NATIONAL FUEL GAS COMPANY

 

Notice of Annual Meeting

 

and

 

Proxy Statement

 

Annual Meeting of Stockholders

 

to be held on

 

February 15, 2007

 

NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

 

January 12, 2007

 

 

Dear Stockholder:

 

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 Thursday, February 15, 2007, at The Lodges at Deer Valley, 2900 Deer Valley Drive East, Park City, Utah 84060. The matters on the agenda for the meeting are outlined in the enclosed Notice of 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 method of voting is by telephone as described on the proxy card. This method is both convenient for you and reduces the expense of soliciting proxies for the Company. If you prefer not to vote by telephone, please complete, sign and date your proxy card and mail it in the envelope provided. The Proxies are committed by law to vote your proxy as you designate.

 

If you plan to be present at the Annual Meeting, please respond to the question if you vote by telephone, or check the “WILL ATTEND MEETING” box on the proxy card. Whether or not you plan to attend, please vote your shares by telephone or complete, sign, date and promptly return your proxy card so that your vote may be counted. If you do attend and wish to vote in person, you can revoke your proxy by giving written notice to the Secretary of the meeting and/or the Trustee (as described on the first page of this proxy statement), and/or by casting your ballot at the 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,

 

Philip C. Ackerman

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 February 15, 2007

 

To the Stockholders of National Fuel Gas Company:

 

Notice is hereby given that the Annual Meeting of Stockholders of National Fuel Gas Company will be held at 10:00 A.M. local time on Thursday, February 15, 2007, at The Lodges at Deer Valley, 2900 Deer Valley Drive East, Park City, Utah 84060. At the meeting, action will be taken with respect to:

 

(1) the election of directors;

 

(2) the appointment of an independent registered public accounting firm;

 

(3) the approval of the Annual At Risk Compensation Incentive Program;

 

(4) the approval of amendments to the 1997 Award and Option Plan;

 

(5) the adoption of, if presented at the meeting, a shareholder proposal which the Board of Directors OPPOSES;

 

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

 

Stockholders of record at the close of business on December 18, 2006, will be entitled to vote at the meeting.

 

By Order of the Board of Directors

 

Anna Marie Cellino

Secretary

 

January 12, 2007

 

 

 

 

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

 

PROXY STATEMENT

 

This proxy statement is furnished to the holders of National Fuel Gas Company (“Company”) common stock (“Common Stock”) in connection with the solicitation of proxies on behalf of the Board of Directors of the Company for use at the Annual Meeting of Stockholders to be held on February 15, 2007, or any adjournment thereof. This proxy statement and the accompanying proxy/voting instruction card are first being mailed to stockholders on or about January 12, 2007.

 

All costs of soliciting proxies will be borne by the Company. Morrow & Co., Inc., 445 Park Avenue, New York, New York 10022, 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 $8,500 plus reasonable out-of-pocket expenses. Approximately six (6) employees from Morrow & Co., Inc. will assist in the solicitation of proxies.

 

Only stockholders of record at the close of business on December 18, 2006, will be eligible to vote at this meeting or any adjournment thereof. As of that date, 82,482,190 shares of Common Stock were issued and outstanding. The holders of 41,241,096 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 meeting. All shares that are represented by effective proxies received by the Company in time to be voted will be voted at the meeting or any adjournment 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.

 

The proxy also confers discretionary authority to vote on all matters that may properly come before the Annual Meeting of Stockholders, or any adjournment 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 shareholder proposal omitted from this proxy statement pursuant to Rule 14a-8 or 14a-9 of the Securities and Exchange Commission’s proxy rules, and (v) all matters incident to the conduct of the meeting.

 

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 Anna Marie Cellino at the above address, by filing written revocation at the meeting with Mrs. Cellino, secretary of the meeting, or by casting a ballot.

 

If you are a participant in the Company’s Employee Stock Ownership Plan or Tax-Deferred Savings Plans, and the accounts are registered in the same name, the proxy card will also serve as a voting instruction for the Trustee of those Plans. All shares of Company Stock for which the Trustee has not received timely directions shall be voted by the Trustee in the same proportion as the shares of Company 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 proxy/voter instruction card 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 items 1, 2, 3 and 4 and vote AGAINST item 5. Participants in the Plan(s) may also provide those voting instructions by telephone. Those instructions may be revoked 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 February 12, 2007 at the following address:

National Fuel Gas Company

c/o The Bank of New York

P.O. Box 11107

New York, NY 10203-0107

 

Enclosed is a copy of the Company’s Annual Report and Form 10-K for the fiscal year ended September 30, 2006, 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.

1.  ELECTION OF DIRECTORS

 

Five directors are to be elected at this Annual Meeting. The nominees for the five directorships are: Philip C. Ackerman, Stephen E. Ewing, Craig G. Matthews, Richard G. Reiten and David F. Smith. Messrs. Ackerman, Matthews and Reiten are all 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.) Accordingly, Messrs. Ackerman, Mathews, Reiten and Smith have been nominated for terms of three years, and Mr. Ewing has been nominated for a term of two years.

 

It is intended that the Proxies will vote for the election of Messrs. Ackerman, Ewing, Matthews, Reiten and Smith 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. Ackerman, Ewing, Matthews, Reiten and Smith 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.

 

Pages 3 through 5 contain information concerning the five nominees for director, as well as the five directors of the Company whose current terms will continue after the 2007 Annual Meeting, including information with respect to their principal occupations and certain other positions held by them.

 

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.

The Board of Directors Recommends a Vote FOR the Election of
Messrs. Ackerman, Matthews, Reiten, Smith and Ewing

 

 

 

 

 

 

 

 

 

Director Independence

 

The Board of Directors has determined that directors Brady, Cash, Kidder, Matthews, Mazanec, Reiten and Riordan are independent, and that Mr. Ackerman, Chairman and Chief Executive Officer of the Company, is not. The Board’s determinations of director independence were made in accordance with the Director Independence Guidelines adopted by the Board and included in this Proxy Statement as Appendix A. Generally, Appendix A provides that, in order for a director to be considered independent, the Board must affirmatively determine that the director has no direct or indirect material relationship with the Company or any subsidiary, after consideration of all relevant facts and circumstances not merely from the standpoint of the director, but also from that of persons or entities with which the director has an affiliation. Specifically, Appendix A sets out seven specific circumstances in which a director will not be considered independent, and three categorical types of commercial or charitable relationships that will not be considered material relationships for purposes of determining whether a director is independent. Appendix A also sets out four types of independence-related disclosures the Company will continue to make. The Board is not aware of any circumstance that would prevent the Board from determining, after his election, that Mr. Ewing is independent. Mr. Smith, as President and Chief Operating Officer of the Company, would not be independent.

 

Non-management directors meet at regularly scheduled executive sessions without management. The sessions are chaired by Robert T. Brady. 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 shareholder communications addressed in that 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.

Meetings of the Board of Directors and Standing Committees

 

During the Company’s fiscal year ended September 30, 2006 (“fiscal 2006”), there were six meetings of the Board of Directors and one additional meeting that was a strategic planning session. In addition, certain directors attended meetings of standing or pro tempore committees. The Audit Committee held nine meetings, the Compensation Committee held six meetings, the Executive Committee did not have any meetings, and the Nominating/Corporate Governance Committee held three meetings. During fiscal 2006, all incumbent directors attended at least 75% of the aggregate of meetings of the Board and of the committees of the Board on which they served, except for Robert T. Brady, who attended 73.3% of the meetings.

 

The table below shows the number of meetings conducted in fiscal 2006 and the Directors who currently 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. The Audit Committee held nine meetings during fiscal 2006 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, 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 New York Stock Exchange’s (NYSE) listing standards applicable to the Company, in Securities Exchange Commission (SEC) regulations, and in the Company’s Director Independence Guidelines. No Audit Committee member simultaneously serves on Audit Committees of more than three public companies. The Board limits Audit Committees on which an Audit Committee member serves 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 Securities and Exchange Commission (SEC) regulations) serving on its Audit Committee, namely Messrs. Matthews and Mazanec.

 

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 of the committee is included in this Proxy Statement as Appendix B, and is also available to security holders 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.

Compensation

 

The Compensation Committee held six meetings during fiscal 2006 in order to review and determine the compensation of Company executive officers, to review reports and to award stock options and At Risk Program awards. The members of the committee are independent as independence is defined in the NYSE Listing Standards applicable to the Company, SEC regulations, and in the Company’s Director Independence Guidelines. The committee also administers the Company’s 1993 Award and Option Plan, 1997 Award and Option Plan, Annual At Risk Compensation Incentive Program, and the National Fuel Gas Company Performance Incentive Program. A current copy of the charter of the committee is available to security holders on the Company’s website at www.nationalfuelgas.com and is available in print to stockholders who request a copy from the Company’s Secretary at its principal office.

 

Executive

 

There were no meetings of the Executive Committee during fiscal 2006. The committee has and may exercise the authority of the full Board except as 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, SEC regulations, and in the Company’s Director Independence Guidelines. 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. Stockholders may recommend individuals to the committee to consider as potential nominees. Mr. Ewing was originally proposed as a nominee by Mr. Ackerman, the Company’s Chief Executive Officer, and was recommended by several non-management directors.

 

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 are included in this proxy statement as part of the Company’s Corporate Governance Guidelines (included in this proxy statement as Appendix C, available to security holders on the Company’s website at www.nationalfuelgas.com, and available in print to stockholders who request a copy from the Company’s Secretary at its principal office). A current copy of the charter of the committee is available to security holders on the Company’s website at www.nationalfuelgas.com and is available in print to stockholders who request a copy from the Company’s Secretary at its principal office. Appendix C also addresses the qualifications and skills the committee believes necessary for a director, and the committee’s consideration of shareholder recommendations for director. Shareholder 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 10, 2007 to be eligible for consideration for the February 2008 Annual Meeting of Stockholders.

 

Charitable Contributions by Company

 

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

 

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 is available in print to stockholders who request it from the Company’s Secretary at its principal office.

Related Party Transaction

 

In July of 1999, more than three years before the September 2002 election of Mr. Rolland Kidder to the Company’s Board of Directors, his son Mr. Jonathan Kidder was hired by a subsidiary of the Company. Mr. Jonathan Kidder accepted a non-executive supervisory position as an Associate Programmer in the Information Services Department and was promoted twice before his father joined the Board. He is a married adult who does not reside in his father’s household, and a graduate of Miami University in Ohio with a Bachelor of Science Degree in Business with a dual major in General Business and Management Information Systems. His current position is as a Systems Analyst.

 

In fiscal 2006, the value of total compensation to Mr. Jonathan Kidder (base salary, bonus and estimated value of benefits) exceeded $60,000, but was less than $100,000. This makes his continued employment a related party transaction for purposes of SEC disclosure requirements. Mr. Rolland Kidder is an independent director for all purposes under applicable NYSE and SEC rules, and also under the Company’s Director Independence Guidelines included in this proxy statement as Appendix A.

 

Directors’ Compensation

 

The Retainer Policy for Non-Employee Directors (the “Retainer Policy”), which replaced both the Board’s preexisting retainer policy and the Retirement Plan for Non-Employee Directors (the “Directors’ Retirement Plan”), was approved at the 1997 Annual Meeting of Stockholders. 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 (including retired employee directors, if there were any) are covered by the Retainer Policy, under which directors are paid in money plus an amount of common stock adjusted from time to time.

 

In fiscal 2006, pursuant to the current Retainer Policy, non-employee directors were each paid an annual retainer of $26,000 and 1,200 shares of Common Stock. Common Stock issued to non-employee directors under the Retainer Policy 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.

 

Non-employee directors were each paid a fee of $1,800 for each Board meeting and $1,800 for each Committee meeting attended in person or by telephone. Non-employee directors were each paid an additional annual retainer fee of $7,500 if appointed as Chairman of any committee; accordingly, Messrs. Brady, Matthews and Mazanec each received an additional annual retainer fee of $7,500 during fiscal 2006.

 

Benefit accruals under the Directors’ Retirement Plan ceased for each current non-employee director on December 31, 1996. All such directors who were eligible vested in their Directors’ Retirement Plan benefits at that time, and will receive their accrued Directors’ Retirement Plan benefits under its terms. People who first 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/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 would begin upon the later of the date of the director’s retirement or the date the director turns age 70, and continue until the earlier of the expiration of ten years or the death of the director.

 

AUDIT FEES

 

In addition to retaining PricewaterhouseCoopers LLP to report upon the annual consolidated financial statements of the Company for 2006, the Company retained PricewaterhouseCoopers LLP to provide

various non-audit services in 2006. The aggregate fees billed for professional services by PricewaterhouseCoopers LLP for each of the last two years were as follows:

 

 

 

 

The Audit Committee’s charter (included in the Proxy Statement as Appendix B and 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) includes its pre-approval policies and procedures. The Company’s Reporting Procedures for Accounting and Auditing Matters are included in this Proxy Statement as Appendix D.

 

For fiscal year 2006, 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 the Sarbanes-Oxley Act and codified in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 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 included in this Proxy Statement as Appendix B and is also 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 2006 with management. The Audit Committee has also reviewed with management its evaluation of the Company’s internal control structure and procedures for financial reporting and reviewed management’s assessment about the effectiveness of the Company’s internal controls and procedures, including any significant deficiencies in such controls and procedures. The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication With Audit Committees (Codification of Statements on Auditing Standards, AU§380), as modified or supplemented. The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as modified or supplemented, and has discussed with the independent auditors the independent auditor’s independence. The Audit Committee also has considered whether the independent auditor’s provision of non-audit services to the Company and its affiliates is compatible with the independent auditor’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

Rolland E. Kidder

George L. Mazanec

Richard G. Reiten

 

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 which is the only class of Company Stock 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 by exercising stock options but has not done so. All information is as of November 30, 2006 except as otherwise indicated.

 

 

 

 

As of November 30, 2006, 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, 2006

 

 

 

 

EXECUTIVE COMPENSATION

 

Report of the Compensation Committee

 

General

 

The Compensation Committee of the Board of Directors (the “Committee”) sets the base salaries and bonuses of the Company’s executive officers. It also exercises authority delegated to it by the shareholders or the Board with respect to compensation plans. Plans under which shareholders have delegated authority to the Committee include the National Fuel Gas Company 1997 Award and Option Plan, as amended (the “1997 Award and Option Plan”), and the Administrative Rules with respect to At Risk Awards under the 1997 Award and Option Plan (the “At Risk Program”). In addition, the Committee makes recommendations to the Board with respect to the development of incentive compensation plans and equity-based plans and administers the National Fuel Gas Company Performance Incentive Program (the “Performance Incentive Program”). The Committee is comprised of the four directors named below, all of whom have been determined by the Board to be independent. No member of the Committee is permitted to receive any award under any plan administered by the Committee.

