share in each case is 90% of the "fair market value" of a share of the Company's Common Stock on the date the option is granted as determined under the terms of the Plan. Payment of the purchase price upon exercise of an option must be made in cash. However, the Company shall pay to any employee exercising an option a sum equal to 50% of the dividends which would have been payable on the shares of Common Stock covered by the option during the period from the grant of the option to the exercise date of the option. Proceeds received by the Company upon the exercise of options will be used for general corporate purposes. An option may not be exercised until five years following the date of grant and shall then be exercisable only during the next two-year period (the "Option Period"). An option will terminate upon the earliest to occur of: (i) expiration of the Option Period; (ii) termination of the employee's employment during the five-year period following the date of grant for any reason other than death, disability or retirement under the Pension Plan; or (iii) three months following termination of the employee's employment for any reason during the Option Period. In the event of termination of employment during the five-year period following the date of grant due to death, disability or retirement, the employee (or, in the event of death, his beneficiary or estate) shall immediately become entitled to exercise the option for a period of three months as to a portion of the shares equal to the number of full calendar months between the date of grant and the date of termination divided by sixty. The plan also provides for a forfeiture at the discretion of the Committee of an employee's rights to purchase a portion of the shares subject to an option in certain cases where the employee is demoted or his responsibilities are reduced during the five years following the date of grant, and allows the Committee to provide that any option granted will otherwise expire or terminate prior to the expiration of the Option Period upon the occurrence of other events specified by the Committee. EMPLOYEE STOCK PURCHASE PLAN The Employee Stock Purchase Plan (the "ESPP") was adopted by the Board of Directors and approved by Stockholders in 1990. The purpose of the ESPP is to encourage employees of the Company to purchase Common Stock in the Company and thereby increase employee interest in the successful operations of the Company and allow the Company's employees to share in the economic growth and success of the Company through stock ownership. The ESPP is administered by a committee of four (4) or more individuals who are Directors or employees of the Company. The ESPP provides for the reservation of 450,000 shares, as adjusted for the October 1992 and February 1998 stock splits, of the Company's Common Stock available to all eligible employees of the Company. As of September 30, 1998, there were 305,187 shares reserved for issuance under the ESPP. Eligible employees of the Company are those employees who have completed twelve (12) months of continuous service with the Company and meet the minimum work hours per week. Such employees may authorize a payroll deduction of any amount between 2% and 6% of their compensation, including bonuses and overtime, for the purchase of the Company's Common Stock. Any payroll deduction designated by an employee must be in whole multiples of 1% and any Common Stock purchased from the Company on behalf of an employee shall be purchased once a year at a price equal to 90% of the lesser of the average of five (5) trading days ending on: (a) the first day of the offering period, or (b) the last day of the offering period. The offering period shall be each twelve (12) month period commencing on January 1. The Board of Directors has the right to amend or terminate the ESPP at any time. The ESPP was amended to terminate January 1, 1999. However, in September 1998, the Board of Directors made a second 7 10 amendment to the ESPP to extend the termination date to the earlier of (a) January 1, 2004, or (b) the date on which all or substantially all of the shares of Common Stock authorized for issuance under the ESPP have been purchased. EMPLOYEE RETIREMENT PLANS The Company has a defined benefit retirement plan (the "Retirement Plan") which covers all full time employees upon their attaining age 21 and completing one year of service. The Company also has a pension restoration plan (the "Restoration Plan") which provides certain employees with retirement benefits they otherwise would have received under the Retirement Plan formula but which may not be paid to them under the Retirement Plan due to limitations on benefits imposed by the Internal Revenue Code. Collectively, these plans are referred to herein as the "Retirement Plans". The Retirement Plan is wholly paid for by the Company which has established a trust with a bank as trustee to which contributions are made from time to time by the Company and from which the benefits under the Retirement Plan are paid. The Restoration Plan is administered by the Company and the benefits thereunder are payable from the Company's general funds. A participant in the Retirement Plans becomes fully vested prior to normal retirement at age 65 upon the completion of five years of service. Benefits are also provided under the Retirement Plans in the event of early retirement or disability retirement at or after age 55 and the completion of at least 20 years of service. Benefits under the Retirement Plans are based upon application of a formula to the specified average compensation and years of credited service (up to a maximum of 20 years) at normal retirement age. Compensation covered by the Retirement Plans consists of W-2 wages plus certain deferred compensation, the total of which approximates the total of amounts shown in the Summary Compensation Table. The table below illustrates the amount of annual, normal retirement benefits payable under the Retirement Plans based upon application of the plan formula to the specified average compensation and years of credited service at normal retirement age, allowing for reasonable increases in existing compensation levels. These amounts, which do not reflect reductions which would result from joint and survivor elections, are in addition to Social Security benefits or other amounts that would be paid at normal retirement age.
