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

 

Filed by the Registrant þ

 

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))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to 240.14a-12

 

NATIONAL FUEL GAS 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NATIONAL FUEL GAS COMPANY

 

Notice of Annual Meeting

 

and

 

Proxy Statement

 

Annual Meeting of Stockholders

 

to be held on

 

March 10, 2011

 

NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

 

January 21, 2011

 

Dear Stockholders of National Fuel Gas Company:

 

We are pleased to invite you to join us at the Annual Meeting of Stockholders of National Fuel Gas Company. The meeting will be held at 10:00 a.m. local time on March 10, 2011, at The Ritz Carlton Naples, 280 Vanderbilt Beach Road, Naples, Florida, 34108. The matters on the agenda for the meeting are outlined in the enclosed Notice of Annual Meeting and Proxy Statement.

 

So that you may elect Company directors and secure the representation of your interests at the Annual Meeting, we urge you to vote your shares. The preferred methods of voting are either by telephone or by Internet as described on the proxy card. These methods are both convenient for you and reduce the expense of soliciting proxies for the Company. If you prefer not to vote by telephone or the Internet, please complete, sign and date your proxy card and mail it in the envelope provided. The Proxies are committed by law to vote your shares as you designate on the proxy card, by telephone or by Internet.

 

If you plan to be present at the Annual Meeting, you may so indicate when you vote by telephone or the Internet, or you can check the “WILL ATTEND MEETING” box on the proxy card. Even if you plan to be present, we encourage you to promptly vote your shares either by telephone or the Internet, or to complete, sign, date and return your proxy card in advance of the meeting. If you later wish to vote in person at the Annual Meeting, you can revoke your proxy by giving written notice to the Secretary of the Annual Meeting and/or the Trustee (as described on the first page of this proxy statement), and/or by casting your ballot at the Annual Meeting.

 

Coffee will be served at 9:30 a.m. and I look forward to meeting with you at that time.

 

Please review the proxy statement and take advantage of your right to vote.

 

Sincerely yours,

 

David F. Smith

Chairman of the Board of Directors and

Chief Executive Officer

 

NATIONAL FUEL GAS COMPANY
6363 MAIN STREET
WILLIAMSVILLE, NEW YORK 14221

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on March 10, 2011

 

To the Stockholders of National Fuel Gas Company:

 

Notice is hereby given that the Annual Meeting of Stockholders of National Fuel Gas Company (the “Company”) will be held at 10:00 a.m. local time on March 10, 2011 at The Ritz Carlton Naples, 280 Vanderbilt Beach Rd., Naples, Florida 34108. The doors to the meeting will open at 9:30 a.m. local time. At the meeting, action will be taken with respect to:

 

(1) the election of three directors to hold office for three-year terms as provided in the attached proxy statement and until their respective successors have been elected and qualified;

 

(2) the approval of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm;

 

(3) a non-binding advisory vote to approve the compensation of the Company’s executives;

 

(4) an advisory vote on the frequency of future non-binding advisory votes to approve the compensation of the Company’s executives;

 

and such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Stockholders of record at the close of business on January 10, 2011, will be entitled to vote at the meeting.

 

By Order of the Board of Directors

 

Paula M. Ciprich

General Counsel and Secretary

 

January 21, 2011

 

Important Notice Regarding The Availability Of Proxy Materials For The Stockholder
Meeting To Be Held On March 10, 2011

The proxy statement and annual report to security holders are available at
proxy.nationalfuelgas.com

 

 

 

NATIONAL FUEL GAS COMPANY
6363 MAIN STREET
WILLIAMSVILLE, NEW YORK 14221

 

PROXY STATEMENT

 

GENERAL INFORMATION

 

Introduction

 

This proxy statement is furnished to the holders of National Fuel Gas Company (the “Company”) common stock (the “Common Stock”), in connection with the solicitation of proxies on behalf of the Board of Directors of the Company (the “Board of Directors” or the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on March 10, 2011, or any adjournment or postponement thereof. This proxy statement and the accompanying proxy/voting instruction card are first being mailed to stockholders on or about January 21, 2011.

 

Solicitation of Proxies

 

All costs of soliciting proxies will be borne by the Company. MacKenzie Partners, Inc., 105 Madison Avenue, New York, NY 10016, has been retained to assist in the solicitation of proxies by mail, telephone, and electronic communication and will be compensated in the estimated amount of $12,500 plus reasonable out-of-pocket expenses.

 

Record Date, Outstanding Voting Securities and Voting Rights

 

Only stockholders of record at the close of business on January 10, 2011, will be eligible to vote at the Annual Meeting or any adjournment or postponement thereof. As of that date, 82,343,355 shares of Common Stock were issued and outstanding. The holders of 41,171,678 shares will constitute a quorum at the meeting.

 

Each share of Common Stock entitles the holder thereof to one vote with respect to each matter that is subject to a vote at the Annual Meeting. Shares may not be voted unless the owner is present or represented by a Proxy. To be represented by proxy, a stockholder can return a signed proxy card or use the telephone or Internet voting procedures. All shares that are represented by effective proxies received by the Company in time to be voted shall be voted by the authorized Proxy at the Annual Meeting or any adjournment or postponement thereof. Where stockholders direct how their votes shall be cast, shares will be voted in accordance with such directions. Proxies submitted with abstentions and broker non-votes will be included in determining whether or not a quorum is present. Abstentions and broker non-votes will not be counted in tabulating the number of votes cast on proposals submitted to stockholders and therefore will have no effect on the outcome of the votes. If you hold your shares in a broker or other street name account but do not instruct your broker how to vote, your broker will not vote your shares for Proposals 1, 3 and 4, which is called a broker non-vote. Please note in particular that broker non-votes will not be counted with regard to the election of directors, so your vote is important.

 

The proxy also confers discretionary authority to vote on all matters that may properly come before the Annual Meeting, or any adjournment or postponement thereof, respecting (i) matters of which the Company did not have timely notice but that may be presented at the meeting; (ii) approval of the minutes of the prior meeting; (iii) the election of any person as a director if a nominee is unable to serve or for good cause will not serve; (iv) any stockholder proposal omitted from this proxy statement pursuant to Rule 14a-8 or 14a-9 of the Securities and Exchange Commission’s (the “SEC”) proxy rules; and (v) all matters incident to the conduct of the meeting.

 

Revoking a Proxy

 

Any stockholder giving a proxy may revoke it at any time prior to the voting thereof by mailing a revocation or a subsequent proxy to Paula M. Ciprich, General Counsel and Secretary of the Company, at the above address, by voting a subsequent proxy by internet or phone, or by filing written revocation at the meeting with Ms. Ciprich, Secretary of the meeting, or by casting a ballot at the meeting. If you are an employee stockholder or retired employee stockholder, you may revoke voting instructions given to the Trustee by following the instructions under “Employee and Retiree Stockholders” in this proxy statement.

 

Employee and Retiree Stockholders

 

If you are a participant in at least one of the Company’s Employee Stock Ownership Plan or Tax-Deferred Savings Plans, the proxy card will also serve as a voting instruction form to instruct the Trustee

as to how to vote your shares. All shares of Common Stock for which the Trustee has not received timely directions shall be voted by the Trustee in the same proportion as the shares of Common Stock for which the Trustee received timely directions, except in the case where to do so would be inconsistent with the provisions of Title I of ERISA. If the voting instruction form is returned signed but without directions marked for one or more items, regarding the unmarked items you are instructing the Trustee and the Proxies to vote FOR Proposals 1, 2 and 3, and for the three-year option on Proposal 4. Participants in the Plan(s) may also provide those voting instructions by telephone or the Internet. Those instructions may be revoked by re-voting or by written notice to Vanguard Fiduciary Trust Company, Trustee for the Company’s Tax-Deferred Savings Plans and the Employee Stock Ownership Plan, on or before March 7, 2011 at the following address:

 

National Fuel Gas Company
Attn: Legal Department
6363 Main Street
Williamsville, NY 14221

 

Multiple Copies of Proxy Statement

 

The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name may receive only one copy of the proxy statement and the Company’s annual report. However, if any stockholder wishes to revoke consent for householding and receive a separate annual report or proxy statement in 2011 or in the future, he or she may telephone, toll-free, 1-800-542-1061. The stockholder will need their 12-digit Investor ID number and should simply follow the prompts. Stockholders may also write Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks or brokers, if they are the beneficial holders or be contacting Broadridge at the address provided above if they are the record holders. This procedure will reduce our printing costs and postage fees, and reduce the quantity of paper arriving at your address.

 

Stockholders who participate in householding will continue to receive separate proxy cards. Householding will not affect your dividend check mailings.

 

For additional information on householding, please see “IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS” in this proxy statement.

 

Other Matters

 

The Board of Directors does not know of any other matter that will be presented for consideration at the Annual Meeting. If any other matter does properly come before the Annual Meeting, the Proxies will vote in their discretion on such matter.

 

Annual Report

 

Mailed herewith is a copy of the Company’s Annual Report for the fiscal year ended September 30, 2010, which includes financial statements. The Company will furnish any exhibit to the Form 10-K upon request to the Secretary at the Company’s principal office, and upon payment of $5 per exhibit.

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

Three directors are to be elected at this Annual Meeting. The nominees for the three directorships are: Robert T. Brady, Rolland E. Kidder and Frederic V. Salerno. Messrs. Brady, Kidder and Salerno are currently directors of the Company.