 

Objective

 

The Committee’s objective is to set executive compensation at levels which (i) are fair and reasonable to the stockholders, (ii) link executive compensation to long-term and short-term interests of the stockholders, and (iii) are sufficient to attract, motivate, and retain outstanding individuals for executive positions. The executive officers’ compensation is linked to the interests of the stockholders by making a part of each executive officer’s potential compensation depend on the price of the Company’s Common Stock on the open market and the officer’s own performance. The retention of officers is encouraged by making a portion of the compensation package in the form of awards which either increase in value, or only have value, if the executive officer remains with the Company for specified periods of time.

 

The Committee retains an independent compensation consulting firm to assist it in evaluating and setting officer compensation. The firm annually compares Company compensation practices to both utility and general industry practices. It also provides a proxy analysis of the Chief Executive Officer position based on the latest proxy data for the Company and ten energy companies in the peer group. In 2006 a similar analysis was provided for the President & Chief Operating Officer position at the Company and individuals with title comparability at five of the peer companies. Based on 2005 proxy data, the companies in the eleven member peer group range in size from $10.7 billion in revenues to $1.1 billion in revenues. The median size of the peer group is $2.9 billion in revenues.

 

Specific components of executive officers’ compensation earned or paid in fiscal 2006 are discussed below. The Company’s five most highly compensated executive officers, as well as Mr. Seeley who retired in February 2006 and Mr. Beck who retired in July 2006, are identified on the Summary Compensation Table starting on page 18, and are sometimes referred to as the “named executive officers.”

 

Base Salary

 

The Committee annually reviews base salaries for the Company’s executive officers and adjusts them as it deems appropriate on a calendar year basis and as changes in responsibility occur. The Committee generally targets a range of the 50th percentile to the 75th percentile of the survey data provided by its outside compensation consultant. The Committee also considers an individual’s specific responsibilities, experience (including time in position), and effectiveness in setting base salary.

 

The fiscal 2006 base salaries of the named executive officers are shown on the Summary Compensation Table on page 18 in the “Base Salary” column.

 

Annual At Risk Incentive and Bonus

 

Under the At Risk Program, the Committee may make At Risk Awards which grant an executive officer the opportunity to earn cash payments depending on the achievement of goals set within the first quarter of each fiscal year. Performance goals can be both financial (for example, Company earnings per share or subsidiary earnings per share) and non-financial (for example, customer service).

The Committee reviews and approves corporate goals for Mr. Ackerman under the At Risk Program and evaluates his performance in light of these goals. It approves his compensation based upon that evaluation. For fiscal 2006 Mr. Ackerman was the only participant in the At Risk Program. At Risk Program goals for Mr. Ackerman, as Chief Executive Officer, were a specified level of Company earnings per share (weighted at 55% of the formula), a proved developed and undeveloped reserves goal (weighted at 25% of the formula), a long-term strategy goal (weighted at 10% of the formula) and customer service and safety goals (weighted at 10% of the formula). Company diluted earnings per share must reach a pre-determined target in each of two consecutive fiscal years to trigger the maximum annual incentive award to Mr. Ackerman. The target award for Mr. Ackerman was set at 100% of base salary with a maximum possible award of 200% of base salary. In fiscal 2006, Mr. Ackerman was awarded a bonus of 95% of his target amount for his performance on the goals set under the At Risk Program.

 

The Summary Compensation Table starting on page 18 includes in the “LTIP (Long-Term Incentive Plan) Payouts” column the amounts earned by Mr. Ackerman in fiscal 2006 under the At Risk Program. The At Risk Award is considered by the SEC to be a “long-term” incentive because payment is based, in part, on a rolling average of performance during the two fiscal years most recently completed. The range of potential At Risk Program awards for fiscal 2006 for Mr. Ackerman is set out in the Long-Term Incentive Plan Award Table on page 21.

 

In furtherance of the Committee’s goal of emphasizing incentive-based compensation for the Company’s other executive officers, most of the executive officers, including Messrs. Smith, Tanski, Pustulka and Ramsdell were paid amounts as bonuses in December 2006 (for performance in fiscal 2006). In December 2006, the Compensation Committee reviewed with Mr. Ackerman the performance of Messrs. Smith and Tanski with respect to individual goals set earlier in fiscal 2006. The target award for both Mr. Smith and Mr. Tanski was set at 65% of base salary with a maximum possible award of 130% of base salary. Mr. Smith was given a corporate earnings per share goal (weighted at 55% of the formula), a proved developed and undeveloped reserves goal (weighted at 25% of the formula), a production volume goal (weighted at 10% of the formula) and customer service and safety goals (weighted at 10% of the formula). Mr. Tanski was given a corporate earnings per share goal (weighted at 30% of the formula), an earnings per share goal of the Company’s regulated subsidiaries (Supply Corporation, Empire and Distribution Corporation) (weighted at 30% of the formula), a safety goal (weighted at 10% of the formula), a customer service standards goal (weighted at 10% of the formula), and goals related to the Company’s relationship with investors and analysts (weighted at 20% of the formula).

 

For fiscal 2006, Messrs. Smith and Tanski were awarded bonuses of 78% and 111%, respectively, of their target amounts for performance on their goals.

 

Mr. Ackerman made recommendations for fiscal 2006 bonuses for the other officers, including Mr. Pustulka, and Mr. Ramsdell, which were accepted by the Committee. The Summary Compensation Table starting on page 18 includes in the LTIP Payouts column the amount earned by Mr. Smith in fiscal 2006 because payment was based, in part, on a rolling average of performance during 2005 and 2006. The Summary Compensation Table on page 18 includes in the “Bonus” column the amount earned by Messrs. Tanski, Pustulka and Ramsdell in fiscal 2006 as bonuses. These awards are considered by the SEC to be bonuses because they are based on performance during a single fiscal year.

 

In January 2006 the Committee awarded a bonus of $57,688 to Mr. Seeley with respect to his performance on three goals set in fiscal 2005 which extended into 2006. The goals related to Appalachian exploration and production operations. In addition, the Committee awarded him a bonus of $155,757 for his performance in 2006. That bonus was arrived at by taking one-third of the bonus paid for performance on his 2005 goals. Mr. Seeley retired effective February 1, 2006.

 

In January 2006 the Company and Mr. Seeley also executed a Noncompete and Restrictive Covenant Agreement (the “Agreement”) which is described on pages 23-24 of this Proxy Statement. Under the Agreement, the Company paid Mr. Seeley a lump sum of $440,000 in February 2006. In consideration for the promise of such payment, Mr. Seeley agreed to various confidentiality and non-competition provisions, and also released claims based on his participation in the Company’s Performance Incentive Program plus any other claims he may have against the Company as of the date he executed the Agreement regarding his employment and the termination of his employment, including but not limited to any claims for wages, bonuses or severance pay.

The Company, Seneca Resources Corporation and Mr. Beck executed a Retirement Agreement (the “Retirement Agreement”) in June 2006 and Mr. Beck retired effective July 1, 2006.

 

Pursuant to the Retirement Agreement, in September the Company paid Mr. Beck a lump sum of $465,000, less applicable taxes and withholding. This payment did not constitute a bonus or other compensation for purposes of calculating benefits under the Retirement Plan or the Executive Retirement Plan. Mr. Beck and the Company also agreed that 4,000 shares of restricted stock awarded to Mr. Beck on January 31, 2000 be modified to vest on July 1, 2006. Mr. Beck also waived all claims he might have against the Company as of the date he executed the Retirement Agreement regarding his employment and the termination of his employment, including for benefits based on his participation in the Performance Incentive Program, wages and bonuses.

 

The Company also entered into a Contract for Consulting Services (the “Consulting Contract”) with Mr. Beck. Under the terms of the Consulting Contract, Mr. Beck will provide consulting services as an independent contractor for a period of three years beginning July 1, 2006. As consideration for his services, Seneca will pay Mr. Beck an annual fee of $200,000, payable in monthly increments of one-twelfth (1/12) of the annual fee. Seneca or another subsidiary of the Company may request that Mr. Beck provide onshore geological and geophysical consulting services. If Mr. Beck performs such services, he will be paid an additional fee of $200 per hour for each hour of requested onshore services performed.

 

Mr. Beck’s Retirement Agreement and Consulting Contract are described at pages 24-25 of this Proxy Statement.

 

Stock Options, Restricted Stock and the Performance Incentive Program

 

Stock options, restricted stock and the Performance Incentive Program represent the longer-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, the Committee wishes to encourage officers and other managers to have a significant, personal investment in the Company through stock ownership. To emphasize the importance of stock ownership, in fiscal 2002 Mr. Ackerman, after consultation with the Compensation Committee, set Company Stock ownership guidelines 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 are encouraged to retain their stock for long-term investment.

 

Awards of stock options and restricted stock are made by the Committee under the 1997 Award and Option Plan. The Committee awards stock options to buy Company Common Stock, which have value only to the extent the market price of the Company’s Common Stock increases after the date of an award. The Committee also on occasion awards restricted stock, usually as a retention tool, which increases or decreases in value to the same extent as the Company’s Common Stock. Dividends are paid on restricted stock and on the shares held for employees (including executive officers) in various employee benefit plans, so executive officers benefit directly from dividends paid on the Company’s Common Stock.

 

In 2002 the Committee reviewed its past practice of annual option awards. In 2002 the Committee granted options to officers which were intended to be a multi-year incentive. Option awards were made to each named executive officer to buy stock in the future at the market price on the award date. These options vested over a three-year period and none could be exercised for at least one year after the award date. All of them expire no later than 10 years after the award date.

 

In fiscal 2005 the Committee, with the assistance of its compensation consultant, evaluated its alternatives on long-term incentive compensation including the use of incentives in addition to options and restricted stock. The Committee concluded that options remain an important component of long-term compensation at the Company, but that the number granted in the future would be more limited than in the past. The Committee then recommended to the Board that a cash based long-term incentive be adopted to complement the use of options. The Board adopted the Performance Incentive Program and delegated authority to the Committee to administer that program.

 

Under the Performance Incentive Program, the Compensation Committee may establish a performance condition for a performance period of at least one year. The default performance condition is 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 reported in AUS Monthly Utility Reports. A cash bonus may be paid following the end of the performance period based on the level of performance.

 

In fiscal 2005 the Compensation Committee chose the Company’s total return on capital as the performance metric for the performance period of October 1, 2004 to September 30, 2007. The Committee approved a total of $1,995,000 of target incentives for a group of seventeen officers. As a result of the retirements of Messrs. Seeley and Beck, discussed above, there is currently $1,255,000 of target incentives outstanding related to that award.

 

In fiscal 2006 the Committee again chose the Company’s total return on capital as the performance metric. The performance period selected was October 1, 2005 to September 30, 2008. The Committee approved a total of $1,895,000 of target incentive for a group of eighteen officers.

 

Based on the level of performance at the end of each of the three-year performance periods, payment can range from 0% to 200% of the target incentives.

 

In awarding long-term incentive compensation in fiscal 2006, the Committee generally adopted its compensation consultant’s guidelines on the level of such compensation. Those levels included a target of: 160% of base salary for the Chief Executive Officer (Mr. Ackerman); 140% of base salary for the Company President (Mr. Smith); 120% of base salary for the Chief Financial Officer (Mr. Tanski) and 60% of base salary for Senior Vice Presidents (Pustulka and Ramsdell). Using the guidelines the Committee awarded 100,000 options and a Performance Incentive Program target incentive of $650,000 to Mr. Ackerman. In addition, the Committee granted long-term incentives to other officers (including Messrs. Smith, Tanski, Pustulka and Ramsdell) as either options, target incentives under the Performance Incentive Program or a combination of both. Option grants are described on the Option Grants table on page 20, and other long-term incentives are described on the Long-Term Incentive Plan — Awards in Fiscal 2006 table starting on page 21.

 

Compensation of Chief Executive Officer

 

The bases for Mr. Ackerman’s fiscal 2006 base salary and At Risk Program award including the Committee’s goals and methodology, are discussed earlier in this report under the headings Base Salary and Annual At Risk Incentive and Bonus. Mr. Ackerman also received a grant of options and a Performance Incentive Program target incentive in fiscal 2006, as discussed earlier in this report under the heading Stock Options, Restricted Stock and the Performance Incentive Program.

 

Based on the proxy analysis conducted by the independent compensation consulting firm as discussed under Objective on page 14, total direct compensation earned by Mr. Ackerman was at the 51st percentile of the compensation packages earned by officers in a peer group of eleven energy companies, including the Company.

 

Policy With Respect to Qualifying Compensation Paid to Executive Officers For Deductibility Under Section 162(m) of the Internal Revenue Code

 

The Committee intends that, whenever reasonably possible, compensation paid to its managers, including its executive officers, should be deductible for federal income tax purposes. Compensation paid under the At Risk Program qualifies as performance-based compensation under Section 162(m) of the Internal Revenue Code. The Committee may vote to award compensation, especially to a chief executive officer, 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.

 

COMPENSATION COMMITTEE

 

George L. Mazanec, Chairman

Robert T. Brady

R. Don Cash

John F. Riordan

 

Executive Compensation Summary Table

 

The following table sets forth information with respect to compensation paid by the Company and its subsidiaries for services rendered during the last three fiscal years to the Chief Executive Officer, to each of the four other most highly compensated active executive officers, and for the two executive officers who retired, all for the fiscal year ended September 30, 2006 (the “named executive officers”).

 

SUMMARY COMPENSATION TABLE

 

 

 

Stock Option Grant Table

 

The following table sets forth information with respect to options to purchase shares of Common Stock awarded during fiscal 2006 to the named executive officers pursuant to plans approved by the Company’s stockholders.

 

OPTION GRANTS IN FISCAL 2006(1)

 

 

 

Stock Option Exercises And Fiscal Year-End Value Table

 

The following table sets forth as to each named executive officer information with respect to stock option and stock appreciation right (SAR) exercises during fiscal 2006 and the number and value of unexercised options and SARs at September 30, 2006. The named executive officers did not exercise any SARs in 2006, and in fact have no SARs.

 

AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2006 AND OPTION/SAR VALUES
ON SEPTEMBER 30, 2006

 

 

 

 

Long-Term Incentive Plan Award Table

 

The following table sets forth information with respect to long-term incentive plan awards [made during fiscal 2006] to the named executive officers pursuant to the At Risk Program and the Performance Incentive Program.