YEARS OF CREDITED SERVICE AVERAGE --------------------------- COMPENSATION 10 15 20 ------------ ------- ------- ------- $100,000 $25,000 $37,500 $50,000 150,000 37,500 56,250 75,000 200,000 50,000 75,000 100,000 250,000 62,500 93,750 125,000 300,000 75,000 112,500 150,000 350,000 87,500 131,250 175,000 400,000 100,000 150,000 200,000
Anticipated years of credited service under the Retirement Plans for the individuals named in the Summary Compensation Table are as follows: Calvin B. Wells, 27 years; Gerald A. Teele, 31 years; Terrence D. Davis, 19 years; E.J. Mercier, Jr. 44 years; and Ronald J. Josephson, 27 years. Benefit amounts are computed on a straight-line annuity basis. EMPLOYEE RETIREMENT SAVINGS PLAN In April 1998, the Company adopted the North Carolina Natural Gas Corporation Retirement Savings Plan, a defined contribution plan which meets the requirements of Section 401(k) of the Internal Revenue Code (the "Retirement Savings Plan"). Employees are eligible to participate in the Retirement Savings Plan if the employee is 21 years of age and has completed twelve consecutive months of service. An employee may contribute up to 15% of his/her pay into the Retirement Savings Plan on a tax-deferred basis. The Company will match 50% of the first 6% of each employee's contributions. Employer matching contributions are fully 8 11 vested after five years of employment. The Retirement Savings Plan is administered by the Principal Financial Group and allows employees to choose from seven investment options and to make quarterly changes in investment elections and contribution amounts. EXECUTIVE EMPLOYMENT AGREEMENTS IN THE EVENT OF CHANGE IN CONTROL The Company has Employment Agreements ("Agreements") with ten (10) of its executive officers holding the rank of corporate vice president or higher. The purpose of such Agreements is to encourage retention of its present senior executive officers and provide assurance that such officers are able to devote their full attention and energies to the Company's business in the face of potentially disruptive and distracting circumstances that may arise upon an attempted or actual change in control or takeover of the Company. The Agreements provide for the payment of certain severance benefits only in the event of a termination of employment following a change in control of the Company. A "Change in Control" is deemed to have occurred if (i) the Company consolidates or merges into or with another corporation as a result of which the Company is not the surviving corporation, or (ii) a majority of the outstanding shares of the Company are acquired by any other corporation, person or group. Each covered officer is entitled to such benefits in the event his employment with the Company or its successor is terminated within a period of three (3) years following a Change in Control unless such termination is (i) due to his death or retirement, (ii) by the Company for "cause" or due to his "disability", or (iii) by the officer other than for "Good Reason". Such benefits consist of severance pay in an amount equal to the executive's salary in effect at the time of Change in Control for a maximum period of two (2) years and eleven (11) months plus participation in any pension or retirement plans, life insurance, health and accident insurance, and disability benefits normally due the employee provided that if the terminated executive obtains employment with another employer, the amount of compensation due the terminated employee by the Company or its successor will be reduced by the salary paid by the other employer. With respect to all individuals who have such Agreements, the average of their current annual salaries is $124,400. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION There are no executive officer-director interlocks where an executive of the Company serves on the Compensation Committee of another company that has an executive officer serving on the Company's Board of Directors. Messrs. George T. Clark, Jr., Frank B. Holding, Jr., James E.S. Hynes and Robert T. Johnson serve as the Directors' Personnel and Compensation Committee. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Company's Directors and officers and other persons, if any, who own more than 10% of the Company's Common Stock are required under the Securities Exchange Act of 1934 to file reports of ownership and changes in ownership of Company Common Stock with the Securities and Exchange Commission, the New York Stock Exchange, and the Company. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company's Directors and executive officers, the Company believes that during the 1998 fiscal year, its Directors and executive officers complied with all applicable Section 16(a) filing requirements. REPORT OF PERSONNEL AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Personnel and Compensation Committee is responsible for recommending to the Board of Directors the compensation level of the Chief Executive and other officers of the Company. This Committee is comprised of four independent outside directors who are not eligible to participate in any compensation program available to officers or employees of the Company. 9 12 The Committee's compensation philosophy is based on the following principles: (1) Compensation of the Company's executives is to be motivational and emphasize the key financial and operating objectives that have the ultimate goal of enhancing Stockholder value while fulfilling the Company's responsibilities as a regulated North Carolina utility; (2) The levels of compensation shall reflect consideration of the level of job responsibility, Company and individual performance, experience and industry peer comparisons; (3) Executive compensation is to be competitive in order to attract and retain qualified employees. In addition to monetary payments, the Company shall award stock ownership to executives based on performance in order to better align the interests of executives with those of Stockholders; (4) The Committee shall set compensation for its executives outside the presence of the executives concerned. The compensation of executive officers consists primarily of a base salary, the Annual Incentive Plan, and the Long-Term Incentive Plan. The Annual Incentive Plan is designed to attract and retain capable individuals to serve as officers and key employees of the Company, and to motivate these employees to achieve operating results exceeding industry peers and to control operating expenses while producing above average returns for Stockholders. The Long-Term Incentive Plan is designed to focus the participants' attention on the long-term creation of Stockholder value that exceeds the Company's industry peers while promoting ownership of the Company's Common Stock among the Company's senior officers, thereby increasing management's linkage to Stockholder interests. On recommendation of the Personnel and Compensation Committee and approval of the Board of Directors, Mr. Wells' base salary remained the same for Fiscal Year 1998 as his base salary for Fiscal Year 1997. This compensation level was set based on the factors indicated above, including compensation of individuals holding similar positions in other gas distribution companies, return on equity, other financial and operating performance indicators and certain qualitative factors. The performance of the Company's Common Stock and total return for the most recent five-year period of his leadership as Chief Executive Officer is shown on the performance graph below. This report is submitted by members of the Personnel and Compensation Committee: Frank B. Holding, Jr., Chairman; George T. Clark, Jr.; James E.S. Hynes; and Robert T. Johnson. 10 13 STOCK PRICE PERFORMANCE GRAPH The graph below compares the yearly change in the cumulative total Stockholder return for NCNG Common Stock as compared with the S&P Utilities and a peer group of companies. This graph assumes investment of $100 in Common Stock in each of the indices on September 30, 1993 and reinvestment of all subsequent dividends. (CHART)
Measurement Period (Fiscal Year Covered) NCNG S&P Utilities Peer Group 1993 100 100 100 1994 86 87 87 1995 88 111 98 1996 124 119 117 1997 141 136 137 1998 170 177 154
The members of the peer group referred to in the performance graph above are AGL Resources, Atmos Energy Corp., Bay State Gas, Berkshire Gas Co., Cascade Natural Gas Corp., Colonial Gas Co., Connecticut Energy Corp., Corning Natural Gas, CTG Resources, Inc., Delta Natural Gas Co. Inc., EnergySouth, Inc. Energy West Inc., Energynorth Inc., Essex County Gas Co., Fall River Gas Co., Indiana Energy Inc., Laclede Gas Co., New Jersey Resources, Northwest Natural Gas Co., NUI Corp., Pennsylvania Enterprises, Inc., Peoples Energy Corp., Piedmont Natural Gas Co., Providence Energy Corp., Public Service Co. of NC, Roanoke Gas Co., Southern Union, South Jersey Industries, Washington Gas Light Co., and Yankee Energy System, Inc. INDEPENDENT ACCOUNTANTS The Board of Directors of the Company has selected the firm of Arthur Andersen LLP to continue as independent accountants for the Company and its wholly-owned subsidiaries, Cape Fear Energy Corporation, NCNG Cardinal Pipeline Investment Corporation, NCNG Energy Corporation and NCNG Pine Needle Investment Corporation, for the fiscal year beginning October 1, 1998. Arthur Andersen LLP has acted for the Company in such capacity since 1959. Before each professional service was rendered by Arthur Andersen LLP, it was approved by, and the possible effect on the independence of the accountants was considered by, the Audit Committee of the Board of Directors. An invitation has been extended to the firm of Arthur Andersen LLP to attend the Annual Meeting of Stockholders with the opportunity to make a statement and to answer appropriate questions. A representative of the firm has indicated he will attend the meeting. 