 

The Company’s Certificate of Incorporation provides that the Board of Directors shall be divided into three classes, and that these three classes shall be as nearly equal in number as possible. (A class of directors is the group of directors whose terms expire at the same annual meeting of stockholders.) As well, the Company’s Certificate of Incorporation provides that any elected director shall hold office until their successors are elected and qualify, subject to prior death, resignation, retirement, disqualification or removal from office. Accordingly, Messrs. Brady, Kidder and Salerno have been nominated for terms of three years and until their respective successors shall be elected and shall qualify.

 

It is intended that the Proxies will vote for the election of Messrs. Brady, Kidder and Salerno as directors, unless they are otherwise directed by the stockholders. Although the Board of Directors has no reason to believe that any of the nominees will be unavailable for election or service, stockholders’ proxies confer discretionary authority upon the Proxies to vote for the election of another nominee for director in the event any nominee is unable to serve, or for good cause will not serve. Messrs. Brady, Kidder and Salerno have consented to being named in this proxy statement and to serve if elected.

 

The affirmative vote of a plurality of the votes cast by the holders of shares of Common Stock entitled to vote is required to elect each of the nominees for director.

 

Refer to the following pages for information concerning the three nominees for director, as well as concerning the seven incumbent directors of the Company whose current terms will continue after the 2011 Annual Meeting, including information with respect to their principal occupations and certain other positions held by them.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.

 

Last year all directors attended the Annual Meeting of Stockholders, and they are expected to do so this year. A meeting of the Board of Directors will take place on the same day and at the same place as the Annual Meeting of Stockholders this year (and probably future years), and directors are expected to attend all meetings. If a director is unable to attend a Board meeting in person, participation by telephone is permitted and in that event the director may not be physically present at the Annual Meeting of Stockholders.

 

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

 

The Board of Directors of National Fuel Gas Company currently has ten members, who are divided into three classes. The classes are as equal in number as is possible depending on the total number of directors at any time. Generally, directors are elected for three-year terms. Each director’s term expires upon the end of such term and when their respective successors shall be elected and shall qualify. The classes are arranged so that the terms of the directors in each class expire at successive annual meetings. This means that the stockholders elect approximately one-third of the members of the Board of Directors annually. With respect to directors elected by the Board, it has been the Company’s practice to put those directors up for election at the next annual meeting of shareholders. The terms of three directors expire at this annual meeting. All three of those directors, Robert T. Brady, Rolland E. Kidder and Frederic V. Salerno, will stand for election at the annual meeting.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ALL NOMINEES FOR THE BOARD OF DIRECTORS.

 

Nominees for Election as Directors for Three-Year Terms to Expire in 2014

 

Robert T. Brady has been Chairman of Moog Inc. since February 1996. Moog is a worldwide designer, manufacturer and integrator of precision control components and systems. He has been Chief Executive Officer of Moog Inc. since 1988 and a Moog Board member since 1984. He was President from 1988 until December 2, 2010. He is also a Director of Astronics Corporation, M&T Bank Corporation and Seneca Foods Corporation and was named to the UB Council (State University of New York at Buffalo) in January of 2008. Mr. Brady holds a B.S. in Mechanical Engineering from the Massachusetts Institute of Technology and an M.B.A. from the Harvard University School of Business Administration. He also served as an officer in the U.S. Navy. He is the Lead Independent Director and, as such, chairs the regular executive sessions of non-management directors and is the designated contact for stockholders and other interested parties to communicate with the non-management directors on the Board. Mr. Brady, 70, has been a Company director since 1995.

 

Mr. Brady brings to the Board strong business and leadership experiences; from his experience at a publicly-traded company, having been with Moog since 1966 in positions that have encompassed finance, production and operations management, and also from having served as an officer in the U.S. Navy. He is the Company’s only independent director who is currently an executive at a publicly-traded company, which brings a unique and important perspective to the Board.

 

Rolland E. Kidder was the founder of Kidder Exploration, Inc., an independent Appalachian oil and gas company, and was Chairman and President from 1984 to 1994. Mr. Kidder is also a former Director of the Independent Oil and Gas Association of New York and the Pennsylvania Natural Gas Association - both Appalachian-based energy associations. He was a Trustee of the New York Power Authority from 1982 to 1993, an investment advisor for P.B. Sullivan & Co., Inc. from 1994 to 2001 and Executive Director of the Robert H. Jackson Center, Inc., in Jamestown, New York, from 2002 to 2006. Mr. Kidder holds a B.A. from Houghton College, and a Juris Doctorate from the State University of New York at Buffalo School of Law. Mr. Kidder, 70, has been a Company director since 2002.

 

As the founder and former president of an Appalachian producer, Mr. Kidder brings to the Board his knowledge and experience of the exploration and production business in Appalachia. His past directorships of both Pennsylvania and New York based independent producer associations also contribute to that industry knowledge. Mr. Kidder has worked and lives in a small town, in a rural area of the Company’s utility service territory. His local knowledge helps the Board understand the perspective of the Company’s retail utility customer and the Company’s retail stockholders, many of whom are also utility customers and who represent a significant portion of the Company’s retail stockholder ownership.

 

Frederic V. Salerno has, since 2006, served as Senior Advisor to New Mountain Capital, L.L.C., and also currently serves as a director to, GGCP, Inc., one of the Gabelli companies noted in footnote 4 on p. 16, both of which are significant private equity institutional stockholders of the Company. Mr. Salerno retired as Vice Chairman and Chief Financial Officer of Verizon, Inc. in September 2002 after more than 37 years in the telecommunications industry. He was senior Vice Chairman and Chief Financial Officer of Verizon prior to the Bell Atlantic/GTE merger, which created Verizon. Mr. Salerno joined New York Telephone in 1965, became Vice President in 1983 and was appointed President and Chief Executive Officer in 1987 (NY Telephone became Bell Atlantic in 1997). He also served as President, and currently serves as Trustee, of the Inner City Scholarship Fund. In addition, he was Chairman of the Board of Trustees of the State University of New York from 1990 to 1996. Mr. Salerno is a Director of Akamai Technologies, Inc., Intercontinental Exchange, Inc., Popular, Inc., Viacom, Inc., and CBS Corporation and was a Director of Bear Stearns & Co., Inc., from 1993 to 2008, Consolidated Edison, Inc. from 2002 to 2006, and was Chairman of the Board of Orion Power Holdings from 2000 to 2002. Mr. Salerno holds a B.S. in Engineering

from Manhattan College and an M.B.A. from Adelphi University. Mr. Salerno, 67, has been a Company director since 2008.

 

Mr. Salerno was nominated and elected to the Board in 2008 pursuant to a now-expired agreement with New Mountain. The Board chose to nominate Mr. Salerno for another term although it was under no obligation to do so. Mr. Salerno provides to the Board a particular perspective of an institutional stockholder, which is valuable. As the former Chief Financial Officer of Verizon and Bell Atlantic, Mr. Salerno brings extensive financial expertise to the Board. Further, Mr. Salerno’s years of experience in the telecommunications industry provide the Board with additional perspective from a regulated business outside the natural gas industry. In addition, Mr. Salerno’s experience serving on boards for a variety of major public companies provides the Company with a perspective from other industries.

 

Directors Whose Terms Expire in 2012

 

R. Don Cash has been Chairman Emeritus since May 2003, and a Board Director since May 1978, of Questar Corporation (Questar), an integrated natural gas company headquartered in Salt Lake City, Utah. He was Chairman of Questar from May 1985 to May 2003, Chief Executive Officer of Questar from May 1984 to May 2002 and President of Questar from May 1984 to February 1, 2001. Mr. Cash has been a Director of Zions Bancorporation since 1982, a Director of Associated Electric and Gas Insurance Services Limited since 1993, a Director, currently also Chairman, of Texas Tech Foundation since November 2003, and a Director of the Ranching Heritage Association. He was a Director of TODCO (The Offshore Drilling Company) from May 2004 to July 2007 and a former Trustee, until September 2002, of the Salt Lake Organizing Committee for the Olympic Winter Games of 2002. Mr. Cash holds a degree in Engineering from Texas Tech University. Mr. Cash, 68, has been a Company director since 2003.

 

Because of his nearly 18 years of experience at the helm of Questar Corporation and over 30 years of directorship experience on multiple oil and gas industry-related boards, Mr. Cash provides a broad perspective on the issues facing the Company. In particular, Mr. Cash’s depth of experience with Questar, a diversified natural gas company similarly situated to National Fuel, uniquely positions him to provide valuable insights and to inform Board discussions.

 

Stephen E. Ewing was Vice Chairman of DTE Energy (DTE), a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide, from November 1, 2005 to December 31, 2006. Two of DTE’s subsidiaries are Detroit Edison, the nation’s 10th largest electric utility, and Michigan Consolidated Gas Co. (MichCon), the nation’s 11th largest natural gas local distribution company. Mr. Ewing also had responsibility for DTE’s exploration and production subsidiary (DTE Gas Resources) with operations in the Antrim and Barnett Shale. He was also at various times Group President, Gas Division, DTE, President and Chief Operating Officer of MCN Energy Group, Inc. (the then parent of MichCon) and President and Chief Executive Officer of MichCon, until it was acquired by DTE. Mr. Ewing has been a Director of CMS Energy since July 2009. He was also Chairman of the Board of Directors of the American Gas Association for 2006, a member of the National Petroleum Council, and Chairman of the Midwest Gas Association and the Natural Gas Vehicle Coalition. He is currently a Trustee and immediate past Chairman of the Board of The Skillman Foundation, a not-for-profit foundation focused on providing education for low-income children, Chairman of the Auto Club of Michigan (AAA) and Vice Chairman of the Board of the Auto Club Group (AAA). Mr. Ewing holds a B.A. from DePauw University and an MBA from Michigan State University, and completed the Harvard Advanced Management Program. Mr. Ewing, 66, has been a Company director since 2007.