 

LONG-TERM INCENTIVE PLANS — AWARDS IN FISCAL 2006

 

 

 

 

 

Report on Repricing of Options/SARs

 

The Company did not reprice any stock options or SARs in fiscal 2006.

 

Corporate Performance Graph

 

The following graph compares the yearly cumulative stockholder return on the Company’s Common Stock against the cumulative total return of the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”), and the S&P Midcap Multiutility Index for a period of five years commencing September 30, 2001, and ended September 30, 2006. The S&P Midcap Multiutility Index comprises the cumulative total returns of 11 diversified energy companies, including the Company.

 

 

¹ Assumes $100 invested on September 30, 2001, and reinvesting of dividends

 

Source: Bloomberg       

 

Employment Contracts and Termination of Employment and Change-in-
Control Agreements

 

Messrs. Ackerman, Smith, Tanski, Pustulka and Ramsdell entered into Employment Continuation and Noncompetition Agreements with the Company dated December 11, 1998 that are to become effective in the event of a defined change of control of the Company. (Messrs. Beck and Seeley also entered into such agreements but they terminated upon their retirement July 1, 2006 and February 1, 2006, respectively.)

These agreements preserve as a minimum, for the three years following such change of control, the annual salary levels and employee benefits as are then in effect for these executives and provide that, in the event of certain terminations of employment, these executives shall receive severance payments up to 1.99 times their respective annual base salaries and annual bonuses prior to termination. Unless an executive elects not to be bound by the Noncompetition part of the agreement, an additional payment of 1.00 times salary and annual bonus prior to termination will be made at the same time. In addition, executives shall receive either continuation of certain employee benefits for three years or the value of such benefits, specifically any “pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive’s participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made effective to the Executive or other similarly situated officers at any time thereafter.” The Company will comply in good faith with Section 409A of the Internal Revenue Code, which may require the three-year benefit continuation period be reduced to two years.

 

Mr. Smith entered into a retirement agreement with the Company on September 22, 2003. The agreement is intended to provide Mr. Smith with certain retirement benefits in the event of an actual or constructive termination without cause before March 1, 2011. In such a case, Mr. Smith would receive a retirement benefit based on the percentage of retirement benefits he would receive at March 1, 2011. However, Mr. Smith’s actual earnings and actual years of service at termination would be used in the calculation of his benefit based on the formulas in the Retirement Plan and the Executive Retirement Plan. In order to comply with Section 409A of the Internal Revenue Code, amendments to the agreement impose a required six-month waiting period before commencement of payments under the agreement and provide for the payment of such six-month benefits in a lump sum in the seventh month.

 

Also, in the event of certain types of termination of employment within two years after a defined change in control of the Company, the 1997 Award and Option Plan provides that (i) all of the terms and conditions in effect on any of the Participant’s outstanding awards would immediately lapse; (ii) all of the Participant’s outstanding awards would automatically become one hundred percent vested; and (iii) all of the Participant’s outstanding stock options, SARs and restricted stock would immediately vest and the options and SARs would be immediately cashed out on the basis of the Fair Market Value of the Common Stock on the Acceleration Date (as defined in the Plan). Such payments would be made as soon as possible, but no later than the 90th day following such event. The 1997 Plan also provides that in the event of a merger, consolidation, reorganization of the Company with another corporation, a reclassification of the Common Stock, a spin-off of a significant asset, or other changes in the capitalization of the Company, appropriate provisions will be made for the protection and continuation of outstanding awards by either (i) the substitution of appropriate stock or other securities, or (ii) by appropriate adjustments in the number of shares issuable pursuant to the Plan, the number of shares covered by outstanding Awards, the option price of outstanding stock options, and the exercise price of outstanding SARs, as deemed appropriate by the Compensation Committee.

 

On January 31, 2006, the Company and Mr. Seeley executed a Noncompete and Restrictive Covenant Agreement (the “Noncompete Agreement”). Mr. Seeley retired effective February 1, 2006 from his positions as Vice President of the Company and President of Distribution Corporation. Under the Noncompete Agreement, the Company paid Mr. Seeley a lump sum of $440,000 in February 2006. In consideration for the promise of such payment, Mr. Seeley agrees to hold in a fiduciary capacity all of the Company’s trade secrets and confidential and proprietary information in his possession, and he agrees not to use or disclose such trade secrets and information. Furthermore, during the period beginning February 1, 2006 and ending January 31, 2009, Mr. Seeley will not, without the prior written consent of the Company, engage in or be interested in (as owner, partner, shareholder, employee, director, agent, consultant or otherwise) any business which is a competitor of the Company. In addition, Mr. Seeley releases all claims he may have against the Company as of the date he executed the Noncompete Agreement regarding his employment and the termination of his employment, including but not limited to any claims for wages, bonuses or severance pay, and any claims based on his participation in the Company’s Performance Incentive Program.

 

The Company releases all claims it may have against Mr. Seeley as of the date he executed the Noncompete Agreement, except for claims for fraud or other intentional misconduct discovered after execution of the Noncompete Agreement. The Company will indemnify Mr. Seeley against all liabilities and expenses in connection with any proceeding in which he may become involved by reason of having

been a director or officer of the Company or its subsidiaries. Mr. Seeley will not take any action with the intended purpose of interfering with, damaging or disrupting the assets or business operations or affairs of the Company or its subsidiaries or affiliates. Mr. Seeley will not, without the prior written consent of the Company, work for, consult with, advise or represent any business which is a customer of the Company, with respect to any matter or activity which would tend to reduce the quantity or price of services or commodities provided by the Company to that business.

 

On June 20, 2006, the Company, Seneca Resources Corporation, a wholly owned subsidiary of the Company (“Seneca”), and Mr. Beck executed a Retirement Agreement (the “Retirement Agreement”) and a Contract for Consulting Services (the “Consulting Contract”), after approval of the terms by the Company’s Board of Directors. The following two paragraphs describe the terms of the Retirement Agreement, and the next two paragraphs describe the terms of the Consulting Contract.

 

Mr. Beck resigned from all of his positions with Seneca and all other subsidiaries and affiliates of the Company effective July 1, 2006. Mr. Beck is entitled to certain accrued pension benefits under the National Fuel Gas Company Retirement Plan (the “Retirement Plan”) and to certain supplemental pension benefits under the National Fuel Gas Company Executive Retirement Plan (the “Executive Retirement Plan”). The Company paid Mr. Beck a lump sum of $465,000, less applicable taxes and withholding, on or about September 15, 2006. This payment did not constitute a bonus or other compensation for purposes of calculating benefits under the Retirement Plan or the Executive Retirement Plan. The Company will pay Mr. Beck’s tax advisor for reasonable assistance in the preparation and filing of his income tax returns for tax year 2006, up to a maximum of $8,000. In addition, from July 1, 2006 through June 30, 2009, family medical coverage under the Company’s Executive Medical Plan, Prescription Drug Plan and Dental Plan will be made available to Mr. Beck and his spouse at Mr. Beck’s expense at the same monthly cost as paid by an active Company executive during that time. Beginning July 1, 2009, family medical coverage under the Company’s non-executive medical and prescription drug plan will be made available to Mr. Beck and his spouse to the same extent, if any, and in the same form, if any, as is then being provided to non-executive supervisory employees of National Fuel Gas Distribution Corporation (“Distribution Corporation”), which conducts the Company’s utility operations. This coverage will be made available at Mr. Beck’s expense at the same monthly cost as paid by an active non-executive supervisory employee of Distribution Corporation.

 

Mr. Beck is entitled to various benefits accrued under the Company’s Deferred Compensation Plan, Tophat Plan, Employee Stock Ownership Plan, Tax-Deferred Savings Plan for Non-Union Employees, 1993 Award and Option Plan, and 1997 Award and Option Plan. Payments of benefits under these plans will be available or begin no earlier than the first day such payments can be made without triggering the additional taxes which would be required if such payments were to be deemed “deferred compensation” for purposes of Section 409A of the Internal Revenue Code. The 4,000 shares of restricted stock awarded to Mr. Beck on January 31, 2006 were modified to vest on July 1, 2006, an acceleration of about seven months. Mr. Beck waives all claims he might have under the Employment Continuation and Noncompetition Agreement, dated December 11, 1998, among Mr. Beck, the Company and Seneca. Mr. Beck also waives all claims he might have against the Company as of the date he executed the Retirement Agreement regarding his employment and the termination of his employment as a result of his retirement. Mr. Beck will not compete against the Company for a period of three years (from July 1, 2006 through June 30, 2009), and will not interfere with the Company’s operations or induce any employee or officer of the Company to leave the Company. Mr. Beck will not utilize, communicate or divulge any of the Company’s trade secrets or confidential and proprietary information.

 

Under the terms of the Consulting Contract, Mr. Beck will provide to the Company and its subsidiaries geological and geophysical consulting services, including consultation on well placement, well design and prospect evaluation, relating to offshore oil and gas exploration and production, as requested by Seneca or another subsidiary of the Company. Mr. Beck will provide consulting services as an independent contractor for a period of three years beginning July 1, 2006. The amount of consulting to be requested and performed by Mr. Beck will be no more than 1,000 hours in each consecutive twelve-month period beginning July 1, 2006, nor more than 100 hours in any calendar month. In the event Mr. Beck fails or refuses to perform consulting services as reasonably requested (including any failure because of death or disability), the Company may terminate the Consulting Contract upon 30 days’ notice to Mr. Beck. As consideration for his services, Seneca will pay Mr. Beck an annual fee of $200,000, payable in monthly increments of one-twelfth (1/12) of the annual fee. Seneca or another subsidiary of the Company may request that Mr. Beck provide onshore geological and geophysical consulting services. If Mr. Beck

performs such services, he will be paid an additional fee of $200 per hour for each hour of requested onshore services performed. Mr. Beck may also perform certain consulting services for third parties, provided that he may not accept employment from, or provide services to, any party if that party could be construed to be in competition with the Company or one of its subsidiaries. In the event that Mr. Beck independently generates or acquires rights to sell or farm-out a prospect or a portion thereof, separate from his work under the Consulting Contract, Seneca has a first right of refusal to acquire all or a portion of the prospect or interest to be sold or farmed-out, on terms at least as favorable as those offered and/or sold to any third parties.

 

Seneca or another subsidiary of the Company will reimburse Mr. Beck’s out-of-pocket expenses incurred in connection with the performance of services under the Consulting Contract. Mr. Beck will not incur expenses in excess of $200 in any day without Seneca’s prior written approval. Mr. Beck agrees to keep all information gathered, developed or communicated to him by the Company or any of its agents, or acquired in connection with the work performed, strictly confidential. Any breach of the Consulting Contract will also be considered a breach of the Retirement Agreement.

 

Retirement Benefits

 

The following table shows annual 50% joint and survivor life annuity total benefits payable under the Retirement Plan plus the Executive Retirement Plan to eligible officers retiring at the normal retirement age of 65 with a spouse of the same age. Forms of benefit payment other than the 50% joint and survivor life annuity, or retirement at an age earlier than 65, would result in different annual benefits to eligible officers.

 

PENSION PLAN TABLE

 

 

 

 

The officers named in the Summary Compensation Table are not participants in any other defined benefit or actuarial plan. They are participants in defined contribution plans which would normally pay out after retirement, namely (i) the Tax Deferred Savings Plan (a 401(k) plan); (ii) the Deferred Compensation Plan (under which those executives and other selected management employees previously deferred part

of salary earned in previous years); (iii) the Tophat Plan; and (iv) the Employee Stock Ownership Plan. The Company’s fiscal 2006 contributions to those plans are itemized in footnote 3 to the Summary Compensation Table starting on page 18. The officers named in the Summary Compensation Table may also receive other post-retirement benefits (medical, prescription, life insurance) in the same manner as non-union retirees from the Company’s utility subsidiary who were hired before January 1, 2003. Such retirees currently pay the Company an amount equal to the required active employee contribution for medical and prescription benefits in effect on the date of retirement.

 

2.  APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

At the 2007 Annual Meeting, stockholders will be asked to approve the Audit Committee’s appointment of PricewaterhouseCoopers LLP, as the independent registered public accounting firm for the Company’s fiscal year ending September 30, 2007 (“fiscal 2007”). If approved by the stockholders, PricewaterhouseCoopers LLP will examine the financial statements of the Company and its subsidiaries and report upon the annual consolidated financial statements for fiscal 2007, as they did for fiscal 2006.

 

Representatives of that firm will not be attending this year’s Annual Meeting. Therefore, no representative will be available to answer questions or make a statement.

 

The affirmative vote of a majority of the votes cast with respect to the appointment of the independent registered public accounting firm by the holders of shares of Common Stock entitled to vote is required for the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm.

 

If the necessary votes are not received, or if PricewaterhouseCoopers LLP declines to accept or otherwise becomes incapable of accepting or exercising the appointment, or its services are otherwise discontinued, the Board of Directors will appoint another independent registered public accounting firm. Unless they are otherwise directed by the stockholders, the Proxies intend to vote for the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm.

 

The Board of Directors Recommends a Vote FOR this Appointment.

 

3.  APPROVAL OF THE ANNUAL AT RISK COMPENSATION
INCENTIVE PROGRAM

 

Since 1993, a key component of the Company’s executive compensation package has been the performance-based compensation paid in accordance with the Company’s Annual At Risk Compensation Incentive Program (“AARCIP”). The Company is now seeking the shareholder approval necessary to receive the maximum tax benefit of continuing to pay performance-based compensation under a revised AARCIP. Approval by the Company’s shareholders at least every five years is necessary for Company’s AARCIP payments to qualify as “performance-based compensation” for the Company’s income tax purposes, as described below.

 

Background

 

The Company’s AARCIP was established in 1993 and approved in various forms at the 1995, 2000 and 2002 Annual Meetings. Under the AARCIP, cash is payable to eligible employees based on the extent of attainment over a Performance Period of Performance Goals, all as specified and judged by the Compensation Committee in its discretion (“At Risk Awards”). The purposes of an At Risk Award are (i) to provide incentives to certain employees of the Company whose contributions are important to the continued success of the Company, and (ii) to enhance the Company’s ability to attract and retain highly qualified persons for the successful conduct of its businesses.