11 14 STOCKHOLDER PROPOSALS Stockholder proposals intended to be presented at the 2000 Annual Meeting and included in the proxy statement and form of proxy relating to that meeting must be received by the Company at its principal executive offices not later than August 6, 1999. ANNUAL REPORT Pursuant to regulations of the Securities and Exchange Commission (SEC), the Company is required to file with the SEC an Annual Report on Form 10-K within 90 days of the end of each fiscal year. ON OR AFTER DECEMBER 31, 1998, UPON WRITTEN REQUEST ADDRESSED TO SALLY T. SOWERS, CORPORATE SECRETARY OF NORTH CAROLINA NATURAL GAS CORPORATION, POST OFFICE BOX 909, 150 ROWAN STREET, FAYETTEVILLE, NORTH CAROLINA 28302-0909, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE FORWARDED WITHOUT CHARGE TO THE STOCKHOLDER MAKING SUCH REQUEST. OTHER MATTERS The management of the Company knows of no other matters which may come before the meeting. However, if any matters other than those referred to above should properly come before the meeting, it is the intention of the persons named in the enclosed proxy to vote such proxy in accordance with their best judgment. By order of the Board of Directors this 4th day of December 1998. Sally T. Sowers, Corporate Secretary 12 15 APPENDIX A PROXY PROXY NORTH CAROLINA NATURAL GAS CORPORATION Proxy for Annual Meeting of Stockholders This Proxy is Solicited on Behalf of the Board of Directors of the Company The signatory stockholder hereby appoints Calvin B. Wells and Sally T. Sowers, or either of them, with full power of substitution as attorneys and proxies to vote all of the shares of COMMON STOCK of North Carolina Natural Gas Corporation held or owned by said stockholder at the Annual Meeting of Stockholders on January 12, 1999, and at any adjournments thereof, as follows on the reverse. THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSAL ONE. Stockholders should sign exactly as name appears on the reverse. Any person signing in a fiduciary capacity will please enclose proof of his appointment unless such proof has already been furnished. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. HAS YOUR ADDRESS CHANGED? - ------------------------------------ - ------------------------------------ - ------------------------------------ - ------------------------------------------------------------------------------- 16 [X] PLEASE MARK VOTES AS IN THIS EXAMPLE NORTH CAROLINA NATURAL GAS CORPORATION RECORD DATE SHARES: _____________ 1. Election of Directors. [ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT Paul A. DelaCourt, Frank B. Holding, Jr., and John O. McNairy Instruction: To withhold authority to vote for any nominee, mark the "For All Except" box and strike a line through the nominee's name in the list provided above.) 2. In their discretion, upon any other business which may properly come before the meeting or any adjournment thereof. Mark box at right if address change has been noted on the reverse side of this card. [ ] PLEASE BE SURE TO SIGN AND DATE THIS PROXY. __________________________________________ Date __________________________________________ Stockholder sign here __________________________________________ Co-owner sign here - ------------------------------------------------------------------------------ DETACH CARD NORTH CAROLINA NATURAL GAS CORPORATION Dear Stockholder: Please take note of the important information enclosed with this Proxy Ballot. Your vote counts, and you are strongly encouraged to exercise your right to vote your shares. Please mark the boxes on the proxy card to indicate how your shares shall be voted. Then sign and date the card, detach it and return your proxy vote in the enclosed postage-paid envelope. Your vote must be received prior to the Annual Meeting of Stockholders, January 12, 1999. Thank you in advance for your prompt consideration of these matters. Sincerely, North Carolina Natural Gas Corporation -----END PRIVACY-ENHANCED MESSAGE-----