 

Mr. Ewing’s extensive executive management experience at regulated energy companies provides the Board with a valuable perspective on the Company’s regulated businesses. Also, his responsibility for DTE’s exploration and production subsidiary, with operations in the Antrim and Barnett Shale, enables Mr. Ewing to provide knowledgeable insights with regard to the Company’s exploration and production business.

 

George L. Mazanec is the former Vice Chairman, from 1989 to October 1996, of PanEnergy Corporation, Houston, Texas, a diversified energy company (now part of Spectra Energy), and the former President and Chief Executive Officer of Texas Eastern Transmission Corporation from 1991 to 1993. He has also been Executive Vice President and Chief Financial Officer of Texas Gas Transmission, Vice President and Chief Financial Officer of Duquesne Electric Co., President of Northern Natural Gas Liquids, Vice President and Treasurer of Northern Natural Gas Co., Advisor to the Chief Operating Officer of Duke Energy Corporation and Chairman of the Management Committee of Maritimes & Northeast Pipeline, L.L.C. Mr. Mazanec was a Director of TEPPCO, LP from 1992 to 1997, a Director of Northern Border Pipeline Company Partnership from 1993 to 1998, a Director of Westcoast Energy Inc. from 1998 to 2002 and a Director of the Northern Trust Bank of Texas, NA from 1998 to 2007. He was a Director of Dynegy Inc. from May 2004 to May 2010, a Director of Associated Electric and Gas Insurance Services Limited since 1995, and a member of the Board of Trustees of DePauw University since 1996. Mr. Mazanec holds a B.A. in

Economics from DePauw University, and an M.B.A. from the Harvard University School of Business Administration. Mr. Mazanec, 74, has been a Company director since 1996.

 

Mr. Mazanec’s decades of executive experience in the natural gas interstate pipeline industry provide the Board with an important insight into that business. In addition, Mr. Mazanec’s role as the Chief Financial Officer of an interstate natural gas pipeline company, as well as of an electric company, provides the Board with a valuable financial perspective. As more fully described in the Audit Committee discussion on page 9, Mr. Mazanec qualifies as an “audit committee financial expert” under the Securities and Exchange Commission Rules.

 

Directors Whose Terms Expire in 2013

 

Philip C. Ackerman was Chief Executive Officer of the Company from October 2001 to February 21, 2008, Chairman of the Board of the Company from January 3, 2002 to March 11, 2010, President of the Company from July 1999 to February 2006, Senior Vice President of the Company from June 1989 to July 1999 and Vice President of the Company from 1980 to June 1989. He was also President of National Fuel Gas Distribution Corporation (1) from October 1995 to July 1999 and Executive Vice President from June 1989 to October 1995, Executive Vice President of National Fuel Gas Supply Corporation (1) from October 1994 to March 2002, President of Seneca Resources Corporation (1) from June 1989 to October 1996, President of Horizon Energy Development, Inc. (1) from September 1995 to March 2008 and President of certain other non-regulated subsidiaries of the Company from prior to 1992 to March 2008. Mr. Ackerman is currently a Director of Associated Electric and Gas Insurance Services Limited and is also the Chair of the Erie County (New York) Industrial Development Agency. Mr. Ackerman holds a B.S. in Accounting from the State University of New York at Buffalo and a Juris Doctorate from Harvard University. Mr. Ackerman, 67, has been a Company director since 1994.

 

Mr. Ackerman’s more than 40 years’ involvement with the Company, including his experience as President of all of the Company’s major segments, enables him to provide the Board with an in-depth perspective on the Company. During his tenure with the Company, National Fuel grew from a regional utility company with $300 million in assets to a fully integrated energy company with over $5.1 billion in assets. Also, Mr. Ackerman has deep ties to Western New York, the location of the Company’s corporate headquarters and significant business operations.

 

Craig G. Matthews was President, Chief Executive Officer and Director of NUI Corporation, a diversified energy company acquired by AGL Resources Inc. on November 30, 2004, from February 2004 to December 2004. In addition, he was Vice Chairman, Chief Operating Officer and Director of KeySpan Corporation (previously Brooklyn Union Gas Co.) from March 2001 to March 2002, and held various positions over a 36 year career at KeySpan, including Executive Vice President, Chief Financial Officer and a Director of KeySpan Corporation as well as its exploration and production subsidiary Houston Natural Gas Co. He has been a Director of Hess Corporation (formerly Amerada Hess Corporation) since 2002, and a Board member of Republic Financial Corporation since May 2007. Mr. Matthews is a Member and Former Chairman of the Board of Trustees, Polytechnic Institute of New York University, and is a member of the National Advisory Board for the Salvation Army as well as the founding Chairman of the New Jersey Salvation Army Board. He received his B.S. in Civil Engineering from Rutgers in 1965, and completed his M.S. in Industrial Management at Brooklyn Polytechnic University. He also holds a Doctor of Engineering (Honorary) from NYU/POLY received in 2009. Mr. Matthews, 68, has been a Company director since 2005.

 

Mr. Matthew’s substantial experience in the energy industry, having acquired executive, managerial and financial experience with KeySpan and NUI Corporation over 37 years, particularly in applying accounting principles and financial strategy to issues affecting energy companies, make him highly qualified for his service as Chairman of the Company’s Audit Committee. As more fully described in the Audit Committee discussion on page 9, Mr. Matthews qualifies as an “audit committee financial expert” under the Securities and Exchange Commission Rules. During his career, Mr. Matthews has had responsibilities in the areas of marketing, information systems, engineering, finance, and strategic planning functions.

 

Richard G. Reiten was Chairman from September 2000 through February 2005 and also from May 2006 through May 2008, and a Director from March 1996 to May 2008, of Northwest Natural Gas Company, a natural gas local distribution company headquartered in Portland, Oregon. He was Chief Executive Officer of Northwest Natural Gas Company from January 1997 to December 2002 and President from January 1996 to May 2001. Mr. Reiten has been a Director of Associated Electric and Gas Insurance Services Limited since 1997, a Director of US Bancorp since 1998, and a Director of IDACORP Inc. since January 2004. He previously served as President of Portland General Electric Company from 1992 to 1995

 

 

(1)  Wholly owned subsidiary of the Company

and of Portland General Corporation from 1989 to 1992. Mr. Reiten was Chairman of the American Gas Association (AGA) from 2002 to 2003 and a Director of the AGA from 1996 to 2003. Mr. Reiten also served 25 years in the wood products industry including in leadership positions at the DiGiorgio Corporation (President, Building Materials Group, 1974 to 1980) and the Nicolai Company (President and Chief Executive Officer, 1980 to 1987). He was a Director of Building Materials Holding Corporation from 2001 through 2009. Mr. Reiten holds a B.A. in Business Administration from the University of Washington and completed the Executive and Board of Directors programs at Stanford School of Business. Mr. Reiten, 71, has been a Company director since 2004.

 

Mr. Reiten’s extensive executive managerial experience at utility companies provides the Board with important insights with respect to the utility segment of the Company’s business. His experience at other public companies, including his directorships, provides a breadth of knowledge that makes him a valued member of the Board.

 

David F. Smith has been Chairman of the Board of the Company since March 11, 2010, and Chief Executive Officer of the Company since February 2008. Mr. Smith has been Chairman of National Fuel Gas Distribution Corporation (1), and National Fuel Gas Supply Corporation (1) since March of 2008, and Chairman of Empire Pipeline, Inc. (1) and Seneca Resources Corporation (1) since April 2008. He was previously President of the Company from February 2006 to June 30, 2010 and Vice President from April 2005 to February 2006, President of National Fuel Gas Supply Corporation (1) from April 2005 to July 1, 2008 and Senior Vice President from June 2000 to April 2005, and was President of National Fuel Gas Distribution Corporation (1) from July 1999 to April 2005 and Senior Vice President from January 1993 to July 1999. Mr. Smith was also President of Empire State Pipeline (1) from April 2005 through July 2008, and President or Chairman of various non-regulated subsidiaries of the Company. He is a Board member of the American Gas Association (Executive Committee), American Gas Foundation, Gas Technology Institute (Executive Committee) the Business Council of New York State (Executive Committee), the Buffalo Niagara Enterprise (Chairman), the Buffalo Niagara Partnership (Executive Committee) and the State University of New York at Buffalo Law School Dean’s Advisory Council. Mr. Smith holds a Bachelor of Arts in Political Science from the State University of New York at Fredonia, as well as a Juris Doctorate from the State University of New York at Buffalo School of Law. Mr. Smith, 57, has been a Company director since 2007.

 

Mr. Smith has been employed by the Company since 1978, and during his tenure has served as President of both our Supply and Distribution companies, as well as President of Empire State Pipeline and Chairman of Seneca Resources. He has a long and active participation in industry groups that tackle most of the important issues facing our industry. These experiences provide the foundation for his role as the strategic leader of the Company. Also, Mr. Smith has deep ties to Western New York, the location of the Company’s corporate headquarters and significant business operations.