 

The Company is now asking for approval by the shareholders, at the 2007 Annual Meeting, of the AARCIP included in this Proxy Statement as Appendix E (the “At Risk Plan”). Under the At Risk Plan, cash would continue to be payable to executives based on the extent of attainment over a Performance Period of Performance Goals, all as specified and judged by the Compensation Committee in its discretion. The principal change from previous versions of the AARCIP is that At Risk Awards have previously been granted as one of the types of awards permitted under either the 1993 Award and Option Plan (which

expired in 2003) or the 1997 Award and Option Plan (which was scheduled to expire in December 2006 but is proposed to be extended at the 2007 Annual Meeting). At previous Annual Meetings, the shareholders approved relatively brief Administrative Rules under one or the other of the Award and Option Plans, which automatically incorporated into the At Risk Awards a great many provisions applicable to all the types of awards made under those plans. To make the AARCIP a stand-alone plan, it has been necessary to add to the At Risk Plan document some of the definitions and other provisions that have been applicable to At Risk Awards since the inception of the program in 1993.

 

The Company could simply pay cash bonuses to its executives based on their performance, without having the bonus program approved by the shareholders. However, for the Company to receive the maximum tax benefit from compensation paid to its executives, shareholder approval of the At Risk Plan is necessary. Section 162(m) of the Internal Revenue Code limits the amount of individual compensation that may be deducted by an employer for tax purposes in any one fiscal year to $1 million per person. However, that section also creates an exception to the $1 million limit for compensation which constitutes “performance-based compensation”, paid as a result of the attainment of pre-established, objective performance criteria. Among other conditions, in order to be “performance-based compensation”, the material terms of a performance-based plan like the At Risk Plan (and the previous AARCIPs) must be approved by the Company’s shareholders (and reapproved at least every five years). Consequently, some future executive compensation may not be deductible by the Company unless the At Risk Plan is approved by shareholders at the 2007 Annual Meeting.

 

Therefore, in order to ensure that as much as possible of the Company’s future executive compensation will constitute “performance-based compensation,” and thus will be fully deductible to the Company on its federal income tax returns, shareholder approval of the At Risk Plan is being sought at this time. The Board of Directors of the Company has determined that approval of the At Risk Plan by the shareholders is in the best interests of the Company and the shareholders. The affirmative vote of a majority of the shares of Common Stock present and voting at the meeting is required for approval of the At Risk Plan.

 

Summary of the At Risk Plan

 

The following is a summary of the At Risk Plan. A copy of the At Risk Plan is included in this Proxy Statement as Appendix E. The following summary is qualified in its entirety by reference to Appendix E.

 

At Risk Awards

 

Under the At Risk Plan, At Risk Awards granted by the Committee entitle each recipient to a cash payment based upon the extent to which Performance Goals have been attained for a specified Performance Period. No Eligible Employee may receive more than one At Risk Award in any fiscal year. An At Risk Award may be granted singly, in combination or in the alternative with other Awards granted under other Company benefit plans.

 

Administration

 

The At Risk Plan provides for administration by the Compensation Committee of the Board, or such other committee designated by the Board (“Committee”). The Committee must consist of at least two members, each of whom is an “outside director” as defined by Section 162(m) of the Internal Revenue Code and the rules, regulations and interpretations promulgated thereunder as amended from time to time (“Code”).

 

The Committee has full authority to: interpret the At Risk Plan and Section 162(m) of the Code to the extent not addressed by regulation, proposed regulation or publicly available interpretation of the Internal Revenue Service; determine and select Eligible Employees to receive At Risk Awards; determine the terms and conditions of an At Risk Award, including the time of making the At Risk Award, the Performance Period, Performance Goals, and levels of At Risk Awards to be earned in relation to levels of achievement of the Performance Goals; determine whether At Risk Awards are to be granted singly, in combination or in the alternative with other Awards under other Company benefit plans; grant waivers of At Risk Plan terms and conditions, provided that such waivers are not inconsistent with Section 162(m) of the Code; and accelerate the vesting, exercise or payment of any At Risk Award or the Performance Period of an At Risk Award when such action would not cause compensation paid or payable under such At Risk Award to

cease to be deductible by the Company for federal income tax purposes. The Committee will also have the authority to grant At Risk Awards in replacement of Awards previously granted under At Risk Plan or awards under any other executive compensation or stock option plan of the Company or a Subsidiary. Neither the Committee nor any delegate thereof has the authority to take any action under the At Risk Plan which would result in the imposition of an additional tax under section 409A of the Code on the Eligible Employee holding an At Risk Award granted hereunder.

 

Under the At Risk Plan, all determinations of the Committee will be made by a majority of its members, and its determinations will be final, binding and conclusive. The At Risk Plan authorizes the Committee, in its discretion, to delegate its authority and duties under the At Risk Plan with respect to At Risk Awards to the Company’s Chief Executive Officer or to other senior officers of the Company, but only to the extent, if any, permitted by Section 162(m) of the Code.

 

Eligibility for Participation

 

Eligible Employees are those employees of the Company or its Subsidiaries who are expected to constitute “covered employees” within the meaning of Section 162(m) of the Code, and any other Core Employee to whom an At Risk Award has been granted by the Committee. Presently, there are four Eligible Employees. An Eligible Employee who holds an outstanding At Risk Award is referred to as a Participant.

 

Effective Date

 

Upon approval of the At Risk Plan by the shareholders of the Company at the 2007 Annual Meeting, the At Risk Plan will become effective as of December 7, 2006.

 

Objective Performance Goals

 

The Performance Goals of the At Risk Plan are established with reference to earnings per share, subsidiary net income and customer service/other goals, and are established by the Committee for each Eligible Employee who receives an At Risk Award.

 

For example, for fiscal 2006, the Committee granted only one At Risk Award, pursuant to which Mr. Ackerman would have the opportunity to earn annual at risk incentive compensation equal to specified percentages of base salary, by achieving specific target Performance Goals constituting median and maximum performance. Mr. Ackerman, as Chief Executive Officer, received payment based upon attainment of specified levels of Company earnings per share (weighted as 55% of the formula), long-term strategy, succession planning and long-term incentive compensation goals (weighted as 10% of the formula), proved developed and undeveloped reserves goals (weighted as 25% of the formula) and customer service and safety goals (weighted as 10% of the formula).

 

Historically, the At Risk Awards made by the Company have typically been based on the recipient’s performance over a Performance Period of two fiscal years with respect to earnings per share. The At Risk Award payment to Mr. Ackerman for 2006 was based on a two-year Performance Period, and is shown in the Summary Compensation Table on page 18 in the column headed “LTIP Payouts.” When the Compensation Committee sets the Performance Goals for a specific At Risk Award, it also sets the Performance Period over which performance will be measured, which could be any time period permitted by Section 162(m) of the Internal Revenue Code.

 

The At Risk Plan provides that the maximum aggregate value of any At Risk Award to any Eligible Employee in any fiscal year will not exceed the lower of (i) twice that employee’s base salary for that fiscal year, or (ii) two million dollars.

 

Grant of At Risk Awards

 

The At Risk Plan provides that At Risk Awards may be made for each of the fiscal years of the Company commencing with fiscal 2007. The At Risk Awards for a fiscal year may be made only within the time allowed under Section 162(m) of the Code.

 

Payment of At Risk Awards

 

Under the At Risk Plan, each At Risk Award granted to an Eligible Employee will entitle such Eligible Employee to receive a cash payment based on the extent to which the Performance Goals for a particular

Performance Period are attained, as specified by the Committee in the Award Notice and certified in writing by the Committee (for example, in approved Committee minutes). Cash payment will be made promptly after such certification.

 

Termination of Employment, Retirement, or Death of Participant

 

The At Risk Plan provides that if an Eligible Employee’s employment with the Company or Subsidiary terminates for a reason other than death, disability, retirement, or any other approved reason, all unearned or unpaid At Risk Awards will be canceled or forfeited, unless otherwise provided in the Award Notice or the At Risk Plan.

 

The Rules provide that if the Eligible Employee became disabled, retired or was terminated for an approved reason during a Performance Period, his participation would continue to the end of the Performance Period, and he would be paid a percentage of the amount earned proportionate to his period of active service during that Performance Period.

 

If the Eligible Employee died during a Performance Period, the designated beneficiary or estate would be paid an amount proportionate to the period of active service during the Performance Period, based upon the maximum Award amount.

 

Amendments to At Risk Awards

 

The At Risk Plan provides that the Committee may at any time unilaterally amend any unearned or unpaid At Risk Award, including At Risk Awards earned but not yet paid, to the extent it deems appropriate. However, any such amendment which is adverse to the Eligible Employee requires the Eligible Employee’s consent. The Committee has no authority to make any amendment which would cause compensation paid or payable under the At Risk Award to cease to be deductible by the Company for federal income tax purposes.

 

Amendments to At Risk Plan

 

Subject to the shareholder approval requirements of Section 162(m), the Committee may, from time to time, amend the At Risk Plan in any manner.

 

Change in Control and Change in Ownership

 

The At Risk Plan defines a “Change in Control” as occurring when (i) a “person” becomes the beneficial owner of 20% or more of voting control of the Company, (ii) the shareholders approve either a merger that substantially changes the shareholders’ proportionate ownership of the surviving company or a transfer of substantially all of the Company’s assets, or (iii) members of the “incumbent board” (including directors approved by at least 3/4 of the incumbent board) cease to constitute a majority of the Board. The At Risk Plan also defines a “Change in Ownership” as a change which results directly or indirectly in the Company’s Common Share ceasing to be actively traded on a national securities exchange or the National Association of Securities Dealers Automated Quotation System.

 

If an Eligible Employee holding an At Risk Award is eligible for treatment under the Change in Control and Change in Ownership provisions of the At Risk Plan, paragraph 8 of the At Risk Plan determines the manner in which such At Risk Award will be paid to him. For purposes of making such payment, each “current Performance Period,” which is a Performance Period that has commenced but has not yet ended, will be treated as terminating upon the Acceleration Date, and for each such “current Performance Period” and each “completed Performance Period,” which is a Performance Period which has ended but for which the Committee has not, on the Acceleration Date, made a determination as to whether and to what degree the Performance Goals for such period have been attained, it will be assumed that the Performance Goals have been attained at a level of 100% of each target or the equivalent thereof. If the Eligible Employee is participating in one or more “current Performance Periods,” he will be considered to have earned and, therefore, to be entitled to receive, a prorated portion of the At Risk Awards previously granted to him for each such Performance Period. Such prorated portion will be determined by multiplying 100% of the At Risk Award to the Eligible Employee by a fraction, the numerator of which is the total number of whole and partial years, with each partial year being treated as a whole year, that have elapsed since the beginning of the Performance Period, and the denominator of which is the total number of years in such Performance Period. An Eligible Employee in one or more “completed Performance Periods” will be

considered to have earned and, therefore, to be entitled to receive, 100% of the At Risk Awards previously granted to him during each Performance Period.

 

Noncompetition

 

Unless the Award Notice specifies otherwise, a Participant shall forfeit all unearned, and/or unpaid At Risk Awards, including At Risk Awards earned but not yet paid, and all interest, if any, accrued on the foregoing if, in the opinion of the Committee, the Participant, (i) without the written consent of the Company, engages in any manner in any business or activity competitive with the business conducted by the Company or any Subsidiary; or (ii) performs any act or engages in any activity which is inimical to the best interests of the Company.

 

Nonassignability

 

No Award under the At Risk Plan shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution or pursuant to a domestic relations court order), assignment, pledge, or encumbrance. Following a permitted transfer, any such Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and except as provided in the next sentence, the term “Participant” shall be deemed to refer to the transferee. The events of termination of employment of paragraph 5 shall continue to be applied with reference to the original Participant and following the termination of employment of the original Participant, the transferred Award shall be payable to the transferee only to the extent, and for the periods specified in paragraph 5, that the original Participant could have received payment of such Award. Except as expressly permitted by the At Risk Plan, an Award is payable during the Participant’s lifetime only to him.

 

No Right to Continued Employment or Grants

 

Participation in the At Risk Plan does not give any Participant any right to remain in the employ of the Company or any Subsidiary. The Company or, in the case of employment with a Subsidiary, the Subsidiary, reserves the right to terminate any Participant at any time. Further, the adoption of the At Risk Plan does not give any person any right to be selected as a Participant or to be granted an At Risk Award.

 

No Right, Title or Interest in Company Assets

 

To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company.

 

Savings Provision

 

The At Risk Plan is intended to comply with all the applicable conditions of Section 162(m) of the Code, so that compensation paid or payable as an At Risk Award will constitute qualified “performance-based compensation.” To the extent any provision of the At Risk Plan or any action by the Committee fails to comply, such provision or action will be deemed null and void, to the extent permitted by law.

New Plan Benefits Table

 

For each of the named executive officers and the various indicated groups, the following table shows the amount of performance-based compensation paid under the AARCIP in 2006 for the 2005-2006 performance period (Payments in 2007 for 2006-2007 performance are not yet determinable).

 

NEW PLAN BENEFITS

 

 

 

 

The Board of Directors recommends a vote FOR this proposal

 

4.  AMENDMENTS TO THE COMPANY’S 1997 AWARD AND OPTION PLAN

 

We are seeking your approval of amendments to our 1997 Award and Option Plan (the “1997 Plan”) (1) to extend the term of the 1997 Plan until March 31, 2012, (2) to increase the number of shares available to be issued under the 1997 Plan by one million shares, (3) to permit the Compensation Committee to grant stock appreciation rights settleable in stock to all eligible employees, (4) to require generally a minimum three-year period between the grant date and the vesting of any new awards of stock options and stock appreciation rights that are to become vested without regard to the achievement of specified performance criteria, (5) to provide for the granting of performance-based stock options and stock appreciation rights, (6) to no longer “recycle” — that is, make available for future grants — certain shares that are surrendered to the Company in connection with the exercise or vesting of awards.

Reasons for and Summary of the Proposed Amendments

 

The 1997 Plan, which authorizes for issuance an aggregate of 12,509,100 shares, was initially scheduled to expire December 12, 2006. The Board amended the 1997 Plan to extend its term through February 15, 2007, the date of our scheduled annual meeting of shareholders (and through any adjournment of that meeting), so that we could seek your approval of an approximately five-year extension of the term of the 1997 Plan. We are asking for an extension to March 31, 2012 so that the extended term would be expected to expire just after the annual shareholders meeting in 2012. While the Board extended the 1997 Plan for about two months to enable you to act on our request for a significant extension, no awards were permitted to be granted after December 12, 2006. Thus, the rights of the approximately 100 management employees and retirees who hold outstanding stock options or restricted stock have not been enhanced by this interim extension.

 

In connection with this extension we are also seeking your approval to make available for additional awards under the 1997 Plan one million additional shares, of which no more than 250,000 shares can be issued as restricted stock.