 

Director Independence

 

The Board of Directors has determined that directors Brady, Cash, Ewing, Kidder, Matthews, Mazanec, Reiten and Salerno are independent, and that Mr. Smith, Chairman of the Board and Chief Executive Officer of the Company, and Mr. Ackerman are not independent due to their employment relationship with the Company, which for Mr. Ackerman ceased June 1, 2008. The Board’s determinations of director independence were made in accordance with the listing standards of the New York Stock Exchange (NYSE) and SEC regulations. In making its independence determinations, the Board considered that Mr. Brady is Chairman and Chief Executive Officer of Moog Inc., which maintains its headquarters in the Company’s utility service territory and that payments made by Moog to Company affiliates for natural gas service in each of Moog’s last three fiscal years were not in excess of the greater of (i) $1,000,000, or (ii) 2% of Moog’s consolidated gross revenues for the applicable fiscal year. The Board also considered that a son of Mr. Kidder is employed by an affiliate of the Company (since before Mr. Kidder became a Company director) in a non-executive supervisory position, at a rate of total compensation that does not implicate the SEC’s regulations regarding related person transactions.

 

Board Leadership Structure

 

The Board of Directors has decided that the appropriate leadership structure at the present time is a combined CEO/Chairman. The Board believes that the combination of the roles provides an efficient and effective leadership model of clear accountability and promotes unified leadership and direction for the Company and also allow for a clear focus for management to execute business plans. It is the Board’s opinion that the shareholders’ interests are best served by allowing the Board to retain flexibility to determine the optimal organizational structure for the Company at a given time, including whether the

 

 

(1)  Wholly owned subsidiary of the Company

Chairman role should be filled by the CEO who serves on the Board. The members of the Board possess considerable experience and unique knowledge of the challenges and opportunities the Company faces, and are in the best position to evaluate its needs and how best to organize the capabilities of the directors and management to meet those needs.

 

The independent directors met once during the Company’s fiscal year ended September 30, 2010 (“fiscal 2010”) as required by the New York Stock Exchange rules. In addition, non-management directors meet at regularly scheduled executive sessions without management. The sessions are chaired by the Lead Independent Director, Robert T. Brady. The Board of Directors provides a process for stockholders and other interested parties to send communications to the Board or to certain directors. Communications to Mr. Brady, to the non-management directors as a group, or to the entire Board should be addressed as follows: Robert T. Brady, Moog Inc., P.O. Box 18, East Aurora, New York 14052. For the present, all stockholder and interested parties’ communications addressed in such manner will go directly to the indicated directors. If the volume of communication becomes such that the Board adopts a process for determining which communications will be relayed to Board members, that process will appear on the Company’s website at www.nationalfuelgas.com.

 

Diversity

 

Under the Company’s Corporate Governance Guidelines, the Board of Directors is required, when selecting candidates for re-election and candidates for Board membership, to consider factors that include a diversity of experience related to the business segments in which the Company operates, as well as a diversity of perspectives to be brought to the Board by the individual members.

 

Meetings of the Board of Directors and Standing Committees

 

In fiscal 2010, there were five meetings of the Board of Directors. In addition, directors attended meetings of standing or pro tempore committees. The Audit Committee held nine meetings, the Compensation Committee held six meetings, the Executive Committee held one meeting, and the Nominating/Corporate Governance Committee held three meetings. During fiscal 2010, all directors attended at least 75% of the aggregate of meetings of the Board and of the committees of the Board on which they served.

 

The table below shows the number of meetings conducted in fiscal 2010 and the directors who serve on these committees.

 

 

Audit

 

The Audit Committee is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”). The Audit Committee held nine meetings during fiscal 2010 in order to review the scope and results of the annual audit, to receive reports of the Company’s independent registered public accounting firm and chief internal auditor, to monitor compliance with the Company’s Reporting Procedures for Accounting and Auditing Matters (included in this proxy statement as Appendix A) and to prepare a report of the committee’s findings and recommendations to the Board of Directors. The members of the committee are independent as independence for audit committee members is defined in the NYSE’s listing standards applicable to the Company, and in SEC regulations. No Audit Committee member simultaneously serves on the audit committees of more than three public companies. The Board limits the number of audit committees on which an Audit Committee member can serve to three, unless the Board has determined that such simultaneous service would not impair the ability of such members to serve effectively. The

Company’s Board of Directors has determined that the Company has at least two audit committee financial experts (as defined by SEC regulations) serving on its Audit Committee, namely Messrs. Matthews and Mazanec, both of whom are independent directors.

 

In connection with its review of the Company’s internal audit function, the Audit Committee in 2006 had a Quality Assessment performed by a consulting firm that concluded that the Company’s Audit Services Department conducts its audits in accordance with the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing (the “Standards”). Under the Standards, external Quality Assessments should be conducted at least once every five years.

 

Further information relating to the Audit Committee appears in this proxy statement under the headings “Audit Fees” and “Audit Committee Report.” A current copy of the charter is available to security holders on the Company’s website at www.nationalfuelgas.com.

 

Compensation

 

As described in the Compensation Discussion and Analysis in this proxy statement, the Compensation Committee held six meetings during fiscal 2010, in order to review and determine the compensation of Company executive officers, to review reports and to grant awards under the Company’s 2010 Equity Compensation Plan, the 1997 Award and Option Plan, the Performance Incentive Program, the Annual At Risk Compensation Incentive Program (“AARCIP” or the “At Risk Plan”), and the Executive Annual Cash Incentive Program (“EACIP”). The members of the committee are independent as independence is defined in the NYSE listing standards applicable to the Company, and in SEC regulations. A current copy of the charter of the committee is available to security holders on the Company’s website at www.nationalfuelgas.com.

 

The Compensation Committee is responsible for various aspects of executive compensation, including approval of the base salaries and bonuses of the Company’s executive officers. The committee is authorized to evaluate director compensation and make recommendations to the full Board regarding director compensation. The committee may form subcommittees and delegate to those subcommittees such authority as the committee deems appropriate, other than authority required to be exercised by the committee as a whole. The committee also administers the Company’s 2010 Equity Compensation Plan, the 1997 Award and Option Plan, the At Risk Plan, and the National Fuel Gas Company Performance Incentive Program, and approves performance conditions and target incentives of executive officers under the EACIP. As described more fully in the Compensation Discussion and Analysis, the Company retained The Hay Group, and Hewitt Consulting (now Meridian Compensation Partners, LLC), both independent compensation consulting firms, to assist in approving executive compensation. In addition, as set forth in the Compensation Committee’s charter, the Chief Executive Officer may and does make, and the committee may and does consider, recommendations regarding the Company’s compensation and employee benefit plans and practices. The committee then approves executive compensation as it deems appropriate.

 

Executive

 

There was one meeting of the Executive Committee during fiscal 2010. The committee has and may exercise the authority of the full Board, except as may be prohibited by New Jersey corporate law (N.J.S.A.§ 14A:6-9).

 

Nominating/Corporate Governance

 

All the members of the Nominating/Corporate Governance Committee are independent, as independence for nominating committee members is defined in the NYSE listing standards applicable to the Company, and in SEC regulations. The committee makes recommendations to the full Board on nominees for the position of director. The committee also has duties regarding corporate governance matters as required by law, regulation or NYSE rules. The committee held three meetings during fiscal 2010. Stockholders may recommend individuals to the committee to consider as potential nominees. Procedures by which stockholders may make such recommendations are set forth in Exhibit B to the Company’s Corporate Governance Guidelines, described in the following paragraph.

 

The committee’s charter provides for the committee to develop and recommend to the Board criteria for selecting new director nominees and evaluating unsolicited nominations, which criteria are included in this proxy statement as part of the Company’s Corporate Governance Guidelines. A current copy of the charter of the committee is available to stockholders on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office. A current copy of the Corporate Governance Guidelines is included in this proxy statement as Appendix B, and is available to stockholders on the Company’s website at www.nationalfuelgas.com. Appendix B also addresses the qualifications and skills the committee believes are necessary in a director, and the committee’s

consideration of stockholder recommendations for director. Stockholder recommendations identifying a proposed nominee and setting out his or her qualifications should be delivered to the Company’s Secretary at its principal office no later than September 23, 2011 in order to be eligible for consideration at the 2012 Annual Meeting of Stockholders.

 

Charitable Contributions by Company

 

Within the preceding three years, the Company did not make any charitable contributions to any charitable organization in which a director served as an executive officer which exceeded the greater of $1 million or 2% of the charitable organization’s consolidated gross revenues in a single fiscal year.

 

Compensation Committee Interlocks and Insider Participation

 

There are no “Compensation Committee interlocks” or “insider participation” which SEC regulations or NYSE listing standards require to be disclosed in this proxy statement.

 

Code of Business Conduct and Ethics

 

The Company’s Code of Business Conduct and Ethics is available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request it from the Company’s Secretary at its principal office.

 

Risk Oversight

 

The Company has an enterprise risk management program developed by senior management and the Board and overseen by the CEO. Under this program, major enterprise-wide risks have been identified, along with the mitigative measures to address and manage such risk. At each quarterly meeting of the Audit Committee, to which all Directors are invited and typically attend, the major risks and associated mitigative measures are reviewed. At each Board meeting, a specific presentation is made regarding one or two specific areas of risk. Additional review or reporting on enterprise risks is conducted as needed or as requested by the Board.

 

Related Person Transactions

 

The Company had no related person transactions in fiscal 2010. The Company’s Code of Business Conduct and Ethics (which is in writing and available to stockholders as described above) identifies the avoidance of any actual or perceived conflicts between personal interests and Company interests as an essential part of the responsibility of the Company’s directors, officers and employees. The Code provides that a conflict of interest may arise when a director, officer or employee receives improper personal benefits as a result of his or her position in the Company, or when personal situations tend to influence or compromise a director’s, officer’s or employee’s ability to render impartial business decisions in the best interest of the Company. Potential conflicts of interest under the Code would include but not be limited to related person transactions. The Audit Committee administers the Code as it relates to the Company’s directors and executive officers.

 

The Company’s policies and procedures for the review, approval or ratification of related person transactions are set forth in writing in the charter of the Audit Committee. The charter provides that the Audit Committee will review and, if appropriate, approve or ratify any transaction between the Company and a related person which is required to be disclosed under SEC rules. In the course of its review of a transaction, the Audit Committee will consider the nature of the related person’s interest in the transaction, the material terms of the transaction, the significance of the transaction to the related person and to the Company, whether the transaction would affect the independence of a director, and any other matters the Audit Committee deems appropriate. The Audit Committee will approve or ratify only those transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as the Audit Committee determines in good faith. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction.

 

Directors’ Compensation

 

The 2009 Non-Employee Director Equity Compensation Plan (“Director Compensation Plan”) was approved at the 2009 Annual Meeting. The Retainer Policy for Non-Employee Directors (the “Retainer Policy”), which was approved at the 1997 Annual Meeting of Stockholders and amended at the 2009 Annual Meeting, currently remains in place as well. Directors who are not Company employees or retired employees do not participate in any of the Company’s employee benefit or compensation plans. Directors who are current employees receive no compensation for serving as directors. Only non-employee directors may participate in the Director Compensation Plan and the Retainer Policy, under which

directors are paid in cash plus an amount of common stock adjusted from time to time. Since April 11, 2009, the annual retainer has been $36,000 plus 1,600 shares of Common Stock.

 

In fiscal 2010, the Directors were paid pursuant to the Retainer Policy and Director Compensation Plan, with the exception of Mr. Ackerman prior to March 11, 2010. For the period October 1, 2009 through March 11, 2010, in place of payments under the Retainer Policy and Director Compensation Plan, Mr. Ackerman received payments under an agreement described below. The other non-employee directors received four quarterly payments of $9,000 and 400 shares of stock. Common Stock issued to non-employee directors under director compensation plans is nontransferable until the later of two years from issuance or six months after the recipient’s cessation of service as a director of the Company except that transferability restrictions lapse upon the death of the recipient.

 

With the exception of Mr. Ackerman prior to March 11, 2010, non-employee directors were each paid a fee of $2,000 for each Board meeting and $2,000 for each Committee meeting attended in person or by telephone. Non-employee directors were each paid an additional annual retainer of $10,000 if appointed as Chairman of any committee; accordingly, Messrs. Brady, Matthews and Mazanec each received an additional annual retainer of $10,000 during fiscal 2010.

 

In place of the above-described director compensation for the period through the 2010 Annual Meeting (March 10, 2010), Philip C. Ackerman, as Chairman of the Board of Directors for that period, received director compensation under a Director Services Agreement (“Agreement”). The Agreement provided that, effective as of June 1, 2008, after Mr. Ackerman’s retirement from the Company, he would perform the duties and responsibilities of Chairman of the Board of Directors as established under the Company’s By-Laws and Corporate Governance Guidelines, and consult with the Chief Executive Officer on matters pertaining to the administration and operation of the Company that Mr. Ackerman or the Chief Executive Officer deemed appropriate. The Agreement was initially for a term of one year and, by approval of the Board in June of 2009, was extended through the conclusion of the 2010 Annual Meeting. Under the Agreement, Mr. Ackerman was not eligible for any other compensation for his services (except for the insurance provided by the Company for all directors), or to accrue any additional benefits under any Company employee benefit plans. Also under the Agreement, the Company reimbursed Mr. Ackerman for reasonable travel, lodging, meals and other appropriate expenses incurred by him in performance of the Agreement and provided him with suitable office space on its premises and appropriate secretarial services on an as-needed basis. The Agreement was not renewed after the conclusion of the 2010 Annual Meeting and since then Mr. Ackerman has been paid under the Director Compensation Plan and Retainer Policy.

 

Benefit accruals under the Directors’ Retirement Plan ceased for each current non-employee director on December 31, 1996. Mr. Brady is the only current director eligible for benefits under the Directors’ Retirement Plan benefits, and after he leaves the Board he will receive his accrued Directors’ Retirement Plan benefits of $1,800 per year for up to ten years. Individuals who become directors after February 1997 are not eligible to receive benefits under the Directors’ Retirement Plan. The Directors’ Retirement Plan pays an annual retirement benefit equal to 10% of the annual retainer in effect on December 31, 1996 ($18,000 per year), multiplied by the number of full years of service prior to January 1, 1997, but not to exceed 100% of that annual retainer. The retirement benefit begins upon the later of the date of the director’s retirement from the board or the date the director turns age 70, and continues until the earlier of the expiration of ten years or the death of the director.

 

The Company requires that each director, in order to receive compensation for service as a director, must beneficially own at least 500 shares of Common Stock at the end of the first year of service as a director, at least 1,000 shares at the end of the second year of service and at least 2,500 shares at the end of the third year of service.

The following table sets forth the compensation paid to each non-employee director for service during fiscal 2010:

 

DIRECTOR COMPENSATION TABLE — FISCAL 2010

 

 

 

 

AUDIT FEES

 

In addition to retaining PricewaterhouseCoopers LLP to report on the annual consolidated financial statements of the Company for fiscal 2010, the Company retained PricewaterhouseCoopers LLP to provide various non-audit services in fiscal 2010. The aggregate fees billed for professional services by PricewaterhouseCoopers LLP for each of the last two fiscal years were as follows:

 

 

 

 

The Audit Committee’s charter (available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office) references its pre-approval policies and procedures. The committee has pre-approved the use of PricewaterhouseCoopers LLP for specific types of services, including various audit and audit-related services and certain tax services, among others. The chair of the committee and, in his absence, another specified member of the committee, are authorized to pre-approve any audit or non-audit service on behalf of the committee. Each pre-approval is to be reported to the full committee at the first regularly scheduled committee meeting following such pre-approval.

 

For fiscal 2010, none of the services provided by PricewaterhouseCoopers LLP were approved by the Audit Committee in reliance upon the “de minimus exception” contained in Section 202 of Sarbanes-Oxley and codified in Section 10A(i)(1)(B) of the Securities Exchange Act and in 17 CFR 210.2-01(c)(7)(i)(C).

 

AUDIT COMMITTEE REPORT

 

The Company’s Board of Directors has adopted a written charter for the Audit Committee of the Board of Directors, a copy of which is available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office.

 

The Audit Committee has reviewed and discussed the Company’s audited financial statements for fiscal 2010 with management. The Audit Committee has also reviewed with management its evaluation of the Company’s internal control over financial reporting and reviewed management’s assessment about the effectiveness of the Company’s internal control over financial reporting, including any significant deficiencies in such internal control over financial reporting. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication With Audit Committees, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Rule 3526, Communication with Audit Committees Concerning Independence, of the PCAOB and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Audit Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company and its affiliates is compatible with the independent registered public accounting firm’s independence.

 

Based on the review, discussions and considerations referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K (17 CFR 249.310) for the last fiscal year for filing with the SEC.

 

AUDIT COMMITTEE

 

Craig G. Matthews, Chairman

R. Don Cash

Stephen E. Ewing

Rolland E. Kidder

George L. Mazanec

 

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth for each current director, each nominee for director, each of the executive officers named in the Summary Compensation Table, and for all directors and officers as a group, information concerning beneficial ownership of Common Stock. The Common Stock is the only class of Company equity securities outstanding. Unless otherwise stated, to the best of the Company’s knowledge, each person has sole voting and investment power with respect to the shares listed, including shares which the individual has the right to acquire through exercise of stock options or SARs but has not done so. All information is as of November 30, 2010.

 

 

 

 

 

As of January 10, 2011, the Company knows of no one who beneficially owns in excess of 5% of the Company’s Common Stock, which is the only class of Company stock outstanding, except as set forth in the table below.

 

 

 

 

EQUITY COMPENSATION PLAN INFORMATION
As of September 30, 2010

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based upon this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

 

G. L. Mazanec, Chairman
R. T. Brady
R. D. Cash
S. E. Ewing
R. G. Reiten
F. V. Salerno

 

Compensation Discussion and Analysis

 

OVERVIEW

 

The Company’s record of performance is superior. Despite the recent years’ volatile and uncertain business environment, the Company’s stock has done exceedingly well compared to the Standard and Poors 500 Composite Stock Price Index, the S&P Midcap Utility Index and the SIG Oil Exploration & Production Index. In addition, the Company has ranked in the top 10 of the Fortnightly 40 Report for 5 of the past 6 years and is a leader in the industry’s development of the Marcellus Shale. The Compensation Committee works to motivate creation of shareholder value through the compensation program.

 

The Compensation Discussion and Analysis (“CD&A”) provides a detailed review of the Company’s executive compensation program, including the goals of the program. In addition to the cash compensation, the Committee grants long-term incentives, most often with a 3-year time horizon, to focus management’s attention on creating shareholder value from a long-term investor’s perspective. The CD&A describes in detail the components of the program and the fiscal 2010 compensation paid to or earned by each named executive officer (as defined herein).