 

We are asking for this extension and the additional shares authorization because we strongly believe that a significant part of management compensation should be in the form of equity awards that directly align the interests of key executives and other key management employees with the interests of the Company’s shareholders in growing the market value of the Common Stock. Equity awards are especially important with respect to the leadership of the Company’s oil and gas exploration and production business segment, which operates in an environment where larger equity awards are necessary to attract and retain key management employees than is customary with the regulated pipeline and utility industries. The consideration to be received by the Company for future grants of options or stock appreciation rights is the services of the officers and employees who will receive those grants.

 

We also strongly believe in tying a significant part of management compensation to performance, and equity awards help to achieve that objective. Moreover, the proposed amendments contemplate that future awards of stock options and stock appreciation rights will generally have their vesting and exercisability linked to the achievement of specified performance objectives. These performance-based awards will generally not vest or become exercisable until the objective performance goal or goals specified in the Award Notice have been achieved. The proposed amendments contain a list of various objective performance measures for the Compensation Committee to choose from in setting the performance criteria that would be applicable to these future awards. The Committee will still have the power to grant stock options and stock appreciation rights that are not performance based, but intends to use that authority in limited circumstances.

 

In seeking your approval of these amendments, we have been cognizant that such programs should not excessively dilute the Common Stock by issuing too many additional shares. We have carefully considered how best to reconcile these conflicting concerns, and believe these amendments reflect a proper balance, with the objective of utilizing most efficiently the shares authorized by the shareholders. An important factor in our analysis is the large number of stock options that will either be exercised or will expire during each of the next five calendar years:

 

 

These option expirations will more than counterbalance the dilutive effect of our proposed addition of one million shares to the pool of shares available to be issued under the 1997 Plan.

 

Other proposed amendments are intended to make the best possible use of the pool of shares available to be issued under the 1997 Plan. One proposed amendment requires that, to the extent that any such award would become exercisable without regard to any performance criteria, a minimum of three years of additional service would be required for a Participant to realize the value of that Award. This change is intended to assure that Awards will serve as a long-term incentive rather than a source of quick cash.

 

The proposed amendments that will allow us to issue stock appreciation rights settled in stock will help us to use the available pool of shares most efficiently in light of recent changes to the accounting rules applicable to equity-based compensation. In 2006, changes in the financial accounting rules applicable to

equity-based compensation awards took effect that treat stock options and stock appreciation rights settled in stock on exactly the same basis. Previously, stock options granted without a discount in the applicable exercise price could be awarded without any financial accounting charge. But stock appreciation rights, whether settled in cash or stock, were treated as variable awards, resulting in the periodic recognition of financial accounting charges that reflected any increases in the value of our stock from the date of grant. So, if the award worked to achieve its objective — to increase the value of our stock — the Company suffered an adverse financial accounting charge as compared to an economically identical grant of a stock option. Shareholders may recall that, because of the adverse accounting treatment associated with stock appreciation rights, the Company called a special shareholders meeting in 2001 to eliminate future grants of such rights and to receive approval to convert outstanding stock appreciation rights into non-qualified stock options. The presently proposed amendments would reinstate the Committee’s ability to grant stock appreciation rights, except that the difference between the fair market value of our Common Stock at the date of exercise of the rights and the fair market value of the Common Stock at the date of grant will be distributed in shares of Common Stock, rather than in cash.

 

Because of the difference in accounting treatment between stock options and stock appreciation rights, a technique was developed in the marketplace that enabled employees to receive cash from a stock option on a basis substantially comparable to a cash-settled stock appreciation right. This technique — commonly referred to as a “cashless exercise” or “same day sale” — combined the exercise of a stock option with an immediate market sale of the underlying stock, resulting in the employee receiving the same net cash benefit. Under this technique, however, the employer granting the option was required to issue the full number of shares subject to the option. Thus, to provide the same net benefit of a stock appreciation right required that the Company incur the dilution related to the entire stock option award. In other words, when an employee does a cashless exercise of 1000 options, the Company issues 1000 shares of stock, even though the net benefit to the employee may equal the value of only a few hundred shares.

 

With the change in accounting treatment to equate stock options and stock settled stock appreciation rights, there is no financial accounting advantage to using stock options and issuing the greater number of shares. Accordingly, our intention, on a going-forward basis, is to utilize stock settled stock appreciation rights instead of granting new stock options, so we are requesting approval to authorize such awards on the terms and conditions set forth below. However, for purposes of determining the number of shares that may be subject to Awards granted under the 1997 Plan, we will still count the aggregate number of stock appreciation rights awarded — and not just the net number of shares issued. Thus, the “dilution savings” of using stock appreciation rights will run directly to the benefit of shareholders.

 

Our proposed changes to the 1997 Plan’s share counting rules are intended to eliminate some provisions that have been in our stock option plans for many years, and that have commonly been used in competitive practices, which are now called “recycling” and opposed by some corporate governance commentators. Under the 1997 Plan and most stock option plans, a Participant can pay the option exercise price or his minimum tax withholding by using shares of Company common stock, and the Company would cancel those shares of stock. Before the currently proposed amendments, the surrendered or canceled shares would be added back to the shares available for issuance under the 1997 Plan. Similarly, if any shares subject to any such Award had been otherwise settled for a payment in cash, the corresponding shares would again have become available for grant under the 1997 Plan. Making these shares available to be granted as new Awards did not increase the dilution of the outstanding stock, because each share added back into the 1997 Plan was matched by an actual share that was actually cancelled. Nevertheless, this “recycling” process has come under criticism by some, and we are responding by eliminating the practice with respect to shares that are cancelled because they are used to pay the exercise price or taxes.

 

We have also amended the 1997 Plan to eliminate the authority to grant dividend equivalents in respect of stock options. We have never used this authority with respect to any of the options granted under the 1997 Plan, and believe that doing so would not further the objectives of the 1997 Plan.

 

On December 7, 2006, the Board of Directors adopted the amendments to the 1997 Plan summarized above subject to approval by the common stockholders at this meeting. The affirmative vote of a majority of the votes cast with respect to this proposal by the holders of shares of Common Stock entitled to vote is required for the adoption of the proposal. A copy of the 1997 Plan, as proposed to be amended, is attached to and incorporated into this Proxy Statement as Appendix F.

 

The principal terms of the 1997 Plan are summarized below.

Administration

 

The 1997 Plan provides for administration by the Compensation Committee of the Board or another committee designated by the Board (“Committee”). The Committee is composed entirely of “Disinterested Board Members” who are not present or former employees or officers of the Company. No member of the Committee is eligible to be selected to participate in the 1997 Plan. Among the powers granted to the Committee are the authority to interpret the 1997 Plan, establish administrative rules, regulations and procedures, select core employees of the Company and its subsidiaries to receive awards, determine the form and amount and other terms and conditions of an award, grant waivers of 1997 Plan terms and conditions, accelerate the vesting, exercise or payment of an award and take all action it deems advisable for the proper administration of the 1997 Plan. The 1997 Plan authorizes the Committee to delegate its authority and duties under those Plans, in certain circumstances, to the Chief Executive Officer and other senior officers of the Company. Under the amended 1997 Plan, the Committee will no longer have the authority to grant replacement or repriced awards except in the limited circumstances described below under the heading Adjustment of Shares Available.

 

Eligibility for Participation

 

All Core Employees and Key Employees (management employees selected by the Committee) of the Company or any of its 80%-or-more owned subsidiaries are eligible to be selected to participate in the 1997 Plan. The selection of Participants from among core management employees is within the discretion of the Committee. Under the 1997 Plan, “Key Management Employees” (select highly compensated employees) are the only people eligible to receive restricted stock.

 

Amendment of Plan

 

The Board may suspend or terminate the 1997 Plan at any time, and may also amend the 1997 Plan at any time, but any such amendment may be subject to stockholder approval (i) at the discretion of the Board; and (ii) to the extent stockholder approval may be required by law or under the applicable requirements of any exchange on which the stock is listed to trade.

 

Shares Available for Grant

 

As amended, the 1997 Plan authorizes the Committee to grant awards through March 31, 2012. Subject to equitable adjustment, 13,509,100 shares of Common Stock of the Company would be authorized for issuance under the 1997 Plan after the 2007 Annual Meeting if the shareholders approve the proposed amendments. This is an increase of one million shares over what the shareholders have authorized before the 2007 Annual Meeting. The total number of authorized shares reflects the 3,800,000 shares originally authorized for issuance under the 1997 Plan, as adjusted to reflect a stock split in 2001, and an amendment to the 1997 Plan to authorize 4,909,100 additional shares approved by shareholders in 2001.

 

Of the authorized shares, only 250,000 may be used for Awards of restricted stock on or after February 15, 2007. The remaining authorized shares may be used only in connection with grants of stock option and stock appreciation rights. As of December 18, 2006, there were outstanding unexercised 1997 Plan option awards in respect of 8,931,670 shares, and 156,373 shares were available for issuance in respect of additional awards. As of December 18, 2006, the fair market value of a share of our common stock, determined based on the average of the high and low prices of the stock on that day, was $39.89.

 

Before the 2007 Annual Meeting when a stock option was exercised using previously owned shares, or the applicable tax withholding was effected using shares that are issuable in respect of such award, the surrendered or withheld shares were added back to the shares available for issuance under the 1997 Plan. Similarly, if any shares subject to any such prior award were settled for a payment in cash, the corresponding shares would again have become available for grant under the 1997 Plan. Following approval of the proposed amendments at the 2007 Annual Meeting, shares used to exercise options or to satisfy tax withholding obligation, or related to awards settled in cash or for other consideration will no longer become available for grants under the 1997 Plan. However, any shares that relate to Awards that lapse, expire or are forfeited for any other reason will again be available for grants under the 1997 Plan.

No participant in the 1997 Plan may receive awards covering more than 600,000 shares of Common Stock of the Company in any fiscal year. This maximum limit is subject to equitable adjustment in the event of a stock split, stock dividend, merger, reorganization or other transaction affecting our capital stock.

 

Type of Awards

 

The 1997 Plan provides for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options; (2) stock appreciation rights (“SARs”); and (3) restricted shares of our common stock. Such awards may be granted singly or in combination, as determined by the Committee.

 

Stock Options

 

Under the 1997 Plan, the Committee may grant awards to Key Employees or Core Employees in the form of stock options to purchase shares of the Company’s Common Stock. Stock options granted under the 1997 Plan after February 15, 2007 will be non-qualified stock options. Unless the award notice provides otherwise, each option shall be exercisable in whole or in part. The Committee will, with regard to each stock option, determine the number of shares subject to the option, the manner and time of the option’s exercise, and the exercise price per share of Common Stock subject to the option. In no event, however, may the exercise price of a stock option be less than the fair market value of the Company’s Common Stock on the date of the stock option’s grant. Unless the award notice provides a shorter period, each non-qualified stock option shall expire on the day after the tenth anniversary of the grant. In no event shall a non-qualified stock option be exercisable later than the exercise period set forth in the award notice. Unless the award notice provides otherwise, any non-qualified stock option which has not previously expired shall terminate upon termination of the Participant’s employment with the Company by either (i) voluntary resignation before his or her 60th birthday, or (ii) discharge for cause. A Participant who resigns on or after his or her 60th birthday (a “Retiree”) may exercise all or part of the Retiree’s non-qualified stock options as described in this paragraph. A Retiree may exercise any non-qualified stock option which the Retiree was entitled to exercise on the date the Retiree’s employment terminates, and may also exercise any non-qualified stock option which the Retiree subsequently becomes eligible to exercise. A Retiree may exercise non-qualified stock options no later than the fifth anniversary of the Retiree’s resignation, or such later date as the Committee, in its sole discretion, deems appropriate (the “Post-Termination Exercise Period”). A Participant whose employment is terminated not for cause is treated the same as a Retiree for the purposes described in this paragraph. Notwithstanding the foregoing, if the Committee determines that a Participant is employed by an employer or engaged in a business that competes with the business of the Company, or otherwise engages in activity which in the Committee’s opinion is inimical to the best interests of the Company, the Participant shall thereafter lose his or her rights to exercise any non-qualified stock options.

 

Upon the death of a Participant while employed with the Company or within the Post-Termination Exercise Period, the Participant’s estate or the person to whom the Participant’s rights under the non-qualified stock option are transferred by will or the laws of descent and distribution may, within five years after the date of the Participant’s death while employed, or within the Post-Termination Exercise Period, exercise all or part of the non-qualified stock option which the Participant was entitled to exercise on the date of death.

 

With some exceptions described below, each non-qualified option issued on or after February 15, 2007 shall first become exercisable on the third anniversary of its date of grant, or if earlier (i) on the date of the Participant’s death occurring after the date of grant; (ii) six months after the date of grant, if the Participant is a Retiree who retired after the date of grant, and before such six months; or (iii) on the date of a Retiree’s retirement and at least six months after the date of grant. The exceptions are that, if an Award Notice so provides, stock options may become exercisable on an earlier date if awarded on or after February 15, 2007 (i) in connection with a merger or acquisition to a Participant who joins the Company or a Subsidiary as the result of a merger or acquisition, or (ii) to a Participant as part of his initial inducement to join the Company or a Subsidiary. Similarly, the minimum three year service requirement would not apply in the event of a change of control, or in the event that performance criteria related to the exercise of any stock options are satisfied at an earlier point in time. Subject to the exceptions described earlier in this paragraph, unless the Award Notice provides otherwise, stock options issued on or after February 15, 2007 shall be exercisable only upon attainment (as determined by the Committee or its delegate) of performance goals during performance periods established by the Committee. The performance goals would

selected by the Committee from one or more of the performance criteria discussed below under the heading “Performance Criteria.” Upon exercise of a stock option the exercise price may, at the discretion of the Committee, be paid by a Participant in cash, shares of Common Stock, shares of restricted stock, a combination thereof, or such other consideration as the Committee may deem appropriate. The 1997 Plan also allows options to be exercised using the so-called “cashless exercise” of options by payment of the exercise price from the sale proceeds of a portion of the shares otherwise receivable upon exercise of the option.

 

No stock option issued under the 1997 Plan can be repriced by reducing the exercise price after the options are granted, except in the limited circumstances described below under the heading Adjustment of Shares Available.

 

Stock Appreciation Rights

 

A SAR is a right to receive payment in shares of Common Stock equal to the appreciation in fair market value of a stated number of shares of Common Stock from the SAR’s exercise price to the fair market value on the date of its exercise. SARs may not be repriced by decreasing the SAR’s exercise price after the award date, except in the limited circumstances described below under the heading Adjustment of Shares Available. The 1997 Plan authorizes the Committee to grant SARs to Key Management Employees or Core Employees.