 

OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM

 

The Company’s executive compensation program is designed to:

 

 

As is more fully described below, the Company achieves these objectives by providing its executive officers a total compensation program, established and administered by the Committee based on its business judgment following review of the analysis prepared by its compensation consultants of the compensation practices at companies in the energy industry, in general industry and in the exploration and production segment, as appropriate. Total compensation for executive officers is comprised of the following components, each of which is addressed in greater detail below:

 

 

Role of the Compensation Committee

 

The Compensation Committee administers the Company’s compensation program for its executive officers. It sets the base salaries and available bonus ranges of the Company’s executive officers and exercises the authority delegated to it by the stockholders or the Board under the Company’s cash and equity incentive compensation plans, which include the National Fuel Gas Company 1997 Award and Option Plan, as amended (the “1997 Award and Option Plan”), the 2010 Equity Compensation Plan, the 2007 Annual At Risk Compensation Incentive Plan (the “AARCIP” or “At Risk Plan”) the National Fuel Gas Company Performance Incentive Program (the “Performance Incentive Program”) and the Executive Annual Cash Incentive Program (the “EACIP”). In addition, the Committee makes recommendations to the Board with respect to the development of incentive compensation plans and equity-based plans. The Committee is also responsible for recommending to the Board changes in compensation for non-employee directors. The Committee is comprised of the six directors named above, all of whom have been determined by the Board to be independent.

 

Role of Executive Officers

 

In making its subjective determinations with respect to executive officers other than Mr. Smith, the Committee discusses the information it receives from its compensation consultants with Mr. Smith and seeks his recommendation as to the appropriate base salaries, target bonuses and target long-term incentive awards for each of these other officers, based on his assessment of their performance, contributions and abilities. Mr. Smith also provides input to the Committee’s compensation consultants with regard to the functions of the Company’s officers, to facilitate their recommendations and comparisons of such officers’ and their positions to other positions in the marketplace.

 

Compensation Consultants

 

In 2009 the Committee retained the services of two independent compensation consultants, The Hay Group (Hay) and Hewitt Consulting (now Meridian Compensation Partners, LLC) (Hewitt), to evaluate

executive compensation. Hay assists the Committee in evaluating and setting officer compensation in the regulated subsidiaries. Generally, for supervisory positions in the regulated subsidiaries, Hay provides job evaluation to a wide range of companies through detailed position analysis based on proprietary information from multiple parent organizations and business units. Hay’s job evaluation and benchmarking methodology allows for customizable job descriptions and organizational rankings that are specific to the Company but relative to industry benchmarks.

 

In 2009 for Company officers, and officers employed by affiliate companies other than Seneca Resources, Hay provided an analysis of compensation practices with respect to base salary, total cash compensation (base salary plus short-term incentive) and total direct compensation (base salary plus short-term incentive plus long-term incentive) compared to similar jobs in general industry and, where appropriate, in the energy industry based on Hay’s proprietary databases. Hay also made recommendations to the Committee on incentive compensation target amounts for both a short-term incentive (cash bonuses as discussed below) and long-term incentive (stock appreciation rights, restricted stock and the Performance Incentive Program target awards also discussed below), and provided a “tally sheet” summary, which provided an overall summary of the compensation that could be received upon a termination of employment, for a representative sample of officers. Additionally, Hay provided a proxy analysis of base salary, bonus, total cash compensation (salary plus bonus), long-term incentive and total direct compensation (salary plus bonus plus long-term incentive) for the three named executive officers (Messrs. Smith and Tanski and Mrs. Cellino) for whom adequate comparative information was available based on 2009 proxy data for the Company and energy companies in an eleven-member peer group of companies that engage in one or more of the businesses in which the Company engages. The members of the peer group ranged in size from $7.2 billion in revenues to $1.0 billion in revenues. The median size of the peer group is $3.07 billion in revenues. The peer group is:

 

AGL Resources Inc.
Atmos Energy Corporation
Energen Corporation
EQT Corporation
MDU Resources Group Inc.
New Jersey Resources Corporation
Northwest Natural Gas Company
Questar Corporation
Southern Union Company
Southwest Gas Corporation
UGI Corporation

 

These companies were selected as members of the peer group because each participates in one or more businesses that are deemed similar to those of the Company. The Committee reviews the members of the peer group from time to time, and makes adjustments, as it believes warranted.

 

Commencing in 2008, the Committee also retained Hewitt to assist in evaluating and setting compensation for employees, including that of Mr. Cabell, at Seneca Resources Corporation. The Committee selected Hewitt for this purpose due to that entity’s expertise in the exploration and production industry. The compensation consulting portion of Hewitt became Meridian Compensation Partners, LLC in September 2010.

 

In 2009, Hewitt provided a proxy analysis of Mr. Cabell’s base salary, target short-term incentive (bonus), target cash compensation (salary plus bonus), long-term incentive and total target compensation (salary plus bonus plus long-term incentive). The Hewitt proxy analysis was based on proxy data from Hewitt’s E&P Compensation Database, supplemented by published survey data, from twenty-one (21) exploration and production companies chosen by the Committee based on certain criteria, such as revenues, assets, standardized measure and the nature of each company’s operations in the exploration and production segment of the energy industry, that made them relatively comparable to the operations at Seneca. The companies in the twenty-one member peer group range in size from $3.1 billion to $314 million in E&P revenues, (with a median of $953 million), from $10.3 billion to $670 million in E&P asset size (with a median of $2.7 billion) and from $3.7 billion to $315 million in standardized measure (with a median of $1.6 billion). The peer group is:

 

Berry Petroleum
Cabot Oil & Gas Corporation
Carrizo Oil & Gas, Inc.
Continental Resources Inc.
El Paso Corporation
Energen Corporation
EQT Corporation
Kinder Morgan Oil & Gas

Mariner Energy, Inc.
Penn Virginia Corporation
Petroleum Development Corporation
Petroquest Energy, Inc.
Questar Corporation
Quicksilver Resources, Inc.
Range Resources Corporation
Southwestern Energy Company
St. Mary Land & Exploration Company
Swift Energy Company
Ultra Petroleum Corporation
Whiting Petroleum Corporation
Williams Companies, Inc.

 

In 2009, Hewitt also provided a similar analysis for Messrs. Smith and Tanski relative to the 21 member peer group. The Committee requested this analysis for its use in supplementing the comparisons provided by Hay due to the increasing importance of the Company’s exploration and production segment and Messrs. Smith and Tanski’s management of that segment.

 

The Committee utilizes recommendations of the consultant in exercising its business judgment as to compensation matters.

 

TOTAL COMPENSATION

 

Base Salary

 

Base salaries provide a predictable base compensation for day-to-day job performance. The Committee reviews base salaries at calendar year-end for the Company’s executive officers and adjusts them, if it deems appropriate in its subjective business judgment, following review of its compensation consultants’ competitive analysis and, upon consideration of the recommendations of the Chief Executive Officer. In addition, base salary may be adjusted during the calendar year when changes in responsibility occur. Base salary is not adjusted based on specific objective financial results, although overall corporate performance is reviewed by the Committee in its decision making process. The Committee does not use formulas; rather, it exercises its business judgment.

 

In establishing the base salary amount, the Committee generally targets a range of the 50th percentile to the 75th percentile of the survey data provided by Hay and Hewitt. In the subjective business judgment of the Compensation Committee, payment at the median and up to the 75th percentile is necessary to attract, retain and motivate the individuals responsible for the success of the business enterprise. The Committee also considers overall corporate performance and an individual’s specific responsibilities, experience (including time in position), and effectiveness and makes adjustments based on the Committee members’ business judgment and the CEO’s recommendations. The specific elements of individual performance reviewed by the Committee with respect to fiscal 2009 are described below.

 

For calendar year 2010, the Committee increased Mr. Smith’s base salary to an amount that is within the target range of the 2009 proxy group survey data (which reports on fiscal 2008 compensation) and well below the market median for general industry. For 2010, based on its subjective business judgment, the Committee determined to move Mr. Smith’s base salary toward the general industry median to retain him as CEO. The Committee determined that this action was particularly important given the competition for talent in the exploration and production industry, which is a primary business focus of the Company. In determining Mr. Smith’s base salary increase, the Committee also considered the Company’s overall performance, financially and operationally, particularly with respect to improved performance in the Company’s exploration and production segment.

 

The Committee also increased Mr. Tanski’s base salary for calendar year 2010 to an amount that was above the target range of the 2009 proxy group survey data and was slightly below the market median for general industry. Setting the salary level above the target range of the proxy group reflected his dual role at the time of chief financial officer and president of a major subsidiary. Effective July 1, 2010, Mr. Tanski was promoted to President and COO of the Company, at which time the Committee increased Mr. Tanski’s base salary by an additional five percent.

 

In December 2009, based on its and Mr. Smith’s assessment of Mr. Cabell’s responsibilities, experience and effectiveness in the past year, the Committee increased Mr. Cabell’s base salary for calendar 2010 to an amount that was higher than the 75th percentile of the Hewitt data. This increase was awarded in recognition of his performance in the management of the exploration and production segment, including, in particular, development of the Company’s Marcellus Shale assets, and to retain him in his position given the competition for talent in the industry. Effective July 1, 2010 Mr. Cabell was made a Senior Vice

President in the Company in recognition of his contributions to the Company’s success and growth strategy, at which time the Committee increased Mr. Cabell’s base salary by an additional five percent. Based primarily on Mr. Smith’s recommendation, the Committee increased Mrs. Cellino’s base salary to an amount that approximates the 75th percentile of the 2009 proxy group survey data and that is well below the market median for the general industry to reflect her attention to customer service and oversight of budget and cost control at the utility segment.

 

In making annual base salary increases in 2010 for officers below the level of these four individuals, including Messrs. Bauer and Pustulka, the Committee relied heavily on Mr. Smith’s recommendations. In making such recommendations, Mr. Smith referenced Hay’s compensation report and made recommendations based on his opinion, with input from Mr. Tanski, of an individual’s specific responsibilities, experience and effectiveness. Mr. Bauer received a base salary increase for calendar 2010 based on his performance managing the Company’s financial strategy and his depth of knowledge of and experience with finance, ratemaking and accounting. The merit increase to base salary placed him within the recommended salary range for the energy sector based on the Hay system. Effective July 1, 2010, Mr. Bauer was promoted to Treasurer and Principal Financial Officer of the Company in recognition of his knowledge and skill with respect to the Company’s financial matters. In the exercise of its subjective business judgment, the Committee increased Mr. Bauer’s base salary by fifteen percent as a result of this promotion.

 

As described above, Mr. Smith recommended, and the Committee accepted, a base salary increase for Mr. Pustulka for calendar year 2010 due to his managing the complex interstate pipeline in a safe and efficient manner and his oversight of the associated capital and operating budgets. The merit increase to base salary placed him within the recommended salary range for the energy industry sector based on the Hay System. Effective July 1, 2010, Mr. Pustulka was promoted to President of National Fuel Gas Supply Corporation as a result of his in-depth understanding of the interstate natural gas industry, and of the Company’s complex system of pipelines, storage fields and related facilities. In the exercise of its subjective business judgment, the Committee increased Mr. Pustulka’s base salary by five percent as a result of this promotion.

 

The fiscal 2010 base salaries of the named executive officers are shown on the Summary Compensation Table under “Salary” column within this proxy statement.

 

Annual Cash Incentive

 

We pay an annual cash incentive to our executives to motivate their performance over a short-term (which we generally consider to be no longer than two years). Early in the fiscal year, the Committee establishes a target amount for the annual cash incentive, stated as a percentage of base salary. Executives can earn up to 200% of target, based on performance on written goals.

 

Target Award Levels

 

In setting target award levels for the annual cash incentive for 2010, the Committee exercised its business judgment and, upon consideration of the recommendations of Hay and Hewitt and, other than with respect to his target incentive, those made by Mr. Smith, set target awards as follows:

 

 

Performance Goals

 

Based upon discussions with Mr. Smith and Mr. Tanski and upon review of forecasted financial data, the Committee approved for each named executive who participated in the At Risk Plan (Messrs. Smith, Tanski and Cabell and Mrs. Cellino), a set of particular performance goals for the 2010 fiscal year. Certain goals overlapped among named executives; for example, each named executive had a goal tied to consolidated earnings per share. For those officers who participated in the At Risk Plan, the entire bonus is based upon performance against the stated objectives. For those officers under the EACIP, including Mr. Pustulka, 75% of the target incentive was made dependent on objective performance criteria, and 25% was discretionary, with any discretionary amount for executive officers subject to Committee approval. Mr. Bauer was not an executive officer at the beginning of the fiscal year and was not a participant in either

the At Risk Plan or the EACIP. Rather, Mr. Smith set goals for him where 50% of his target incentive was based on earnings per share performance as reflected in the following table, with the remaining 50% of his target incentive being discretionary.

 

To determine the annual cash incentive bonus award based on a stated performance objective, the weight assigned to each goal is multiplied by the percentage of the goal achieved to calculate a weighted percentage for each goal. Once the weighted percentage for each goal is determined, the percentages are totaled. That total weighted percentage is multiplied by the target award to arrive at the bonus amount. The target award is a percentage of the named executive’s base salary for the fiscal year, and the maximum possible award is two times the target amount. The fiscal 2010 annual cash incentives of the named executive officers are shown on the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column. For Messrs. Smith, Tanski, and Cabell and Mrs. Cellino the amounts awarded were entirely based on the pre-established objective performance criteria. For Mr. Pustulka, Mr. Smith recommended an additional discretionary amount under the EACIP and an additional $1,577 outside of the EACIP based on his role in advancing capital projects in the pipeline and storage segment and his role since July 1 as President of National Fuel Gas Supply Corporation. For Mr. Bauer, Mr. Smith recommended an additional discretionary amount of $14,330 based on his performance in overseeing preparation and control of the financial statements, communications with investors and his role since July 1 as Treasurer and Principal Financial Officer of the Company. Both recommendations were approved by the Compensation Committee.

 

The following chart identifies the goals assigned to each of the named executive officers for the 2010 fiscal year, the percentage of each goal achieved, the weight assigned to each goal, and the weighted percentage achieved for each goal. Also noted is each named executive’s total weighted percentage, target and bonus. Following the chart, numbered sequentially to match the appearance of the performance objective in the chart is a summary of what the objective was at the target level of performance, and where appropriate, a summary of how achievement of the objective was measured. With regard to the earnings per share goals, a two-year average was used to calculate performance levels for the consolidated earnings per share goal, regulated companies’ earnings per share goal and Seneca Resources earnings per share goal, as a mechanism to incent individuals to consider more than a one-year earnings impact.

 

 

 

 

Long Term Incentive Compensation

 

Stock options, restricted stock, restricted stock units, stock-settled stock appreciation rights (“SARs”) and the Performance Incentive Program represent the long-term incentive and retention component of the executive compensation package. Such awards are intended to focus attention on managing the Company from a long-term investor’s perspective. In addition, we wish to encourage officers and other managers to have a significant, personal investment in the Company through stock ownership. The Committee typically makes equity awards on an annual basis, but has not established a policy to make grants at a specific meeting, to allow flexibility to review and evaluate appropriate equity grant practices.

 

With respect to long-term incentive compensation, the Committee uses its business judgment to establish target awards based on the recommendations provided by its compensation consultant and the Chief Executive Officer. The Committee allocates approximately one-half of the long-term incentive opportunity to the cash-based Performance Incentive Program and one-half to equity based awards, with the actual awards determined based on the value of each such awards derived using a Black-Scholes formula. The Committee follows this practice as a means of limiting the dilutive effect of equity grants, while at the same time achieving the objective of having a meaningful percentage of the compensation of the executive officers linked to the value of the Company’s stock.

Stock Appreciation Rights, Stock Options and Restricted Stock

 

In 2010, the Committee awarded one-half of each executive officer’s target awards in the form of performance-based SARs rather than stock options, as they are less dilutive to stockholder equity. The Committee anticipates that it will continue utilizing SARS instead of options in the future. Vesting of these stock-settled SARs occurs in three annual installments and each installment is conditioned on achieving a five percent increase in the aggregate production for the then current year in certain of Seneca’s oil and natural gas production levels in the prior fiscal year. This performance condition is used to reflect the significance of these production levels to the long-term growth of the Company, and to link the compensation of all recipients of such awards to this important criteria (in addition to the inherent link in the award to the objective of increasing the Company’s stock price). The fiscal 2010 SARs granted to the named executive officers are set out in the Grants of Plan-Based Awards in Fiscal 2010 Table within this proxy statement.

 

Performance Incentive Program

 

The Performance Incentive Program is the Company’s cash based, long-term incentive program. This program was adopted to complement the equity based programs, under which future awards have been limited due to their dilutive nature.

 

The Committee has granted awards under the Performance Incentive Program based on three-year performance periods, with the performance condition being the Company’s total return on capital as compared to the same metric for peer companies in the Natural Gas Distribution and Integrated Natural Gas Companies group as calculated and reported in the Monthly Utility Reports (each, a “Monthly Utility Report”) of AUS, Inc., a leading industry consultant (“AUS”). The natural gas distribution and integrated natural gas companies reported in the December 2010 Monthly Utility Report are:

 

AGL Resources Inc.

Atmos Energy Corporation

Chesapeake Utilities Corporation

Delta Natural Gas Company

El Paso Corporation

Energen Corporation

EQT Corporation

Gas Natural, Inc.

Laclede Group, Inc.

National Fuel Gas Company

New Jersey Resources Corp.

NICOR Inc.

Northwest Natural Gas Co.

ONEOK, Inc.

Piedmont Natural Gas Co., Inc.

Questar Corporation

RGC Resources, Inc.

South Jersey Industries, Inc.

Southern Union Company

Southwest Gas Corporation

UGI Corporation

WGL Holdings, Inc.

Williams Companies, Inc.

 

The Committee selected this financial metric because it reflects how profitably management is able to allocate capital to its operations and also because it provides a performance metric of relevance to all participants, regardless of the business segment(s) for which they provide services. Based on the level of performance at the end of the applicable three-year performance period a cash bonus may be paid, ranging from 0% to 200% of the portion of each executive officers’ target incentives allocated to the Performance Incentive Program awards.

The target awards established for the current named executive officers for the October 1, 2009 through September 30, 2012 performance period are:

 

 

Payment on awards made under the Performance Incentive Program will be made at the levels specified below, if the Company achieves performance as detailed below over the applicable three-year performance period:

 

 

For threshold levels of performance between two established performance levels, the amount of target incentive payable will be determined by mathematical interpolation. Ranking of the companies in the Monthly Utility Reports is determined by calculating the average return on capital for each company for the three-year performance period and sorting the companies from highest to lowest.