 

With some exceptions described below, each SAR issued on or after February 15, 2007 shall first become exercisable on the third anniversary of its date of grant, or if earlier (i) on the date of the Participant’s death occurring after the date of grant; (ii) six months after the date of grant, if the Participant is a Retiree who retired after the date of grant, and before such six months; or (iii) on the date of a Retiree’s retirement and at least six months after the date of grant. The exceptions are that, if an Award Notice so provides, SARs may become exercisable on an earlier date if awarded on or after February 15, 2007 (i) in connection with a merger or acquisition to a Participant who joins the Company or a Subsidiary as the result of a merger or acquisition, or (ii) to a Participant as part of his initial inducement to join the Company or a Subsidiary. Similarly, the minimum three year service requirement would not apply in the event of a change of control, or in the event that performance criteria related to the exercise of any SARs are satisfied at an earlier point in time. Subject to the exceptions described earlier in this paragraph, unless the Award Notice provides otherwise, SARs issued on or after February 15, 2007 shall be exercisable only upon attainment (as determined by the Committee or its delegate) of performance goals during performance periods established by the Committee. The performance goals would selected by the Committee from one or more of the performance criteria discussed below under the heading “Performance Criteria.” The Committee would determine the number of shares subject to the SAR, the manner and time of the SAR may be exercised, and the exercise price of the SAR. However, the exercise price of a SAR will in no event be less than the fair market value of the Common Stock on the date of the grant of the SAR. Unless the Award Notice provides a shorter period, each SAR shall expire ten years and one day after its date of grant.

 

Restricted Stock Awards

 

The 1997 Plan authorizes the Committee to grant awards to Key Management Employees in the form of restricted shares of Common Stock, and Common Stock units. Such awards will be subject to such terms and conditions as the Committee deems appropriate, including restrictions on transferability and continued employment. Unless the Award Notice provides otherwise, any restricted stock issued after February 16, 2007 shall be conditioned upon attainment (as determined by the Committee) of performance goals established pursuant to one or more of performance criteria discussed below under the heading “Performance Criteria.” During any restricted period, the Committee may grant to the Participant all or any rights of a stockholder with respect to such shares, including the rights to vote and to receive dividends. No more than 100,000 restricted shares can be issued from the 1997 Plan in a fiscal year. The 1997 Plan gives the Committee the discretion to accelerate the delivery of shares of such awards.

 

Performance Criteria

 

The performance measure(s) to be used for purposes of stock options, SARs and restricted stock issued after February 15, 2007 shall include one or more measures chosen from among the following, as applied to the Company or to any Subsidiary or combination of Subsidiaries: (a) earnings per share; (b) net

income (before or after taxes); (c) return measures (including, but not limited to, return on assets, equity or sales); (d) cash flow return on investments which equals net cash flows divided by owners equity; (e) earnings before or after taxes, depreciation and/or amortization; (f) gross revenues; (g) operating income (before or after taxes); (h) total shareholder return; (i) corporate performance indicators (indices based on the level of certain expenses, certain objectively measurable operational events or certain services provided to customers); (j) cash generation, profit and/or revenue targets; (k) growth measures, including revenue growth, reserve growth or reserve replacement, as compared to a peer group or other benchmark; and/or (l) share price (including, but not limited to, growth measures and total shareholder return). In setting performance goals using these performance measures, the Committee may exclude the effect of changes in accounting standards and non-recurring unusual events specified by the Committee, such as write-offs, capital gains and losses, and acquisitions and dispositions of businesses.

 

Other Terms of Awards

 

If an award is granted in the form of restricted stock, the Committee may include as part of such award an entitlement to receive dividends or dividend equivalents. Dividends or dividend equivalents which are not currently paid may, in the Committee’s discretion, accrue interest, be reinvested in additional shares of Common Stock, or be credited as additional performance shares and paid to the Participant if and when, and to the extent that, payment is made pursuant to such award.

 

The 1997 Plan provides for the forfeiture of awards in the event of termination of employment for a reason other than death, disability, retirement, or any approved reason, unless the award provides otherwise. The 1997 Plan authorizes the Committee to promulgate administrative guidelines for the purpose of determining what treatment will be afforded to a Participant under the 1997 Plan in the event of his or her death, disability, retirement, or termination of employment for an approved reason. Forfeiture is also required if, in the opinion of the Committee, the Participant competes with the Company without its written consent, or if he or she acts in a manner inimical to the Company’s best interests.

 

Upon grant of any award, the Committee may, by way of an award notice or otherwise, establish such other items and conditions governing the grant of such award as are not inconsistent with the 1997 Plan. The Committee may unilaterally amend any award if such amendment is not adverse to the Participant. The Company may deduct from any payment under the 1997 Plan the amount of any applicable income and employment taxes, or may require the Participant to pay such taxes as a condition to making such payment. A Participant may pay the amount of such taxes required to be withheld from any award, in whole or in part, by requesting that the Company withhold from any payment of Common Stock due as a result of such award, or by delivering to the Company, shares of Common Stock with a fair market value less than or equal to the amount of the applicable withholding taxes. For this purpose, the shares to be withheld shall be valued at the fair market value on the date the award is exercised or, in the case of restricted stock, vests.

 

Nonassignability

 

All awards under the 1997 Plan may not be transferred (except by will or the laws of descent and distribution or pursuant to an appropriate court order), and during a Participant’s lifetime may be exercised only by the Participant except that, unless the Committee specifies otherwise, all awards of nonqualified stock options or SARs will be transferable, subject to all the terms and conditions to which such nonqualified stock options or SARs are otherwise subject, to (i) members of a Participant’s immediate family as defined in Rule 16a-1 of the Exchange Act or any successor rule or regulation, (ii) trusts for the exclusive benefit of the Participant or such immediate family members or (iii) entities which are wholly-owned by the Participant or such immediate family members, provided that (a) there is no consideration for such transfer and (b) subsequent transfers of transferred options are prohibited (except by will or the laws of descent and distribution). Following transfer, any such options continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except for events related to the termination of employment of the Participant, the term “Participant” will refer to the transferee.

Change in Control/Change in Ownership

 

In the event of a Change in Control (as defined below), a Participant whose employment is terminated within two years of the date of such event for a reason other than death, disability, Cause (as defined in the 1997 Plan), voluntary resignation other than for Good Reason (as defined below) or retirement, would be entitled to the following treatment under the 1997 Plan; (i) all of the terms and conditions in effect on any of the Participant’s outstanding awards would immediately lapse; (ii) all of the Participant’s outstanding awards would automatically become one hundred percent vested; and (iii) all of the Participant’s outstanding stock options, SARs and restricted stock would immediately vest and the options and SARs would be immediately cashed out on the basis of the Fair Market Value of the Common Stock on the Acceleration Date (as defined in the Plan). Such payments would be made as soon as possible, but no later than the 90th day following such event.

 

For purposes of the 1997 Plan, a Change in Control shall occur whenever:

 

(i) any person, other than the Company, one of our subsidiaries, or any employee benefit plan or plans sponsored by the Company or any such subsidiary, is or has become the beneficial owner of twenty percent (20%) or more of the combined voting power of the outstanding securities of the Company ordinarily having the right to vote at the election of directors,

 

(ii) our stockholders approve

 

(a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of stock of the Company would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which the common stockholders of the Company immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before,

 

(b) any consolidation or merger in which the Company is the continuing or surviving corporation but in which the common stockholders of the Company immediately prior to the consolidation or merger do not hold at least a majority of the outstanding common stock of the continuing or surviving corporation (except where such holders of Common Stock hold at least a majority of the common stock of the corporation which owns all of the Common Stock of the Company), or

 

(c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or

 

(iii) individuals who constituted the Board on January 1, 1997 (the “Incumbent Board”) have ceased for any reason to constitute at least a majority thereof, provided that any person who has become a director subsequent to January 1, 1997 or who hereafter becomes a director and whose election, or nomination for election, was approved by a vote of at least three-quarters ( 3/4) of the directors comprising the Incumbent Board shall be considered as though such person were a member of the Incumbent Board.

 

A participant in the 1997 Plan shall have “Good Reason” to terminate employment if he or she shall make a good faith determination that there has been any (i) material change in the participant’s functions, duties or responsibilities which change could significantly impair the participant’s position with the Company; (ii) assignment or reassignment of the participant, without his or her consent, to another place of employment more than 30 miles from the participant’s prior place of employment, or (iii) reduction in the participant’s total compensation or benefits or any component thereof.

 

The 1997 Plan also provides that upon a Change in Ownership (as defined in the 1997 Plan), all Participants, regardless of whether their employment is terminated, would automatically receive the same treatment afforded to a terminated Participant under the Plan in the event of a Change in Control. The 1997 Plan defines a Change in Ownership as a change which results in the Company’s Common Stock ceasing to be actively traded on the New York Stock Exchange, another national stock exchange or the National Association of Securities Dealers Automated Quotation System.

Adjustment of Shares Available

 

In the event of changes in the Common Stock by reason of a Common Stock dividend, stock split, reverse stock split or other combination, appropriate adjustment will be made by the Committee in the aggregate number of shares of Common Stock available under the 1997 Plan, the number of shares of Common Stock with respect to which awards may be granted to any Participant in any fiscal year, and the number of shares of Common Stock, SARs, performance shares, Common Stock units and other stock-based interests subject to outstanding awards, without, in the case of stock options, causing a change in the aggregate purchase price to be paid for such shares of Common Stock.

 

The 1997 Plan also provides that in the event of a merger, consolidation, reorganization of the Company with another corporation, a reclassification of the Common Stock, a spin-off of a significant asset, or other changes in the capitalization of the Company, appropriate provisions will be made for the protection and continuation of outstanding awards by either (i) the substitution of appropriate stock or other securities, or (ii) by appropriate adjustments in the number of shares issuable pursuant to the Plan, the number of shares covered by outstanding Awards, the option price of outstanding stock options, and the exercise price of outstanding SARs, as deemed appropriate by the Committee.

 

Federal Income Tax Treatment

 

The following is a brief summary of the federal income tax aspects of the 1997 Plan, based on existing law and regulations which are subject to change. The application of state and local income taxes and other federal taxes is not discussed.

 

A participant who is granted an incentive stock option is not required to recognize taxable income at the time of the grant or at the time of exercise. Under certain circumstances, however, a participant may be subject to the alternative minimum tax with respect to the exercise of his incentive stock options. The Company is not entitled to a deduction at the time of grant or at the time of exercise of an incentive stock option. If a participant does not dispose of the shares acquired pursuant to the exercise of an incentive stock option before the later of two years from the date of grant of the option and one year from the transfer of the shares to him, any gain or loss realized on a subsequent disposition of the shares will be treated as long-term capital gain or loss. Under such circumstances, the Company will not be entitled to any deduction for federal income tax purposes.

 

If a participant disposes of the shares received upon the exercise of any incentive stock option either (1) within one year of the transfer of the shares to him or her or (2) within two years after the incentive stock option was granted, the Participant will generally recognize ordinary compensation income equal to the lesser of (a) the excess of the fair market value of the shares on the date the incentive stock option was exercised over the purchase price paid for the shares upon exercise, and (b) the amount of gain realized on the sale. If a Participant is required to recognize ordinary compensation income as a result of the disposition of shares acquired on the exercise of any incentive stock option, the Company will be entitled to a deduction for an equivalent amount.

 

A participant who is granted a non-qualified stock option does not have taxable income at the time of grant, but does have taxable income at the time of exercise equal to the difference between the exercise price of the shares and the market value of the shares on the date of exercise. The Company is entitled to a corresponding deduction for the same amount.

 

The grant of a stock appreciation right will produce no federal tax consequences for the Participant or the Company. The exercise of a stock appreciation right results in taxable income to the participant, equal to the difference between the exercise price of the stock appreciation right and the fair market value of a share on the date of exercise, and a corresponding deduction to the Company.

 

A participant who has been granted shares of restricted stock will not be required to recognize taxable income at the time of the grant, and the Company will not be entitled to a deduction at the time of the grant, assuming that the restrictions constitute a substantial risk of forfeiture for federal income tax purposes. When such restrictions lapse, the participant will recognize taxable income in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. The Company will be entitled to a corresponding deduction subject to the limitations imposed under Section 162(m) of the Code.

New Plan Benefits Table

 

The 1997 Plan authorized the Compensation Committee to make awards within the limits contained in the 1997 Plan, including a limit on the number of shares available for such awards. The Compensation Committee has made no preliminary determinations on who would get how many awards under the 1997 Plan after the 2007 Annual Meeting. Information on option grants to the named executive officers during fiscal 2006 is contained in the Option Grants in Fiscal 2006 table on page 20 of this Proxy Statement. The following table contains additional information about grants of stock options under the 1997 Plan during fiscal 2006, the most recently completed fiscal year.

 

NEW PLAN BENEFITS

 

 

 

 

The Board of Directors recommends a Vote FOR the above proposal

 

5.  SHAREHOLDER PROPOSAL

 

A shareholder (the “Proponent”) has indicated that he or she will present the proposal set forth below for consideration by the shareholders at the Annual Meeting. The name, address and stock ownership of the Proponent will be provided by the Company’s Secretary to any shareholder promptly upon receipt of any oral or written request. The affirmative vote of a majority of the votes cast on this proposal by the holders of Common Stock entitled to vote is required to adopt this proposal.

 

“The stockholders recommend that the Board undo the large increases in compensation payable to non-employee directors, and restore the compensation program in effect in fiscal 2003, for a minimum of 3 years, and that these changes occur effective beginning April 1, 2007. There is one exception — Committee chairmen would receive no extra compensation (and certainly not the excessive $7,500 per year now in effect) for service as such. This means that non-employee directors would receive the following annual compensation:

 

 

 

Further, the stockholders recommend that any later increases in non-employee director compensation not be payable until after (if) directors are reelected.

 

My stockholder proposal is necessary for these reasons.

 

In December 2004, non-employee directors greatly increased their own compensation, without seeking stockholder approval. The annual cash retainer was increased by 30% to $26,000, and the compensation paid per Board and committee meeting was increased by 20% and 50% respectively, to $1,800. In fiscal 2005, the annual compensation of non-employee directors who attend 6 meetings of the Board (the number held in 2005) as well as 8 meetings of the Compensation Committee (the number held in 2005) was approximately $95,000, an outrageous amount for attending a few meetings and reading a few documents.

 

Some non-employee directors (e.g., Committee chairman) will receive more than $100,000 in fiscal 2006.

 

These figures are computed using a recent Company stock price of $37 per share.

 

Current compensation levels are even more outrageous when the following are considered:

 

 

Thus, the directors allowed misconduct to flourish, were derelict in their duties, and don’t deserve reelection much less such rich pay packages.

 

My Proposal will reduce waste and save the Company money, and should be approved.”

 

Statement of the Board in Opposition to the Shareholder Proposal

 

Your Board of Directors recommends that you vote “AGAINST” this proposal. The proposal is unnecessary, unwise and is motivated by the personal grievances of the Proponent, who is the life companion of a disgruntled ex-employee who has repeatedly submitted similar proposals since 1998. This proposal is part of that ex-employee’s long-running vendetta against the Company and certain of its officers and directors. In the course of that campaign, that ex-employee has violated numerous court orders, for which various courts have found him guilty of more than 80 counts of civil contempt of court and 35 counts of criminal contempt. Nevertheless, the rules of the SEC require us to include the Proponent’s proposal and supporting statement.

 

If the Proponent’s proposal had been in effect throughout fiscal year 2006, the total savings to the Company would have been less than $160,000, taken from among the seven individuals who served as outside directors in fiscal 2006. The Board’s compensation is described on page 8 of this Proxy Statement.

 

Last year, the Proponent’s almost identical proposal received only 9.7% of the votes cast on it. The recommendation of Institutional Shareholders Services (ISS) published on January 31, 2006 was to vote

against last year’s proposal. ISS’s recommendation noted that the Company’s directors were paid less than the median of the director compensation for the peer group selected by ISS, and that “it appears that director compensation was not out of line with peers.” The level of director fees for compensation of the Company’s outside directors has not been changed since January 2005.

 

The compensation received by your outside directors was marginally increased effective January 1, 2005 after a review of the same peer group of 11 companies used for evaluating executive compensation (see the Report of the Compensation Committee on pages 14-17 of this Proxy Statement). In December 2004, the Company’s outside directors were being paid below the median of the 11 companies in that peer group, ranking seventh among 11. The modest increase effective January 1, 2005 moved the Company up to sixth (exactly the median) among those 11 peer companies. Comparing to a wider group of publicly traded companies, in fiscal 2006 your outside directors were on average paid only 64% of the 2005 median compensation for directors of the 350 companies in the “Mercer 350.”

 

Contrary to the Proponent’s misconception, there are more than “a few days of work” involved in being a director of a publicly traded company in the post-Enron, post-Sarbanes-Oxley era. In fiscal 2006, the Audit Committee met nine times and the Compensation Committee met six times. One outside director attended seven board meetings and 18 committee meetings in fiscal 2006. Substantial preparation for these meetings and substantial potential liability are integral parts of public company board membership.

 

Your Board of Directors consists of individuals with many years of successful experience in various segments of the natural gas industry. Their skill, judgment and dedication are evidenced by the performance of the Company’s stock as shown by the Corporate Performance Graph set forth on page 22 of this Proxy Statement. Much of their compensation is in the form of Company Stock which they must retain until after they leave the Board, and their holdings of Company Stock are set forth on pages 11-12 of this Proxy Statement. Their interests are aligned with the stockholders, and they are well worth the compensation they receive from the Company.

 

The Board of Directors recommends a vote “AGAINST” this proposal.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Directors, officers and greater-than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of information furnished to the Company, reports filed through the Company and/or written representations that no Form 5 was required, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and greater-than 10% beneficial owners were complied with during fiscal 2006, except as described below.

 

All of the Section 16(a) reports filed by director Rolland E. Kidder regarding transactions in fiscal 2005 and 2006 timely and accurately disclosed the total number of shares of Company stock owned by him. However, some filings have inadvertently contained errors in designating the respective number of shares held by him “directly” and “indirectly.” SEC rules consider the Company stock held in the joint stock brokerage account maintained by Mr. Kidder and his wife to be “directly” owned by Mr. Kidder, and the Company stock registered in Mrs. Kidder’s name or held in her stock brokerage account to be “indirectly” owned by Mr. Kidder. Mr. and Mrs. Kidder are a happily married couple who file joint tax returns and generally handle their finances as a joint pool of assets and expenses. Miscommunication among the stockbroker, Mr. Kidder and the Company personnel who prepare Mr. Kidder’s 16(a) reports resulted in the necessary correction of some of his 16(a) reports, which are therefore considered not to have been filed “on a timely basis.” Specifically, Mr. Kidder filed on December 28, 2006, Section 16(a) reports to report (i) the movement in 2005 of 8,500 shares from the joint account (direct) into Mrs. Kidder’s account (indirect), and 2,165 shares from her account (indirect) into the joint account (direct), both considered “gifts” because no money or other consideration changed hands; and (ii) the correction of a report disclosing sale into the market of 1,500 indirectly owned shares in 2006, which was corrected to report that transaction as a sale of shares directly owned by Mr. Kidder.

 

CODE OF ETHICS

 

Pursuant to SEC Regulations, the Company has adopted a code of ethics that applies to the Company’s principal executive officer, principal accounting officer, controller, other officers and employees that is designed to deter wrongdoing and to promote honest and ethical conduct. The text of the code of ethics can be viewed by going to the Company’s website www.nationalfuelgas.com. Upon request, the Company will provide to any person without charge a copy of the code of ethics. Requests must be made to the Secretary at the principal offices of the Company.

 

DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS

 

Only one copy of the Company’s Proxy Statement for the 2007 Annual Meeting of Stockholders and one copy of the Company’s Annual Report and Form 10-K for the 2006 fiscal year are being delivered to multiple stockholders who share an address unless the Company has received contrary instructions from one or more of the stockholders. A separate proxy card and a separate notice of the meeting of stockholders are being included for each account at the shared address.

 

Registered stockholders who share an address and would like to receive a separate annual report to stockholders and/or a separate proxy statement for the 2007 Annual Meeting or in the future, or have questions regarding the householding process, may contact the Company’s transfer agent, The Bank of New York, by calling 1-800-648-8166 or by forwarding a written request addressed to The Bank of New York, 101 Barclay St., 11 East, New York, NY 10286. Promptly upon request, additional copies of the Company’s Annual Report and Form 10-K for the 2006 fiscal year and/or separate Proxy Statements for the 2007 Annual Meeting will be sent. By contacting The Bank of New York, registered stockholders sharing an address can also request delivery of a single copy of annual reports to stockholders or proxy statements in the future if registered stockholders at the shared address are receiving multiple copies.

 

Many brokerage firms and other holders of record have also instituted householding procedures. If your family has one or more “street name” accounts under which you beneficially own shares of Common Stock, you may have received householding information from your broker, financial institution or other nominee in the past. Please contact the holder of record directly if you have questions, require additional copies of the Proxy Statement or our Annual Report to Stockholders for fiscal 2006 or wish to revoke your decision to household and thereby receive multiple copies. You should also contact the holder of record if you wish to institute householding. These options are available to you at any time.

 

OTHER BUSINESS

 

The Board of Directors does not know of any business that will be presented for consideration at the meeting except as set forth above. However, if any other business is properly brought before the meeting, or any adjournment thereof, the Proxies will vote in regard thereto according to their discretion.

 

PROPOSALS OF SECURITY HOLDERS

 

Proposals that security holders intend to present at the 2008 Annual Meeting of Stockholders must be received by the Secretary at the principal offices of the Company no later than September 8, 2007, in order to be considered for inclusion in the Company’s proxy statement and proxy for that meeting. Notice of a shareholder proposal submitted outside the processes of SEC Rule 14a-8 under the Securities Exchange Act, for consideration at the 2008 Annual Meeting of Stockholders, shall be considered untimely unless received by the Secretary at the Company’s principal office no later than September 17, 2007.

 

By Order of the Board of Directors

 

Anna Marie Cellino

Secretary

 

January 12, 2007

 

APPENDIX A TO PROXY STATEMENT

 

NATIONAL FUEL GAS COMPANY
DIRECTOR INDEPENDENCE GUIDELINES

 

AS AMENDED DECEMBER 8, 2005

 

The following Director Independence Guidelines (the “Guidelines”) have been adopted by the Board of Directors (the “Board”) of National Fuel Gas Company (“National Fuel”) to assist the Board in the exercise of its responsibilities to National Fuel and its shareholders. The Guidelines should be interpreted in the context of all applicable laws and National Fuel’s other corporate governance documents, and are intended to serve as a flexible framework within which the Board may conduct its business. The Guidelines are subject to modification from time to time, and the Board shall be able, in the exercise of its discretion, to deviate from the Guidelines from time to time, as the Board may deem appropriate and as required or permitted by applicable laws and regulations.

 

1. Effectiveness.  The Guidelines will become effective on January 1, 2004.

 

2. Implementation.  The Board will annually review the independence of all directors, affirmatively make a determination as to the independence of each director and disclose those determinations, in each case, consistent with the requirements of the New York Stock Exchange (“NYSE”) and the Securities and Exchange Commission (“SEC”), as applicable.

 

3. Independence of at Least a Majority of the Board.  The Board will at all times have at least a majority of directors who meet the criteria for independence required by the NYSE and the SEC.

 

4. Absence of a Material Relationship.  In order for a director to be considered “independent,” the Board must affirmatively determine, after consideration of all relevant facts and circumstances, that the director has no direct or indirect material relationship with National Fuel or any subsidiary in a consolidated group with National Fuel (together, the “Company”). When assessing the materiality of a director’s relationship with the Company, the Board will consider the issue not merely from the standpoint of the director, but also from that of persons or entities with which the director has an affiliation.

 

5. Cooling-Off Period.  A director will not be considered independent if:

 

 

6. Categorical Standards.  Provided that the independence criteria set forth in Paragraph 5 above are met, the Board has determined that the following commercial or charitable relationships will not be considered material relationships for purposes of determining whether a director is independent:

 

 

For purposes of the Guidelines:

 

 

For purposes of the Categorical Standards:

 

 

7. Relationships and Transactions Not Covered by the Categorical Standards.  Any determination by the Board that a director who has a business or other relationship that is not covered by the Categorical Standards set forth in Paragraph 6 above is independent, will be disclosed by National Fuel in its annual proxy statement, together with the basis for such determination.

 

8. Affirmative Obligation of Directors.  Each director has an affirmative obligation to inform the Board of any material change in his or her business or other relationships that may impact the Board’s determination with regard to his or her independence.

 

9. Disclosure by the Company.  The Board will cause National Fuel to disclose the following in its annual proxy statement:

 

 

APPENDIX B TO PROXY STATEMENT

 

 

National Fuel Gas Company
Board of Directors
Audit Committee Charter

 

I. Organization

 

The Audit Committee (“Committee”) is a committee of the Board of Directors (“Board”) of National Fuel Gas Company (“Company”). Its primary function is to assist the Board in fulfilling its oversight responsibilities.

 

II. Membership of the Committee

 

 

III. Committee’s Purpose

 

The Committee shall provide assistance to the Board in fulfilling its oversight responsibility to the shareholders, potential shareholders, and investment community relating to the integrity of the Company’s financial statements, the independent auditors’ qualifications and independence, the Company’s compliance with legal and regulatory requirements, and the performance of the Company’s internal audit function and independent auditors. The Committee shall also prepare an audit committee report required by the Commission’s proxy rules to be included in the Company’s annual proxy statement.

 

IV. Committee’s Authority and Responsibilities

 

The Committee shall perform all duties required by the Listing Standards, the Act and any other applicable laws and regulations. The following shall be the principal recurring processes of the Committee in carrying out its oversight responsibilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V. ANNUAL PERFORMANCE EVALUATION

 

Conduct and present to the Board an annual performance evaluation of the Committee.

 

APPENDIX C TO PROXY STATEMENT

 

 

NATIONAL FUEL GAS COMPANY
CORPORATE GOVERNANCE GUIDELINES

 

 

Amended: December 7, 2006

 

The business of National Fuel Gas Company (the “Company”) is conducted by its employees, managers and officers, under the oversight of the Board of Directors (the “Board”), in order to serve the long-term interests of its shareholders. The Board and management recognize that the long-term interests of shareholders are served by considering the interests of customers, employees and the communities in which the Company operates. In addition, the Board requires directors, officers and employees to comply with all legal and regulatory requirements and to adhere to the highest ethical standards in the performance of their duties. To help discharge its responsibilities, the Board has adopted the following guidelines on corporate governance matters.

 

 

The Board shall consist of a number of directors, not less than seven nor more than eleven, as determined by a majority vote of the full Board.

 

 

A majority of the Board must qualify as independent directors under the listing standards of the New York Stock Exchange (NYSE). The Board will annually review the relationship that each director has with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The Board has established Director Independence Guidelines for purposes of this review. All determinations of director independence will be disclosed in the Company’s annual proxy statement.

 

 

The Board, with input from the Nominating/Corporate Governance Committee, is responsible for periodically determining the appropriate skills, perspectives, experiences, and characteristics required of Board candidates, taking into account the Company’s needs and current make-up of the Board. This assessment should include knowledge, experience, and skills in areas critical to understanding the Company and its business; personal characteristics, such as integrity and judgment; and candidates’ commitments to the boards of other publicly-held companies. Each Board member is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as a director and that he or she devotes the time necessary to discharge his or her duties as a director.

 

The Nominating/Corporate Governance Committee is responsible for periodically reviewing these qualification guidelines and recommending modifications, as appropriate. The Board believes the qualification guidelines included as Exhibit A are currently appropriate, but it may change these guidelines as the Company’s and Board’s needs warrant.

 

Directors are expected to carry out the functions of the Board in a professional and diligent manner, and to spend the time and effort necessary to properly discharge such responsibilities. Accordingly, a director is expected to regularly attend meetings of the Board and Committees on which such director sits, with the understanding that on occasion a director may be unable to attend a meeting. A director who is unable to attend a meeting is expected to notify the Chairman of the Board or the Chair of the appropriate Committee in advance of such meeting. A director is also expected to review provided materials in advance of a meeting.

 

 

The Board is responsible for selecting its members and nominating them for election by the stockholders and for filling vacancies on the Board. The Nominating/Corporate Governance Committee will recommend to the Board nominees for election, including, as appropriate, incumbent directors for re-election.

 

Stockholders may propose candidates for consideration in accordance with the Process for Identifying and Evaluating Nominees for Director included as Exhibit B.