 

AUS does not include in its calculations gains realized on the sale of operations that are reported under Generally Accepted Accounting Principles as discontinued operations. The Committee previously determined, however, that payouts under the Program may take into account the results of the Company’s discontinued operations, if any. For the three-year performance period of October 1, 2007 through September 30, 2010, the Company engaged in one transaction that resulted in discontinued operations: the sale of the Company’s landfill gas operations in September 2010. The Committee believes that the sale was a significant achievement on the part of management at very favorable prices and should be included in any award. Therefore, consistent with its prior treatment of sales, the Committee intends to adjust the AUS calculation to include that gain.

 

Previously, the Committee had approved target incentives for the current named executive officers under this Program associated with the three-year performance period of October 1, 2007 through September 30, 2010. The performance metric for this period was the same as noted above, and the target incentives were as follows:

 

 

Because the Monthly Utility Report with the necessary data for fiscal 2010 will not be available until February of 2011, the actual award amounts earned for this performance period of October 1, 2007 through September 30, 2010 are currently unknown. The amounts shown in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation Column” as explained in footnote (3) within this proxy statement were accrued by the Company in fiscal 2010 as estimates of the amount which will be calculated and paid, in the second quarter of fiscal 2011. The estimated percentile of the Company’s total return on capital as compared with the Company’s peer group for the performance period of October 1, 2007 through September 30, 2010 is 182.6%.

EMPLOYEE BENEFITS

 

Retirement Benefits

 

The Company maintains a qualified defined contribution retirement plan which includes a traditional 401(k) benefit as well as a Retirement Savings Account (“RSA”) benefit for eligible employees (i.e., those hired at various points in 2003 and thereafter, depending on employee type), a qualified defined benefit retirement plan, a non-qualified executive retirement plan and a non-qualified tophat plan. These plans help the Company attract and retain high caliber employees in high-level management positions, and, in the case of the non-qualified plans, restore retirement benefits lost to employees under the qualified retirement plans as a result of the effect of the Internal Revenue Code limits and the qualified plans’ limits on compensation considered and benefits provided under such qualified plans. The employee benefits for executive officers employed prior to 2003 differ from those made available to those employed during or after that year. The Company made changes to its programs that reflected a shift in competitive practices away from certain types of retirement benefits, but generally grandfathered existing employees (including executive officers) who were then in service in the benefits programs that are commensurate with those in the regulated energy industry.

 

Messrs. Smith, Tanski and Pustulka and Mrs. Cellino are eligible to participate in the qualified defined contribution retirement plan (traditional 401(k)), the qualified defined benefit retirement plan, and both of the non-qualified plans. Mr. Cabell is eligible to participate in the qualified defined contribution plan (including the RSA benefit) and the non-qualified tophat plan. Mr. Bauer is eligible to participate in the qualified defined contribution retirement plan (traditional 401(k) plan), the qualified defined benefit retirement plan and the non-qualified tophat plan. These benefits are described in more detail in the section entitled “Pension Benefits” within this proxy statement.

 

Executive Life Insurance

 

In 2004, the Committee authorized an insurance program known as the “ExecutiveLife Insurance Plan.” Under this plan, upon specific direction of the Company’s Chief Executive Officer, when an executive officer reaches age 50, the Company would pay the cost of a life insurance policy or policies, to be owned by the executive officer, in an amount up to $15,000 per year. The payment is taxable income to the executive officer and ceases when the executive officer’s employment ceases. The Committee authorized this plan as a replacement for its prior practice of providing split dollar life insurance agreements to designated executive officers. The Committee replaced the split dollar arrangement with the current plan because it was prohibited by the Sarbanes-Oxley Act from making premium payments on certain split dollar policies due to their nature as loans. Mr. Tanski, Mr. Cabell, Mrs. Cellino, and Mr. Pustulka are covered by the ExecutiveLife Insurance Plan.

 

Mr. Smith is not a participant in the ExecutiveLife Insurance Plan referenced above. In September 2009, the Company entered into an agreement with Mr. Smith (the Life Insurance Premium Agreement) whereby the Company pays to Mr. Smith up to $33,000 per year to be used for life insurance. The Committee recommended the agreement because the Company has been prohibited by the Sarbanes-Oxley Act from making premium payments on split dollar arrangements, as noted above. The payment is taxable income to Mr. Smith. Pursuant to the agreement, this agreement terminates on the earliest of: (1) Mr. Smith’s death, (2) October 31, 2017, or (3) the date Mr. Smith’s employment is terminated if for cause.

 

CHANGE IN CONTROL ARRANGEMENTS

 

If an executive officer’s employment is terminated without cause within a specific time following a Change in Control of the Company, many of the components of total compensation described above become immediately vested or paid out in a lump sum. More detail about these items and calculations as of September 30, 2010, are set forth in the section entitled “Potential Payments Upon Termination or Change in Control” within this proxy statement.

 

In December of 1998, upon recommendation by the Committee, the Company adopted an amended and restated Change in Control agreement, known as the “Employment Continuation and Noncompetition Agreement” (“ECNA”). In September of 2007, and again in September of 2008, the ECNA was amended and restated in order to be in compliance with Internal Revenue Code Section 409A and the final regulations

promulgated thereunder. No enhancement to the benefit provided under the original agreement was added either time. Each of the named executive officers is a party to an ECNA.

 

The Company and the Committee believe that these agreements are required for the attraction and retention of the executive talent needed to achieve corporate objectives and to assure that executive officers direct their attention to their duties, acting in the best interests of the stockholders, notwithstanding the potential for loss of employment in connection with a Change in Control.

 

The agreement contains a “double-trigger” provision that provides payment only if employment terminates within three years following a Change in Control, as defined in the agreement, either by the Company other than for cause or by the executive officer for good reason. The Committee believes this structure strikes a balance between the incentive and the executive attraction and retention efforts described above, without providing Change in Control benefits to executive officers who continue to enjoy employment with the Company in the event of a Change in Control transaction.

 

The payment is generally calculated by multiplying 1.99 by the sum of the executive officer’s current base salary plus the average of the annual cash bonus for the previous two fiscal years. The 1.99 multiplier is reduced on a pro-rata basis if termination occurs between age 62 and 65. There is no gross-up for taxes. If payment is triggered, certain health benefits are continued for the earlier of 18 months following termination or the date other similar coverage becomes available.

 

The ECNA contains a restrictive covenant whereby the executive officer may, upon termination following a Change in Control, choose to refrain from being employed by or otherwise serving as an agent, consultant, partner or major stockholder of a business engaged in activity that is competitive with that of the Company or its subsidiaries. If the executive officer so chooses to be bound by this restrictive covenant, an additional payment is made in the amount of one times the sum of current base salary plus the average of the annual cash bonus for the previous two fiscal years. The Committee and the Company believe this is an appropriate payment in exchange for the non-compete covenant agreed to by the executive officer.

 

OWNERSHIP GUIDELINES

 

In fiscal 2002, in an effort to emphasize the importance of stock ownership and after consultation with the Compensation Committee, Company Common Stock ownership guidelines were established for officers. These guidelines range from one times base salary for junior officers to four times base salary at the Chief Executive Officer level. Other employees receiving options and SARs are encouraged to retain their Common Stock for long-term investment. We believe that employees who are stockholders perform their jobs in a manner that considers the long-term interests of the stockholders.

 

TAX AND ACCOUNTING CONSIDERATIONS

 

In designing the Company’s compensation program, consideration is given to the accounting treatment of the awards made to our executive officers and pertinent tax law provisions. In granting stock settled SAR in lieu of options, the Company took into account that such SARs result in the same financial accounting cost as would have applied to a comparable award of options, but resulted in less dilution to shareholders. Section 162(m) of the Internal Revenue Code prohibits the Company from deducting compensation paid in excess of $1 million per year to any executive officer listed in the Compensation Summary Table unless such compensation qualifies as “performance-based compensation” within the meaning of Section 162(m). The Committee has generally designed the At Risk Plan and the short-term cash incentive compensation payable thereunder, the Performance Incentive Program and long-term equity awards to qualify for this performance based exception. However, the Committee may elect to award compensation that is not fully deductible, if the Committee determines that such award is consistent with its philosophy and is in the best interests of the Company and its stockholders. The Company has also designed its compensation program with the intent that any awards granted thereunder will either be exempt from, or comply with the applicable requirements under Section 409A of the Internal Revenue Code.

 

Summary Compensation Table

 

The following table sets forth a summary of the compensation paid to or earned by each person who served as the Chief Executive Officer, the Principal Financial Officers and each of the three other most

highly compensated executive officers (the “named executive officers”) of the Company in fiscal 2010. The compensation reflected for each officer was for the officer’s services provided in all capacities to the Company and its subsidiaries.

 

 

 

 

 

The following table describes each component of the All Other Compensation column in the Summary Compensation Table for fiscal 2010.

 

 

 

 

 

 

Grants of Plan-Based Awards in Fiscal 2010

 

The following table sets forth information with respect to awards granted to the named executive officers during fiscal 2010 under the Performance Incentive Program, the At Risk Plan, and the 2010 Equity Compensation Plan. There were no Stock Awards during the fiscal year and no future payouts under Equity Incentive Plan Awards to executive officers; therefore we have removed those columns from the table. Please refer to the Compensation Discussion and Analysis (CD&A) within this proxy statement for additional information regarding these plans.