In selecting individuals for nomination, the Committee will seek the input of the Chairman of the Board and Chief Executive Officer and will evaluate candidates using the qualification guidelines included as Exhibit A and the Process for Identifying and Evaluating Nominees for Director included as Exhibit B, as they may be supplemented from time to time. Once a candidate is selected to join the Board, the Chairman of the Board and/or the Chair of the Nominating/Corporate Governance Committee will extend the invitation to join the Board on the Board’s behalf.

 

 

The Board does not believe it should limit the number of terms for which an individual may serve as a director. While term limits could help ensure fresh ideas, they also would force the Board to lose the contributions of directors who have developed an insight into the Company. This insight and continuity of directors is an advantage, not a disadvantage. As an alternative to term limits, the Nominating/Corporate Governance Committee will review a director’s continuation on the Board whenever the director experiences a change in professional responsibilities, as a way to assure that the director’s skills and experience continue to match the needs of the Board. In addition, in connection with nomination of the slate of directors that the Board proposes for election by stockholders each year, the Nominating/Corporate Governance Committee will consider re-nominated directors’ continuation on the Board and take steps as may be appropriate to ensure that the Board maintains an openness to new ideas.

 

Subject to paragraph 7, a director shall normally serve on the Board for a three-year term, except that a director appointed to fill a vacancy shall stand for election at the next annual meeting of shareholders.

 

 

It is the view of the Board that each director who experiences a change in his or her business or professional affiliation or responsibilities should bring this change to the attention of the Board and should offer to resign. The Board does not believe that each director who retires or has a change in position or responsibilities should necessarily leave the Board. The Nominating/Corporate Governance Committee will, however, review the continued appropriateness of Board membership under these circumstances and make a recommendation to the Board.

 

This same guideline applies to any inside directors, including the Chief Executive Officer of the Company, in the event he or she no longer serves in that position.

 

 

As a general rule, directors shall retire not later than the date of the first Annual Meeting of Shareholders following the date of their 72nd birthday.

 

 

A.  Chairman of the Board and Chief Executive Officer

 

1. The Chairman of the Board, who may also be the Chief Executive Officer, shall be a director and preside at all meetings of the Board and meetings of the shareholders. The Chairman of the Board is chosen on an annual basis by at least a majority vote of the remaining directors.

 

2. The Chief Executive Officer, who may also be the Chairman of the Board, shall be appointed by the Board and serve at the pleasure of the Board.

 

B.  Succession Planning and Leadership Development

 

Each year, the Chief Executive Officer will report to the Compensation Committee on succession planning and his or her recommendation as to a potential successor, along with a review of any development plans recommended for such individuals. The Committee will make an annual report to the Board on succession planning, and the Board will work with the Committee to evaluate potential successors to the Chief Executive Officer. When the Compensation Committee and the Board review management succession plans for the Chief Executive Officer, they will consider succession in the event of an emergency or retirement of the Chief Executive Officer. The Committee and the Board will also review succession candidates for executive officers other than the Chief Executive Officer and other senior managers as it deems appropriate.

 

A.  Number of Committees

 

Currently there are four Committees: Executive, Audit, Compensation and Nominating/Corporate Governance. The Board believes the current Committee structure is appropriate. From time to time, depending upon the circumstances, the Board may form a new Committee or disband a current Committee.

 

B.  Assignment of Committee Members

 

The Board appoints members of the Committees on an annual basis. Vacancies in the Committees will be filled by the Board. In making assignments to the Committees, only Independent Directors may serve on the Audit Committee, the Compensation Committee, or the Nominating/Corporate Governance Committee, and at least one member of the Audit Committee must have accounting or financial management experience, as defined by the U.S. Securities and Exchange Commission rules or as required under applicable New York Stock Exchange listing requirements. Additionally, a member of the Audit Committee may not sit on more than three other Audit Committees of other public companies, unless the Board determines that such commitments would not impair his or her effective service to the Company.

 

The Board will take into account tenure on a Committee and give consideration to rotating Committee members periodically, but the Board does not feel that rotation should be mandated as a policy.

 

C.  Committee Charters and Authority

 

The Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee, each have a written charter, which has been approved by the Board. Each charter delegates certain responsibilities to the respective Committee.

 

The Executive Committee may exercise Board authority with respect to matters other than those for which action of the full Board is required under applicable law.

 

Unless delegated to one of the Committees either in the Charter, the Bylaws, a resolution of the Board or a vote of stockholders, each Committee shall make recommendations to the Board and the Board will consider and approve the recommendations. The Committee charters may be changed from time to time by approval of the Board.

 

 

A.  Number of Meetings

 

The Board has at least four scheduled meetings per year at which it reviews and discusses reports by management on the performance of the Company, its plans and prospects, as well as immediate issues facing the Company.

 

B.  Agenda Items

 

The Chairman of the Board and the Chief Executive Officer shall establish the agenda for Board meetings. Any director may request inclusion of an item on the agenda. The Chairman of the Board shall preside over Board meetings.

 

C.  Distribution of Board Materials in Advance

 

Materials for review, discussion and/or action of the Board should be distributed to Board members in advance of meetings whenever practicable.

 

D.  Non-Management Director Meetings

 

The non-management directors will meet at regularly scheduled executive sessions without management. The Audit Committee Chair, Nominating/Corporate Governance Committee Chair and Compensation Committee Chair may call the non-management directors to additional sessions without management.

 

The Board and each Committee will perform an annual self-evaluation. Each year the directors will provide assessments of the effectiveness of the Board and the Committees on which they serve. These evaluations will be submitted to the Nominating/Corporate Governance Committee which will review them and determine if any additional evaluation is necessary. If the Nominating/Corporate Governance Committee determines that additional evaluation is necessary, it may elect to have such evaluation performed internally, or by an independent corporate governance expert. The Nominating/Corporate Governance Committee will report all evaluation results to the Board and make recommendations for areas which, in its judgment, require improvement.

 

 

The Board has sought and received shareholder approval of the current form of director compensation. The Board’s compensation philosophy is that directors (other than those who are also salaried officers of the Company or any of its subsidiaries) are entitled to receive reasonable compensation for their services and reimbursement for certain expenses, as may be determined by the Board. The Compensation Committee shall have the responsibility for recommending to the Board changes in compensation levels for non-employee directors. In discharging this duty, the Committee shall be guided by four general principles: compensation should fairly pay directors for work required; compensation should attract and retain highly qualified candidates for Board membership; compensation should align directors’ interests with the long-term interests of shareholders; and compensation should be transparent and as simple as possible within the limitations of tax and legal considerations.

 

Reasonable compensation also may be paid to any person (other than a salaried officer or employee of the Company or any of its subsidiaries) formally requested by the Board to attend a meeting.

 

 

Board members will have access to all Company management. Independent Board members may consult with managers without senior corporate management present. Management is encouraged to invite Company personnel to any Board meeting at which their presence and expertise would help the Board to have a full understanding of matters being considered and to introduce managers with significant potential.

 

 

The Board shall have the power at any time to retain independent outside financial, legal or other advisors, at the Company’s expense.

 

 

Except as otherwise required by NYSE listing standards or applicable law, communications with parties external to the Company (including but not limited to shareholders, the media, attorneys, vendors, service providers, etc.) shall be the responsibility of the Chief Executive Officer or delegated by the Chief Executive Officer to the appropriate area of the Company. The directors will be consulted from time to time for their advice, as the Chief Executive Officer so determines.

 

 

All directors, upon their initial appointment to the Board, shall attend an educational session, thereby enabling them to better perform their duties and recognize and deal with various issues that may arise during their tenure as directors. Subsequently, the directors shall attend ongoing educational programs related to their Board service as the Board deems appropriate.

 

 

These Guidelines are in addition to and are not intended to change or interpret any federal or state law or regulation, or the Company’s Certificate of Incorporation or Bylaws or any Committee Charter reviewed and approved by the Board. The Guidelines are subject to modification from time to time by the Board.

 

EXHIBIT A
TO
NATIONAL FUEL GAS COMPANY
CORPORATE GOVERNANCE GUIDELINES

 

NATIONAL FUEL GAS COMPANY
DIRECTOR QUALIFICATION GUIDELINES

 

The Board of Directors in considering qualifications of directors standing for re-election and candidates for Board membership will consider the following factors, in addition to those other factors it may deem relevant:

 

1. Strong management experience, ideally with major public companies.

 

2. Other areas of expertise or experience that are desirable given the Company’s business and the current make-up of the Board, such as expertise or experience in: the natural gas industry, information technology businesses, manufacturing, financial or investment banking, scientific research and development, senior level government experience, and academic administration or teaching.

 

3. Desirability of range in age, so that retirements are staggered to permit replacement of directors of desired skills and experience in a way that will permit appropriate continuity of Board members.

 

4. Independence, as defined by the Board.

 

5. Diversity of perspectives brought to the Board by individual members.

 

6. Knowledge and skills in accounting and finance, business judgment, general management practices, crisis response and management, industry knowledge and leadership.

 

7. Personal characteristics matching the Company’s values, such as integrity, accountability, financial literacy, and high performance standards.

 

8. Additional characteristics, such as:

 

 

9. The number of commitments to other entities, with one of the more important factors being the number of other public-company boards on which the individual serves.

 

10. In order to qualify for election as a director, a nominee must be a shareholder of the Company.

 

EXHIBIT B
TO
NATIONAL FUEL GAS COMPANY
CORPORATE GOVERNANCE GUIDELINES

 

NATIONAL FUEL GAS COMPANY

NOMINATING/CORPORATE GOVERNANCE COMMITTEE

 

Process for Identifying and Evaluating Nominees for Director

 

1. The Nominating/Corporate Governance Committee (the Committee) will observe the following procedures in identifying and evaluating candidates for election to the Company’s Board of Directors.

 

2. The Company believes that the continuing service of qualified incumbents promotes stability and continuity in the boardroom, contributing to the Board’s ability to work as a collective body, while giving the company the benefit of the familiarity and insight into the Company’s affairs that its directors have accumulated during their tenure. Accordingly, the process of the Committee for identifying nominees shall reflect the Company’s practice of re-nominating incumbent directors who continue to satisfy the Board’s criteria for membership on the Board, whom the Committee believes continue to make important contributions to the Board and who consent to continue their service on the Board.

 

3. Consistent with this policy, in considering candidates for election at annual meetings of stockholders, the Committee will consider the incumbent directors whose terms expire at the upcoming meeting and who wish to continue their service on the Board.

 

4. The Board will evaluate the qualifications and performance of the incumbent directors who desire to continue their service. In particular, as to each such incumbent director, the Committee will —

 

 

5. If the Committee determines that:

 

 

6. The Committee will identify and evaluate new candidates for election to the Board, including for the purpose of filling vacancies arising by reason of the resignation, retirement, removal, death or disability of an incumbent director or the desire of the directors to expand the size of the Board.

 

7. The Committee will accept recommendations for nominees from persons that the Committee believes are likely to be familiar with qualified candidates. These persons may include members of the Board, including members of the Committee, and management of the Company. The Committee may also determine to engage a professional search firm to assist in identifying qualified candidates. If such a firm is engaged, the Committee shall set its fees and the scope of its engagement.

 

8. As to each recommended candidate that the Committee believes merits consideration, the Committee will:

 

 

 

9. The Committee shall solicit the views of the Chief Executive Officer and the Chairman of the Board, and the views of such other persons as the committee deems appropriate, regarding the qualifications and suitability of candidates to be nominated as directors.

 

10. In its discretion, the Committee may designate one or more of its members (or the entire Committee) to interview any proposed candidate.

 

11. Based on all available information and relevant considerations, the Committee will select a candidate who, in the view of the Committee, is suited for membership on the Board. The Committee will then recommend to the Board that the candidate be nominated. The Board would then, if it chooses, nominate the candidate by a resolution adopted by the Board at a meeting or by unanimous written consent.

 

12. Stockholders may propose candidates for consideration by the Committee by communication directed to the Company’s Secretary at its principal office, received no later than 165 days before the scheduled date of the next annual meeting pursuant to the Company’s bylaws, which communication must include all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case under applicable SEC regulations, including such person’s written consent to be named in the proxy statement as a nominee and to serving as a director if elected. In making its selection, the Committee will evaluate candidates proposed by stockholders owning at least two percent (2%) of the Company’s outstanding common stock, under criteria similar to the evaluation of other candidates. The Committee shall have no obligation whatsoever to consider other unsolicited recommendations received from stockholders proposing candidates for the Board. The Committee may consider, as one of the factors in its evaluation of stockholder recommended nominees, the size and duration of the interest of the recommending shareholder or shareholder group on the equity of the Company, and the candidate’s relationship to that stockholder or group, in order to determine whether the candidate can effectively represent the interests of all stockholders. The Committee may also consider the extent to which the recommending stockholder or group intends to continue holding its interest in the Company, including, in the case of nominees recommended for election at an annual meeting of stockholders, whether the recommending stockholder intends to continue holding its interest at least through the time of such annual meeting.

 

APPENDIX D TO PROXY STATEMENT

 

NATIONAL FUEL GAS COMPANY

REPORTING PROCEDURES FOR ACCOUNTING AND AUDITING MATTERS

 

 

National Fuel Gas Company (“Company”) has a longstanding commitment to comply with federal and state securities laws and regulations, accounting standards, accounting controls and audit practices. In furtherance of this commitment, the Audit Committee of the Company’s Board of Directors has established these Reporting Procedures for Accounting and Auditing Matters (“Procedures”), which provide for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding accounting or auditing matters.

 

 

These Procedures apply to all employees of all divisions and subsidiaries of the Company.

 

 

A. Making a Report of Accounting and Auditing Matters

 

 

 

 

B. Treatment of Reports

 

 

C. Retention of Reports and Investigation Documents

 

The Chief Auditor will maintain, in accordance with the Company’s document retention policy, a complete record of all reports received (including those determined not to pertain to Accounting and Auditing Matters), all records associated with reports of Accounting and Auditing Matters, the treatment of reports of Accounting and Auditing Matters under these Procedures, and the ultimate disposition of Accounting and Auditing Matters reports. In addition, the Chief Auditor shall prepare an update on the status of (i) all reports of Accounting and Auditing Matters under investigation, and (ii) those reports of Accounting and Auditing Matters whose investigation has been concluded since the previous status update. Status updates shall be provided on a monthly basis for the Chairman of the Audit Committee and shall be provided on a quarterly basis for the entire Audit Committee.

 

 

The Audit Committee is the issuer and owner of these Procedures. These Procedures shall be subject to periodic review and revision by the Audit Committee as necessary or appropriate. The Audit Committee, in consultation with the Company’s Chief Auditor, shall have the authority to make any interpretations regarding the operation of these Procedures.